Edgewood, WA Real Estate Blog

It’s not uncommon for buyers and sellers to confuse signing closing documents with closing the sale of a home. They are not the same thing.

Closing (at least here in Washington State using NWMLS forms) is defined to have occurred when the transfer documents are recorded (the deed) with the county, and, sale proceeds are available for pickup (from the closing agent) by the seller. The seller doesn’t need to pick up the sale proceeds, they may have chosen to have them mailed or wired somewhere. But they could pick them up if they had so chosen.

Both are requisite for closing to have occured.

Closing agents will normally not record transfer documents unless they also possess all the monies needed to conclude the transaction (not just from the buyer – it’s possible a seller may need to bring funds to the closing table). They need what’s called “good funds”. That means the money is actually deposited into their trust account.

Sometimes buyers get caught because they don’t know good funds are required. Just having a check, even if it is a certified or registered check, isn’t the same thing as actually having the required funds in their trust account.

Imagine the situation where a transaction is to be closed on a Friday. Escrow is running behind so signing ends up scheduled for the same day as closing (fairly typical late in the week, especially towards the end of the month which is when most buyers want to close because they’ll pay less interim interest. Don’t even think about closing the last days of the year.)

The buyers intend to use the weekend to move in. They bring in their certified check. Unfortunately they won’t be closing until the following Monday at the earliest because the closing agent needs good funds and the transfer documents must also be recorded. Since the county isn’t open for recording over the weekend or legal holidays, the earliest recording day is Monday.

The buyer could have wired funds to the closing agent trust account the same day and then escrow (the closing agent) would have had good funds. This is the procedure to use when the buyer is using the sale proceeds from the sale of their existing home to purchase a new home (and you’re not doing a simultaneous closing using the same closing agent).

The snag you can run into here is that the closing agent usually doesn’t send the transfer documents to the county for recording until mid-day or later. So recording numbers (confirming the docs have been recorded) aren’t available until later in the afternoon. There’s usually a cut-off time for wiring funds (typically 2:30pm). If the closing agent doesn’t have recording numbers prior to the cut-off time, funds will not be wired (and deposited) until the next day.

Same thing happens with lenders. Many/most lenders want to review the final documents before they’ll transfer funds to the closing agent. They typically need up to a couple of days for review, especially if the lender is located on the other side of the country (in another time zone).

Both the buyers and the sellers could have signed closing documents anytime before closing… days or even weeks before the closing date.

So why don’t buyers and sellers just always sign early to prevent closing delays? …Lenders.

If the closing agent doesn’t have docs from the lender they can’t prepare their documents (including the closing statement – HUD-1).

Your mortgage originator typically isn’t privy to the lenders back room. They won’t have the power to speed things up late in the game. To the back room/underwriter your loan is just another file, and they’ll get to it when they finish those before it.

That said, carefully choosing your mortgage originator will lessen the chances of closing delays because they’ll do what needs to be done to get loan docs to escrow before they become critical.

So the key points to a smooth, on-time closing are:

1. Let your closing agent know you’ll need a day or two to review the closing statement (HUD-1).
2. Choose your mortgage originator carefully (if you’re the buyer). Let them know up front a closing delay due to the lender being late with loan docs will not be tolerated. If you’re really on top of things, you as the buyer will want a day or two to review loan docs before you’re asked to sign anything.
3. Start early checking with the buyer’s lender if you’re the seller’s agent. Let them know the closing date specified in the contract is inviolate. You’ll need loan docs at escrow early because you’ll not only need to review the HUD-1 prior to closing, but you’ll need to sign early (did you mention you may be leaving town 3 days before closing?).
4. If you need to deliver funds to escrow (both buyer and sellers may need to deliver funds), don’t wait until the last minute.

Sometimes as an agent there’s nothing you can do to prevent a closing delay. It’s out of your control. Especially if you’re the listing agent with nothing but the lenders reputation to use as leverage. But starting early goes a long way.