CLOSING ATTORNEYS AND THE CLOSING PROCESS - WHAT YOU SHOULD KNOW

The acceptance of your “Offer to Purchase” leads you inevitably to the attorney’s office. You undoubtedly have questions as to what the role of the attorney is, what tasks the attorney will perform and what will take place during the closing process. If you are obtaining a mortgage to help finance your purchase, you actually need two different attorney functions…one function is to act as your Personal Representative…and the other is to act as Closing Agent for your lender. You will note in the below descriptions, that these two functions actually complement one another as they are parallel in their roles. Because of this, it is logistically easier and more efficient if Gilmartin, Magence & Ross (“GMR”) performs both functions…in which event, we also reduce the personal representation fee. One way to look at it is that your personal attorney representation focuses on you…and the lender’s Closing Agent attorney focuses on the property you are buying. It is rare that your lender would not allow us to act as the Closing Agent for your loan, as we are on the Approved Closing Agent list of the vast majority of lenders doing business in Massachusetts.

A) Personal Representation Tasks:

Your personal representative’s primary function is to oversee the transaction to make sure that your goals and objectives are met accurately and in a timely manner. Your personal representative reviews and negotiates documentation to effectuate the transaction, and maintains a consistent stream of communication with you so that you are aware of each step in the transaction. The personal representative addresses disputes between yourself and the Seller, and works with your realtor and all parties towards a smooth closing.

The quoted fee for your personal representation is comprised of various and more detailed obligations and responsibilities that include the following:

  1. Review the accepted Offer to Purchase.
    The Offer will set forth the basic terms of the transaction, including, the parties to the transaction (Buyer and Seller), property to be purchased, purchase price, closing date and may contain other aspects of the transaction such as financing or inspection contingencies or the obligation of Seller to include or remove various items of personal property at the premises. Although the Offer seems to be somewhat brief, it is a legally binding agreement and is the framework from which the entire transaction will progress.

  1. Draft, Negotiate and Review the Purchase and Sale Agreement.
    The Offer contemplates that the parties will enter into a much more detailed and comprehensive contract known as the Purchase and Sale Agreement (or P&S). The P&S is the embodiment of all terms and conditions of the transaction. It sets forth, in detail, the rights and obligations of the parties to the transaction, and the time frame in which each event must take place. Further, the P&S sets forth the parties’ obligations in the event that one, or both, of the parties fail to fulfill their obligations under the P&S. The terms of this Agreement are often heavily negotiated between the attorneys for the Buyer and Seller.

  1. Draft language relative to any contingencies and/or monitor said deadlines.
    Inspection Contingency: If your Offer contains a contingency for your inspection, the inspection will happen after the Offer is accepted and before the P&S is signed. During the inspection period you will conduct the inspection of the property and structure or condominium unit, whichever is applicable. Your inspector will be evaluating the physical attributes of the property and the systems that serve it, such as heating, electrical, and plumbing. Your inspection may also include analysis of the water quality of the property (if the premises are served by well water), it may include inspection and evaluation of the septic system (if the premises are not served by municipal sewer) and it may include the presence or absence of radon gas. Once your inspection is complete you will have until a specific date as set forth in your Offer by which you must notify the Seller of any deficiencies in the property or its systems. At this point you may engage in further negotiations regarding the property, if necessary. Your Realtor will help you facilitate this step in the transaction.

    Financing Contingency: you will need to monitor the mortgage application process and to remind the lender of the mortgage contingency deadline. To facilitate the process, and to fulfill your obligations under the P&S, be sure to respond to all of the Lender's requests in a timely manner. The contingency sets forth the date by which you will need to have a mortgage commitment in hand or your deposit funds could be at risk if an extension is not requested in a timely manner…or alternatively, notice is not properly given to Seller that the mortgage application was denied and Buyer is requesting the deposit to be returned.

  1. Review of Condominium or Home Owner’s Association Documents
    Condominiums are comprised of areas that you own and are within your exclusive control, and areas that you own “in common” with the other Unit owners. When purchasing a Condominium Unit it is imperative to review the Condominium Documents (consisting usually of a Master Deed, Plans, Declaration of Trust, Bylaws, Rules and Regulations as well as a Budget for the Condominium Association) that set forth what aspects of the property are considered part of your Unit that you own, versus components of the property that you own “in common” with the other Unit owners. Typically, Boards or Trustees govern Condominiums and act on behalf of the Association (made up of the Unit owners). These groups run the operations of the Association. It also sets forth the rules for living in the Unit, ex. whether the Unit can be rented, whether pets are allowed, or whether business can be conducted out of the Unit etc. Rights to use parking spaces, yards, roof rights and/or storage areas outside the walls of the Unit will be set forth in these documents as well. Lastly, the budget should be reviewed to assess the financial strength of the Association.

  1. Answering questions
    The purchase of a new property can be an emotionally charged and a complex transaction. Your personal representative is available to work with you throughout, and answer any questions and provide guidance throughout the process…from the Offer stage through Closing.

  1. The Closing
    Your personal representative will review the final Settlement Statement with you for accuracy and to determine whether it is complete, will assist in the explanation of the lender’s mortgage loan documents and will assist you with any issues or concerns that may have arisen at the close of the transaction.

B) Closing Agent Tasks:

The Closing Agent performs many tasks for the lender in connection with the mortgage loan transaction process. The Closing Agent’s primary function, is to take care of all arrangements necessary to close the lender’s mortgage transaction. The Closing Agent coordinates all of the efforts outside of the loan approval process that allows the closing to take place. For example, sometimes issues arise regarding the record title to the property. If there are indeed title issues, problems in a sale transaction, or issues involving inaccuracies, the Closing Agent keeps the seller and the borrower/buyer informed and is available to answer basic questions. When possible and appropriate, the Closing Agent tries to resolve these title issues and disputes. This insures that the mortgage transaction and/or the sale of the property proceeds forward to close with the borrowers being satisfied with the result. Closing Agents offer one-stop processing of the closing.

The closing costs quoted to you by the lender include a variety of items and services. One of the line items of those closing costs reflects the fee for those services which are performed directly by the Closing Agent’s office for the benefit of the buyer/borrower, seller, lender and real estate agent. They include the following.

1. Closing Agent Fee includes:

a. ordering and obtaining a title examination from title examiners at the various Registries of Deeds and Probate throughout Massachusetts;

b. the review of the abstract of the title examination;

c. obtaining municipal lien and tax information from the city or town in which the property lies;

d. if the property is a condominium unit, ordering, obtaining and reviewing a certificate as to any unpaid common charges which may be owed to the Condominium Association (known as a 6[d] certificate), if any;

e. if the property is a single or multi family dwelling, ordering, obtaining and reviewing a survey/plot plan of the property;

f. obtaining and reviewing mortgage and lien payoff information requested from lenders and others that hold mortgages and liens on the property;

g. preparation of the loan documents, including the settlement statement;

h. preparation and issuance of a Certification of Title and title insurance policies certifying that the Buyer has good title to the property and that the records of the Registries of Deeds and Probate have been searched back for at least the statutory required 50 years;

i. communication and coordination with Buyers, Sellers, real estate agents and lender;

j. receipt of the proceeds of the transaction and maintaining them in a safe and separate IOLTA account;

k. conducting the closing, final rundown of title at the Registry of Deeds;

l. recording of documents;

m. preparing and delivering proceeds to payoff all outstanding mortgages and liens that affect the property;

n. disbursement of the transaction proceeds;

o. copying and delivery of the loan documents to the lender and Buyer;

p. sundry other matters relating to the loan closing.

2. Title Abstract: The statement that outlines the physical review of the title to the property prepared from the records of the Registries of Deeds and Probate, including bankruptcy and tax matters where available. This work is most often performed by title abstractors and their work is reviewed and certified by the Closing Agent.

3. Mortgage Survey Plan: Sometimes referred to as a plot plan, this is a tape measure survey of the land and any improvements (ex. The house, garage, driveway, sheds, swimming pool etc) to be mortgaged in order to determine that it was not in violation of zoning when constructed and that no buildings or improvements are over the lot lines…and conversely, that no buildings or improvements on adjoining lots, encroach upon the property being purchased. This work is performed by a registered land surveyor and is reviewed by the Closing Agent. On rare occasion, lenders do not require this survey and in those instances it may be that none is performed. In a Condominium transaction no such survey is typically required.

4. Municipal Lien Certificate: Prepared by the tax collector in the city or town where the property lies, this document shows all outstanding tax and other municipal service/utility amounts which are charged and owed (ex. water/sewer fees, and some cities/towns collect refuse fees, electric service etc.), and this certificate is reviewed by the Closing Agent in order to assist in preparation of the Settlement Statement and to collect/adjust the proper amount owed by each party.

5. 6(d) Certificate (condos only): is a notarized statement from the duly authorized trustees or board of managers of the Condominium Association certifying that all outstanding condominium fees and charges assessed against the Unit have been paid through the closing date or through the entire month in which the closing occurs.

6. Title Insurance: The lender requires a loan policy of title insurance for the loan amount in order to protect their interests from issues relating to the title to the property that could not be determined from an examination of the record of the title. In a purchase transaction the Buyer an owners policy can be purchased at the same time at substantial savings over the rate if not issued simultaneously with the loan policy. Real estate title insurance very simply is an insured statement of the conditions of one's title or ownership rights to a certain piece of real estate. The policy guarantees that the property being purchased and/or mortgaged is free from undisclosed liens or rights and it guarantees additionally that any confusion as to rights of ownership will be resolved in favor of the party buying the real estate, or the title insurance company will be liable for loss in value to the policyholder up to the policy limits.

When a party purchases a home or condo in Massachusetts and is obtaining a mortgage from a lender to help finance that purchase, without exception, that lending institution will require an examination of the title to the property and will also require the Closing Agent, to issue to them a Lender's Policy of Title Insurance insuring only the lender, that the property is or will be owned by the Buyer, that there are no defects, liens or encumbrances on the property which would adversely affect the marketability of Buyer’s title and that the mortgage to the lender is recorded properly and secures the property for the repayment of the loan. Since the Closing Agent is already issuing a Lender's Policy of Title Insurance, you as the Buyer have the opportunity at the time of closing to obtain an Owner's Policy of Title Insurance at a cost substantially less than you would pay if the policy was not written simultaneously with the Lender's Policy at the time of closing.

The Owner's Policy of Title Insurance insures you, the owner, that you have good marketable title to the property free of any encumbrances or liens that would adversely affect the property, except those made known to you, and insures to you, the owner, that if any such liens, encumbrances, defects or other title problems become known, the title insurer will defend your title to the property.

In many instances we are asked whether or not title insurance is necessary or advisable for the owner to purchase. We highly recommend the purchase of the Owner's Policy of Title Insurance for some very simple reasons: (1) first, the premium for purchase of the title insurance policy is a one time charge, (2) secondly, since the Buyer is usually borrowing money to finance the purchase, a substantial amount of the cost, sometimes the majority of the cost, of the title insurance policy that the owner would receive has already been paid through the premiums for the Lender's Policy (which again, is required by the lender); for the relatively little extra cost, the Buyer can, for the benefit of themselves, insure against a variety of problems which could surface in the future. Just a few examples of these items include forged documents in the chain of title, signatures of mentally incompetent persons or minors which are unknown to the party reviewing the title, mistakes or inaccuracies in recording of legal documents of title at the appropriate place or recording or registration of title, fraud in the execution or in the handling of the recording or indexing of recorded documents, undisclosed or missing heirs, fraud in the execution or in the handling of a transaction in the prior chain of title, invalid divorces or misrepresentation of marital status of the parties signing the documents, and most importantly clerical errors in the public records and claims of parties unknown because their claims have not been filed in any indices of public record. Even though the Buyer is required to pay for the lender's title insurance protection, the Lender's Policy of Title Insurance does not protect the Buyer, and a claim can only be made if the lender suffers a financial loss because of a title defect that adversely affects a foreclosure of the Buyer's mortgage. There have been many defects in titles which could not be revealed by an examination of the public records. These defects usually arise at a time after the transaction has taken place and Buyers can suffer significant losses as a result of them. That is why Owner's Title Insurance makes a great deal of sense.

7. Recording of documents/Courier and Certified Copy Fees:
These include the cost to courier the mortgage payoff and loan documentation for safe and timely delivery, to record the mortgage and other transactional documents and obtaining Registry certified copies that may be required in certain transactions as well as returning the original loan documents back to the lender.