Buying a Home - Closing
Buying a home in Massachusetts is a 'two-step' process, and follows a different process from other states. First step is the Offer to Purchase, where a $1000 deposit is made and the second step is the Purchase and Sale where the balance of a 5% deposit is put down on the house. The Purchase and Sale step generally occurs within 2 weeks of the Offer to Purchase step, and has the Inspection Contingency step in the intervening period. After the Purchase and Sale agreement has been signed and the deposit paid, the next step in the process is the Mortgage Contingency. Once the mortgage contingency phase has passed, the final step in the process is Closing.
Closing is also often referred to as 'Passing of Papers'. Generally at closing there are a number of people present - although this is not a requirement. The sellers, with their sellers attorney, can sign paperwork separate to the actual closing, which means that the sellers attorney attends the actual physical closing with paperwork that has already been executed by the sellers. The buyers, obviously, have to attend closing. More often than not, the buyers are represented by a buyers attorney and the sellers are represented by a sellers attorney. If a mortgage is involved, the bank is represented by a closing attorney. Sometimes, the buyers attorney and the closing attorney can be one and the same person. The agents for both the seller and the buyer can be present also although the buyers agent is really only present for moral support, and to answer any questions that may arise with regard to the walkthrough that occurs just prior to closing. The sellers agent needs to provide certain paperwork for closing, but these can be provided to the sellers attorney prior to closing, and if so, then the sellers agent does not need to attend but if they do then they are just there for moral support also.
About 1-2 weeks prior to closing the buyer should begin transferring utilities into their name so that on the day of closing all utilities have been transferred. As part of the mortgage requirements, the buyer will have also established insurance on the property. As part of the mortgage requirements, title insurance will be purchased by the buyers that insures the lender against title issues. This title insurance will be purchased on behalf of the lender, by the buyer, and the policy arranged by the closing attorney. A question that often arises is whether the buyer would like to purchase owners title insurance also - the buyers attorney can advise the ramifications of not having owners title insurance and the buyer can then elect whether they wish to purchase this on their own behalf.
Smoke and Carbon Monoxide
Prior to closing, the listing agent will have obtained a smoke and carbon monoxide certificate on behalf of the seller. This is a required document for closing. The local fire department inspect the home validating that smoke and carbon monoxide detectors are located in the correct places around the home and that they are all working. This certificate has a time period for which it is valid so it cannot be obtained too far in advance.
Final water reading
Also arranged by the listing agent prior to closing are the final bills that 'stay' with the property. An example of this is the water bill. The water bill is associated with the property and not the seller - so to transfer a home from one owner to another, an accounting of the charges associated with the property that relate to the seller need to be obtained and paid, so that at closing, the new owner begins their ownership without charges accrued by someone else. Sometimes, depending on the town, this may relate to electricity also. Most closing attorney's prefer that these bills be paid prior to closing and the paid bill be provided. If the listing agent pays the bill on behalf of the seller, they are reimbursed at closing.
Also obtained prior to closing, if applicable, is a Title 5 certificate if the home is on a septic system and not on public sewer. A Title 5 certificate validates that the septic system meets many different criteria and is valid for 2 years from the date of the certificate, although if the septic system has been pumped annually from the last Title 5 certificate, and the owner has receipts to prove this, it is valid for 3 years.
If the home is on well water, then a test of the well water is required to validate that the water is potable and meets recommended guidelines.
For condominiums being sold, a 6D certificate is required at closing. The 6D certificate is issued by the condominium association, or management company, to certify that the seller does not owe any money for condo fees, special assessments and anything else that is administered by the condo association that may be payable by the old owners of the property.
Walkthrough is an important step just prior to closing. It is important that walkthrough occur after the sellers have moved out. The purpose of walkthrough is to ensure that the home is in the same condition, apart from normal wear and tear incurred during the time period from when the home went under agreement to the walkthrough date, as when the offer was negotiated and the inspection occurred. This is to ensure that no hidden damage existed, nor any occurred during the time frame of the purchase, that the buyer is unaware of, and that the buyer knows exactly what they are buying and that this conforms with what they expected to buy. During inspection negotiations, some agreement may have been made for the seller to repair or replace certain items around the home. In the Purchase and Sale, these items are required to be fixed in a 'good and workmanlike manner' and should be accompanied by receipts for the work done, if applicable. During walkthrough these items can be inspected also and verified that the work has actually been completed as agreed.
If issues are found during walkthrough such as a lot of household trash and discarded furniture has been left in the home, then closing can still take place but the attorney's will negotiate funds that will address the issue. For example, if trash is left around, then money will be 'held back' from the seller to pay for the cost of having a trash hauler come in and remove the trash after closing. Or if the washer and dryer have been removed, and they were included in the purchase, then the attorney's will either arrange for the seller to return the items taken or have money 'held back' in order for the buyer to replace the items that were included in the sale but were removed.
Once the bank has provided the closing attorney with the mortgage paperwork, the closing attorney is then able to prepare the Closing Disclosure. In simple terms, the Closing Disclosure is a standard document which documents the movement of money to different parties involved in the transaction. For instance, if there is half a tank of oil left in the oil tank, then the seller will have obtained a reading from their oil company and a monetary calculation is made that will compensate the seller for leaving the remaining oil behind. Same as if the seller has paid future property tax for a period of time where they will not be owning the home, then an adjustment is made on the Closing Disclosure which apportions the property tax already paid back to the seller. The Closing Disclosure should be provided to the buyer and seller prior to closing so that both parties can review the distribution of funds.
At closing there is generally a large pile of paperwork involved if the buyer is obtaining a mortgage to buy the home. Generally, the closing attorney will explain each document to the buyer and then the buyer's sign. To transfer the property from seller to buyer, the seller signs a 'Quitclaim Deed' which is the method for property transfer in Massachusetts. If the property is Registered Land, then additional paperwork is required so that the transfer can be recorded in Land Court.
Once the paperwork is signed, it needs to be recorded in the local Registry of Deeds. The transfer has not actually taken place until it has been recorded. Most closings take place earlier in the day to facilitate the recording of the transfer by close of business that day at the Registry. If closing takes place later in the day, more often than not the buyers will not be provided the keys to the home until the home has been recorded the next day. Some sellers attorney's advise their clients that the buyers should not have the keys until the home has been recorded even if closing occurs during the earlier part of the day. In this situation, often one of the other parties involved in the transaction have possession of the keys and will arrange for the transfer of the keys to the buyers once the transfer has been recorded.
The funds that have been provided by the buyer to buy the home are then distributed by the closing attorney to pay off the various parties and liabilities that exist on the home, and then the remainder of the money is issued to the seller, often in the form of a check or a wire transfer to an account of their choosing. This then completes the closing process.
If you have any questions about anything raised here then please don't hesitate to reach out to any one of the team. We would be more than happy to help.