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What You Should Know About the Home Closing Process: An Interview with Randy Barker of Berry Moorman PC

By Randy Barker

Tell us a little bit about your experience, firm's history and the areas of law that you practice.

Since 1926, Berry Moorman has delivered skilled legal counsel and exceptional service to its clients in Michigan and throughout the world. The firm represents individuals and businesses in diverse industries and pursuits, and maintains three core practice areas: business, tax and estate planning, and employment law.

Within our business practice group, I cover a broad spectrum of real estate and corporate matters. I have significant experience with routine and complex real estate transactions and litigation matters, including sales, leases, financing, land development, construction liens, boundary disputes and property tax appeals. I am also a licensed Michigan Real Estate Broker, which gives my clients a unique industry perspective to their real estate needs.

What's the role of an attorney in home closings in Michigan?

In my view, an attorney should be involved early in the sales process to review the listing and purchase agreements before they are signed. This helps avoid disputes between the parties if something goes wrong or issues with the property arise that will impact the transaction.

I also recommend that counsel be involved in selecting the title company that will close the transaction. Through experience, attorneys have found that some agencies are better than others in terms of ability, integrity, technological ability, and financial strength. Further, the rise in Affiliated Business Arrangements (AFBA's - where an involved lender or real estate broker owns the title agency) presents potential conflicts of interest.

Although the parties receive a standard disclosure form in these cases, the increased risks and possible higher costs of closing are seldom fully-explained or understood. Successful class action lawsuits against AFBA's found overcharges for title premiums, impermissible fees, and credits for re-issued title policies that sellers should have received, but did not.

With that in mind, I always recommend that an attorney review the closing documentation, fees and title work--especially where it reveals clouds on the title that must be removed before the closing. Having an attorney attend the closing is optional. But it is recommended when, for example, last-minute issues arise, if the closing documents deviate from the purchase agreement, if the property is a foreclosure or short sale, or if the proposed title insurance policy is not acceptable.

Can you list the basic steps in the home closing process?

The closing process generally begins once the parties sign their purchase agreement. Under most standard purchase agreements, the seller must obtain from a title agency and promptly deliver to the buyer a "title commitment" to demonstrate that clear title--backed by title insurance--will be passed to the buyer at closing. This commitment will list the current owner of the property, identify mortgages and liens, confirm whether property taxes are paid, state the requirements for title insurance coverage, and disclose exceptions to that coverage.

As the established closing date approaches, the title agency updates the title commitment to assure that insurance requirements have been satisfied, exceptions from coverage were removed, and no other recordings against the property have occurred; and prepares the closing documents for review by the parties. These documents include the closing and HUD settlement statements, escrow agreements, truth in lending disclosures, the deed, and the title insurance policy. The draft closing package also includes documents required by the state or municipality, such as transfer notices and well/septic test certificates.

The ideal closing follows a script - documents have been reviewed beforehand, the numbers are correct, the documents are signed properly, the title policy is issued and the funds, keys and the deed are exchanged. Unfortunately, things do not always go as planned because last-minute issues are common. The title company might not have provided documents for review in advance, final "walk-throughs" reveal problems with the property, lender documents and funding have not been received, a title commitment update reveals a new lien, or the buyer fails to bring sufficient funds to close. If these issues are not quickly resolved, the closing can be delayed and the transaction placed at risk of termination.

Is there a common misunderstanding that you've noticed potential sellers and buyers have about the process?

The most common misunderstanding involves the fees charged by lenders, brokers and the title agency. These fees (and who is responsible to pay them) are detailed in the closing documents and the HUD settlement statement. Given the potential for sticker shock with closing costs, it is important to allocate them within the purchase agreement.

What is something about buying or selling a home in Michigan that most people aren't aware of that they should know?

Parties to a transaction are often unaware that they still have "homework" after the closing. For example, the seller must rescind its principal residence exemption regarding the property. Similarly, the buyer must file a transfer affidavit and their own principal residence exemption form with the local assessor so that tax records are updated. If these documents are not timely filed, there is a risk of fines, penalties, and denial of the exemption, which results in higher property taxes. Most title companies provide a checklist to the parties before they leave.

What are one or two things that the seller can do to help make the home closing process easier?

Promptly provide the buyer with the preliminary title work, disclosures concerning the property that are required by the purchase agreement and the law, and be flexible with granting access for inspections.

What are one or two things that the buyer can do to help make the home closing process easier?

Have financing confirmed before you begin the process so everyone involved has greater peace of mind. Lending issues can unreasonably delay the process and deprive sellers of market exposure if deal falls through.

What's the best way for people to reach you and your firm?

Our firm has offices in Detroit, Birmingham and Ann Arbor. I may best be reached at (313) 496-1200 or via email at rbarker@berrymoorman.com.

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About The Author

Mr. Barker's practice covers a broad spectrum of real estate, employment, labor and...

Phone: 313-496-1200

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