Closing: Escrow and Title
Welcome to the wonderful world of closing, also known as settlement. This
is where money and title are transferred between the buyer and you, the seller.
You may want to get comfortable - you will be signing many forms and documents during this
process. But since you've been doing a great job managing your sale, this should go
very smoothly.
Now, understand that even though you are not legally required to have an
escrow officer to oversee closing, we highly recommend it for both your
protection and the buyer's. However, you can, if preferred, simply meet
the buyer and exchange money and documents around the kitchen table.
Setting Up Escrow
You will want to meet with your escrow officer and establish an escrow account.
This is where you and buyers will deposit money and documents with specific
instructions for holding and distributing upon compliance of these instructions.
Your escrow officer will oversee these transfers.
Escrow officers serve many functions, and often times lenders require escrow as
a condition for receiving a mortgage. Escrow officers may typically be responsible
for the following items:
- preparing escrow instructions and relevant documentation
- obtaining signatures
- conducting title search
- processing a new loan or assumption of existing mortgage
- preparing closing statements
- distributing funds
- completing closing
- preparing taxes
Once escrow has been established, written instructions will be created
based on the terms and conditions
of the transfer, as stated in the purchase agreement. The instructions will be created
by the escrow officer, regarding the sale and
transfer of the property, detailing items such as the property description, involved parties,
sale price, financing, conditions, and fees.
Make sure that both you and the
buyer have the ability to amend the escrow instructions if necessary.
Transfer of Title
During closing, all items related to ownership, payment, and insurance for the property
are transferred between you and the buyer through the escrow officer. The process is
simple. The buyer will sign the mortgage loan, all closing costs will be paid, and you will
receive the proceeds from the sale and hand over the keys. Provided there are
no problems, this process is fairly straight forward.
Closing Costs
Ok, there's no avoiding these - you'll have closing costs. If you are unaware of what
types of costs you may be charged, we have put together a list based on
a settlement statement from Maryland (incidentally, Maryland has some of the highest closing
costs in the country).
Buyers and sellers typically pay various costs for the transaction. Typically there is a
set list of costs that the buyer is responsible for, and a separate set for the seller.
Many times buyers and sellers may negotiate who pays which costs as part of the
final terms of the purchase agreement. To avoid an unpleasant surprise during closing, you
should discuss these costs with your attorney and escrow officer well before closing.
All costs are paid during closing and can exceed $5,000 very quickly. For a break-down of
all the different closing costs you may encounter, please refer to page 2 of the
Settlement Statement
(OMB NO. 2502-0265) from the U.S. Department of Housing and Urban Development (HUD):
These costs are unavoidable, and if your were wondering if you would pay less in fees if you were to
use a real estate agent - guess again. All real estate agent's commissions would be in addition to the costs
listed above.
Bravo, You're Done!
Well that's it - we told you it was easy. We hope you enjoyed yourself and profited from the
experience. We'd love to know how it all worked, so be sure to send us an
e-mail. Congratulations
on paving a successful path towards real estate freedom!
You are probably going to need to move, so make sure you check out our article regarding
moving.
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