Escrow Closing Dates Are Not Set In Stone
Every transaction starts out with a “Closing Date” – the date all parties aim to finalize, close, and hand over property and proceeds. Whether we are able to hit that date right on the money is an issue that all real estate agents should address with their clients at the time the offer is being written by Buyer and accepted by Seller. If the parties have an understanding of what the whole escrow process entails, it is easier to understand that there are many factors which may affect this date.
Many years ago it was arbitrarily decided that 30 days was a sufficient enough time period to complete a sale transaction that had a new loan involved. That was many years ago. When the market crashed in 2007 and the Lenders underwriting procedures’ pendulum swung from loose to extremely tight, it took much more time to get a loan approved. Although the pendulum has now stabilized, getting a loan approved, documents drawn and loan funded within a 30 day time period is still extremely tight.
The whole real estate, loan, title and escrow process is a very human one; which means that we have human beings who are driving the process. Yes, this is a “people” industry and the process is only as good as the people in it. The Seller and Buyer look at each other to make sure the transaction closes on time; the Buyer looks to the loan officer and the escrow officer, who in turn look to the Lender’s processor and funder. You can put a face to the Seller, the Buyer, the real estate agents, loan officers and escrow officer. However, the Lender and their staff remain absolutely faceless. There is a more than 70% chance that the Lender staff works out of state and probably even in a different time zone.
How do we control the actions or the inactions of others? A looming closing date may be a matter of considerable concern to us immersed in the transaction, but to others, the urgency of it may not be felt at all. Our transaction is just one of many on their desks, and they are probably all marked “urgent, rush, rush”!
My sister is an underwriter for commercial loans of a very large bank and she has been a processor and a funder, too. From time to time I will vent my frustrations on why it takes so long to get a loan underwritten, docs drawn and funded. From her response I realize that like my little puzzle board, every individual lending department has their own puzzle board with their own pieces to gather and put together before their particular picture is complete, after which the loan then gets put on the conveyer belt to go to the next department. Like any project, and each file is really its own “project”, when a file is handled by one particular person, it is difficult to hand it over to another. Vacations, sick days, overworked days, month-end days, appraisers who go on vacation, Borrowers who don’t submit a full package, Borrowers who are asked to submit additional paperwork, all these issues figure into the whole equation.
If you can picture this in your mind, you will realize that 30 days may not be sufficient!
Anytime there are third parties involved, the loss of control increases. What about termite or other contractors who must do repair work? What about payoff lenders who delay the issuance of payoff figures because the loan was sold? What about delays due to movers who don’t have openings in their schedules?
Here then, are some other reasons that cause delays:
• Unknown liens and judgments against a Seller or Buyer that has to be cleared
• Incorrect basic information given and not caught for correction, like, property address, Buyer’s names and vestings,
• Issues with Seller’s ownership of the property through the years, like an owner who passed away
• An individual important to the transaction goes on vacation without making arrangements for signing of documentation
• Declaration of bankruptcy
• Loans that were paid off but never released and now the Beneficiaries are nowhere to be found
• Insufficient advance transfer of downpayment funds from special accounts
• And of course, Mother Nature, acts of God, terrorism and war……we all remember 9/11, for instance, when our lenders situated in New York City were shut down for days and could not fund loans, and when documents and checks on the way to us sat on the tarmac because all flights were cancelled throughout the country
I constantly get questioned on whether I can close a transaction in one week. Of course I can, as long as the parties sign and return everything immediately, the Title Company rushes the search and issues the prelim immediately, the prelim is a clean one with no liens, judgments and loans that we have to worry about, and the Buyer has all his cash available to bring in without getting a loan. See, no outside factors to speak of.
In my experience (after 35 years in the industry) a Seller (and it is usually the Seller) who demands to cancel a transaction the day after the contract stated closing date passes, irrespective of whether it is extremely close to finalization, is not acting in good faith and probably has another motive for demanding cancellation. Perhaps he has Seller’s remorse, or perhaps he found he can get more money for his property. Whatever the reason, he is within his rights to demand cancellation but he should be forewarned that he may be subject to damages and lawsuits from the Buyer, all of which could cost him much more in time and money than agreeing to an extension to allow the Buyer to finalize the transaction.
“Closing date” then, is the date all parties are shooting for but not one that should be set in stone. If the Seller and the Buyer are made aware right in the beginning that the less outside factors involved the easier it is to hit the target, then the transaction would be less stressful for all. Knowing and understanding goes a long way towards lessening recriminations and finger pointing and allowing for more flexibility for all involved.
Juliana Tu, CSEO, CEO, CBSS, CEI, SASIP
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