Sound Off: What complicates closure of a transaction?
Published 7:50 pm, Friday, October 4, 2013
A: The closure of a transaction can be complicated by title issues, new discoveries about the property's condition and use, financing issues and/or possession issues. For example, a recent important financial issue is the inability to get a response to a form 5405 request from the IRS because of the government shutdown. Lenders need to verify tax returns as an integral step before the loan is funded.
A preliminary title report, usually available during the first days of the transaction, may show previously undisclosed liens, easements, restrictions on use and irregularities for the parcel size.
This new information forces the buyer and seller to sometimes renegotiate the terms of the contract. The buyer's inspection period may also yield new information, such as irregularities in square feet or lack of permits.
Lastly, in the rent-controlled cities of Berkeley and Oakland, possession can be tricky. The job of an experienced Realtor and escrow officer is to anticipate possible issues ( as much as possible) before these issues cause a breakdown in buyer-seller communication.
Real Estate Listings
A: Tax return verification has delayed or complicated a number of closings for me this year.
When you give a lender your tax returns, they also get you to sign a form called a 4506-T which gives them permission to verify with the IRS that the return you gave them is actually the return you filed with the federal agency.
The problem that commonly arises is for people who still mail in their return. These get processed last and seem to take longer to get verified. If the buyer has filed their return late, the deal can get stuck waiting around for someone at the IRS to say it's OK to close. So don't get stuck. Tell your lender if you snail mail or file late.
Additional complications can come from a buyer being out of town and not being responsive to requests for documents.
It's very important for buyers to be aware of the fact that lenders will ask for all sorts of documents. It may not always make sense to the buyer why these are being requested, but they don't need to waste time questioning the reason.
The buyer's job is to get the documents together and ship them off as quickly as possible.
A: Often, a seller discovers title problems - such as unrecorded easements, faulty trust documents, or judgments - that can prevent the property from being transferred.
In other cases, the buyer is unable to obtain fire insurance. The buyer should start looking for insurance as soon as they open escrow.
Other times, the seller has no equity. If equity is tight and the seller hasn't calculated their expenses accurately, they could be short at closing.
Finally, an appraisal sometimes takes too long or comes in too low.
If the appraisal does not come in at purchase price, the seller can reduce the price, the buyer can put a larger down payment, or both parties can split the difference.
If there's enough time, buyer can try a different lender, and get a different appraiser.
To avoid this, appraisal should be ordered immediately after opening escrow.