Author's Note: We want to sincerely thank Laura Smith, our VR SAM president / partner, for this very informative and timely article on Settlements! Laura's "stitch in time" advice can certainly help prevent settlement disasters and enable everyone to celebrate a successful settlement! Thanks, Laura.
The big day has finally arrived. For purchasers, the settlement of your new home is the culmination of your hard work, patience and time. Tonight you can pop open the champagne and relax after a day of paper signing. We all wish for a smooth closing where both sellers and purchasers leave the table monetarily and emotionally satisfied. However, in the real world, that doesn't always happen.
This article focuses on issues that sellers and buyers can face during settlement and provides you with suggestions to reduce the likelihood of a delayed closing or making an otherwise happy event a nightmare.
The issue of "Late or Delayed Settlements" faced by settlement companies can set a negative tone for everyone involved. That would include the settlement agent, buyer, and seller and realtor agents for each. Normally a closing can be completed in little more than an hour if all parties are prepared, cooperative, non disruptive and "on time." Here are a few suggestions to make sure your "Settlement" runs as smoothly as possible:
- Preparation is paramount for everyone involved on settlement day. Give your settlement agent a heads-up if you know of any out-of-the-ordinary issues regarding your transaction. The sooner they know, the better prepared they are at the settlement table and surprises are avoided for all parties. Call your lender in advance and make sure all documents from the lender are ready for closing. It would be beneficial if your lender could attend your closing. If anything goes wrong at closing with the financing, your lender will be at your side to clear it up.
- Advice to Sellers -- Keep at your finger tips any documents relating to the original purchase or any financing/refinancing of the house. If an issue pops up regarding the title report or survey, you want these documents close at hand. You want to provide a clear title that doesn't have a lien against the property preventing its sale.
- It's a fact that most settlement companies perform 75 percent of all residential settlements within the last week of the month. Closing earlier in the month means fewer settlements and more time for you at closing and less chance to encounter delays. Talk with your lender about interest credits for yourself if you close at the beginning of the month.
- A delay in the settlement process can also be prevented by limiting unnecessary conversations during the settlement. It's very hard to concentrate and understand all the numerous documents one has to sign when others are talking. Also, if possible, get the documents ahead of time and go over them with a "Fine Tooth Comb." At a minimum, insist on getting the HUD 1 24 hours in advance to review all settlement related charges. Reading the documents in their entirety at the time of settlement will definitely cause a delay.
- Any walk through problems that arise need to be resolved prior to settlement. Ideally walk-through inspections should be completed a day or two prior to closing. This gives you a chance to solve any outstanding issues. Walk-through issues that can't be settled quickly can delay the settlement from moving forward. Ways to handle walk-through problems: (1) closing cost credit, if approved by lender;(2)written agreement by seller to handle the problem without an escrow or closing cost credit; or (3)payment made to the contractor by the settlement company for the work to be performed. Estimated costs must be mutually agreed upon by all parties.
- Make sure your lender has approved Closing Cost Credits prior to their use. Lenders normally approve of closing cost credits as long as the Buyer has a reasonable amount of money invested in the transaction.
- Make sure your lender and Settlement Company are aware of any Rent Back Agreements. A complete copy of the agreement should be given to them prior to closing. Some loan types prohibit rent backs and almost all loan types have restrictions on the duration of the post-occupancy period.
- Sellers need to be aware that if you are planning to use your proceeds for the purchase of another property within two days of the sale's settlement you may have a problem. Funds are not disbursed until documents are recorded. It's advisable to schedule any purchase at least three or more days from the sale's settlement. An Assignment of Funds in lieu of the actual funds to purchase the property may not be allowed by builders and some out-of-state-settlement companies/attorneys. Because of disbursement requirements, the settlement agent needs to be in possession of all monies at the time of settlement.
Hopefully, your settlement will go off without a hitch and will be an enjoyable experience if everyone fulfills their part. However, there are many things that can derail the process. By being aware of a few of the pitfalls to settlement, you can become a more knowledgeable buyer and seller; and really enjoy celebrate.
We hope you will join us next month when we decipher the all critical settlement document, the HUD 1.
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