When buying or selling a property in New York, the final step in a real estate purchase is the closing. This process includes going through all the paperwork regarding financing and ownership. The transaction can be completed only after the parties and their attorneys have reviewed all title issues and lender commitments and the deal has been “cleared to close.”
PRIOR TO CLOSING
After the parties have reviewed, negotiated and all parties have signed the contract of sale, which sets forth the terms on which the parties will proceed with the transaction, the purchaser’s attorney will order a title insurance report from a title insurer or agent. Upon receipt of that title report, the attorneys for the seller, the purchaser and the lender will all review it to make sure that any “exceptions” to the title can be dealt with and the property conveyed as agreed to in the contract. The report will also include searches of the municipal building and other departments to make sure of the legal status of the premises and whether there are any violations and other issues that must be dealt with.
The premiums for title insurance are established by submissions to the New York State Insurance Department and are based on the amount of the purchase price and the amount of the mortgage, if any. In addition, the title company charges for various searches of municipal records and other miscellaneous and recording charges. New York also charges a mortgage recording tax, also a percentage based upon the amount of the mortgage. The premiums and the mortgage tax are a significant part of the “closing costs” and the attorneys will provide the purchaser an estimate of those amounts as the parties approach the closing date. The seller also has a tax to pay on the transfer of real estate in New York, called a “transfer tax,” and some municipalities have their own transfer taxes, also based on the amount of the purchase price. The New York State Transfer Tax is $2.00 for each $500 of consideration or part thereof (or more easily thought of as $4.00 per $1,000, so that if the selling price is $500,000, the transfer tax would be $2,000).
The date of the closing must be established by agreement among all the necessary parties. The date in the contract for closing is a “target” date only. Once that date is set, all parties start computing the various charges each party will have at the closing.
In addition to title insurance, another set of “closing costs” are the bank fees and other charges. These can include appraisal costs, credit review fees, and points or origination fees, lender attorney’s fees, interest from the date of the closing to the end of that month and real estate tax escrows and other miscellaneous charges. The lender will deduct its fees and costs from the loan proceeds and the purchaser will only have the “net funds” to use for the purchase, so the purchaser will have to make up the total of the deductions in determining what funds the purchasers will need to come up with for the closing.
There will also be real estate tax adjustments computed for the closing in which the purchaser will pay the seller for taxes that have already been paid and vice-versa for taxes that are due but not paid by the seller.
Because of the federal law and rules regarding lender disclosures to their borrowers, the various lender, title and adjustments all must be calculated and disclosed to the borrowers/purchasers before the closing and after a firm date has been set by agreement among all the parties (sellers, purchasers, their respective attorneys, lender and its attorneys and title company).
Sellers will be responsible for obtaining the payoff figures for all mortgages they have on the property as well as broker’s commissions which are due and payable at closing.
WHO TO BRING TO CLOSING
While some closings are virtual, there are still many actual “sit-down” closings. The buyer and the seller will both attend with their attorneys. The lender’s attorneys will attend as well as a representative of the title company and the realtors if any.
SIGN THE PAPERWORK
The final step of closing is to go through the paperwork and make sure it is accurate and understood. That includes the deed and other transfer documents and the mortgage and many financing documents. After the paperwork is all signed and all funds are transferred, the purchaser will be handed the keys to his or her new property. The lender’s “net proceeds” as well as the balance due to the seller and/or the seller’s payoff lenders will be transmitted, sometimes by wire transfer but more usually by Official Checks.
Closing a real estate deal can seem daunting without an understanding of the process. Knowing what is expected of you will help you complete your real estate transaction confidently.