Over the last couple weeks, this blog has discussed a few of the aspects of the real estate closing process that both purchasers and sellers of property alike should be familiar with. Perhaps the most important part of the closing process for the purchaser is the review and execution of the various documents associated with the loan and conveyance of the property.
Federal laws such as the Truth in Lending Act (“TILA”) and Real Estate Settlement Procedures Act (“RESPA”), require lenders and real estate agents to explain the various documentation related to the purchase of real estate prior to asking for a signature. However, it is always a good idea for the buyer/borrower to have a firm understanding of the documents associated with the purchase before going into the closing.
The following is a non-exhaustive list of documents that a purchaser/borrower will be required to review and sign as part of the closing process:
1. Truth In Lending Statement (Regulation Z). The TILA is a federal law designed to “promote the informed use of consumer credit by requiring disclosures about its terms and cost.”
Essentially, the TILA requires lenders to provide borrowers with a written disclosure, in the form of a Truth In Lending Statement, also known as Regulation Z, of the costs associated with a mortgage loan, such as the annual percentage rate (“APR”), finance charges, annual fees, and the amount of the credit line.
2. Closing Statement (HUD-1 Settlement Statement). The HUD-1 Settlement Statement is a standard form that outlines the services, and associated fees, that the lender or broker is providing/charging the purchaser/borrower. The HUD Statement contains the actual settlement costs and amounts and shows the purchaser/borrower the total amount of money that must be paid at the time of closing.
Upon request from the purchaser/borrower, the lender must provide the HUD Statement at least one day before the closing date. It is always a good idea for a purchaser/borrower to request and review the HUD Statement in advance in case he or she has questions regarding specific services or fees included in the statement.
3. Promissory Note. The promissory note, usually referred to as the “Note,” is the document which obligates a borrower to repay a lender and outlines the terms of the repayment. The Note will contain the principal amount of the loan, interest rate, term of the loan, and the amount of each payment.
The Note will also list any special conditions such as terms of default and prepayment penalties. A note should be carefully reviewed prior to signing, as it obligates the borrower for a large amount of debt for an extended period of time.
4. Mortgage. The mortgage is an instrument that places a lien, or encumbrance, on the property in favor of the lender. This means that, should the borrower default on the payment provisions of the Note, the lender can take steps to seize and sell the property to recover the money it lent to the borrower.
5. Warranty Deed. The Warranty Deed is the document that transfers the title of property from the seller to the purchaser. The deed will include the names of the purchaser and seller, as well as the legal description of the property being transferred. In Cook County, deeds are recorded in the office of the Cook County Recorder of Deeds.
If you have questions regarding the documents involved in the purchase of real estate, or need additional information about real estate transactions,contact the experienced real estate attorneys at The Slater Firm, Ltd. today.