So many documents, so few being read carefully or even at all, sums up the typical closing of a house sale for a large number of buyers, real estate agents say.
"I have not seen a buyer read every document at closing since the mortgage and title industry went beyond four pages," said John Duffy, president of Duffy Real Estate on the Main Line.
"If the lender, agent, and title agents are doing their jobs, they should paraphrase each page and ask the buyers if they have questions."
These documents provide critical information about the transaction that, in many cases, comes as a complete surprise to consumers.
Residential real estate sales involve a lot of paper, as Duffy said, and today's exercise is designed to offer insight in what you need to read and why it is important to you.
So far, you've found a real estate agent who, at first meeting, has given an agency disclosure form, required by law, to reveal his or her business relationships.
You've found a house and been given a seller's disclosure form of problems and notices about lead-based paint and other hazards, depending on the state regulations.
You've signed an agreement of sale and received a home inspection and termite inspection, and you have a mortgage agreement in hand and homeowner's insurance lined up. You've handed over earnest money deposited in an escrow account and received a good-faith estimate of closing costs.
Not necessarily in that order, but all the pre-closing documents and forms are in hand, and you are awaiting settlement day.
You and yours take off work and go to the real estate broker's office, where the person presiding at the closing - title insurance representative or lawyer, depending on the protocol - starts handing you papers to sign. These are documents common to most settlements. Special situations, such as an unusual loan arrangement, or regulations specific to a state or municipality may add to the list.
There are two closings - one for the loan, the other the house. Since you can't have one without the other, first the mortgage documents:
The truth-in-lending statement, which discloses the interest rate, the annual percentage rate, the amount of the purchase price you are financing, and the total cost of the loan over its life - 15, 20, 30 years. Make sure that what is in the statement and what you have been told, or think you've been told, are in agreement.
A separate itemization of the amount financed. It will list any proceeds distributed directly to you, the amount credited to your account with the lender, anything the lender pays to others in your behalf and who they are, and prepaid finance charges, such as the amount of the points, or the cost of originating your mortgage (dollar amount).
The monthly payment letter. It will itemize the components of the check - or automatic deduction from your checking account - that you provide to the lender. This includes the principal and interest and, if you choose to escrow them, taxes and insurance. If you put down less than 20 percent, this is where you'll likely see the monthly mortgage insurance premium you'll pay until you have enough equity - verified by an appraiser - to no longer require it.
The promissory note, or simply, "the note." When you sign this, you promise to repay the loan to the lender in the time required. It also lists the penalties and what the lender can do if you renege.
The mortgage. When you sign this, you let the lender place a lien on your property as security for repayment of the loan, allowing it to foreclose if you do not.
The Mortgage Servicing Disclosure Statement. There must be one of these, and if you do not see it, demand it. It tells you if the lender intends to service the loan - or collect the monthly payments - or transfer it to another company. Make sure you know when and where you should send your first and subsequent payments, and what happens if you are ever late.
Now for the house closing, which begins with the disclosure settlement statement, or HUD-1, itemizing all the closing costs and amounts. The presiding lawyer or title person will go over each item, meaning stop daydreaming about paint colors for the master bath and listen.
"If you are going to sleep through closing, make sure you set your alarm clock for the end, when you are reviewing the HUD-1," said Philadelphia real estate agent Mark Wade, adding that this is where financial errors are typically made.
The proration agreement. This details how the seller and the buyer will share costs during the month in which the closing falls.
The deed. The seller and buyer, whose names appear on this vehicle of property transfer, sign this document, sealing the deal. The deed should state the seller has the legal right to sell the house.
The name affidavit. You certify that the signature of the people listed on the document are one and the same, and then you sign it, as your name would appear on all legal documents.
The title-search abstract, listing the record of all documents about your property.
Receipts. One will say the water bill has been paid. You sign to say, "So I've been told." The tax bill, electric bill, gas bill, and sewer bill receipts follow in succession.
An acknowledgment that you have seen all the reports - termite and the like - for the property.
Duffy said it would help if buyers were supplied with blank forms for viewing before closing.
"What I dread hearing at settlement," he said, "is, 'These are standard forms. Just sign above where your name is printed.' "