When is the sale of home finalized?

Question: We are confused about the technicalities involved in closing the sale of our house. We went to closing and signed all the papers this week, but we would not let the buyers move their possessions into the house until the recording date. When does the seller’s responsibility end and the buyer’s responsibility start? On the signing date, the recording date or when the check has cleared the bank?

It sounds like move-in should happen when the buyer’s legal responsibility for insurance, etc. starts. Also, when does my legal responsibility end? I’m worried about my liability in case of a fire, for example.

Answer: Many home sellers are confused about the closing date on the sale of their home, because term “closing” is often misused, even by real estate agents who should know better.

Many people call it going to “closing” when they go to the escrow company and sign the final papers to transfer ownership of their home to the buyers. Actually, that is the “signing date,” and it can occur days or even a week or more before the final “closing date.”

That’s because most mortgage lenders want to review the loan documents after signing to make sure everything was prepared and signed properly. Once the loan funding package has been reviewed and approved, the lender gives the escrow company an “OK” to record the deed and release the funds to the seller.

The “closing date” is the day that the documents are recorded at the county courthouse to transfer legal title of the property from the seller to the buyer and the seller receives the money from the buyer. In your letter, you referred to the “recording date,” which is actually the same thing.

You are smart not to let the buyers move into the house until the deed has been recorded.

The seller’s responsibility for the property ends on the closing date, not on the signing date. As I said above, signing is just the first step in the closing process. The property does not legally belong to the buyer until the closing date when the deed is recorded and title is transferred into the buyer’s name.

Up until that time, the seller has a responsibility to maintain the property in the condition that it was in when the buyer originally offered to purchase it. For example, if you are the seller and you canceled your homeowner’s insurance policy as soon as you signed the closing papers, and your house burned to the ground before the closing date, it would be your responsibility. The buyer would not have to close on the deal and take title to a pile of ashes, even if they had already signed the closing papers before the closing date.

Likewise, if you let the buyers move into the house after signing but before the closing date, and they started a fire that burned down your house, it would be your loss because you would still be the legal owner of the house.

That is exactly why real estate agents generally recommend that the buyers should not be allowed to move in until the deal has closed. There are just too many things that can go wrong, and anyone who has spent any time working in real estate knows that Murphy’s Law is alive and well.

So you are absolutely right when you say that the buyer’s should not be allowed to move in until their legal responsibilities begin. Otherwise, you are putting yourself at risk with no reward.

Now, having said all of this, I know that in the real world “stuff happens” and real estate purchase deals don’t always close exactly on the scheduled closing date. For example, at my mortgage company we’ve seen some cases where the sellers allowed the buyers to move into the home a few days before the closing date in order to accommodate moving schedules, etc.

In those cases, the buyers paid rent to the seller for the number of days they spent in the house before closing, and the sellers made sure that their insurance covered any potential damage to the property that may be caused by the buyers while they were “renting” the property.

As I said above, allowing home buyers to move in before closing is risky for the sellers, but in the cases that we were involved in, the sellers were assured that the loan would close within a few days after the buyers moved into the property so it was a short-term risk.

The flip side of this issue is that in some cases, the purchase and sale agreement gives the buyers possession of the home on the “closing date plus three days.” The three-day “grace period” gives the sellers time to move out of house.

During this three-day period, the sellers become “tenants” of the new owners. If they were to accidentally burn the house down during this period, it would be the new owners (the buyers) who would suffer the loss, not the sellers. However, the house would be covered by the buyers’ homeowners insurance policy at that time.

My motto in real estate is, “hope for the best, but plan for the worst.” Ideally, the sellers would move out of the house and the buyers would move in on the closing date. That way, there would be no overlapping period of property ownership rights and responsibilities.

But realistically, moving dates often have to be juggled to accommodate weekends and work schedules. Seller “rent-backs” and early move-ins by homebuyers are sometimes unavoidable. Just be sure that all parties understand what is at stake and take appropriate measures (such as extending insurance coverage for a few extra days) to protect your interests.

Steve Tytler is a licensed real estate broker and owner of Best Mortgage. You can email him at features@heraldnet.com.

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