I got through the inspection and appraisal OK; what do I do now?

 Understanding the Real Estate Process from A – Z – A Buyer’s Guide to Real Estate – Part 12

This is the twelfth post of a series in an FAQ format that I hope will help would be buyers better understand the real estate process that they are about to go through. There is a follow-on series to the posts for real estate sellers.

FAQ  –  I got through the inspection and appraisal OK; what do I do now?

Probably more important than what you can be doing while awaiting the closing date is what you SHOULD NOT BE DOING, which is making big credit purchases, like new furniture or a new car or any other big hits to your credit cards and your credit worthiness. A big part of what the mortgage

company underwriter looks at when evaluating your credit worthiness is your debt to income ratio. Your income is unlikely to change dramatically in the few weeks until closing, but your debt could, if you go out and start buying new furniture for your new home on credit.

I’m sure that your mortgage person already told you that, but it is worth reinforcing. I had a young man as a client who made an accepted offer on what was to be his first home. After getting through the inspection process (and having the homeowner make some repairs) and the appraisal, he felt so good about moving into his first house that he decided that his older car wouldn’t look right in his new driveway, so he bought a new car to go with his new house. That purchase showed up nm his credit report, which the underwriter checked before giving the “clear to close”, and he no longer qualified for the mortgage, due to his increased debt. The deal fell apart. He was devastated and the seller was very angry, as you can imagine.

So, the message is to cool your jets on all of your plans for the new house. Don’t run out and start buying things for it, not even the paint that you are planning to use to change the colors inside. Don’t do anything that changes your debit to income ratio. The mortgage company underwriter will pull your credit report one last time just before issuing the “clear to close” on the mortgage and you will be required to sign an affidavit at closing that states that everything that you put on the mortgage application is substantially the same as when you filled it out.

I actually had a client once who got laid off from his job the week of the closing on his new-build house. He had not yet sold his current house that I had listed at the time. He wanted to go through with the closing, but I informed him of the affidavit and the consequences of lying about his employment situation and he pulled out of the deal, even though he lost a substantial amount of money from the down payment that he had already made. He would have had to commit fraud, has he lied and signed that affidavit.  He was off work for 6 months and ended up glad that he did not try to go through with that deal.

There are many things that you will need to be dong while you await the closing date. One thing that your mortgage company will insist upon is lining up insurance for the place. The mortgage company usually requires that you provide proof of a pre-paid, one-year homeowners insurance policy on the place. You should also reach out to the utility companies and set up accounts for your gas, power and water/sewer (if you aren’t on a well and septic). If you are an existing customer of those same companies you won’t have to establish a complete new account; however, first-time home buyers will have to set up accounts. When you get to the closing date you will want to inform the utilities that you are “transitioning in” to the property. The Seller should have also informed them that he is transitioning out and should have ask for final readings, so that his final bill can be calculated. 

Your mortgage rep should have already gone over the various things that you will be paying for in the closing costs. Remember that, in Michigan at least, you will be picking up the property taxes from the closing date forward. In most of Michigan, property taxes are paid in advance, so the Seller will be reimbursed for any un-used portion of his last property tax bill and that will be shifted to you. You will also be paying for a title insurance policy that protects your mortgage company, in case of a ownership dispute later. The Seller actually pays for the title policy that protects you. The mortgage company will also establish an escrow account to collect for the next tax bills and you will have to pay into that to bring it up to date. Of course there are various mortgage company fees and costs that

will show up on your Purchasers Closing Statement (what used to be called the HUD Statement).

By law you should receive that Closing Statement three days ahead of the closing date.  Look it over carefully and make sure that you understand what all of the fees and charges are that you have to pay for and have your mortgage person explain them to you, if necessary. You will receive the other closing documents at that time too, so look them over for any errors, like having your name wrong or having the wrong property listed (it happens).

Sometime within the last 24-48 hours before the closing, you will have the opportunity to do a “final walk-through” of the property. This is to give you a last opportunity to make sure that the property is substantially the same as it was when you made the offer. Sellers have been known to make honest (or otherwise) mistakes and remove things from the house that were supposed to stay – most often things like light fixtures or window treatments. If you see that something has been removed or if you notice damage that you can’t live with, you have the right to require the Seller to replace the items or make the repairs or you can still walk away from the deal. Most Seller will not let the deal fall apart because of some issues like those and most of these things can be resolved. If there is a large change in the sale price, due to a seller concession for something the closing may be delayed while new paperwork is prepared and the three-day review clock is reset.

If the PA specifies some amount of post-closing occupancy for the Seller you won’t be getting the keys at closing, so you’ll have to wait some more. You’ll probably do another walk-through the day before the occupancy ends or the day that the keys are turned over, so that you can assess any damage that the Seller (now a renter in the home) might have caused. You should have had some provision in the PA for a post-closing occupancy damage deposit, from which you’ll need to negotiate with the Seller to cover those damages. This can be a sticky situation, so don’t get to nit-picky about really minor stuff.

So, the bottom line is not to do anything stupid financially that would jeopardize the deal and to do the things necessary to be ready to move in after closing.

Closing is next week, what should I expect?

 Understanding the Real Estate Process from A – Z – A Seller’s Guide to Real Estate – Part 10

This is the tenth post of a series in an FAQ format that I hope will help would be sellers better understand the real estate process that they are about to go through. There will be a follow-on series for real estate buyers.

FAQ – Closing is next week, what should I expect?

First of all, congratulations for making it to the point where the closing is finally scheduled. You should expect that you’ll be given the closing documents to review and a copy of the Sellers’ Disclosure Statement (aka the HUD) at least three days ahead of the closing date. You should examine those documents carefully for any mistakes. The most common mistake is the misspelling of someone’s name on the documents; however, I’ve also seen documents prepared with the wrong property address or wrong legal description on them.

How can mistakes like that happen? Well, the people who work in the title companies are human and do make errors and their error rate is exacerbated by the fact that there are usually too few of them for

the end of month crunch as everyone tries to close on the last day of the month. There are good financial reasons for trying to close on that last day of the month. Ask your mortgage person about that. Another contributing factor is the slow pace that most mortgage companies work at, which means that the underwriters don’t get their part done until a few days before the closing deadline, so they often get their paperwork to the title company late. Add to all of that any last minute changes that the Buyers and Sellers may agree to and you have the makings of a chaotic and error prone document preparation process; so check the closing docs and the Sellers’ Disclosure Statement thoroughly. If the errors are egregious, especially in the Closing Statements, they will have to be redone and the three –day clock reset, so closing may be delayed.

You should also expect that the Buyers will want to do a final walk-through of the property to make sure that it is in substantially the same condition as when the offer was accepted. That’s a nice way of saying that you didn’t do anything stupid and strip out stuff that was supposed to stay with the house or cause any damage to the house, if you’ve already moved out. If you have arranged for some post-closing occupancy they may delay this walk-through or do another one when you vacate the premises. The final walk-through is sometimes done the morning of closing while the Buyers are on

their way to the closing office. The Buyers’ agent may offer to pick up the real estate sign and take the lock box off the door at that time.

The actual day of closing you should remember to bring your drivers’ licenses to the closing, so that your identities can be verified. If possession is to be turned over at closing, you should bring all of the keys and garage door openers that you have to turn over to the new owner. If you are going to stay in possession for some amount of time after closing you won’t have to turn over any keys or openers at closing.

The closing process itself is a marathon signature signing exercise. The good news for you is that the Sellers have fewer documents to sign than the Buyers. A closer from the title company, perhaps two closers if the closing is “split” between the Sellers title company and the Buyers title company, will walk you through the documents, explaining each as they go and showing you were to sign. Since you were given the documents at least three days ahead of the closing, it is assumed that you read through them already. It’s OK to ask questions about the documents if you have questions, but it is not time to read the documents for the first time at the closing table.

In Michigan we have a concept called Homesteading which allows owner-occupants to save on their primary residence by claiming a Principal Residence Exemption (PRE) on it. To understand what the PRE is I have taken a definition from the Michigan Government Web site –

Section 211.7cc and 211.7dd of the General Property Tax Act, Public Act 206 of 1893, as amended, addresses PRE claims (formerly known as the Homestead Exemption). A PRE exempts a principal residence from the tax levied by a local school district for school operating purposes up to 18 mills. To qualify for a PRE on a parcel of land, a person must be a Michigan resident who owns and occupies the property as a principal residence. The PRE is a separate program from the Homestead Property Tax Credit, which is filed annually with your Michigan Individual Income Tax Return.

To claim a PRE, the property owner must submit a Principal Residence Exemption (PRE) Affidavit, Form 2368, to the assessor for the city or township in which the property is located. The deadline for a property owner to file Form 2368 for taxes levied after December 31, 2011, has changed from May 1 to June 1, and a second deadline of November 1 was added. The exemption information is then posted to the local property tax roll. Normally, when you purchase a home, Form 2368 and other relevant principal residence exemption forms are provided by the closing agents. There are many variables in determining eligibility for the exemption. The Principal Residence Exemption (PRE) Guidelines book provides answers to a number of frequently asked questions.

Since you are selling and this will no longer be your principal residence you must file a rescission of the PRE that you had on the property, so the closer will give you a form to take to the local Township Treasurers office to remove your PRE. The new owners will be given a form to take in to that same office to claim a PRE for the property. You have 45 days to get that done or you will be fined and you cannot claim a PRE on another property (maybe the new home that you are buying) until you rescind the old PRE.

Once the flurry of paperwork signing is done there will be a period of time in which the title company

closers are off making copies for everyone and that is great time to have a conversation about the house with the new owners. They may have questions like, “what day is trash day?” or “where does the school bus stop?” If they didn’t do a septic test they may ask about where the septic tank is located. You can also pass on to them any names of neighbors or other information that you feel might help them get settled in.

Sometimes, even though all of the paperwork was signed, the deal isn’t done yet because the mortgage company may want to see the signed HUD before they will wire the funds into the Buyers’ title company. So the title company closer will fax or scan and email that document to the lender for review. No funds can be disbursed to anyone until such time and the Buyers title company can confirm that they have received the wire transfer at their bank. That can take minutes to hours. There is even a risk that the mortgage company or bank will close for business and not get the wire transfer done before that. In that case everyone may have to wait until the next business day to get paid and to take possession.

I have been in a worst-case scenario closing where the closing could not be completed because the funds could not be transferred before the banks close AND it was Friday afternoon; so the whole closing was delayed until Monday. In that case the Buyers stuff was in a moving van that was sitting outside the house awaiting the Buyers to return with the key to let the movers unpack. The Seller’s graciously allowed the Buyers to unpack their stuff into the garage for the weekend. The Seller’s even had to camp out over the weekend because their stuff was all packed on trailers that they were driving to their new home. What a mess. Make sure you plan the closing early enough in the day so that this does not happen to you.

Once the money is received by the Buyers title company they will disburse the checks that they have had with them all along. You’ll get your check (unless you arranged to have it wired into your bank account) and all of the other parties that get a check will get theirs. If you wanted your proceeds wired to your bank account you will have to supply the wiring information – your bank account number, the bank’s routing number and anything else that the title company need to do the wire transfer – at the closing table. The title companies do it that way to avoid fraud by scammers who might have emailed in a bogus set of wiring instructions.

If everything goes smoothly and you have your check in hand, congratulations; you sold your house. Any money that you might still have coming from insurance rebates or other things should be forwarded to your new location, so hopefully you have provided a forwarding address to anyone who might need it to send you those checks.  It’s time to move on with life. If you have post-closing occupancy there is one more post for you. If not, maybe you’ll become a Buyer now. If so, read my next series of posts for buyers.

What’s my role while we wait for the closing date?

 Understanding the Real Estate Process from A – Z – A Seller’s Guide to Real Estate – Part 9

This is the ninth post of a series in an FAQ format that I hope will help would be sellers better understand the real estate process that they are about to go through. There will be a follow-on series for real estate buyers.

FAQ – What’s my role while we wait for the closing date?

Allowing the various inspectors in and the appraisers in are pretty normal roles. Getting out of the way and allowing them to do their jobs is a part of that role. Your Realtor may suggest that you be gone for the inspections, so that you don’t bug the inspector or offer extra, “helpful” information during the process.  The Sellers may also get involved in supplying the Homeowner Association Master Deed and By-laws for review by the Buyers.

As we discussed in the last post, there will be some contingencies in any offer. The Sellers’ role in those is mainly just to accommodate whatever needs to be done to meet those contingencies. In some cases, there will be requests that are made by the Buyers, based upon the home inspection or the FHA/VA appraisal visit. That could involve making or contracting for repairs to issues that the inspector or FHA/VA appraiser found that need resolution. Those items will need to be resolved and the appraiser will return to make sure that they were fixed.

For other items from the home inspection list, Sellers may offer some form of monetary settlement in the form of an additional Sellers’ Concession for the items that they just don’t feel that they can get done (or want to spend the time and effort to get done) in time to make it to closing. Sellers will be expected to supply paid receipts for any tradesmen that they hire to do the work, as well as permits and permitted work inspection results from the local building officials.

This is also the time to get rid of stuff that you don’t want to move. You may offer to sell some items to the Buyers, if they need the things that you don’t want anymore. First-time buyers and move-up buyers often don’t have all of the furniture that they need to furnish a home and often will by your excess stuff. Any sale of personal property items between you and the Buyer are outside of closing and must be handled between you and the Buyer. That usually involves getting a separate check from the Buyers at closing or before closing.   

You can also downsize by having a garage sale, giving stuff to relatives or calling the local Salvation Army or Good Will to come pick stuff up. Moving is the best time to simplify and downsize your life. Hopefully you already had some plans for where you were going to go when the place sold and how you were going to get there. Otherwise, get busy; you only have 30-45 days to get those arrangements made and implemented. Hiring a moving company to help can be very difficult at certain times of the year and you’ll be surprised how many of your friends and relatives suddenly have plans for whatever time it is that you need help moving.

You will want to contact the utility companies and tell them the date that you will be “transitioning out” of your house (the closing date or whenever you plan to leave after your post-closing occupancy). You should ask for final meter readings on that date, but DO NOT tell them to shut the utilities off on that date. It is extra work for the utility and a big hassle for the buyers if you have the utility companies shut off the gas or electric service. If the closing takes place in the dead of winter it can also cause extensive damage if the pipes freeze because you shut off the gas and electric services.

Don’t take this wrong, but don’t do anything stupid while you are waiting for the closing date. Sellers have been known to strip things out of a house that the Buyers have every right to expect will be there when they take possession. Sellers who strip out window treatments that weren’t specifically excluded in the MLS listing or who take or switch out light fixtures may find themselves with irate Buyers who have every right to queer the deal and walk away if they discover the changes during the final walk-through. That is right in the contract; so don’t do anything stupid that could cost you the sale.

Make the new owners’ lives a bit easier by preparing a packet of information that you probably have

laying around about the systems and appliances in the house and a contact list for any local tradesmen or service companies that you have used in the past to maintain the house. The packet should also contain any transferable warranties for items in or on the house that the new owners may need to use some day. If you have an alarm system with a contract for alarm monitoring, you will want to include information about that, too. If the new owners don’t want to continue the monitoring contract, it is up to you to inform the alarm company and to comply with any terms that they may have for terminating the contract.

If you are to turn the keys over at closing you will need to have all of your stuff out and leave the place broom clean for them. You should bring all keys and all garage door openers to the closing. If you have left over trash it should be moved to the curb for the next trash pickup, unless your neighborhood or local government rules don’t allow that.  The best rule of thumb for what you need to do to have the place ready for the new owners is the golden rule and do for them what you would hope someone would do for you.

So, you have things to do while waiting for the closing date; but just like I advised at the front end of this process, patience and perseverance are still required. You will probably also be focused upon your own move to wherever you are going next, so you’ll be busy.

What should I expect at closing?

All of the inspections went well and my mortgage went through. I’m happy with the final walk-through. What do I need to know about the closing?

 Part 8 of a 10-part series of FAQ posts on the real estate process from the buyers’ perspective.

Answer - Well for one, expect to be signing lots of documents. Your Realtor should have procured a

complete Closing Packet for you at least one day ahead of time and hopefully a couple of days ahead. He/she should have also advised you to seek the counsel of a lawyer to go over any and all legal documents with you ahead of time. Although many do not use a lawyer, it is the law in Michigan that your agent at least recommends it. As the buyer you will be signing both the real estate paperwork and the new mortgage paperwork. The mortgage paperwork is by far the larger amount and gets even bigger if you used something like a fist and second mortgage to finance the buy.

If one of the parties cannot attend the closing there should have been provisions made for a Power of Attorney (POA) for the person who is attending to sign for the missing party. The POA should have been all signed and reviewed by the title companies ahead of time. Don’t spring a POA on the closer at the closing – it probably won’t happen if you do that. You title company should have been able to supply a POA for you to use.

If the seller was involved in a divorce after acquiring the house, it may be necessary to bring an official copy of the divorce decree to the closing. If a death was involved on the seller side, it may be necessary to bring an official copy of the death certificate to the closing. If there are/were any liens against the property that had been recorded (such as balances on sewer or road assessments)  it may be necessary to bring Paid receipts or Unconditional Release of Lien documents to closing. If there has been any work done on the property by tradesmen since the signing of the Purchase Agreement, it may be necessary to bring receipts for the work and/or Unconditional Release of Lien documents. The seller’s title company will let the seller know what is required at closing. Hopefully all of those items will have been resolved ahead of time.

At closing, you'll have to have ID with you - a driver's license will do - as well as the certified or cashier’s check for the down payment and any other closing costs that you'll be paying. Do not bring cash to closing. The title companies will not accept cash; nor will they take your personal check. If the money is being wired in from your bank, you won’t need the check. Normally you will also have to pay a prorated portion of the taxes on the house from the date of closing through to the next tax date. You should have your proof of insurance for the homeowner's policy on the house, too. If you’ve provided that to your title company beforehand you may not have to bring it to closing.

All of the costs that you will need to cover should have been provided to you in the Closing Packet or by your mortgage person on your final HUD document. You should look that over and compare it to the Good Faith Estimate (GFE) that you should have received from your lender at the beginning of the mortgage process. The final HUD and the GFE should not be different in the areas of fees and costs. Click here to read a good tutorial on the HUD-1 and GFE.

Depending upon what you negotiated for possession of the house, you may get the keys that day (immediate

occupancy), along with garage doors openers and anything else that the seller wished to pass along at that time or the sellers may remain in the house after closing and will give you possession and the keys at a later date. If that is the case, the seller's will now become renters in your house until the date that they turn over possession.

Arrangements for that turn over should be discussed at the closing so both parties understand how that will happen and agree upon when it will happen. The seller should understand where to turn in the keys. If there is a damage deposit involved the sellers and buyers will need to agree upon arrangements for a buyer walkthrough to assess whether there is any damage. Provisions for how to handle damage claims should have been included in the Purchase Agreement documentation.

The closing process usually has a time period after the flurry of document signing is finished and while the closers are making copies for everyone; that time is often used to allow the seller and buyers to discuss the property and allow the seller to answer questions or pass on tips. The buyers and sellers also exchange contact information then, so that the buyers can call the seller later with any questions that they might have. This is when you ask what day the garbage is collected and when the seller tells you about things like having to wiggle the key in the back door lock to get it to work. This is where you learn about “old Joe” the neighbor to the left who has everything you may every need to borrow and is a good guy to boot. Make good use of this time.

Most times when money is wired into the closing there will also be a time gap after the signing; while the signed documents are faxed or emailed to the bank, which then authorizes the wire. It takes time to send the wire and for the wire to clear and you could spend an hour or more just sitting there awaiting word that the wire has cleared into the title company account.

If all goes well, you’ll get the keys and be off to your new home. Congratulations!