Closing

Closing is the final phase of mortgage loan processing where the property title passes from the seller to the buyer.

A closing agent who usually is an attorney or official from a title or mortgage company oversees this process, which takes place at a title company or escrow office. The mortgage closing process varies from state to state. This process is called a closing because the escrow account used to complete the property buying process gets closed. During closing, also called settlement or account settlement, the participants review, authorize, and date numerous legal documents.

Required by federal law, the closing disclosure lists all costs related to the property purchase, including loan fees, real estate taxes, and other expenses. The promissory note details the loan amount, interest rate, payment schedule, and length of term. It also lists the penalties the lender can impose if the borrower fails to make routine mortgage payments. The deed of trust is a security instrument, and also may be referred to as a mortgage depending on the state where the property is located. The signed deed of trust pledges the property as security for a loan. A certificate of occupancy confirms that a newly constructed property is in compliance with local building codes and laws. The notice of right to cancel provides each borrower under the transaction a three-business day window to cancel the new mortgage loan. If the borrower is purchasing a property with a mortgage loan, once the closing documents are signed, the borrower does not have the right to cancel.

A closing protection letter or insured closing letter, is a contract between a title insurance underwriter and a lender. The underwriter agrees to indemnify the lender for actual losses caused by certain kinds of misconduct by the closing agent. Title underwriters often authorize closing agents to issue these letters to lenders when the closing agent anticipates issuing the underwriter’s title insurance policies in the transaction. Most letters explicitly make a third-party beneficiary out of the borrower in a purchase transaction. Typical closing protection letter provisions cover failure to follow written closing instructions, to the extent that the instructions affect the validity, priority, or enforceability of the mortgage lien, require the closing agent to obtain, but not to vouch for the validity or effectiveness, of a specific document, or relate to the collection of funds due to the lender. The letter also covers fraud or dishonesty in handling the lender’s funds or documents.