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To many home buyers and owners in the state of Washington, the real estate closing process seems like a mirage that disappears when they get close. One thing or another can delay the settlement. A judgment that shows on the title, insufficient insurance coverage, or an unwelcome environmental hazard can delay the process. Yet when the closing day is finally scheduled, there is one entity that makes it happen. This settlement agent executes two sets of instructions: those of the lender and those of the title company, all while operating within the confines of state laws and local regulations.
Nationally, the agent that presides at closing is a title agency escrow officer or, sometimes, simply a notary public hired by the title agent. Different state rules govern different closing purposes. In Washington state, it is almost always the title agency.
A title agent is a certified entity commissioned to operate on behalf of a title company, which ensures that lenders and owners have a rightful claim to a property. To this end, a title agency will perform a search of all recorded documents relative to a given property. It examines the documents and other pertinent information to determine if any matter would impede free and clear ownership of a buyer or refinancing owner. In Washington, the title agent is the settlement agent. Worth noting is that numerous title agencies are owned and operated by lawyers.
In a narrow range of instances, a notary public will “preside” over the signing of closing documents. In fact, the notary acts more as the settlement agent’s agent hired to establish that the signers are actually the parties named in the documents. Should the borrower have a question about the language or meaning of the papers, a notary is obliged to refer the inquiry to the settlement agent or the lender. Outside of the strict authority conferred by a notary public commission, this person can only act as a courier for returning the executed closing package to the lender or title agency.
With clarity regarding who exactly qualifies as a settlement agent, inquirers can now ask about the tasks for which the settlement agent is responsible. Closing agents have responsibilities to each party involved in the real estate transaction. In a sense, they actually perform the conveyance in the case of a purchase. Receiving the funds from the bank or lender, then disbursing those monies according to an approved settlement statement (Closing Disclosure) they themselves prepare.
The settlement agent prepares the deed from the seller to the buyer. Unless this option is waived, it also issues a title insurance policy to the buyer (or owner in the case of a refinance) on behalf of the title company. Prior to closing, the agent may hold the deposit or down payment in escrow. Any closing costs unmet by loan and down payment must be collected by the agent at settlement. In the Evergreen State, if seller repairs are stipulated in the sales contract, the agent may arrange for a property walk-through before documents are signed.
Most frequently, the settlement agent receives funds wired from the lender directly into an escrow account. In advance of those funds, the agent has submitted a preliminary Closing Disclosure– and, perhaps, selected copies of executed documents — to the lender for a green light to proceed with disbursement. Very often, lender fees and prepaid interest are already deducted from the wire amount but must be reflected on the Closing Disclosure nonetheless. Any vendors, appraisers, inspectors, notaries, couriers, etc not paid outside of closing are then paid from loan proceeds.
Whereas the owner’s title policy is optional, the lender’s policy is mandated so the title company will issue a policy in the bank’s name through the settlement agent. The closing entity is also charged with returning all of the original executed documents to the lender with the exception of those sent for recording.
The settlement agent must have up-to-date payoff instructions for any mortgages, judgments, and liens remaining on the subject property (for purchase or refinance). Any closing costs agreed to be shouldered by the seller are also paid from proceeds. The remainder is paid to the seller.
Certain documents are essential to establishing legal ownership and they are important as matters of public record. Property deeds from sellers to buyers, mortgages (or deeds of trust), and security agreements as well as liens or judgments attached to a property. These real estate instruments are recorded in county records so they can be referenced in the event of future sale or legal action. Accordingly, the settlement agent submits the pertinent papers to the county for recording. Governments charge for this service so settlement agents must direct a small portion of proceeds to recording fees. The settlement agent in Washington must present evidence of proper recording before the conveyance is complete.
Of the multiple checks written at closing by the settlement agent, not to be forgotten is the one the agent writes to itself. The settlement fee amount is pegged largely to the loan amount and state regulations. It usually ranges between $800 and $2,000, paid by either the buyer’s funds or the seller’s proceeds, or they split it. If an attorney is the settlement agent, he or she might separate the charges for document review and closing services. Alternatively, a combined charge could appear under “Attorney’s Fee.” At any rate, the dollar amount should be very close — if not identical — to the settlement fee figure on the Loan Estimate.
According to the Real Estate Settlement and Procedures Act (RESPA), a buyer or refinancing owner has the option to select the closing agent for their transaction. This right is tempered by two realities. First, most borrowers have little exposure to title agencies and are likely to defer to the realtor or lender as to who should do the job. Secondly, lenders can refuse to work with certain escrow officers who have a record of not following the closing instructions. RESPA allows lenders to select the settlement agent though most will defer to a borrower’s choice.
If a bank or finance company insists on a certain closing agent, they will reveal this in the initial disclosure documents at the time of application. Prospective borrowers should ask their loan officer about the details of the settlement, including the personnel involved, so they will know their rights and privileges from the beginning. Nobody likes surprises when applying for a mortgage loan.
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