Preventing closing delays

Closing delays are among the most common source of headache for real estate brokers and agents. Roughly one in three deals experience a delay in closing, according to the national real estate trade union.

Two types of closing delays exist:

• legally mandated delays when certain aspects of the mortgage change; and
• last-minute issues or overlooked items which may be preventable.

Mandated closing delays

Lenders are required to provide homebuyers the Closing Disclosure at least three days before closing is scheduled. The Closing Disclosure describes the “final” mortgage terms and details. [12 Code of Federal Regulations §1026.19(f)(1)(ii)]

The Consumer Financial Protection Bureau (CFPB) requires closing to be placed on hold for an additional three days when a significant change is made to the Closing Disclosure. This gives the buyer time to analyze the change since it will have a considerable impact on their finances. Significant changes occur when:

• the annual percentage rate (APR) on a fixed rate mortgage (FRM) increases by more than 1/8 of a percent, or ¼ of a percent for adjustable rate mortgages (ARMs) from the original rate specified in the Closing Disclosure;
• a prepayment penalty is added (which would make it costly for the owner to refinance in the future); or
• the mortgage product changes, for example from an FRM to an ARM. [12 CFR 1026.19(f)(2)(ii)

Most common adjustments to the Closing Disclosure will not result in an additional three-day waiting period. For instance:

• the real estate fee;
• escrow amounts;
• typos; and
• changes to seller credits will not result in a mandatory closing delay. [See RPI Form 402]

(Somewhat) preventable closing delays

On top of the mandated delays described above, closing may be delayed when:

• the seller needs to delay closing due to the inability to close on a replacement property;
• the buyer or lender fails to timely transfer funds as required by escrow;
• mistakes are identified in the closing documents on the day of closing;
• issues or incomplete repairs are discovered during the final walk-through and the buyer and seller cannot agree on repairs or seller concessions for an on-time closing;
• the closing timeline was unrealistic to begin with;
• issues are discovered during the home’s title search;
• the appraisal comes in low and the buyer and seller cannot agree on a revised price for an on-time closing; or
• an international seller does not apply early enough for a tax waiver to avoid withholding a portion of the sale proceeds.

Not all of these situations can be avoided. For instance, buyers can do nothing about seller delays due to issues with finding a replacement home. Likewise, sellers can’t control the buyer’s (or lender’s) transfer of funds.

However, some of these delays can be avoided by the proactive agent.

Avoid a late closing

Immediately upon receipt of the Closing Disclosure three days before closing, the buyer needs to:

• review the spelling of names and addresses;
• ensure the mortgage type, terms and interest rate match their Loan Estimate;
• review the mortgage amount;
• understand whether the Closing Disclosure includes a prepayment penalty or balloon payment;
• review the total monthly payment;
• examine closing costs; and
• understand what amounts will be covered in the escrow account (i.e. taxes, assessments, homeowners insurance).

The agent can help this along by contacting the buyer four days before closing to let the buyer know they will be receiving the Closing Disclosure and what they need to look for.

The seller also receives a modified Closing Disclosure, and the seller needs to review:

• the spelling of names and addresses;
• the sale amount;
• real estate fees; and
• seller concessions.

Catching mistakes early can help avoid closing delays due to mistakes in the closing documents. Other delays take more work to avoid.

Agents need to counsel buyer clients to put a hold on any large financial decisions while they are waiting to close. It’s better to hold off on taking a new job, buying a new car or moving money around as bank statement changes can trigger lender scrutiny and push back closing.

Agents can check in with their clients the day before closing to answer any questions and to make sure they have wired funding or obtained the cashier’s check, as needed.

Other problems, such as appraisal issues or disagreements about repairs discovered during the final walk-through may be more difficult to smooth over. Agents can remind their clients that when the issue is not resolved, closing will be delayed, which will result in moving delays and may result in a lengthy hotel stay. Worse, the whole transaction may be cancelled.

Agents and brokers: What is the most common reason for closing delays and how do you avoid this? Share your experience in the comments below!