Buyer’s Requirements to Close
Both the buyers and their lenders must be sure that the seller can deliver the title that was promised in the purchase agreement and that the property is now in essentially the same condition it was in when the buyers and the sellers agreed to the sale. This involves inspecting:
- the title evidence,
- the seller’s deed,
- any documents demonstrating the removal of undesired liens and encumbrances,
- the survey,
- the results of any required inspections, such as termite or structural inspections, or required repairs, and
- any leases, if tenants reside on the premises.
Final property inspection
In the real estate contract, the buyer usually reserves the right to make a final inspection, often referred to as a walk through, shortly before the closing takes place. Accompanied by the licensee, the buyer verifies that necessary repairs have been made, that the property has been well maintained, that all fixtures are in place, and that no unauthorized removal or alteration of any part of the improvements has taken place. It is not an opportunity to reopen negotiations.
Spot Survey
A spot survey provides information about the exact location and size of the property boundaries, as well as the location of all the improvements on the property. The spot survey will reveal any encroachments and easements. The sales contract specifies who will pay for the survey. Typically, the survey indicates the location of all buildings, driveways, fences, and other improvements located on the premises.
Seller’s Requirements to Close
Naturally, the seller’s main interest is to receive payment for the property. Sellers want to be sure that:
- the buyer has obtained the necessary financing
- has sufficient funds to complete the sale.
- are certain that they have complied with all the buyer’s requirements.
Title Procedures
Both the buyer and the buyer’s lender will want assurance that the seller’s title complies with the requirements of the sales contract (Seller’s Title insurance Policy, with the Buyer named as Beneficiary). Additionally, lenders require title insurance in the event any “clouds” on the title (encumbrances on the real estate or claims on the title) should come up during the course of ownership (Lender’s or Buyer’s Title Insurance Policy, with the Lender named as Beneficiary).
As a first step toward a new owner’s title policy, prior to closing and establishment of the new owner’s title, the seller usually is required to produce a current abstract of title or title commitment from the title insurance company. When an abstract of title is used, the purchaser’s attorney examines it and issues an opinion of title. This opinion, like the title commitment, is a statement of the status of the seller’s title. It discloses all liens, encumbrances, easements, conditions, or restrictions that appear on the record and to which the seller’s title is subject.
On the date when the sale is actually completed (the date of delivery of the deed), the buyer has a title commitment or an abstract that was issued several days or weeks before the closing. For this reason, there usually are two searches of the public records. The first shows the status of the seller’s title on the date of the first search. Usually, the seller pays for this search. The second search, known as a bring-down, is made after the closing to bring the title search down to the day of closing.
Affidavit of Title
As part of this later search, the seller may be required to execute an affidavit of title. This is a sworn statement in which the seller assures the title insurance company (and the buyer) that there have been no judgments, bankruptcies, or divorces involving the seller since the date of the first title examination.
The affidavit promises that no unrecorded deeds or contracts have been made, no repairs or improvements have gone unpaid, and no defects in the title have arisen that the seller knows of. The affidavit gives the title insurance company the right to sue the seller if his statements in the affidavit are incorrect.
In 2010, the Title Insurance Act was amended by prohibiting title insurance companies, title insurance agents or independent escrowees from making disbursements out of a fiduciary trust account in connection with any escrows, settlements, or closings unless the funds are collected or are good funds. This applies to $50,000 or less from any single party to a transaction or an aggregate amount of $50,000 or greater received from any single party to a transaction.
“Good funds” are in one of the following forms:
- Lawful money of the United States
- Wired funds unconditionally held by the title insurance company, the title insurance agent, or independent escrowee
- Cashier’s checks, certified checks, bank money orders, official bank checks, or teller’s checks drawn on or issued by a financial institution chartered under the laws of any state of the United States and unconditionally held by the title insurance company, title insurance agent, or independent escrowee
- A personal check or checks in an aggregate amount not exceeding $5,000 per closing, provided that the title insurance company, title insurance agent, or independent escrowee has reasonable grounds to believe that sufficient funds are available for withdrawal in the account upon which the check is drawn at the time of disbursement
- A check drawn on the trust account of any lawyer or real estate broker licensed under the laws of any state, provided that the title insurance company, title insurance agent, or independent escrowee has reasonable grounds to believe that sufficient funds are available for withdrawal in the account upon which the check is drawn at the time of disbursement
- A check issued by Illinois or the United States
- A check drawn on the fiduciary trust account of a title insurance company or title insurance agent, provided that the title insurance company, title insurance agent, or independent escrowee has reasonable grounds to believe that sufficient funds are available for withdrawal in the account upon which the check is drawn at the time of disbursement
Collected funds means funds deposited, finally settled, and credited to the title insurance company, title insurance agent, or independent escrowee’s fiduciary trust account.
Whether the purchaser pays cash or obtains a new loan to purchase the property, the seller’s existing loan is paid in full and satisfied on record. The exact amount required to pay the existing loan is provided in a current payoff statement from the lender, effective on the date of closing.
