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By Jack Harris, Mark Baumann and Charleen Knapp
At closing, you will sign several documents. Here are some of the most commonly used:
- Settlement Statement
This is the central accounting of all moneys transferred at the closing. All parties participating in the closing are identified. An itemized listing of all fees and charges is included. Also, there is a list of all expenditures charged to the buyer and the seller at closing.
- Loan Disclosure
When mortgage financing is used to purchase a home, the lender is required to provide certain disclosures so that the borrower can better judge the real costs of the loan. The key number on the disclosure is the annual percentage rate or APR. This rate will be higher than the contract rate of interest on the loan because all charges, including origination and discount points, are reflected. Other information that the borrower may find of interest are the total amount of interest paid over the loan term, the monthly payment for principal and interest, the number of payments before the loan is retired and the date when the first payment is due.
- Mortgage Note
This is a legal contract between the borrower and the lender acknowledging the forwarding of funds by the lender and establishing the borrower’s obligation to repay the loan. All information on how the loan is to be repaid should be included.
- Deed of Trust
This establishes the security to back up the mortgage note. Essentially, it gives the lender a way to sell the home in the event the borrower defaults on the mortgage note. Other types of security instruments are used, but the deed of trust is the predominant form used in Texas. A trustee is identified who has the authority to conduct a public sale of the home if the lender is forced to foreclose on the loan. A lender can initiate foreclosure for any violation of the mortgage contract, but it is the failure to make timely monthly payments that triggers virtually all foreclosures.
- Deed
This is the paper that formally transfers ownership rights from the seller to the buyer. The most desirable type of deed to receive is the general warranty deed. With this document, the seller guarantees that no legal interest in the property exists other than those identified in the deed (which might include easements and restrictive covenants). If the seller uses a special warranty deed, it means that the seller guarantees that no such interests were established while he or she owned the property. A quit claim deed relinquishes the rights of the person signing the deed, but guarantees nothing about the quality of the title, including whether or not the signer has any rights in the property. Lenders often require use of a general warranty deed.
- Title Policy
This is a special insurance policy that backs up the warranty deed being delivered. Essentially, the policy writer agrees to reimburse the buyer or seller for any damages caused by a successful claim to an ownership interest in the property. Title insurers generally conduct a search of public title records to minimize the possibility of a claimant emerging. Title insurance protection is required by most mortgage lenders.
- Additional Documents
There will be other documents as a result of services provided to support the transaction. You may want copies for future reference. A survey map of the property, an appraisal of the property, and the results of any inspections conducted might be of value. If you are buying a condominium, you should get a copy of the homeowners’ association by-laws which specifies your rights and obligations as a condo homeowner.
Dr. Harris is a research economist, Baumann is an associate research social scientist and Knapp is a graduate assistant with the Real Estate Center at Texas A&M University.
http://recenter.tamu.edu/hguide/HBCloseLegal.html |
