Buying a house, especially if it is your first, is always exciting. The event signals a new beginning, putting down roots. Owning a home is a sign of maturity, responsibility, and status. The poet Maya Angelou spoke for each of us when she wrote, “The ache for home lives in all of us, the safe place where we can go as we are and not be questioned.”
Home sellers are no less excited when the day comes to close the real estate transaction. After weeks, even months, of worry that a buyer might not appear or offer a suitable price, the end is in sight. All the days of maintaining an immaculate façade and enduring hypercritical strangers wandering their home are almost over.
On closing day, both parties gather at the office of the closing agent or in the office of the closing attorney to execute the paperwork and conclude the last details of transfer. As time goes by, apprehension grows until the parties learn the transaction cannot be completed. Unfortunately, one-quarter to one-third of all residential real estate transactions are delayed at closing.
Complications That
Lead To Closing Delays
Many of the causes of closing delays are avoidable with the proper forethought and care. Issues arise for various reasons, most stemming from a lack of knowledge or diligence by the parties or their representatives.
Here are a few of the common reasons the home closing process is delayed.
1. Inexperienced Representation
Nine in ten homes sold in the United States were completed with the assistance of one of the country’s 1.39 million licensed real estate agents, the other 10% through the For Sale by Owner (FSBO) network. Most people rely primarily on friends or family’s recommendation, rather than a review of credentials, experience, or real estate knowledge.
A common problem arising from inexperience is unrealistic closing dates. Experts note that it routinely takes forty-five days after signing a contract to to work through the process of closing on a house. There are a lot of steps, along with their own sub-steps, involved in the closing process. If one of those steps is delayed, it could throw off the process enough that an unrealistic closing date could be missed. If a new closing date cannot be negotiated, the sale could be dead.
Working with an experienced professional, one that understand the intricacies of the closing process will help avoid this issue.
2. Sales Contract Contingencies
Inexperience can lead to accepting contingencies in the real estate sale contract that void the contract if not met. Failure to close by the designated date is a contingency often overlooked, as is the buyer failing to (1) obtain acceptable mortgage terms or (2) sell their existing house. In each case, the potential buyer can refuse to close for tenuous reasons, requiring the seller to reopen negotiations, accept concessions to complete the transaction, or walk away.
Real estate attorneys can recognize potential contract problems and can offer amendments, real estate agents cannot, that either eliminate or restrict the contingencies’ scope, restoring a negotiating balance between buyer and seller.
3. Title Defects
The issues of who owns a property, if a property can be legally transferred to a buyer, or who might have the right to use a property frequently arise when trying to sell a house. There are many different ways that clear title to property can be compromised, sometimes years after its transfer. The causes range from the simple (mortgages, satisfactions, or releases) to the more complex (forgotten heirs, forged and illegal deeds).
Failure to know about an issue that restricts property transfer or an error in public records does not protect the homeowner if the title is contested. Months after purchase, homeowners have discovered a previously unknown lien or that rights to a property, due to a divorce or bankruptcy, are unclear have not been properly settled.
Title services to cure defects and encumbrances work require the services of a real estate attorney and extended research to learn the details of a clouded title. In many cases, the only way to ensure a clear title is a lawsuit against anyone and everyone that might have a claim on the property. The plaintiff or petitioner asks the court to grant a “quiet title,” a ruling that eliminates any previous claims to the property.
4. Appraisal Issues
Lenders who finance a home through a mortgage loan usually require that the property has a minimum market value and condition. An appraisal below the contract sales price, whether by bank personnel or independent appraisers, is problematic and typically negates any obligation to fund the transaction.
When an appraisal is below the lender’s requirement, or repairs are needed, the only ways forward are:
- The seller lowers the price to conform to the loan terms.
- The buyer agrees to “come out of pocket,” i.e., add more money to the transaction to meet the sales price.
- The parties agree to meet in the middle” (the seller drops the price, and the buyer adds cash).
- The contract voids.
Completing the appraisal as soon as possible after contract signing enables the parties to resolve any issues before the closing date.
5. Property Survey Issues
A property survey is an onsite inspection of real estate to ensure that physical boundaries conform to legal boundaries. The surveyor produces a map detailing the property’s legal boundaries. His work includes a written description of the property, the street address, the location of buildings and adjacent properties, and any improvements/additions a homeowner has made to the land.
From time to time, reports of buildings and homes built on others’ legal property appear in the newspapers or court records. Where the intrusion is slight – the neighbor’s fence extending on to your property, the remedy may be removing the fence or the purchase of the contested property by the neighbor. In other cases, this vacation home that was built on the wrong lot, the issue is resolved by lengthy litigation. Whatever the cause or circumstance, the matter must be settled so that the physical and legal boundaries agree before closing can proceed.
6. Inspection and Repairs
An inspection identifies a house’s condition and necessary repairs to bring the property up to building codes or meet the buyer’s specifications. Mortgage lenders typically require inspection by a qualified inspector and repairs completed as a mortgage loan condition.
Most reviews reveal minor (electrical outlets not working, plumbing leaks, decorative painting) and major (new roofs, foundation repairs, major appliance replacements) repairs.
An inspection typically includes a final walkthrough by the buyer or their representative to ensure all specified repairs are made. The walkthrough confirms conditions are as expected (seller’s personal property is removed, no new damage), and the site is in a “clean broom” state. Any unresolved issues – agreed-on repairs not completed – will delay the closing.
The seller typically settles issues found during the inspection by:
- making or paying for the repairs,
- reducing the transaction price in return for the buyer taking responsibility for repair,
- including additional assets (furniture and appliances) in the transaction without charge to transfer repair responsibility to the buyer, or
- providing a home warranty to cover potential deficiencies.
7. Lender's Underwriting Issues
Mortgage lenders typically issue pre-approvals of real estate loans subject to certain conditions. When the buyer request funding, the lender turns to their underwriting department to ensure that the requirements have been met. Underwriters generally have full discretion to investigate any issue that might affect the borrower, the collateral, and the details of both.
Examples of data that underwriters review includes:
- Checking and savings statements
- Assets, specifically liquid assets such as securities
- Credit card balances
- Credit Score and reports, with an emphasis or payment habits
- Proof of income (payroll stubs)
- Tax filings
- Source of down payment funds
According to Peter Miller, author of The Common Sense Mortgage, a mortgage underwriter can look at “just about anything that a lender needs to be confident that you can repay your mortgage as agreed.”
Underwriters are especially sensitive to recent changes in the personal and financial activities of their prospective borrowers. Significant changes in the pattern and amounts of deposits or withdrawals are likely to draw investigation and requests for an explanation.
Delaying providing your lender the documentation they request will delay the closing. Nonresponsive borrowers, borrowers that are slow to provide requested information or follow-up information are more common than you might think.
In August 2015, the Consumer Financial Protection Bureau (CFPB) required lenders to complete and provide a 5-page Closing Disclosure Form three days before a scheduled house closing. The form replaces the loan estimate with the actual figures to be paid at closing. A discrepancy on the Form will postpone the closing until any errors are corrected and approved by all parties. Once corrected the Form must once again be provided 72 hours prior to closing.
So, if there is a financial issue or the form has to be changed for some reason and the closing was to occur just after the 3 day period, then the closing date must be rescheduled.
Final Thoughts
While real estate closings can be confusing and complicated, many are more difficult than necessary due to a lack of competent advice or adequate preparation. Statistics suggest that the average American will purchase three houses in their lifetimes, one for each stage of life:
- Starter Home. The average age of a first-time homebuyer is 27.
- Family House. Typically purchased to a growing family, houses bought in the stage of life are occupied the longest.
- Retirement House. Sometimes called the “Empty Nest” home, it is usually the lost house purchased in a lifetime.
If you are considering buying or selling a house, do yourself a favor by securing experienced professional advice early in the process from a closing attorney. Having the right help will save you time and money. Perhaps, more importantly, it will enable you to enjoy those days between signing a sales contract and completing the transaction.