By: Derek Belcher, Attorney

Buying a new home is an exciting event – you have your dream property under contract and all you want to do is get your keys, and let everyone else worry about the details and paperwork. But getting from an accepted offer, to the closing table, to actually holding your new keys in your hand can sometimes feel like navigating a maze of deadlines, inspections, paperwork, financing requirements, and last-minute surprises.

There will be several professionals helping you along the way, but buyers have several important responsibilities and deadlines to manage to ensure a successful closing. Understanding the process before you get under contract can help prevent avoidable problems and make your closing much smoother. With that in mind, the following are some of the most common issues buyers encounter during residential real estate closings—and what you can do to avoid them.

First, if you’re not familiar with real estate closings in North Carolina, understand that our closing system is different from that of other states.  You may not know that when it comes to real estate transactions, we are an “attorney” state – that means we as the attorney will handle almost every aspect of the closing. If you’ve purchased property in other states, you may have utilized a title company.  In NC, we as your attorney are the “title company” – kind of.  We will conduct your title search, obtain title insurance for you, prepare the settlement statement, have you into our office to sign your documents, answer your questions, record your deed, and disburse all money from closing.  The title insurance company’s role is limited to underwriting your title insurance policy.

As another initial matter, you need to have a written contract. This may sound obvious, but any agreement for the transfer of an interest in real property in NC must be in writing.  Even if you are doing a deal with a family member, neighbor, or trusted friend, and you “trust them” or have “shaken hands on it”, you still need a written contract!  And the details of the contract matter.  Make sure you have a contract in writing if you have questions about it, have it reviewed by an attorney before you sign it! It is difficult for us to help you once you have taken on certain obligations in writing.

Now that you have a property under contract, here are some additional important things to keep in mind to get you to a successful closing.

Understand and Use Your Due Diligence Period

One of the biggest buyer mistakes is failing to use the due diligence period effectively. Under the standard North Carolina residential Offer to Purchase and Contract, the due diligence period gives you as the buyer an opportunity to investigate the property and decide whether to proceed with the purchase. Inspections, surveys, appraisals, title searches, loan qualification, and repair negotiations are examples of some matters you may want to address during your due diligence period. Under the standard contract, you can terminate the deal at any time during this period for any reason or no reason at all.

Don’t wait until the end of the period to start investigating the property. Depending on the property and circumstances, you should consider promptly scheduling: a professional home inspection, a pest inspection, a radon test, a septic inspection, if applicable, a well-water test, if applicable, a survey, an appraisal, and when appropriate, review of restrictive covenants and homeowners’ association documents.

The exact investigations you need will depend on the property. The important point is to allow enough time to discover potential problems and address them before your contractual deadlines expire. And yes, these inspections cost money! You may have to spend money only for the deal to not ultimately close. But do not skip or neglect due diligence to save money. Several buyers we have worked with, to try and save money, have delayed getting an inspection, survey, title search, or appraisal until they are “sure the deal is going forward.”  But that misses the point – the diligence is to figure out if you want to go forward with the deal in the first place!  There may be issues that you discover that would cause you to terminate the deal.  It is much better to spend a few thousand dollars to discover an issue rather than proceed to closing and run into a major problem later on when you are holding title to the property and the seller is long out of the picture.

Give yourself time – due diligence may take longer than expected. Use your due diligence period to resolve any contingencies. The standard contract does not provide for any contingencies as it is written!  If you want to specify that the purchase is still contingent on something after the expiration of your due diligence period, you would need to have your attorney draft and add an addendum to the contract. If there is no such addendum, then once you go past due diligence period, you are obligated to buy the property (unless the seller is in default of the agreement). Make sure your due diligence period is long enough to get your inspections, surveys, title search, appraisals, loan approvals, and any other items completed. And when you get the results of your inspections, surveys, loans, appraisals – communicate them to your closing attorney.  Let us know early on your plans for using the property – there may be restrictive covenants that restrict or prevent you from using the property in the way you had planned! For example, if you plan to use the property as a rental house, there may be covenants that restrict the number of homes that can be non-owner occupied.

Understand the Difference Between a Due Diligence Fee and an Earnest Money Deposit

North Carolina transactions can be confusing for buyers because the contract may involve both a due diligence fee and earnest money deposit. The due diligence fee is negotiated between the buyer and seller and is generally paid directly to the seller. Under the standard contract, it compensates the seller for the buyer’s right to conduct due diligence and decide whether to proceed. The due diligence fee is generally non-refundable, making it especially important to understand the consequences before submitting an offer. Your earnest money, on the other hand, is usually paid to an escrow agent, which is typically either the closing attorney’s office or a real estate agent’s office. The earnest money is refundable during the due diligence period – if you decide to utilize your right to terminate the deal during that period, the earnest money typically gets returned to you as the buyer.

Before signing an offer, make sure you understand: how much you are paying as a due diligence fee, how much earnest money you are depositing, when each payment is due, what happens to each amount if the transaction does not close, and when your due diligence period expires. If you’re unsure, ask your real estate agent and closing attorney before signing.

Don’t Assume the Seller’s Disclosure Tells You Everything

North Carolina requires sellers of many residential properties to provide a Residential Property and Owners’ Association Disclosure Statement, subject to statutory exceptions. But buyers should not treat the disclosure as a substitute for inspections. Buyers should obtain their own inspections because the disclosure is not a warranty and does not replace a thorough inspection.

Remember that a seller may not know about a hidden defect. A problem can exist even when the seller has honestly answered the disclosure questions based on their knowledge. Your goal should be to independently investigate the property rather than simply relying on the seller’s representations.

Take Title Issues Seriously and Obtain Title Insurance

As part of preparing for closing, your closing attorney will conduct a title search, to verify the chain of ownership and other matters affecting title. Issues such as open deeds of trust or mortgages, liens, judgments, estate matters, easements, or other title concerns can sometimes complicate a transaction. If your attorney identifies a title issue, resolving it may require additional documentation, cooperation from third parties, or additional time. A last-minute title problem can potentially delay closing. Ask your closing attorney what they need from you and respond promptly to requests for information or documentation.

We highly recommend obtaining an owner’s policy of title insurance on your new home. If you are financing your purchase, your lender will require that you obtain such insurance on the amount of the loan – you don’t have a choice. If you are paying to protect the lender, it is usually only a matter of a few hundred additional dollars to obtain the owner’s coverage and protect your equity in the home. Title insurance is an indemnity policy whereby, for a one-time premium paid at closing, your title insurer commits to reimbursing you for monetary losses related to title issues from the period prior to your ownership.  It does not cover matters that occur subsequent to you taking title to the property. There are some exceptions to the coverage – primarily the usual encumbrances on record that we are already aware of, like restrictive covenants, plat maps, easements, and rights of way. It is important to get owner’s title insurance, however, to cover possible issues we don’t know about or can’t anticipate. Mistakes get made in the chain of title. Sometimes documents are indexed incorrectly in the register of deeds. There may be documents in your chain of title that are improperly notarized and thus technically defective.  There may be signatures of spouses or heirs that were required and not obtained, thus leaving them with valid claims on your title. There can also be forgery, incompetency or incapacity of the parties, fraudulent impersonation, and other unknown errors. These are matters that would not be evident on the surface even to someone conducting a thorough title search.

Related to matters of title, you should also get a new survey of your property.  Surveys can reveal boundary disputes, gaps or overlaps in property lines, and encroachments, and will also help you determine the location of all structures and easements on the property. These are all matters that you want to know about well in advance of closing, not as a surprise at closing or after! Any encroachments or issues should be raised with your seller during due diligence and resolved before you take title to the property. A survey is important because, generally, if you don’t get one, then your title insurance will not cover matters of survey – that is, if a proper survey would have revealed the issue, then the title insurer will not cover it! 

Keep Your Attorney and Lender Updated

Getting preapproved for a mortgage is only the beginning. Lenders generally continue reviewing the transaction and the borrower’s financial circumstances through the closing process. A buyer who makes significant financial changes immediately before closing can create unnecessary complications. Before closing, avoid making major financial moves without first talking to your lender, including: opening new credit accounts, financing a new vehicle, making large unexplained deposits, taking out new loans, changing jobs without discussing the potential impact, or making significant purchases. Also respond quickly when your lender requests documentation. A financing delay near the closing date can create problems for everyone involved.

Review Your Closing Disclosure Carefully

If you are financing your purchase, you should receive a Closing Disclosure before closing. Don’t wait until you’re sitting at the closing table to look at the numbers. Review the document carefully and compare it with what you expected based on your loan and purchase agreement. Pay particular attention to: purchase price, loan amount, interest rate, closing costs, property taxes, homeowners’ insurance, prepaid items, escrow amounts, credits, and the amount of cash required to close. If something doesn’t look right, ask about it immediately. It’s much easier to investigate an unexpected charge several days before closing than five minutes before you’re scheduled to sign.

Be Careful With Wiring Instructions

This deserves special attention because wire fraud can turn a routine closing into a financial disaster. Unfortunately, many criminals have been successful in compromising email accounts and sending fraudulent wiring instructions to homebuyers. We as your closing attorney will provide specific instructions for sending your funds. If you receive an email telling you that wiring instructions have changed, stop and verify the information directly with the closing attorney. Do not rely on the telephone number contained in a suspicious email. Instead, independently obtain the attorney’s legitimate contact information and call the office to verify the instructions before sending money. You should verify wiring instructions directly and exclusively with your closing attorney’s office before sending funds.  While it takes time and seems like an inconvenience, when all you are thinking about is getting the keys to your new home, when it comes to your down payment and closing funds, a few extra minutes of verification can prevent you from losing your life savings.

Utilize your final Walk-Through

The final walk-through is your opportunity to confirm that the property is in substantially the condition you expect before closing. During the walk-through, check that: agreed-upon repairs appear to have been completed, the property is substantially as expected, fixtures and items included in the purchase remain, there is no obvious new damage, appliances and major systems appear to be in the expected condition, and the property has been cleared of items the seller agreed to remove. If something is wrong, immediately notify your real estate agent and closing attorney. Don’t assume that a problem discovered shortly before closing will automatically resolve itself.

Don’t Make Last-Minute Changes Without Communicating

Real estate closings involve multiple parties: buyer, seller, agents, lender, attorneys, title professionals, inspectors, and others. A seemingly minor change can affect several pieces of the transaction. If your plans change—particularly regarding financing, ownership, funds, marital status, employment, or who will be signing—tell the appropriate professionals as soon as possible. For example, if someone who was not originally expected to be on the deed or loan needs to be added, that may require significant changes and should not be treated as a last-minute request. If a signer cannot be present and needs to sign via someone utilizing power of attorney, let your closing attorney know as soon as possible, as documents and other items will need to be adjusted to account for this.

Respond Quickly to Your Closing Attorney

Keep us informed!  The more information you communicate, the quicker we can get you to the closing table without issues.  Once you’re under contract, we as your closing attorney may send you documents or requests for information. Don’t put them off. We may need items such as: identification, loan information, insurance information, marital-status information, estate or trust documents, Information about your current property, or documentation concerning the source of your funds. The sooner you provide us the requested information, the more time we have to identify and resolve potential issues.

Ask Questions Before You Sign

One of the easiest ways to avoid closing problems is also one of the simplest: ask questions. You don’t need to be an expert in real estate law to buy a home. But you should understand the major obligations you’re agreeing to. Before closing, make sure you know: what you’re paying at closing, what documents you’re signing, how title will be held, whether you are purchasing title insurance, what happens if closing is delayed, what funds you need to bring, where and how those funds should be sent, and what happens if an issue is discovered before closing.

Practical Tips for Closing Day

You finally made it to the closing table – you can finally breathe a sigh of relief, right? Yes, but you should remember a few practical tips for the day of closing to make sure there are no last surprises or disappointments. Review documents ahead of time. Bring a valid, unexpired ID to closing! Try not to plan on moving on closing day, and try not to schedule same-day simultaneous closings, whereby you use sales proceeds from a sale closing to make your new purchase. This plan sounds good in theory, and sometimes cannot be avoided, but usually the logistics do not work as well as you planned.  Also, when sending money, know your bank’s rules for sending wires – there may be additional documents required, or you may have to appear in person at a branch to initiate a wire.  Your bank may also have one-day limits on the amount you can wire. Additionally, remember that county offices have deadlines for us to record your documents – typically around 5pm each day. If you close late in the afternoon, understand that your deed may not be recorded until the next morning. Even electronic recording sometimes involves a wait – it is not instantaneous. Finally, understand that, despite everyone’s best efforts, there may be minor issues or delays at the 11^th hour on your closing day. If this happens, don’t panic! There may be names spelled wrong on documents that have to be corrected. A wire may take longer than expected to come through.  The settlement statement may need to be adjusted. There may be delays with the register of deeds and the recording process.  We will work through it!  Many closings have minor issues that get resolved at or just before closing.

A Smooth Closing Starts Before Closing Day!

Most closing problems don’t suddenly appear at the closing table. They develop because an inspection was delayed, a document wasn’t reviewed, financing changed, a title issue wasn’t addressed early enough, or someone waited too long to ask a question. The best approach is to stay proactive. Use your due diligence period. Review your documents. Keep your lender informed. Respond to your closing attorney. Verify wire instructions. And don’t be afraid to ask questions. A little preparation can go a long way toward turning closing day from a stressful deadline into what it should be: the final step toward getting the keys to your new home!