Closing from a Distance

By Lisa Loy

For years you’ve enjoyed a vacationing here, and the idea of owning a beach home grew from an idle fancy to a top priority. Finally, you decided that yes, this is the year to make it happen. It’s a buyer’s market after all, the timing is right. You’ve done your homework, shopped the possibilities, and didn’t even mind when your real estate agent phoned at dinnertime. You’ve been happily inundated with information and escorted through every potential cottage in and above your price range. This is it. You’ve signed an offer to purchase an Outer Banks home. Your dream is finally going to become your reality.

But now, with the ink still wet on your contract, you have to drive back home to the real world and all the responsibilities that come with it. Worrisome details start to creep into your mind. You live 500 miles away. How are you going to navigate the closing on your deal of a lifetime from that distance? You can’t use your attorney and/or title company back home (a title examination must be performed locally) or your bank where they all know you (it’s out of state), and how’s the “walk through” going to happen if you’re not there to do it? Well, there’s no need to pop your beach ball over it. Most buyers are just like you, and everyone here, from attorneys to lenders, and realty agents have considerable skill assisting distant buyers close in an efficient, uneventful manner. So begin by making full use of your Outer Banks real estate agent.

Your first goal is to see that your contract contingencies are met. Generally, the biggie on the contract is the proviso that you are able to secure financing at a rate and product that suits you. Your agent will shop mortgages with you. We have a good number of local lenders and it’s worth making the comparisons as they offer a wide menu of financing options.

“Most local attorney's, Realtors, and lenders are very familiar with the "mail away" closing process,” Gray Berryman, a broker with Carolina Designs Realty in Duck said. “Familiarity with this type of closing is another reason that it is very important to use a local lender, not an out-of-state broker who does not work on the Outer Banks regularly.”

Crouse Gray, an attorney in Kill Devil Hills, said that while it is convenient to use a local lender, buyers have more choices since the Mortgage Lending Act was modified two years ago. “A lot of people have relationships back home,” Crouse Gray said. “Almost all of your big lenders are now registered in most other states. It is no longer the problem it used to be.”

The fixed rate 20 or 30 year mortgage is considered the gold star, but, if you plan to be a short-term owner, say 4 years (at which time you’ll retire, sell your beach house and your primary home, and move to the Outer Banks full-time into a new year ‘round home) you might explore adjustable or balloon rate mortgages. You’ll never regret doing the math. Short-term owners will save a significant amount on adjustable rate mortgages with the “teaser” rate offered the first year. Then the interest rate goes up. Some adjustables will increase the full 2-percent the following year, others don’t ratchet up until two or three years later. There are also interest only loans available whereby borrowers’ make payments that only cover the interest due and don’t reduce the principal amount of the loan. Now, make a comparison with the best-fixed rate loan for the same 4-year period.

Be mindful of the points––a one-percent fee the lender charges at closing to reduce the your interest rate. Generally, every point you are willing to pay reduces the interest rate by .125 percent. Ask yourself, “Will I own this property long enough for the lower monthly payment to offset the extra money I paid to get the lower rate?”

Also, if you or your deal is unusual, you might also ask your agent to help you find a lender, usually a bank, that “shelves” its loans. These loans remain with the same lender for the duration of the term, which is different from most lenders that follow strict guidelines in the loan application process because the loans will then qualify for sale to the secondary mortgage market (i.e. Fanny-Mae). This is the reason some lenders charge an origination fee––they won’t own the loan long enough to make a profit on interest, so they have to make their money up front.

Once you’ve made your decision and applied for a loan, the lender will order an appraisal of the property that you will pay for up front along with an application fee. They need to confirm that the loan-to-value is true.

Stay in touch with the loan processor to keep things moving. Be proactive. If for example, some of your verifications are late coming in, you can help by calling your employer or depository with a little encouragement. It’s just the sort of thing that can cause a late loan approval, which means the lawyer’s office receives the loan package late, resulting in less time to accomplish the task of preparing the closing documents in time for the closing date specified on the contract. You can help by calling your attorney’s office as soon as you receive word that your loan is approved.

In this way, the lawyer can get started on your title search and order any necessary reports before he receives the loan commitment from the lender. The thing to remember here is that the lawyer and the Realtor do not wish to expend money on your behalf until your loan is approved. This is why a lot of things are happening later than sooner.

“Real estate agents line the buyers up with a list of local attorneys,” Crouse Gray said. He will order a termite inspection and survey if the lender requires it. “Surveys are recommended, but about 70 percent of the time lenders don’t require it,” he said. “Most people opt out.”

A new survey frequently isn’t necessary to obtain title insurance for the benefit of the lender. But it is if the buyer wants survey coverage on an owner’s title insurance policy. It is worth discussing the benefits of this insurance coverage with your attorney, especially since the premium is only paid once and not annually like most insurance policies. Title insurance protects you from defects in the title that may not be disclosed by a title search, long lost heirs that come forward with a claim for example. If a boundary line dispute arises in the future, survey coverage on your title insurance policy can protect you.

The majority of lenders email the closing package to the attorney’s office. Almost all the closing documents are prepared by a centralized loan office,” Crouse Gray said.

When the attorney receives it, he will review and complete the documents and prepare the HUD or Settlement Statement. This is a line-by-line soup to nuts itemization of every penny spent and received including deposits, tax pro-rations, insurance premiums, lender’s and attorney’s fees.

Don’t be concerned if it seems you never get to speak with your attorney. I see most of those offices as little real estate closing factories. The attorney does the trouble shooting while his 2 or 3 legal assistants perform the bulk of the labor. Some secretaries coordinate as many as 10 closings a week and as a result are highly experienced. They can handle most of your questions.

In addition to scheduling any inspections that need to happen, your real estate agent can help you by providing information for the transfer of utility accounts and coordinating with the property management company if there is rental income to pro-rate.

Although cyber conveniences have dramatically reduced the time it takes to accomplish many closing tasks, the Promissory Note and Deed of Trust (the document that is recorded at the courthouse to secure the Note) must still be signed by you in the presence of a Notary Public. If you don’t already know a Notary at home, go ahead and locate one so you’ll be ready when the time comes, as there is very little turn-around time at that point. Many banks, real estate firms, county offices, and of course, attorneys have a Notary on staff to perform this service simply to confirms that you are the person you say you are (a driver’s license is usually enough proof), and then to witness your signing or execution of the documents.

“Since loan documents and wire transfers are involved, buyers often sign their documents the day before closing and overnight them to their attorney.” Gray Berryman said. “Recordation can happen at the court house that same day in which the documents are received provided that the funds are wired and the Realtor gives a thumbs up on the pre-closing walk through. By that point, all of the paper work has been signed and last minute issues have been finalized.”

“We package all our closings and meet the other attorneys at the courthouse in Currituck or Dare County,” Crouse Gray said. “We update the title, do the exchange of documents and money.”

As many buyers already know from experience, there are many components that have to come together for closing on the purchase of a new home. And you’ll be pleased to find that rental property managers are ready to pick up the ball after closing. You’ve got lots of good help down here, freeing you to enjoy your home, just like you fancied you might, on that very first Outer Banks vacation.