The behind-the-scenes work begins as soon as your offer is accepted by the seller. The closing date may be scheduled in just a few days if the closing is a cash sale or could be more than 30 days depending on the lender and the presence of past title issues. The following demonstrates how the settlement process typically works.
The Settlement Agent
If you are working with a real estate agent, he/she may place an order with a "settlement agent." The settlement agent/attorney will oversee the closing process and ensure everything happens in the right order without avoidable delays. In some areas, closings take place with title companies, but most in Alabama are handled by attorneys. If the real estate agent does not select the attorney the lender will suggest one. Most homebuyers rely on their real estate agent to select an attorney, but I recommend asking your lender. Homebuyers have the option of choosing their own attorney. Although, normally the party paying the closing costs has the choice of which closing attorney to use. Interestingly, the attorney actually represents the lender, not the buyer or seller. Regardless of who chooses the closing attorney, you can always hire your own attorney to represent only you. Never let the real estate agent tell you that you are required to use one closing attorney over another.
First, a contract or escrow agreement is drawn up normally by one of the realtors involved. Most of the time, the realtors use the standard Board of Realtors Contract. Please keep in mind that realtors are not attorneys, as such it is sound advice to seek an attorney of your choosing to review the purchase and sale contract. In most cases the real estate agent will place your deposit or earnest money into an escrow account, where it will remain until the time of closing.
Next the preliminary title work is done. The law firm or title company conducts a search of the public records for the presence of liens or judgments against the property, utility easements, etc. If a problem is discovered, most often the law firm or title company will take care of it behind the scenes. After the title is cleared, they can provide title insurance.
The Title Insurance Policies
There are two kinds of title insurance coverage-a Loan Policy, which covers the lender for the amount of the mortgage loan, and an Owner's Policy, which covers the homebuyer for the amount of the purchase price. If you are obtaining a loan, the lender will require that you purchase a Loan Policy. However, the Loan Policy only protects the lender. We always recommend you obtain an Owner's Policy to protect your investment. Normally in North Alabama the cost of the Loan Policy and Owner's Policy is split between the buyer and the seller. It is not considered a "closing cost" in the local area. Further, most realtor contracts in Madison County have clauses requiring an Owner's Policy unless specifically amended.
Behind the Scenes Work of the Law Office
Once the preliminary title work is complete, the law firm acting as a title agent will issue a title commitment for the lender's review. Any curative work for title issues will be detailed and a course of action will be listed for the lender. Additionally the law firm is simultaneously coordinating other important details. The law firm will generally work to get old mortgages released and payoffs for current ones. Other tasks typically include ordering property inspections, surveys, and termite reports. Each closing is unique, which is why it requires a skilled professional to oversee the process. Any problems or discrepancies discovered by the law firm are reported to the appropriate parties for correction. One role of the law firm is to facilitate cooperation, coordination, and compliance between all of the service providers.
The Good Faith Estimate
If you are obtaining a loan, your lender must provide you with a Good Faith Estimate (the "GFE") of your loan costs. Keep in mind this is just an estimate. Many times borrowers incorrectly claim they have not received the GFE. It is important to review the materials provided by your lender. The final costs will be outlined on the HUD-1 Settlement Statement prepared by the law firm. It is usually provided to the buyer prior to closing, but most law firms are reluctant to issue a HUD-1 until it has been approved by the lender. Many times lenders do not approve the HUD-1 Settlement Statement until the last moments before closing.
As closing day approaches, the law firm orders any updated information that may be required. Once the closing law firm is satisfied that the paperwork is in order, it confirms the date, time, and location of the closing with all the parties. On closing day, all of the behind-the-scenes work is done. While you have been busy packing, ordering utilities and coordinating the movers, the closing process has been in motion so that your new home is ready for you to move in. Be ready to sign numerous documents at closing (if this presents a problem due to physical restrictions, call your settlement agent and inform him/her). Additionally, remember to be as patient as possible. The process can be overwhelming and often the parties are anxious and more likely to overreact to small easily remedied issues. A real estate closing is not an adversarial setting, everyone is working towards the same goal.
After closing, feel free to call the settlement agent back and ask any questions you forgot. Remember to get a copy of everything you sign. As the purchaser, be sure that you receive the recorded copy of the deed (recorded in the Office of the Judge of Probate) from the settlement agent. Additionally, you should receive an original Owner's Title Insurance Policy either at closing or with the deed. Lastly, be sure to go to the Tax Assessor's Office and have the property accessed in your name and in Alabama if it is your residence, claim your homestead exemption. The homestead exemption will lower your property taxes. You may also want to contact the pest control company that previously treated the property for termites and have any applicable bonds transferred. Most importantly, enjoy your new home.