A home purchase is one of the most significant financial transactions most people will ever make, and, consequently, a stressful one. But educating yourself on the process will reduce stress and ensure a smooth closing — allowing you to enjoy your new home sooner.
Step 1: Signing the Contract
In Georgia, a real estate closing begins when the buyer and seller sign the final purchase and sale contract. The contract gives the essential terms, including price, amount of earnest money, closing date, any seller-paid closing costs, and any contingencies (such as financing or appraisal contingencies.)
Once the contract is finalized, the next steps are triggered:
The buyer pays the earnest money. The buyer usually provides earnest money, which can be held by one of the real estate agents or by the closing attorney.
In Georgia, a licensed Georgia attorney must close all real estate transactions, unlike in many states in which title companies handle escrow and closing matters.
The contract is sent to the closing attorney and to the buyer’s lender. The buyer’s lender also provides the closing attorney with a title order, which are the lender’s instructions to the attorney to search title to the property and represent the lender at closing. The buyer will work with the lender to provide financial information to complete the requested loan. The information requested varies by lender, so work closely with the lender to avoid any delay. The lender will also ask the closing attorney to search title. Note that in Georgia, a licensed Georgia attorney — not a title company — must close all real estate transactions. (Of course, if no financing is needed, then the contract would be sent directly to the closing attorney.)
In Georgia, a licensed Georgia attorney must close all real estate transactions, unlike in many states in which title companies handle escrow and closing matters. Typically, there is only one attorney involved in the transaction, and the attorney represents the either the buyer’s lender in a lender-funded transaction or the buyer if it is a cash purchase. The buyer and seller are always able to hire their own attorney to review documents and represent them at closing. While the closing attorney may represent the lender, they will explain the documents in detail to both parties and are ethically bound to treat all unrepresented parties fairly. And even though the attorney may represent the lender at closing, the buyer has the ability to choose the same attorney, as long as that attorney complies with the lender’s requirements.
From the time that all parties sign the contract, expect the closing to happen about 30 to 45 days later. During that time, the buyer, buyer’s real estate agent, buyer’s lender, and the closing attorney will all be working towards the closing.
Step 2: Due Diligence Period
Most purchase and sale contracts provide for a specific due diligence period during which the buyer is able to undertake anycan inspect the property inspections. Buyers are encouraged to hire a professional. Your real estate agent can assist with this process so that it is completed within the contract’s timeline. A home inspector can review the condition of the property and provide a detailed report of their findings. Many buyers also perform a termite inspection. If the property inspection discloses any necessary inspection shows needed repairs or other unwanted findings, contracts typically state that the buyer can either terminate the contract and receive theirthe earnest money back, negotiate for repairs or a change in price, or accept the property as-is.
Step 3: Property Appraisal
Upon expiration of any due diligence period, the lender will order a property appraisal to determine the property’s market value. If the home does not appraise for the purchase price, the lender may refuse to approve the loan. (For this reason, it is a good idea to include an appraisal contingency in the contract, which would allow the buyer to terminate the contract if the home does not appraise for the purchase price.)
Step 4: Title Search
The closing attorney performs two primary functions: 1) oversee the conveyance of the property based on the contract terms; and, 2) ensure the buyer’s lender has a first lien position when recording the new security deed (similar to a mortgage or deed of trust used in other states.) Therefore, the closing attorney must search the title to be sure that nothing impedes the lender’s first lien position, prepare the closing documents, and arrange for the closing ceremony.
Based on the results of the title search, the closing attorney will prepare a title commitment for the lender and buyer providing the conditions upon which the attorney will issue title insurance. There are two types of title insurance policies. Each of these are paid at closing, typically by the buyer.
1) Lender’s title insurance. This ensures the lender has a first lien position on property and is usually required by a lender.
2) Owner’s title insurance. This protects the buyer by ensuring the buyer has a marketable title. It is optional and paid at closing as a one-time premium. The closing attorney can explain in more detail the types of risks the insurance protects against.
The closing attorney may also perform title clearance. For example, there may be old security deeds that were never canceled of record. The closing attorney is also responsible for obtaining payoff amounts for current loans, unpaid taxes, outstanding homeowner’s association dues, or recorded liens or judgments against the property. These items must be paid at the time of closing to ensure title to the property is properly transferred from seller to buyer.
Once all the lender’s loan conditions are satisfied, the lender will notify the parties that the loan is “clear to close” and ask the closing attorney to schedule the closing ceremony.
Step 5: Closing Ceremony
When notified by the lender, the closing attorney coordinates with the parties and their agents to schedule the closing ceremony. Be sure to let the closing attorney know in advance if someone is unable to attend so the attorney can make other arrangements, such as preparing a power of attorney.
Three business days prior to closing, the lender will provide the buyer with a closing disclosure that sets out the loan terms, including the monthly payments, closing costs, and the funds the buyer needs to have at closing. Be sure to review that disclosure before the closing and ask any questions of your lender. Before the closing, the buyer will wire any necessary funds to the closing attorney’s trust account.
The closing ceremony usually takes about one hour or less. The buyer must bring his or her driver’s license or state-issued identification. A checkbook is also a good idea, in case of minor changes to the closing disclosure. During the closing, the attorney will explain the closing documents to the buyer and seller and answer any questions. All closing funds are collected by and disbursed from the attorney’s trust account.
After the closing, the attorney records both the deed conveying the property and the lender’s security deed. It takes up to four weeks for the original deed to be returned to the buyer. The attorney also issues the lender’s and owner’s title insurance policies.
The choice of real estate agent, lender, and closing attorney is an important one, and can make all the difference when it comes to ensuring a smooth transaction throughout the closing process.
William Phalen is a partner with the firm of Sherman & Phalen, LLC. For over twenty years Sherman & Phalen, LLC has conducted residential and commercial real estate closings in Georgia, Florida, and South Carolina. He is the past president of the Georgia Real Estate Closing Attorneys Association and is on the Executive Board of the State Bar of Georgia’s Real Property Law Section. As a board member of both organizations Mr. Phalen has worked on legislative matters to include defining and policing the unauthorized practice of law when performing real estate transactions, the licensing of attorneys with the insurance commissioner’s office, and the manner of issuing liens for unpaid water bills, among others.