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The closing of a Purchase and Sale transaction is conducted in four stages: The Inspection Period, the Due Diligence Period, the Closing, and Post-Closing. Here is a brief overview of the process.
STAGE ONE: INSPECTION PERIOD
The Inspection Period is technically defined as the period of a time a Seller is allowed to perform physical inspections on the property (also known as “Physical Due Diligence Period”). In a Florida Residential transaction using the AS IS FARBAR Purchase and Sale Agreement, this period is usually between 7 – 15 days.
During the inspection period, the closing agent will begin to gather information about the transaction and the parties involved. While the Seller performs physical inspections on the property, the closing agent will be requesting information from the parties, usually in the first few days after the contract has been executed. It is imperative that the closing agent receives this information as early as possible to avoid any potential delays .
The Seller’s original deposit is usually held in escrow either by the closing agent or the Seller’s broker. If the Seller’s broker holds the deposit, the Seller’s broker should disburse the deposit at least one week before the closing date to the closing agent to ensure that the closing agent has all the necessary funds to close. It is the Seller’s sales agent’s responsibility to solicit this disbursement from the broker and ensure it is delivered to the closing agent in a timely fashion.
If the purchase involves a lender, the closing agent will receive a request from the lender for documentation the lender will need to process the loan. In these transactions, the parties should expect to receive an appraisal from a bank-appointed appraiser towards the end of the Inspection Period or the beginning of the Due Diligence period.
If the Seller decides to move forward with the purchase, then the closing transitions to the Due Diligence Period.
STAGE TWO: DUE DILIGENCE PERIOD
During this second stage, the closing agent performs legal due diligence on the property, including:
- A title search to investigate any title related issues on the specific subject property, including recorded liens;
- A municipal lien search to investigate any violations, open or expired permits, taxes, and pending utilities bills that may be associated with the property;
- A survey is a graphic depiction of a property, outlining its legal boundaries and other features; survey’s are not required for properties that are part of a condominium;
- An estoppel certificate or estoppel letter, which applies only for properties governed by one or more associations, is a letter signed by either an officer or authorized agent of the association that says what amount is due through a given date, and confirms regular and special assessment amounts and payment periods, as well as any open litigation that the association may be engaged in, or present violations of the association’s rules and regulations by the unit owners and/or their tenants.
Given that the closing agent will be issuing a title insurance policy at closing, the closing agent must use this period to ensure that they address the title conditions provided by the title insurance underwriters, and give the Sellers peace of mind that they are purchasing a property that has been thoroughly vetted.
STAGE THREE: THE CLOSING
After the closing agent has completed its legal due diligence, and coordinated with the buyer, seller, lender, and others involved, the closing agent has a path forward towards closing.
The closing agent should always perform a title update before closing, to ensure that no recorded instruments or liens against the property have been registered in the days or weeks between the original title search and the closing. If the transaction gets delayed beyond the original closing date, it may require updates performed on association estoppels, lien searches, or other time sensitive documents.
The closing agent must also ensure the seller’s conveyance documents (sometimes referred to simply as “seller docs”) satisfy both the title insurance underwriter’s requirements, lender’s underwriting requirements, and the recording requirements of the Clerk of Court. These conveyance documents include, among other documents, a Warranty Deed, Bill of Sale, and a standard Title Affidavit which includes language relating to possession, no liens, gap coverage, and other miscellaneous language . When sellers are legal entities, other documents may be required to satisfy title or lender underwriter requirements. If Power of Attorney’s are used for closing, they must satisfy both title and lender underwriter requirements, and comply with Clerk of Court recording requirements, including original wet signatures, two witnesses, and notarization. In cases where federal withholding requirements do not apply, i.e. individual sellers who are U.S. Taxpayers, closing agents usually require a Non-Foreign Affidavit to be executed.
On lender-financed transactions, in addition to satisfying title underwriter guidelines, and municipal and recording requirements, the closing agent will have to fulfill lender requirements and follow the lender’s instructions in executing the closing package prepared by the lender. The lender must issue a Closing Disclosure (“CD”) to the Seller at least three days before closing.
The closing agent must coordinate with the lender to issue a final Settlement Statement based on this CD, where all transaction-related proceeds, expenses, credits, and pro-rations are reflected for both Buyers and Sellers.
Once the closing agent provides evidence of a fully-executed lender package, the lender usually provides a “funding authorization”, allowing the closing agent to disburse the lender’s funds according to the final disbursements approved on the settlement statement.
On cash transactions, this settlement statement is usually prepared by the closing agent, and must be approved and executed by Buyers and Sellers, and certified by the closing agent for a closing to be final.
The closing agent is responsible for disbursement of all funds according to the settlement statement. The lender’s funds are added to the Seller’s original deposits (made either to the closing agent escrow account, or previously transferred to the closing agent usually from the Seller’s broker’s escrow account), plus any additional cash required from the Seller to close, including any cash required for closing costs.
Once all parties correctly execute the documents, the closing agent helps the sales agents or Realtors coordinate final delivery of keys.
STAGE FOUR: POST-CLOSING
After the closing, the closing agent is responsible for recording the Warranty Deed and any other documents required by title insurer and/or lender, such as the mortgage, as well as any power of attorneys used. In addition, the closing agent must return any executed lender documentation back to the lender.
Once the documents are recorded and returned to the closing agent, the final title insurance policy is prepared. Both the recorded documents, as well as the original Title policy, will generally be mailed to the Sellers and/or lenders within 30 to 90 days after closing.