Settlement and Closing

Settlement is the final stage of the transaction where documents are signed, funds are disbursed, and title transfers.

Settlement Process Overview

Typical steps include:

1. Title search and title insurance commitment
2. Loan approval and underwriting
3. Final walkthrough
4. Signing closing documents
5. Disbursement of funds and recordation

Roles of Escrow and Title Companies

• Escrow agent - Holds funds and documents until all conditions are met.
• Title company - Performs title search and issues title insurance.

Settlement Statements

The Closing Disclosure (CD) summarizes the final loan terms and closing costs. Buyers should receive it at least three business days before closing.

Table: Key Closing Documents

These documents are common in exam questions about who signs and what each document does.

Post-Closing

After closing:

• The deed is recorded.
• The buyer receives title insurance.
• Funds are distributed to the seller and other parties.

Final Walkthrough

The final walkthrough confirms that the property is in the agreed condition and that repairs are completed.

Summary

Closing ensures the transaction is completed, title is transferred, and funds are distributed. Understanding the roles of escrow, title, and the Closing Disclosure is key.

Prorations and Adjustments

At closing, expenses are prorated between buyer and seller. Examples include:

• Property taxes
• HOA dues
• Rent (if the property is tenant-occupied)

Prorations ensure each party pays their fair share based on the closing date.

Closing Document Highlights

Common closing documents include:

• Promissory note
• Mortgage or deed of trust
• Closing Disclosure
• Deed and title documents

Exam Application Check

If a question asks which document creates the debt obligation, the answer is the promissory note.

Common Closing Costs

Typical costs include:

• Loan origination fees
• Appraisal and credit report fees
• Title insurance and recording fees
• Escrow fees
• Prepaid taxes and insurance

Costs are often negotiated and allocated by contract.

Exam Application Check

If a question asks which document summarizes final loan costs, the answer is the Closing Disclosure. If it asks who holds funds during closing, the answer is the escrow agent.

Escrow and Title Flow

Escrow ensures that all conditions are met before funds and documents are released. The title company coordinates recording and issues title insurance after closing. This protects both buyer and lender from title defects.

Exam Application Check

If a question asks which party prepares the title commitment and policy, the answer is the title company.

Recording and Transfer Timeline

Recording makes the transfer public and protects the buyer. In many areas, recording occurs the same day as closing, but delays can occur. Until recording, the buyer may have equitable title but not legal title in public records.

Exam Application Check

If a question asks why recording matters, the answer is constructive notice and priority protection.

Closing Timeline Checklist

1. Loan conditions are cleared.
2. Title commitment is issued and final title search is complete.
3. Closing Disclosure is reviewed by the buyer.
4. Documents are signed and funds are wired.
5. Deed is recorded and title insurance is issued.

Exam Application Check

If a question asks which document is recorded to transfer ownership, the answer is the deed.

Settlement Statement Review

Buyers should review the Closing Disclosure to confirm:

• Loan terms match expectations
• Fees match the Loan Estimate within allowed tolerances
• Credits and prorations are accurate

Exam Application Check

If a question asks who issues title insurance, the answer is the title company.

Closing Agent Role

The closing agent coordinates the signing, collects funds, and ensures documents are properly recorded. This role may be filled by a title company, attorney, or escrow officer depending on the state.

Exam Application Check

If a question asks who coordinates the closing, the answer is the closing or escrow agent.

Cost Allocation Between Buyer and Seller

The contract specifies who pays which costs. For example, the seller may pay certain title fees while the buyer pays loan-related costs. This allocation can be negotiated.

Exam Application Check

If a question asks whether closing costs are fixed by law, the answer is no. They are negotiated by contract and local custom.

Walkthrough and Possession

The final walkthrough verifies that repairs are complete and that the property is in agreed condition. Possession is typically delivered at closing unless the contract states otherwise.

Exam Application Check

If a question asks when possession transfers, the answer is at closing unless the contract provides otherwise.

Settlement Agents and State Variations

Some states use attorneys at closing, while others rely on title companies or escrow officers. The national exam focuses on the general process rather than state-specific rules.

Exam Application Check

If a question asks who conducts closing, the answer is an escrow or closing agent (or attorney, depending on the state).