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What is it?

During the Inspections phase of the closing process, you get to take a close look at the physical condition of the property in order to better understand what it is you’re buying.  Through the help of professionals, you can identify any physical or environmental defects that, if not addressed by the Seller, would stop you from proceeding with the purchase of the property.

Our explanation of the Inspections phase will focus on the basic inspections framework and how to make sure you get through it with as little stress as possible.  For more detailed guidance on home inspection standards of practice and home maintenance and repair issues, consult a local home inspector or contractor.

Why is it important?

Buying a property without knowing its actual condition can be a recipe for disaster.  If buyers had to commit to closing on properties without any real grasp of whether there are major problems with the home’s mechanical systems or structural components, any deferred maintenance items on the horizon, or any unsafe environmental conditions, many new homeowners would quickly find themselves in hot water dealing with issues that they can’t afford to fix or that even jeopardize the safety of their families.

To avoid this problem, if you’re buying a home in New Jersey, your Contract will provide for an inspections contingency that affords you:

1. the right to have the property inspected for physical and environmental defects by a state-licensed home inspector (and by other experts, as applicable); and also,

2. a legal framework for negotiating the repair of defects with the Seller, including the right for you to terminate the Contract under certain circumstances.  (This is why it is called a “contingency.”  Your obligation to complete the purchase of the property is contingent upon — i.e., conditioned upon — you and the Seller being able to reach an agreement as to inspection issues.)

The Inspections phase is where this inspections contingency plays out, beginning with the physical inspection of the property by a professional home inspector, followed by the negotiation of inspection issues between you and the Seller…and ending with either the removal (or satisfaction) of the inspections contingency or, if the parties are unable to come to an agreement as to the repair of inspection issues, the termination of the Contract.

Note that it is extremely rare for a buyer to waive the inspection contingency, as the stakes are obviously high in doing so.  Exceptions to this rule might be investor-buyers or buyers who plan on demolishing an existing home and building new.  Rather than waive the inspections contingency entirely, it’s somewhat more common for buyers to agree to put limitations on their inspections contingency as part of their offer, in an attempt to make their offer more appealing to the Seller.  A few examples of this might be the Buyer offering to:

· Limit inspections issues to “major” issues only (although whether an issue is “major” is ultimately a fuzzy, subjective determination, so this amounts to more of an assurance to the Seller that the Buyer won’t “nit-pick” during inspection negotiations);

· Limit inspections issues to structural or mechanical issues only;

· Absorb the first $______ of inspection issues (such that, if the inspection issues don’t total more than that amount in cost, the buyer can’t request any repairs of the Seller).

· Perform an inspection for informational purposes only (i.e., the Buyer agrees that it won’t ask the Seller to make any repairs but retains a right to walk away for any defects that are identified).

How does it work?

The Inspections phase of the closing process begins as soon as Attorney Review concludes.  Your Contract with the Seller will stipulate a time within which you must complete your inspections.  The most common allotted time is 10 or 14 days, calculated from the date that Attorney Review concludes.  But in a competitive, “seller’s” market, it’s not surprising to see buyers offering to complete their inspections within as little as 7 days. 

It’s important to note that “completing inspections” means not only performing the actual physical inspections at the property, but also providing the Seller with any repair requests and copies of the inspection reports, all within the allotted time.  So waiting until the end of your allotted time period to get the actual inspection performed at the property is not wise.

To that end, the steps of the Inspections phase are: 

STEP 1:  Choose a Home Inspector

Ideally, you would start researching home inspectors during Attorney Review, so that you’ve decided which inspector you’d like to use by the time Attorney Review concludes and can get on his schedule as soon as possible thereafter (again, most inspectors will not put you on their schedule until you’ve concluded Attorney Review). 

Many buyers make the mistake of not doing adequate due diligence on home inspectors and instead immediately hire the first name they hear from their agent or friends.  Hiring a home inspector is one of the most critical parts of the home buying process, for obvious reasons.  In fact, the Inspections phase is the most common phase where transactions fall apart.  You should therefore pick a home inspector as carefully as you would pick any other member of your team of experts, like your closing attorney, real estate agent or mortgage lender. 

Talk to two or three licensed home inspectors and ask:

· How long have they been a licensed inspector?  Do they have any other special accreditations or experience, such as ASHI certification or an engineering degree?

· What are their fees for a general home inspection, radon test, and wood-destroying-insect inspection? (See below for a description of these standard inspections.)

· What is their availability for the projected week in which you expect to conclude Attorney Review?

· How quickly can they get you their written report once the inspection is completed?  Many inspectors can get you their report within 24-48 hours.

· Can you see an example of their report?

· Will their report include photos?

If you’re able to speak with the actual inspector himself, as opposed to his office manager, try to get a sense of his communication style, approachability and demeanor, and whether they jive with you.  If you’re finding it hard to connect with the inspector over the phone, chances are you’ll have trouble doing so during the actual inspection, when he’s trying to explain the inner workings of the house to you. 

STEP 2:  Schedule Your Inspections

As soon as Attorney Review concludes, you should call your chosen inspector and arrange to have the following standard inspections performed as soon as possible, bearing in mind that you’ll need to (a) complete all inspections, (b) receive and review all inspection reports, (c) determine what repair requests (if any) you’d like to ask of the Seller, and (d) have your attorney draft a letter to the Seller’s attorney conveying those requests…all within the allotted time of typically 10 or 14 days:

Inspection:

Performed By:

Average Cost*:

General Home Inspection

NJ Licensed Home Inspector

$400-600

Radon Test

NJ Licensed Home Inspector

$200

Wood-Destroying Insect Inspection

NJ Licensed Home Inspector

$100-200

Oil Tank Sweep

NJ DEP-Certified Tank Services Company

$250

* For an average single-family home; prices may vary with type and size of property.

The general home inspection, radon test, and wood-destroying insect inspection will typically all be conducted at the same time, as most licensed home inspectors are able to perform all three.  The oil tank sweep, on the other hand, should be performed by a state-certified oil tank services company.

General Home Inspection

The general home inspection (GHI) is a high-level, visual examination of the condition of a property by a state-licensed professional home inspector, for the purposes of identifying any physical defects or certain environmental hazards at the property.  The inspector looks at both the exterior and interior of the property, including:

Exterior: foundation, siding, roof/gutters, drainage, chimney, walkways/driveway, sidewalks, windows, doors;

Interior: mechanical systems (electrical, plumbing, HVAC); structural components; walls/floors/ceilings/windows/doors; fireplace; ventilation/insulation; appliances.

It’s important to note that the GHI is non-invasive, meaning your inspector will not be taking anything apart to look inside it and generally won’t be moving things around.  In that sense, there are some limitations to the scope of a GHI.  But home inspections are a regulated profession in New Jersey and, as a licensed professional, your inspector will be following state-mandated standards of practice in conducting your home inspection.

Radon Test

Most home inspectors will perform not only the GHI, but also the radon test and/or wood-destroying insect inspection, per your request and for an additional fee(s). 

Radon is an odorless, tasteless, invisible, gas produced by the radioactive breakdown of naturally-occurring radium existing in most soils.  It enters a home from the ground, seeping into the interior through cracks or other openings in the foundation.  Radon is a Class A carcinogen for humans and the second-leading cause of lung cancer, which is why it is critical that a property be tested for elevated radon levels prior to purchase.

The radon test entails your inspector leaving a radon testing device in the home at the lowest habitable level (typically the basement) for 2-4 days, and then picking up the device at the end of that test period and sending it to a certified laboratory for analysis.  The test result is a measure of the concentration of radon gas detected in the home during the test period and will be sent by the lab to your home inspector when it’s ready.  Your inspector will then forward it to you. 

A radon test result of 4.0 picocuries per liter (pCi/L) or higher is deemed unacceptable.  In that event, generally the Contract will provide that, if the Seller refuses or is unable to remediate the radon level to below 4.0 pCi/L (through the installation of a radon mitigation system), you can terminate the Contract. 

Note that you should proceed with a radon test even if the property has an existing radon mitigation system, as the system may not be working properly or may not be sufficiently reducing the radon level to below 4.0 pCi/L.

Wood-Destroying Insect Inspection

For an extra fee, your home inspector typically will also be able to perform a wood-destroying insect inspection (WDI) of the property at the same time as he is conducting the GHI and radon test.  Many people refer to the WDI as a “termite inspection,” but the inspector is in actuality looking for more than just termites — other wood-destroying insects include carpenter ants, carpenter bees, and wood-boring beetles.

The results of the WDI will most commonly be presented to you in a standardized document called a Wood-Destroying Insect Inspection Report (a.k.a., Form NPMA-33).  The report will state:

· whether your inspector did or did not observe any evidence of wood-destroying insects;

· what types of evidence he observed, if applicable (live vs. dead insects, or visible damage caused by wood-destroying insects); and,

· whether and what kind of treatment is recommended.

If your inspector didn’t see any live or dead wood-destroying insects but observed damage caused by wood-destroying insects, he will typically advise you to check with the Seller about any wood-destroying insect treatments that may have been undertaken in the past to address the infestation that caused the observed damage.

QUICK TIP!  In the past, mortgage lenders required that buyers obtain a WDI and that any WDI issues be addressed prior to closing.  Today, however, most lenders don’t require a WDI.  (Lenders don’t see the inspection reports!)  The exception to this is with respect to Veteran’s Administration (VA) loans — not only are VA borrowers required to obtain a WDI, but they also aren’t allowed to pay for it themselves (the Seller or one of the real estate agents typically covers it, usually by issuing the Buyer a credit at closing in the amount of the WDI fee).

Oil Tank Sweep

In addition to hiring a licensed home inspector to perform a GHI, radon test and WDI, you’ll need to hire a state-licensed oil tank services company to perform a tank sweep (a.k.a., a “tank scan”) to identify whether there are any underground oil storage tanks (“USTs”) at the property.  A tank sweep involves:

– a visual assessment of the property for any physical signs that it was heated by oil fuel in the past or the present, such as vent and fill lines protruding from the ground, or oil supply lines running through the foundation walls of the home, into the basement;

– a scan of the property, typically within a 30-foot radius from the house, using a magnetic locator device (akin to a more advanced metal detector) and/or ground penetrating radar equipment, to identify any tanks in the ground.

The problem with USTs — the reason why it is critical to perform a tank sweep as part of your inspections — is their propensity to deteriorate over time and develop leaks.  Holes and cracks in the USTs leach oil into the surrounding soil and sometimes the groundwater as well, requiring expensive remediation measures.

Due to the overall age of New Jersey’s housing stock, many homes are old enough to have been heated by oil fuel at some point in the past.  Oil fuel was particularly popular as a home fuel source during the postwar period of the 1940’s and 1950’s, although there is no hard-and-fast rule for whether and when a home ever used oil heat; homes used oil heat as early as the early 1900’s, and there are many homes that are still heated with oil today.

Decades ago, homeowners largely buried their oil tanks in the ground, as it was not until the 1960’s that the environmental risks posed by leaking tanks started to come to light.  As a result, when owners converted from oil to natural gas for their home heating fuel, underground oil tanks were oftentimes left in the ground, sometimes without even first being drained of any remaining oil.  Those tanks inevitably deteriorated over time and developed holes and cracks through which oil was discharged into the surrounding soil, possibly even reaching and contaminating neighboring properties or the groundwater. 

Alternatively, many tanks started leaking while still in active use, implicating years of slow but steady soil contamination as the tanks were repeatedly refilled during every cold season.  Once these compromised tanks were abandoned in the ground in favor of natural gas systems, the undiscovered contamination remained, until an unwitting buyer performs a tank sweep at the property years later that leads to the discovery of the tank and, upon the tank’s removal, the contamination as well.

In New Jersey, if you fail to conduct a tank sweep and buy a property with a leaking tank, that contamination becomes your problem to remediate, regardless of whether you knew of the contamination at the time of purchase.  This state of the law has led to buyers conducting tank sweeps as a matter of standard practice, as part of their inspections of the property.  When a buyer unwittingly purchases a property with a UST, the tank’s existence (and the existence of any associated contamination) oftentimes goes undiscovered until the time comes to sell the property years down the line and their buyer inevitably performs a tank sweep.  At that point, movement toward the closing must cease pending the removal of the tank and remediation of any contamination.

On average, UST removals cost $1500-$2000.  Once the UST is removed from the ground, it is inspected for any holes.  If any cracks are observed or any daylight shines through even the tiniest pinhole, the tank is deemed to have been compromised and the tank company must immediately call the NJ Department of Environmental Protection to open a case file for the property as a contaminated property.  The tank company will then collect soil samples from around the area where the tank was located and send them to a lab for chemical analysis.  If the test results reveal concentrations of petro-chemicals in excess of state-mandated thresholds, then the property must undergo remediation.

Basic soil remediations start at around $10,000 and involve the excavation of impacted soil and its replacement with clean soil, but costs climb steeply from there, such as when groundwater has been impacted by the leaked oil, requiring a groundwater remediation.  Sometimes the Contract of Sale for a property must be cancelled entirely, as extensive remediations can cost upwards of hundreds of thousands of dollars and take years to complete, essentially rendering the property unsalable for that time. 

While today, it is technically still legal in New Jersey to “decommission” an underground oil tank “in place” — meaning, hiring a state-certified tank services company to drain it of oil, fill it with sand or gravel, and then leave it in the ground, all with the proper permits from the municipality — the real estate market itself will not support this approach and, instead, demands that all underground oil tanks be removed.  In other words, with the rare exception, buyers in today’s residential market are not willing to purchase a property that has a tank in the ground.  In the same vein, sellers are being uniformly advised by their real estate agents to remove their underground oil tanks prior to listing.  And, many lenders won’t approve a mortgage loan on a home that has a decommissioned tank in the ground. 

If a property has an active UST, meaning the house is fueled by oil heat from a UST, the market dictates that the Seller will need to have the UST removed and an aboveground oil tank installed (usually in the basement of the home) prior to closing.  While it is possible to conduct tank integrity tests to help a buyer determine whether an active UST is leaking or fully intact, such tests are not foolproof, carrying about a 95% accuracy rate.  Because of this, closing attorneys and realtors alike advise their buyer clients not to purchase a property with a UST in the ground, whether active or inactive.

Additional (“As Needed”) Inspections

In addition to the four standard inspections described above (GHI, radon test, WDI, and tank sweep), there are a few other initial inspections that you may decide to perform at the property, whether on account of the specific features of the property, the custom and practice of the geographic area in which the property is located, or simply your own inclinations. 

(Note: We distinguish between these additional initial inspections — which would happen concurrent with your GHI — versus follow-up inspections, which arise out of your home inspector’s findings during the GHI.) 

A brief description of some of these additional initial inspections is provided here (for more detailed information, browse related NJ Closing Guide Blog articles): 

Sewer Line Inspection.  This inspection used to be more prevalent in certain geographic areas, such as Essex County, but over the past few years has become more ubiquitous.  A closed-circuit camera is snaked through the main sewer line of the home, which is the waste drainage pipe that runs from the home to the municipal sewer main in the street.  The resulting video footage helps to identify whether there are any blockages or breaks in the line that might require attention. 

Sewer line repairs can range from a simple sewer line cleaning (hydro jetting water through the pipe to clear obstructions), to minimally-invasive (“trenchless”) installations of a pipe liner, to the most invasive complete replacement of the sewer line, which is very costly.

Pool Inspection.  If the property you’re purchasing has a pool, you’ll need to hire a professional pool services company to conduct a pool inspection.  This involves assessment of:  the surface areas of the pool (deck, coping, liner, foundation); the component parts of the pool, such as drains, handrails, lights and safety fencing; and the pool equipment (filtration system, pumps, motors, heater, timers, electrical, etc.). 

Notably, since homeowners have to winterize their pools just before the start of the cold season in order to remove all water from the lines and prevent pipes from bursting during freezing temperatures, this makes pool inspections a bit trickier during the winter months, because pools are not fully functional at that time and have been covered. 

But a pool inspection can nevertheless still be performed, with some limitations.  For example, the cover can be partially peeled back (with the understanding that the parties need to agree upon who will pay for the re-closing of the cover afterwards), all parts visually inspected for defects, and motors electrically tested.  If a pool was professionally winterized, the lines are more likely to be in decent condition, it’s a good idea to ask the Seller for copies of the winterization receipt/paperwork from the pool company, as well as any past records associated with the pool’s maintenance.

Septic System Inspection.  Homes that are not connected to a municipal sewer system will have a private septic system for their waste removal.  A septic system is comprised of an underground septic tank into which domestic waste water (“effluent”) flows, where it then settles and is further broken down by bacteria, and then carried by outlet pipes to a drainage field (“septic field”), where it is disbursed and absorbed into the ground for further decomposition.  Most of North Jersey is connected to public sewer systems, while properties in the more rural areas on the western side of the state might be more likely to have septic systems. 

When you’re buying a home with a septic system, that system needs to be inspected by a state-licensed septic contractor.  If there are defects found with the system, their repair prior to the closing should be negotiated between you and the Seller.

Well Water Testing.  If you’re buying a home that gets its water from a private well on the property, rather than a municipal water system, New Jersey law (the Private Well Testing Act) requires that the well water be tested for compliance with state water safety standards prior to the closing. 

However, the law does not specify which party — the Seller or the Buyer — must perform (and/or pay for) the test, so this can technically be negotiated upfront, during Attorney Review. Neither does the law specify what needs to be done in the event that the well water fails the test.  But the general custom and practice in New Jersey is for the Seller to perform and pay for the standard water test, with the expectation that, if the water fails that test, the Seller will remediate (treat) and then re-test the water prior to closing to prove compliance. 

If the Buyer wishes for additional testing for secondary contaminants not included in the standard water test, that will typically fall upon the Buyer to perform.  Private wells are more common in the more rural/less dense parts of the state, such as western New Jersey.

Lead Testing.  Lead tends to be one of those words that instantly instills fear in buyers.  However, this fear is often born of certain misconceptions about the dangers of lead.  A huge percentage of homes in New Jersey have some amount of lead in them, most often in the form of lead-based paint.  This is because of the age of the state’s housing stock — New Jersey has a lot of older homes — and the fact that lead was very commonly used in paints up until 1978, when the government banned the use of lead-based paint in residential homes. 

While, yes, lead is certainly dangerous to humans, it is dangerous only when ingested or absorbed into the body.  This means the main worry when it comes to lead inside a home is the presence of chipping or peeling lead-based paint and the possibility that a child will eat those paint chips or play with them and then put their fingers in their mouth.  If a home does not have crumbling or peeling paint, the lead risks are remote. 

Moreover, most homes have been repainted since 1978, so any original layers of lead-based paint have been encapsulated by the layers of new paint.  For these reasons, most buyers don’t perform lead testing as part of their inspections.  When the rare buyer does perform lead testing and, as is practically inevitable, finds that there is lead-based paint somewhere in the house, it is arguably not a defect that can be raised as an inspection issue unless the surface is in poor condition and chipping or peeling. 

(Note:  When a buyer is applying for an FHA or VA mortgage loan, the accompanying FHA or VA appraisal tends to be more strict than a conventional loan appraisal, and FHA/VA appraisers will flag any chipping or peeling paint that they observe and the FHA/VA lender will require that it be repaired prior to closing as a condition of closing the loan.

STEP 3:  Perform Your Inspections

It’s critical that you plan to attend the GHI (which includes the radon test and WDI) in person, not only so you can see, first-hand, any issues identified by your inspector, but also because the GHI is a unique, “one-time only” opportunity for you to get a comprehensive tutorial on the specific features and maintenance requirements of your particular home, from a professional. 

In that sense, think of the GHI as a crash course on owning your home.  You should ask plenty of questions and take notes, so bring a notepad, pen and your phone to take photos with (your inspector should be taking his own photos as well, for inclusion in his report).  These notes, along with the written inspection report that your inspector will prepare, function as a snapshot of your home at that specific point in time.  From it, you’ll know what needs to be repaired, replaced or upgraded and when, so you can plan for the long term accordingly.

The GHI, with radon test and WDI, typically takes anywhere from 2-4 hours to complete, depending on the size of the property, the nature and number of issues detected, and the extent of time taken by your inspector and you to discuss the home’s features and inner workings.

STEP 4:  Arrange for Any Follow-up Inspections and Estimates 

A home inspector is most often a “jack of all trades, master of none,” meaning his knowledge tends to be broad in scope, but not necessarily expert-level in any individual areas.  If, during the home inspection, your inspector comes across an issue that’s beyond his expertise and calls for more in-depth assessment, he’ll advise you to obtain a follow-up inspection of that issue with an expert in the pertinent field. 

For example, if your inspector conducts a Level I chimney inspection as part of the GHI and determines that there might be additional defects within the chimney that are beyond the visual scope of the GHI, he’ll recommend that you obtain a Level II chimney inspection from a chimney expert, which involves sending a camera up the chimney flue.  Or, your home inspector might observe defects with the roof that merit a closer look by a roofing contractor, or potential mold in the basement or attic that a mold remediation specialist should take a look at. 

Examples of follow-up inspections your home inspector might recommend, based on his findings during the GHI:

· Level II Chimney Inspection

· Roof Inspection

· Asbestos Testing

· Mold Testing

· Structural Inspection

You should proceed with arranging for any follow-up inspections immediately after the home inspection is complete, as they can often take time to get done given contractors’ busy schedules.   

Note that, with follow-up inspections, you’re essentially calling an expert contractor to get both his professional opinion on the issue in question and an estimate for the repair of the issue.  Accordingly, a follow-up inspection will not only help identify the exact nature of the problem, but also tell you how much it will cost to resolve it.  This gives you a number and scope of work on which to base any negotiation with the Seller, whether you’re negotiating for the repair of the issue or a credit for same).  

Be aware that some contractors charge a fee for an estimate appointment, so be sure to ask them about this upfront, while you’re on the phone.  Once you receive your home inspector’s written inspection report, you should send the relevant portions to any contractors you’ve enlisted for follow-up inspections/estimates.  This will help the contractors understand the potential issues and context within which they’ve been summoned.  

STEP 5:  Review Inspection Reports and Determine Repair Requests

Your home inspector will email you his written inspection report anywhere from 1-2 days after the inspection is completed.  Forward the report to your closing attorney and real estate agent, if they have not already been copied.  (Because the radon test takes about 10 days in total to complete, your radon test will still be pending.  That’s fine — your attorney will reserve your right to make additional repair or remediation requests with respect to the radon test.)

You should also obtain written reports and estimates from each of your follow-up inspections. 

Next, you should review the reports and begin to whittle the inspection issues down to a “short list” of items that you’d like to ask the Seller to repair prior to closing.  To help get you to your short list, ask yourself, “Which items matter to me enough that, if the Seller didn’t agree to fix them, I would really second-guess whether I wanted to proceed with the purchase of the property?”  As part of the whittling down process, you should also speak with your real estate agent, as he or she has the experience to advise you as to which inspection issues tend to be good fodder for inspection negotiations, versus which issues are considered overreaches or are simply never agreed to by sellers.  

Remember: There’s no such thing as a defect-free home; even new construction homes have defects.  Neither is a home expected to be defect free at closing.  So try to adjust your expectations accordingly and think of the inspection negotiations as a balancing act between those issues that you absolutely need the Seller to repair before closing (or else you don’t want to buy the home), and those issues that you’re okay with taking on yourself after closing.  (In this vein, one of the primary purposes of the GHI is to identify and distinguish between defects that call for immediate repair, and “deferred maintenance” items that can be put off for some amount of time.)

QUICK TIP!  It’s never a good idea to take the approach of “ask for double the amount of things you really want, in order to end up with half.”  Sending a repair request letter to the Seller that contains a long list of items sends the wrong message to the Seller and can get negotiations off to a bad start.  You risk not only appearing unreasonable and immediately putting the Seller on the defensive, but also diverting attention away from the top-priority items that you really want the Seller to address.

When coming up with your short list, there may be certain inspection issues for which you’d rather receive a credit from the Seller, as opposed to having the Seller make the repair prior to closing.  Maybe you plan on doing some renovation work in the house after closing, making the repair of a given item a waste.  Or, maybe you’d just rather be in charge of the repair yourself, including which contractor does the work.  Or maybe you’re okay with either a repair or a credit.  For such items, you would simply specify, in the repair request letter that your attorney prepares, that you’d like a credit for a given item (in the amount of $X, if you have an estimate from a contractor).

(Note:  It’s generally a good idea to ask for a credit in a specific amount, to set the framework for a negotiation with the Seller.  Otherwise, you’re leaving it up to the Seller to establish the ballpark for the negotiation.  If you don’t have an estimate for that item and therefore don’t know the cost to repair it, you’re relying on the Seller to obtain an estimate or throw out his own figure.)

Any credit that the Seller agrees to provide you for inspection issues will be applied as a credit against your closing costs at the closing.  In that sense, a credit is ‘cash in your pocket’, because you will be bringing that much less money to the closing.

QUICK TIP!  Can I insist on a credit?  While buyers frequently ask for a credit in lieu of repair for a given inspection issue, it’s important to understand that the Seller does not have to agree to provide the credit.  If the Seller instead agrees to make the repair, that will likely be deemed an acceptable response under the legal framework of the standard inspection contingency, which typically provides that the Buyer can only terminate the Contract under the inspection contingency if the Seller refuses to repair any of the inspection issues raised by the Buyer.  But as with any legal question, consult with your attorney, as the language of your particular Contract will govern.

STEP 6:  Your Attorney Sends a Repair Request Letter to the Seller’s Attorney

Once you’ve come up with your short list of inspection issues to take to the Seller, you should discuss them with your closing attorney.  Your attorney will then prepare an inspection letter conveying your repair (and/or credit) requests to the Seller.  The letter  will be emailed to the Seller’s attorney along with copies of all the inspection reports supporting the repair requests. 

Notably, in order to expedite the inspection negotiations process, and given the amount of time it can take to get follow-up inspections completed, your attorney may decide to prepare and send the inspection letter before you’ve completed your follow-up inspections.  In that case, any items that are still being investigated (i.e., that are pending follow-up inspection) will typically be noted in your repair request letter, with accompanying language along the lines of:  “The Buyer is obtaining a follow-up inspection of this item and reserves his rights with respect to same.”

STEP 7:  Receive the Seller’s Response to Your Repair Requests 

Once your inspection letter and reports have been sent to the Seller (by way of the Seller’s attorney), you’ll need to give the Seller time to obtain their own professional opinions and estimates of the issues identified in your repair request letter.  The standard amount of time given to sellers to respond to buyers’ inspection requests is seven (7) days, although as with all other deadlines in the Contract, this one is not hard. 

Once the Seller has gathered opinions and estimates of their own, the Seller will decide how they want to respond to your repair request letter and will have their attorney prepare an inspection response letter and email it to your attorney. 

Your attorney will forward that letter to you, at which point you should review it and, in consultation with your real estate agent and your attorney, determine whether the Seller’s response is acceptable to you, or whether it is not acceptable and you want to counter their response.

STEP 8:  Additional Rounds of Negotiation, As Necessary

If the Seller’s response to your repair requests is not acceptable to you in whole or in part and you wish to counter their response, your attorney will prepare a reply letter conveying same and send it to the Seller’s attorney.  The Seller would then either accept your counter or send another response letter with another counter.  Successive rounds of negotiation between you and the Seller will continue until an agreement is reached as to the inspection items in question.

STEP 9:  Conclude the Inspections Contingency (or Terminate the Contract)

Once you and the Seller reach an agreement as to all repair requests, the attorneys will deem the inspection contingency “concluded” or “satisfied.”  This ends the Inspection phase of the closing process.

If the Seller has agreed to make any repairs, he will need to complete them and provide you with copies of any paid receipts for the work, prior to the closing.  If the Seller agreed to provide you with any credits for inspection items in lieu of repair, those credits will appear on the final settlement statement at the closing, effectively reducing the amount of money you will need to bring to the closing by the amount of the credits.  

If, on the other hand, you’re unable to reach an agreement with the Seller as to your repair requests and, accordingly, you don’t want to proceed with your purchase of the property, the conventional legal framework for the inspection contingency allows you to terminate the Contract based on Seller’s refusal to agree to any one of your repair requests.  Some Contracts are written in such a way that the Seller also has the right to terminate the Contract if the parties can’t agree on inspection items.  If either you or the Seller terminates the Contract pursuant to the inspection contingency, then you’ll be entitled to a prompt return of your deposit money.

 What is it?

“Title” refers to ownership rights in a property.  The process of buying a home can be boiled down to the legal transfer of title to the property from the Seller to you (the Buyer).   

The Title phase of the closing process is when the Seller’s title in the property is investigated by a licensed title company to determine whether it is, in fact, “clear and marketable” (meaning, free of issues and sellable).  Of the seven phases of the closing process, the Title phase requires the least involvement from you, since its focus is on examining the property’s history and the Seller.  The title company and your attorney will be the primary participants in the Title phase, so from your perspective, it’s a time when you can come up for a little air and regroup after the very hands-on experience of the Inspections phase.

Why is it important?

Just as your Contract with the Seller contains a mortgage contingency and an inspections contingency, it also contains a title contingency.  That title contingency specifies the quality of the title that the Seller needs to be able to convey to you at the closing — in other words, how clean the title history of the property needs to be.  Specifically, the Seller must be able to provide you with what’s called “clear and marketable” title at the closing.  If the Seller is unable to convey clear and marketable title to you, then you can terminate the Contract.

Clear and marketable title means your title to the property upon closing — i.e., your ownership rights in the property, as conveyed to you by the Seller at the closing — must be sufficiently free of any defects and outside claims against your rights, such that a title insurance company would be willing to insure your ownership rights in the property going forward from the closing, by issuing you a title insurance policy.

The title insurance policy that gets issued to you upon closing is called an Owner’s Policy of Title Insurance.  This Owner’s Policy will protect you against any losses you might incur as a result of defects in the chain of title leading to your ownership of the Property unexpectedly coming to light after you become the owner. 

Some examples of title defects include:

· liens on the property;

· invalid deeds;

· undisclosed heirs of prior owners; and

· mistakes in the recording of property documents.

Without title insurance to protect you, if defects in the chain of title come to light after you’ve become the owner of the property, you’d be on your own to defend yourself against those outside claims threatening your ownership rights.  At worst, you could potentially suffer the loss of the entire property in the face of those claims.  (Given these high stakes, it is no wonder that pretty much all buyers purchase an owner’s title insurance policy at closing, even though it is technically “optional.”)

Notably, the Title phase of the closing process makes sure not only that your ownership rights are protected, but also that the lender’s interests in the property are protected as well.  Remember, the property is the collateral that you’ve pledged to your lender for the loan that the lender is making to you.  If your ownership rights in the property are threatened by a defect in the chain of title, that is a threat to the lender’s security.  For this reason, generally any time you obtain a mortgage your lender will require that you purchase a Lender’s Policy of Title Insurance for the lender, to protect the lender against any title-related losses that it might suffer.  (While yes, you have to pay for both your Owner’s Policy and the Lender’s Policy, the premiums for both policies are one-time payments, made at the closing.)

QUICK TIP:  Does title insurance protect me against the past or the future?  While your Owner’s Policy coverage begins as of the closing, it is important to understand that the policy only protects you against covered title defects that existed before the closing.  In other words, you should think of your title policy as insuring you against title defects that were missed or undiscoverable when the title company performed its Title Search of the public records.  It does not apply to title defects that arise after the closing.  So, for example, your Owner’s Policy won’t cover you if you default on a debt after the closing and the creditor places a lien on the property.

How does it work?

There are three general parts of the Title phase:  

Title Search:  The investigation of the title history of a property by a licensed title company.

Title Commitment:  The written report prepared by the title company presenting the results of its title search, and the title company’s promise (“commitment”) to insure your title to the property as of the closing, as long as any title defects identified in the commitment are cleared before the closing.

Clearing Title:  The process of curing any title defects identified in the title commitment, in order to enable the Seller to convey clear and marketable title to you at closing.

STEP 1:  Your Closing Attorney Orders a Title Search from a Licensed Title Company

Most closing attorneys wait until the Inspections phase is concluded to order the title searches for a property.  This is because title searches cost money and time that would be wasted if the transaction never made it past the inspections contingency. 

While you have the right to choose which title company your attorney orders the title work from, custom and practice is for your closing attorney to choose, since your attorney will presumably have a longstanding and dependable working relationship with one or a few companies.

STEP 2:  The Title Company Performs the Title Search

The title company searches the public records to look for any deeds, easements, rights or restrictions, mortgages, other land records, judgments or liens that affect the title to the property.

The goal is to confirm the Seller’s legal ownership of the property and verify that there are no prior or current claims against the property that could impact the transfer of clear title to you at the closing.  The search process takes, on average, 5-7 business days.  

STEP 3:  The Title Company Issues a Title Commitment

After conducting its numerous searches and examinations of the public records and the title history of the property, the title company prepares a title commitment, which is the title company’s agreement (“commitment”) to issue a title insurance policy to you and your lender as of the closing, as long as you satisfy certain listed conditions and requirements and the Seller clears any title defects prior to the closing.

The title company will provide an electronic copy of the title commitment to your attorney, who will forward copies to both you and your lender.  Your lender’s own title department will need to review the title commitment to confirm clear title as well.  (A title commitment is always listed as a remaining condition on the mortgage commitment that must be satisfied for final loan approval.)

STEP 4:  The Seller Clears Any Title Defects 

Because a title commitment is not an easy document for a lay person to understand, your attorney will explain to you anything notable found in the commitment.  If the title commitment identifies any title defects that need to be cleared by the Seller prior to the closing, your attorney will also notify the Seller’s attorney of those title defects.  The Seller’s attorney will then work with the Seller and the applicable outside parties — usually creditors — to cure those title defects. 

For example, if the title commitment identifies an old mortgage on the property that was taken out by a prior owner and hasn’t been discharged “of record” (i.e., in the county land records), the Seller will need to track down that lender and, assuming the mortgage was long ago paid off, obtain a “Discharge of Mortgage” document from the lender that can then be filed in the county clerk’s office.

The Contract will stipulate the time within which a title defect must be cleared, most often 30 days.  Title defects can, therefore, cause delay to the closing.

In the rare but unfortunate event that the Seller cannot clear a given title defect, you will typically have the right to terminate the Contract.

STEP 5:  Your Attorney Orders a New Survey of the Property

A property survey is a document depicting the precise location of the property’s boundaries and any improvements and structures within them, as a schematic of angles and measurements.  While most lenders don’t require that buyers obtain a new survey as a condition of loan approval, you should plan on getting one (and your attorney will likely advise you the same).  The purposes of a survey are two-fold:

· A new survey will give you the most current snapshot of the property, along with any encroachments, boundary issues, setbacks, etc. 

· A new survey will allow you to obtain a survey endorsement (i.e., an add-on of coverage) to your title insurance policy that will provide coverage to you for any title-related loss you incur as a result of any inaccuracies in the survey.

On average, a survey of a property that is less than one acre in size costs between $600-800 and takes 7-10 days to complete by a licensed surveyor.  While some surveyors allow buyers to pay for the survey at the closing, along with all of their other closing costs, some surveyors require payment upfront.  Because you don’t want to order a survey until you’re fairly sure your deal is going to make it to closing, many attorneys will wait until the Title Commitment comes back clean to order the survey.

How do I prepare for it? 

1.  Good news – you don’t!  At least, not really…  The Title phase will be largely handled by your attorney, the title company and, if there are title issues that need clearing, the Seller’s attorney and the Seller.  So there’s not much you can do but wait and see what the title search and survey reveal about the property. 

However, while the title search of the property has nothing to do with you (and everything to do with the Seller and prior owners), you aren’t completely left out of the mix:  you should avoid getting any legal judgments against you because the title company runs searches against your name in addition to the Seller’s and prior owners’ names when they’re searching court records.  If you’ve got a judgment or other lien against you that your lender doesn’t already know about, it will come to light during the Title phase and can cause real problems with your mortgage application.  After all, lenders are very interested in knowing if their borrowers have defaulted on legal and monetary obligations in the past.

Things to remember:

*  Although purchasing an Owner’s Policy of Title Insurance is technically “optional,” you should definitely do it.  It’s a one-time premium payment made at the closing, to protect your far-larger investment in your home going forward.  While, yes, the chances of a title issue arising are slim, if one does arise it can cost you enormous amounts of money to defend and settle it, so the stakes are extremely high.  In that sense, the cost of title insurance is a small price to pay in the grand scheme of things.

*  Fences are never exactly on the property lines.  Theoretically, a property line has no real width.  This means that all fences, no matter how much they follow a property line, are never completely ‘on the line.’  Beyond this, minor fence mislocations tend to be the norm rather than the exception, as fence installation is not an exact science and oftentimes natural obstacles like trees or shrubs force deviations from the property line.  So don’t be surprised or alarmed when your survey comes back with fences that meander somewhat along the property line.  Large mislocations, however, 

What happens next?

After the Seller cures any title defects and you’re satisfied with the survey, the Title phase is complete.  The next phase of the closing process is a “pre-closing” phase where all remaining loose ends are tied up and logistical plans are set in motion for the closing and your eventual move. 

What is it?

The Preparation for Closing phase of the closing process is the pre-closing period when any loose ends of the transaction are tied up and final preparations are made for the closing itself, including setting the date and time for the closing.  It lasts as long as is necessary to get everything tee’d-up for the closing, so that there’s nothing left to do but show up on closing Day, sign the loan package and receive the Deed and transfer documents from the Seller.

This phase involves heavy participation from all of the main players in your transaction — you, the Seller, the attorneys for each of you, the lender, the title company, and the real estate agents — with everyone having their own specific tasks and to-do items to push through to get to the closing table.

Why is it important?

Preparation for Closing is essentially a catch-all period when everything still left to be done in order to make it to the closing table, is completed.  This might include everything from confirming that the Seller has completed any agreed-upon inspection repairs and the property has passed the municipal fire safety inspection, obtaining final loan approval from the lender, and finalizing the settlement statement for the transaction (so you know how much money you need to bring to the closing!)…to setting up utilities accounts, solidifying moving plans, and performing your final walk-through of the property.  By the end of this pre-closing phase, your transaction should be ready to close.

How does it work?

Once any title issues have been cleared, you’ll enter “Preparation for Closing” mode.  There are standard pre-closing task items that are common to all transactions, as well as miscellaneous pre-closing items that are specific to the facts and circumstances of your particular deal.

The standard pre-closing task items are described below.  Note that, while these steps tend to at least loosely follow the sequence in which they’re listed, their order can vary significantly from transaction to transaction:

STEP 1:  Obtain a Status Update from Your Lender

By the time the Title phase of the closing process is completed and you’re moving into Preparation for Closing, you most likely will have already received a mortgage commitment from your lender and will be in the process of clearing any remaining conditions listed in the commitment in order to get final loan approval and clearance to close.  This is a good time to regroup and make sure you’re on the same page as your lender about the path forward to closing. 

Specifically, you should get confirmation that the lender is waiting on any additional information or documentation from you (and if not, what exactly those items are) and that you’re on track to close on the closing date set in the Contract (and if not, then when). 

STEP 2:  Confirm the Seller’s Completion of Repairs and Closure of Open Permits

During Inspection negotiations, you and the Seller will have reached an agreement as to repairs that the Seller must complete prior to the closing.  It is during the “Preparation for Closing” phase that you’ll circle back with the Seller on these items to confirm that the repairs have in fact been completed.  Confirmation typically takes the form of the Seller providing you with copies of paid receipts for the work from the contractors that performed it.  (You will physically verify the repairs during your final walk-through.)  

In addition to confirming repairs, this is the time when you would seek verification from the Seller that any open permits for work performed at the property have been closed.  Typically, your Contract with the Seller will have required that the Seller close any open permits before the closing.  Your attorney and/or your real estate agent will have obtained the permit history of the property from the municipality at some point prior to this, and if the permit history showed any open permits, your attorney would have advised the Seller’s attorney of them so that the Seller could work on getting the permits closed before the closing.  Once they’re closed, the Seller should provide you with copies of the final permit approvals, or verification of final approvals can be obtained from the municipality by your attorney.

STEP 3:  Confirm that the Property Passed the Municipal Fire Safety Inspection

Whenever a home is re-sold in New Jersey, state law requires that the property pass a limited fire safety inspection conducted by a municipal inspector.  That fire safety inspection checks for the proper functioning and placement of smoke detectors, carbon monoxide detectors and fire extinguishers in the home.  If the property passes the inspection, the municipality will issue a certificate reflecting same, often referred to as a “Smoke Detector and Carbon Monoxide Detector Compliance Certificate,” “Fire Prevention Certificate,” or “smoke cert” for short.

On top of these baseline fire safety requirements, many municipalities add their own additional requirements that properties must meet in order to proceed with a closing.  These municipalities perform a more robust inspection of each property that includes checking for not only the state-mandated fire safety requirements but also other basic safety issues (like unpermitted work, missing handrails, working sump pumps, etc.), in order to issue what is most often referred to as a “Certificate of Continued Occupancy” (CCO).  

Regardless of what your municipality calls the municipal certificate required for the resale of a property, your Contract with the Seller will provide that the Seller is responsible for obtaining the certificate prior to the closing.  The Seller should provide you with a copy of the certificate once he’s received it from the municipality.

STEP 4:  Finalize Moving Plans to the Extent Possible

New Jersey’s soft closing dates can make solidifying moving plans difficult for buyers and sellers alike.  While lenders try to close on the closing date set in the Contract, your closing date and time won’t get officially scheduled and make it onto the lender’s closing calendar until the lender has given you “final loan approval,” a.k.a., clearance to close, which comes after you’ve cleared all remaining conditions in your mortgage commitment and the lender’s underwriting department is satisfied with your loan file.

If you’re planning to move into your new home soon after the closing, sometimes the moving company moving will need a firm moving date before you can give them one.  This is why Step 1 above — checking in with your lender to see if your loan is on track to close on the Contract closing date — is so important at the start of the Preparation for Closing phase.  It establishes an anticipated timeline for the closing and the many planning decisions that happen in the days (or sometimes weeks) leading up to it.  

To best navigate the tension between firm moving plans and the soft closing date, try to give yourself leeway with your moving date.  To the extent possible, build in a margin of error into the timing of your move, in case the closing date gets pushed by a day or a few days.  (The vast majority of transactions will close within a week of the original closing date, and many close on the actual closing date listed in the Contract.) 

Of course, if your mortgage approval process is lagging or getting complicated and you have numerous remaining conditions to clear, or there are unresolved issues between you and the Seller, don’t make moving plans until you have a clearer sense of when you’ll be able to close.  And even then, try to avoid moving on that anticipated closing date, because delays can still happen, whether on your part, the lender’s part, or the Seller’s part.  (You’re playing with fire if you schedule your move into your new house for the afternoon of the closing date set in the Contract.  There’s no guarantee that you’ll be able to close in the morning, let alone on that specific date.)  If you’re planning on having minor or major work done at the property before you move in, this time period between closing and move-in functions as a good buffer for the closing date.  

STEP 5:  Obtain “Final Loan Approval” and “Clearance to Close” from the Lender; Confirm a Closing Date and Time

As discussed in the Mortgage phase, once you’ve cleared all remaining conditions in your Mortgage Commitment, your lender will give you “final loan approval” and “clearance to close.” 

Think of “final loan approval” or “clearance to close” as the magic words in your home-buying journey.  They’re the lender’s official green light to proceed with the actual closing, so they mark the beginning of the final homestretch to the closing table.  It is at this point that the lender will officially add your closing to their calendar. 

While the lender will ask you what day and time you’d like to close, your preferred date will ultimately be subject to federal regulations governing the timing of closings and the lender’s own internal policies and procedures.  For example, a lender might require that closings be scheduled at least one week out from the date of final loan approval, per internal policy, while others have no such constraint.  The lender will reach out to your attorney to confirm that your preferred closing date and time work for your attorney, the Seller, the Seller’s attorney, and the settlement agent.  If not, a mutually acceptable date and time will be determined.

Also note that, as long as your loan application process has been going smoothly and as expected, and your loan processor has confirmed, at Step 1 above, that your loan is on track to close on the closing date named in the Contract, your chances are very good that you’ll actually close on that date (barring anything unexpected coming up on the Seller’s side).

STEP 6:  Receive the Initial Closing Disclosure from the Lender

Once your loan has obtained clearance to close and the closing has been calendared with the lender, your loan file gets sent to the lender’s own closing department, where it’s assigned to an individual “Closer” who’ll take the loan down the final homestretch and through the closing. 

The assigned closer’s first order of business is to prepare an initial version of the closing Disclosure.  The Closing Disclosure is the settlement statement for your purchase transaction; it’s a detailed accounting of all your transaction costs, loan costs and closing costs, plus any credits you’re receiving from the Seller or lender, and tell you exactly how much money you’ll need to bring to the closing in order to complete your purchase of the property — otherwise known as your “Cash-to-Close”.

Per federal regulations, the lender must provide you with a copy of the initial Closing Disclosure — and you must also acknowledge your receipt of it, typically by signing it — at least three (3) business days before the closing.  If this doesn’t happen by the third day before the date you’re scheduled to close, that closing date will have to get pushed back accordingly to comply with the federal rules.  So you should be on the lookout for the initial Closing Disclosure as you approach the third business day before the scheduled date for the closing.  

(Note that Saturdays count as business days for the purposes of calculating the three-day rule, so if the Closing Disclosure is issued and acknowledged on a Thursday, the soonest you can close is Monday of the following week.)   

WHAT’S IN A CLOSING DISCLOSURE?

The Closing Disclosure is an itemized accounting of all the charges, costs and fees imposed on the buyer and the seller in a home purchase transaction.  It also tabulates the amount the buyer needs to bring to the closing to complete the transaction.

Go to the CFPB’s Closing Disclosure Explainer >>

Confused about what, exactly, your closing costs will be? 

CHECK THIS OUT:  What Are My Closing Costs as a Buyer?

STEP 7:  Schedule the Transfer of Utility Accounts to Your Name

With the lender’s issuance of the initial Closing Disclosure, you’re likely just a few days away from the closing.  This is a good time to arrange for private utilities such as electricity, water and natural gas to be switched over to your name as of the closing date.  We say “private” utilities because public utility services (utilities owned or operated by the municipality) follow the property, rather than the owner or tenant, and therefore simply continue after the change of ownership to you.  Private utilities, on the other hand — such as PSEG or Elizabethtown Gas — provide services to your home based on a private contract between you and that provider; the service and the obligation to pay for the service do not follow the property but, rather, follow you, the contracting party, instead.

Many private utilities allow you to schedule the start of service via their website.  You should set the start of service for the closing date.  However, if the closing date then gets delayed for some reason, you’ll need to similarly reschedule the start of service with the utilities.  

Finally, note that there’s a difference between the Seller closing a utility account and the account being transferred to a new owner.  Closing an account typically means shutting off service to the property entirely.  The Seller would generally be responsible for the cost of restoring such service, but it’s best to avoid this situation altogether because it can take days to get service restored, and the closing itself could be delayed accordingly (remember, you won’t be able to complete a thorough, pre-closing walk-through of the property if there’s no electricity, gas or water service, and you don’t want to risk pipes freezing in the dead of winter).  So a best practice would be to enlist your real estate agent to help coordinate the transfer of private utility accounts between the Seller and you and avoid the shut off any services.

What is it?

The closing is the culmination of your home-buying journey — it’s when the parties come together to legally transfer ownership of the property to you, in exchange for your payment of the purchase price to Seller. 

The closing is an actual, physical event — it’s an in-person meeting — that typically takes place at the office of your (the Buyer’s) attorney.  Those in attendance for all or part of the closing are:  you, your attorney, your real estate agent, the title company, the Seller’s attorney, and the Seller’s real estate agent.  (Most sellers do not attend the closing.)  Your lender also participates in the closing, albeit remotely, via email and telephone.  With limited exceptions, closings must happen during business hours.

Why is it important?

The closing is the final step in the home-buying process and is when you become the new owner of the property.

At the closing, all funds necessary to complete the purchase of the property are gathered together from you and the lender and then distributed to the appropriate parties: the Seller receives the purchase price; the attorneys receive their legal fees; the real estate agents receive their commissions; the title company receives their fees and the title insurance premiums; the county receives recording fees; and so on.

How does it work?

There are actually two parts to the closing:

1. The Loan Closing

2. The Title Closing

The Loan Closing happens first and is attended by you, your attorney, your real estate agent, and the settlement agent for the transaction.  (The settlement agent is the third party that facilitates the transfer of funds and property ownership between the parties for the closing.  Most often, the title company will act as the settlement agent, but occasionally the Buyer’s attorney will take on that role.)  

During the Loan Closing, you’ll sign the Closing Disclosure and all of the documents in the loan package that was prepared for you by the lender, including the Promissory Note and the Mortgage.  The lender will then officially release the loan funds to the settlement agent so that those funds can be used to pay for the property during the subsequent Title Closing.  The Loan Closing takes, on average, anywhere from 30-60 minutes.

The Title Closing begins as soon as the Loan Closing is complete and is when ownership of property is legally transferred from the Seller to you.  Generally, the Seller’s attorney arrives at the closing to take a seat at the table on the Seller’s behalf and deliver the legal documents required for the transfer of title to you (including the Deed), as well as the keys to the home.  In return, the Seller’s attorney collects a check from the settlement agent for the Seller’s sale proceeds, to take back to the Seller.  Compared to the Loan Closing, the Title Closing tends to be quick, lasting only 10-15 minutes on average.

The typical flow of a closing from a Buyer’s perspective is described below

STEP 1:  Arrive at the Closing

Your closing will be scheduled for a specific date, time and place.  Unless you’re buying new construction, the closing takes place at the office of your (the Buyer’s) attorney or, sometimes, your real estate agent’s brokerage office. 

You should plan to arrive a few minutes early to the closing, as oftentimes the attorneys for the parties and the settlement agent will have multiple closings scheduled for the same day, so it’s important that you don’t go over your allotted time slot. 

Your attorney will let you know ahead of time exactly what you need to bring to the closing, but generally those items will be:

1. Two forms of identification for each buyer:  One must be a government-issued photo ID such as a driver’s license or passport, while the other doesn’t have to include a photo, such as a student ID, voter registration card, banking card, etc.  Most commonly, though, buyers bring their license and passport;

2. A bank check in the amount of your Cash-to-Close, made payable to the settlement agent (unless you’ve wired your Cash-to-Close to the settlement agent ahead of time);

3. Your personal checkbook in case of any last minute, minor adjustments to the Closing Disclosure or between the parties.

When you arrive at the closing, you’ll settle into your seats at the closing table and give your IDs and bank check to the settlement agent.  (Your IDs will be photocopied and then returned to you.)

STEP 2:  Review and Sign the Closing Disclosure

Typically, the settlement agent or your attorney will kick off the closing by walking you through the Closing Disclosure in detail so you can understand all of your transaction costs.  You’ll then sign the Closing Disclosure.

Confused about what, exactly, your closing costs will be?

CHECK THIS OUT:  What Are My Closing Costs as a Buyer?

[THE LOAN CLOSING:]

STEP 3:  Review and Sign the Loan Package

The settlement agent and your attorney will take you through the loan package received from the lender and have you sign the many documents therein.  The two most important documents in the loan package are the Promissory Note and the Mortgage.

The Promissory Note (or “Note”) is the legal document that evidences your indebtedness to the lender and your formal promise to repay the mortgage loan according to the terms you’ve agreed to — i.e., every month, at a specified interest rate, and for a specified loan term.

The Mortgage, on the other hand, is the security instrument that you give to the lender to protect the lender’s interest in your property.  When you sign the Mortgage, you are pledging the property to the lender as collateral for the mortgage loan, giving the lender the right to take the property by foreclosure if you fail to repay the loan according to the terms you’ve agreed to.

Additionally, the loan package will contain a number of affidavits, and declarations for you to sign.  Affidavits and declarations are statements declaring something to be true, like the fact that the property will be your principal place of residence, or that all the repairs needed on the property were completed prior to closing.

QUICK TIP:  Your first mortgage payment will be due on the 1st of the month following the month after the closing.  This is because you pre-pay the interest for remainder of the month of the closing at the closing itself, and then thereafter you pay your mortgage in arrears (meaning, “after the fact”).  So if you’re closing on January 20th, at the closing you will pre-pay your mortgage interest for January 20th thru the end of the month, and then on March 1st you will make your first mortgage payment of principal plus the interest that accrued during the month of February.   

STEP 4:  Obtain Funding Authorization from the Lender

After you’ve signed the loan package, some or all of the signed documents in the package may need to be electronically scanned to the lender for a quick quality control review by the lender, to confirm proper execution of the documents.  Once the lender has confirmed proper execution, it will give the settlement agent authorization to disburse (or use) the loan funds for the “Title Closing” portion of the closing, which happens next.  This authorization to utilize the loan funds to complete the purchase of the property is known as “Funding Authorization.”  At this point, your loan is officially deemed “closed,” and you now have the money you need to complete your purchase of the property — i.e., to close title to the property.

[THE TITLE CLOSING:]

STEP 5:  Accept Delivery of the Deed and Keys from the Seller

The Title Closing is the second part of the closing and is when the Seller’s attorney — and oftentimes the Seller’s real estate agent too — joins you at the closing table to effectuate the transfer of ownership of the property from the Seller to you.  This is accomplished via the Seller’s delivery of the Deed to you (via the Seller’s attorney), along with various other legally required documents and the keys to the property.  Note that these days, sellers only very rarely attend the closing themselves.

A Deed is a legal instrument by which title to property is transferred from one person or entity to another.  In New Jersey, the standard form of Deed for residential transactions is a “Bargain and Sale Deed with Covenants Against Grantor’s Acts.”  This type of Deed conveys to you whatever interest in the property the Seller has, and also contains additional promises (covenants) from the Seller that the Seller has not done anything to allow anyone to obtain any rights in the property.  In addition, the Deed will name the Seller as the Grantor and you as the Grantee, will identify the property and sale price, and will be signed by the Seller.  (Deeds are not signed by the Grantee/Buyer, since it is the Seller’s interest that is being transferred.)

The settlement agent and your attorney will go over the Deed and other sale documents with you at the closing table and will provide you with copies.  Immediately after the closing, the settlement agent will send both the original Deed and the Mortgage to the county clerk’s office to be recorded in the public record.  (Recording puts the world on notice that you’re the owner of the property and protects you from future claims against your title.)  After recording, the original Deed will be sent back to the settlement agent or your attorney, who will in turn mail it to you, while the original Mortgage will be sent to the lender. 

STEP 6:  Disburse Funds to the Seller and All Other Payees in the Transaction

The final step of the closing is the disbursement of all the money that’s been collected from you and your lender for the transaction, to the proper parties.  In other words, this is when you pay the Seller for the property and pay everyone else involved in the transaction, thereby fulfilling your contractual obligations and completing the deal. 

The settlement agent handles the disbursement of all funds:  the Seller receives the purchase price (minus the Seller’s closing costs, any credits given to you and any adjustments); the attorneys receive their legal fees; the real estate agents receive their commissions; the title company receives their search and settlement fees and the one-time premium payment for your and the lender’s title insurance policies; and so on. 

Now that you’ve received the Deed and keys and paid the Seller for the property and anyone else who provided you a service along the way, the closing is complete and you’re officially a new homeowner!

How do I prepare for it?  

1.  Line up your closing funds and how you’ll access them.  As explained in Preparation for closing, the finalized Closing Disclosure will tell you exactly how much money you need to bring to the closing, either in the form of a bank check or an advance wire transfer to the settlement agent’s escrow account.  (Whether you must choose one or the other method will oftentimes be determined by your settlement agent’s internal policies.)  You’ll need to figure out the logistics of your closing funds ahead of time, so there’s no last minute issues that could delay the closing. 

For example, if you’ll be paying via bank check, you should figure out ahead of time which branch location of your bank you’ll be getting the bank check from, including whether there’s a location near the property you’re purchasing or near your attorney’s office (where the closing will presumably take place), in case you need to get the bank check on the way to the closing.  If, on the other hand, your plan is to wire your closing funds to the settlement agent in advance of the closing (ideally, the day before), you should call your bank ahead of time to find out what your bank’s wire transfer policies and procedures are, so you can ensure that your wire will arrive in time for the closing.  Some banks have more stringent, restrictive rules when it comes to wires, like longer lead times or limited wire department hours.

2.  Do my spouse and I both have to attend the closing?  Generally, it’s a good idea for both you and your spouse to attend the closing.  If only one of you is a borrower under the mortgage loan but both of you will be on the deed as owners, the non-borrowing spouse will still need to sign the Mortgage (but not the Promissory Note), along with the borrowing spouse.  This is because, in the event that you default on your loan payments, the lender needs to be able to foreclose on the entire property, even if one of the owners isn’t a borrower under the loan.  Having the non-borrowing spouse sign the Mortgage allows the lender to do so.

If one of you cannot attend the closing, you can ask your lender to permit the attending spouse to sign for the non-attending spouse via Power of Attorney.  (The lender is typically fine with this.)  Once you have your lender’s approval, a Power of Attorney will need to be prepared by your attorney and approved by the lender, and then the non-attending spouse will need to get the POA notarized so the attending spouse can bring the original POA to the closing.

3.  Line up childcare if you have young children, so you don’t have to bring them to the closing.  While bringing your toddler to the closing might sound like a convenient option, in practice it might make for more stress than it’s worth.  Many attorneys’ offices are not particularly kid-friendly or child-proofed spaces, and tending to a restless toddler while you’re trying to understand your obligations under your mortgage isn’t easy.  To get the most out of your closing experience, try to arrange for childcare at home during the closing, if possible.

Things to remember:

*  If there are delays with your final loan approval, you may have a mad dash to the closing table.  Although not ideal, sometimes the lender doesn’t get the loan package and Closing Disclosure finalized until the last minute, maybe even a mere few hours before the closing.  In that case, some degree of flexibility as to the closing time may be required of you as the attorneys and settlement agents rejigger their day to accommodate such delays.  Most buyers take the entire day off from work on the day of the closing, if possible.  And you should be prepared to get your bank check on your way to the closing if that proves necessary.

*  Your title insurance coverage begins as of the closing.  The title company doesn’t prepare your title insurance policy until after the closing, and it can sometimes take months to get your policy if the title company is backed up.  But even though you won’t walk away from the closing table with a copy of your final policy, rest assured that your title insurance coverage begins as soon as you become the owner.

What happens next?

Move into your new home!  You’ve made it to the end of the closing journey and are ready to begin a new chapter as a homeowner.  CONGRATS!

Within a few months of the closing, you’ll receive your owner’s title insurance policy and the original (now recorded) Deed.  The speed with which you receive your title policy and recorded Deed in the mail after the closing largely depends on how busy the county clerk’s office and title company are around the time of your closing.  During busy times of the year (such as spring and summer), there are long queues at both places and it can take up to a few months to get those documents in the mail.