Beginning in October of this year, new rules take effect that will change decades-old aspects of buying real estate. Although there are many aspects to the rules, there is one that is critical to you and should be understood before signing any documents. So, what do you absolutely need to know?
Your closing date can no longer be set in stone.
The closing date is the day that you sign documents, funds change hands, the deed is recorded, and most importantly, YOU RECEIVE YOUR KEYS! The closing date is established in the written offer and the “Purchase and Sale Agreement” that you will sign at the beginning of the process. Because in Massachusetts closings “time is of the essence”, if you cannot close on the established date, you may be “in default”. This means that the Seller has the right to decide not to sell you the home, and possibly to even retain your deposit.
For eons, the days leading up to a scheduled closing date often resembled a grade school fire drill. The buyer scrambles to comply with the lender’s last minute request for a certain document. The document is received, but after review, another document is required. The lender reviews the second document late in the day, and a final underwriting review takes place. An overworked underwriter with 30 -50 files on his or her desk must issue the final loan approval and the “clear to close”. The file is then transferred to the lender’s closing department, and awaits preparation of a closing package along with 50 other files. Finally, an hour before the scheduled closing, a closing package is delivered to the closing attorney. The closing attorney plugs numbers into the software program, and sends the buyers and sellers “closing numbers” (how much to bring). The buyer runs to the bank and waits in line for a treasurer’s check. Five minutes before the closing, the buyers arrive at the closing attorney’s office, flustered and in need of a drink, but ready to sign what is needed to achieve the home ownership dream.
Due to the new disclosure rule (TRID), the pre closing scramble is a thing of the past. Under the new rules, no closing can take place until the third business day after a) your loan has final approval; b) your lender has issued to you and you have acknowledged receipt of a document called the “Closing Disclosure” (“CD”). The CD contains the “closing numbers” and informs you of what you need to bring to the closing. The wonderful thing is you have 3 days to carefully review your numbers and be sure you understand them before you have to sign closing documents. The not so wonderful thing is you cannot waive the three day requirement, so situations may exist where you cannot meet your contractual closing date due to the waiting requirement.
How do I protect myself if I cannot make the Closing Date?
This is a subject of current debate in legal circles. What seems clear is that there needs to be a clause inserted in both the offer to buy the home and the purchase and sale agreement. The clause should state that if your lender cannot meet the closing date contained in the purchase and sale agreement, you have the right to extend the closing date simply by sending a written notice to the seller. This will avoid a default of your contractual obligations and protect your deposit.
Where do I get this Clause?
Historically, most buyers do not engage a qualified real estate attorney prior to signing an offer. Be a part of changing that practice. Let your broker know that you want to create your “buying team” prior to signing an offer. Add your attorney to your team before putting your pen to paper.
Yes, your broker should have team members ready to assist you throughout the process. These team members will include an attorney, mortgage loan officer, and home inspector. Follow your broker’s advice on forming your team. The recommendations will be based on who your broker has learned he or she can count on for responsiveness, knowledge, and integrity.