This article was originally published in Real Estate Agent Magazine Twin Cities, written by Charity Malmberg, Founder and President of Trademark Title
After the push back of the new rule from Aug.1 to Oct. 3, we had some breathing room to really dive into the details of how the new transaction will look with the separation of the closing disclosure into a buyer side and seller side form and the new term of consummation. It has led many title professionals to believe the closing will be two or three part. One part will be the consummation – by definition consummation is the date the borrower becomes obligated to the lender (when borrower signs the note). Another part is when the seller signs, which could be at the same time the borrower signs, before the borrower signs (pre-sign or pre-close) or possibly later or just in a different office prior to or at the same time as disbursement or funding of the loan or (transaction).
Two key components may move us into an escrow state; having separate closing disclosures for the buyer and seller (privacy) and having the file ready in advance of closing (primed).
Keeping the buyer’s information and seller’s information private from each other will be a high priority going forward. This has not been the norm for the industry. The norm has been everyone show up in a conference room and passing the documents – that may contain private information – back and forth across the table for everyone to view and approve. Currently, in at least half of the closings, the buyer gets to see how much the seller is taking home (or how much they had to bring) and the seller gets to see the new loan amount and sometimes even its terms. This can expose the negotiation skills used by real estate professionals to get buyers and sellers to agree on a sales price or closing date, sometimes leaving behind a bad taste.
Talking to a variety of lenders, we are learning most of them will be requiring all invoices from real estate and title professionals seven-14 days prior to closing in order to prepare either a preliminary or final closing disclosure for the consumer (borrower). This means theoretically all files for buyers and sellers should be 99 percent done at least seven days prior to closing. This will allow the entire seller side the ability to “pre-close” at least three to four days prior to closing.
What would this look like?
Let’s say the closing date is Nov. 30. This means both the buyer and seller side disclosure should be about 99 percent complete at least one week in advance – this could allow for the seller to “preclose” any time before Nov. 30, let’s say Nov. 26 at their respective title company’s office. This means they would not have to travel to the buyer’s title company office as most of them did previously. Keep in mind, we’ll still need to get the buyer’s side title documents including any lender documents especially if it’s an FHA transaction so you don’t want to sign too early in the process so as to try and avoid any confusion with possible changes. When signing, the seller would still have the choice to sign a power of attorney for out of the ordinary last minute changes. (Be sure to check with your brokerage’s policy about signing on behalf of your client. Many times this is not something that is covered in an E&O policy.)
The seller’s title company would then email over a copy of all the documents with a disclosure letter confirming all the originals to be held in escrow until loan/transaction funds to the buyer’s title company. The buyer’s title company would then schedule the signing or consummation with the buyer on Nov. 30. After the buyer’s title company would receive funding authorization from the lender, it would simply notify the seller’s title company and at that point seller’s title company could deliver all the originals by a round trip courier services that could then return all checks (if wires were not requested).
There are pros and cons of pre-closing and those will need to be taken into consideration for your unique situation and client. A few things to consider if a preclose will become the norm after Oct. 3: When to do final walk through? When to exchange keys? What if buyer and seller want to meet? Perhaps this is now done at the final walk through?
As we begin making our way through this – hopefully – smooth transition, it is paramount that you’re helping them make wise decisions about when and how to make the sale final. Not only will it help them have peace of mind, but it will also ensure you’re fulfilling the new rules and establishing yourself as a reliable and educated professional.