Loan Closing Procedures Overview

Loan Closing Procedures

• Loan closing begins after final loan approval. Some companies handle the process entirely differently, some companies have the same employees work on files before and after approval. Brokers may be handed over to a lender. Regardless of structure, consistent actions take place during closing.
• The Closing Disclosure (CD) is issued promptly after approval. It's a final disclosure of the transaction terms, including all fees and charges, final loan terms, and all previously estimated information from the Loan Estimate (LE).
• The borrower must receive the CD at least 3 business days before consummation. A business day excludes weekends and legal holidays. A revised LE cannot be issued after a CD is issued. There must be at least 1 day between the last LE and the CD being issued.
• The settlement agent issues the CD to the seller. A revised CD may be issued, but only if there are changes requiring revision and it's provided before or at loan closing.
• A new 3-day waiting period is required if the APR increases by 0.125% (or 0.25% on an ARM), the loan product changes (e.g., fixed-rate to ARM), or a prepayment penalty is added.

Settlement Agent Responsibilities

• The lender contacts the settlement agent (often a title insurance agency or attorney) about title reports, fees, and other preliminary matters. After final approval, the lender issues closing instructions.
• The settlement agent's role includes gathering documents, calculating prorations and fees, and searching public records for the property title.
• Prorations involve expenses like taxes already paid or accrued by the buyer or seller (e.g., property taxes, homeowners association fees). These should be resolved before the CD is issued.
• The title commitment for insurance needs to be provided to the lender. The commitment shows the acceptable title insurance limits, the exceptions that the insurance won't cover.
• Title issues or exceptions may need resolution: Liens, easements, leases, mortgages, restrictive covenants, mineral rights, easements for utilities, encroachments, homeowner association covenants, and conditions are all possibilities. Some exceptions will stop the transaction unless cleared.
• The Title Insurance Commitment will show liens and encumbrances, except for ones paid using funds from the loan.
• Title insurance can be issued before closing, or sometimes after. It must be free of exceptions resolved during closing.

Closing Process

• Lender's title insurance protects the lender. Owner's title insurance is an option to protect the borrower.
• Closings can be either "round-table" or "escrow". A round-table closing means all parties meet at one time, and an "escrow" closing allows parties to meet multiple times to finalize obligations and obtain funds.
• "Round-table" closing means borrowers bring a certified check, and "escrow" closing has the borrower deposit funds into an escrow account.
• Funds are disbursed according to the CD and closing instructions.
• Public record documents like deeds, mortgages, liens, or deed of trust reconveyances are recorded. The settlement agent ensures that the first mortgage is properly secured.
• Existing second mortgages, including purchase-money (piggyback) second mortgages, must be handled with awareness of recording order.