In Part 1 of this three Part series, we explored The Who, What, Where and When of Real Estate Closings.  In Part 2, we will explore some of the usual, though not-so-common terminology that is used at the closing table.  While this article only scratches the surface of the important terminology, it will outline what is most essential.The Mortgage

  •  Deed: a document signed by the Seller (Grantor) of real estate which conveys the Seller’s interest in the property being sold. The deed contains a legal description of the property and the consideration paid by the Buyer (Grantee).
  •  HUD1 Settlement Statement: Often referred to as “the HUD,” this document details all of the funds being transferred at closing. Ask your closing attorney for a copy of the HUD as soon as it’s available and do not be afraid to ask questions. You should be comfortable with (at least understand) all of the sums on the HUD.
  •  Escrow: In the real estate context, there are often several escrow arrangements taking place simultaneously. The listing broker acts as escrow agent by holding the earnest money deposit pending the sale.  The closing attorney holds the purchase money in escrow until the deed is “on record.” Lenders will often hold borrower funds in escrow to pay real estate taxes and hazard insurance.
  •  Note: Short for “promissory note,” a note is a written legal document in which one party promises to repay all accrued principal and interest at a certain time in the future.  The note will contain the interest rate, the initial principal amount, the date of first payment, and the date of last payment (“maturity date”).  Assuming that the Buyer is obtaining a loan to purchase the property, this is the most important document that a Buyer signs at the closing as it creates the Buyer’s legal obligation to repay the loan.
  •  Mortgage: an ancient French term meaning “death pledge” (cheery!)— the pledge of collateral “dies” when the loan is repaid or the property is foreclosed.  The mortgage gives the lender the right to various remedies, chief among them being the ability of the bank to foreclosure, if the borrower defaults (fails to maintain his/her obligations under the note).
  •  Payoff: a written quote provided by the current lender stating the sum necessary to pay all accrued principal interest due on the note which will therefore discharge the mortgage. Sellers are particularly concerned with this document as it is often the most sizable reduction of their proceeds from the sale.
  • Title Insurance: this one time premium protects the purchaser against title defects. While a title examiner may have reviewed registry records, there are often defects that can go undetected.  For example, forgery, encroachments, undisclosed divorce, defective notarization—just to name a few—could result in a total loss to the Buyer!  In order to obtain a loan, a Borrower must purchase a “lender’s policy” at closing.  This protects the lender, up to the amount of the loan, against these types of defects.  It does not protect the borrower.  An owner’s policy is optional—though highly recommended—and can be purchased at closing.
  • “On Record”: As discussed in Part 1, various documents including deeds and mortgages are “recorded” at the Registry of Deeds. Going “on record” simply means that the documents have been accepted and filed at the registry.  Many buyers and sellers do not realize that ownership does not transfer until this important step is completed.  The Buyer will not be allowed to take possession of the premises and the Seller will not be given the proceeds of the sale until the documents are “on record.”

While this is “the tip of the iceberg” when it comes to real estate terminology, this article should provide the basic lingo necessary to survive a closing.  Each party to the transaction should not hesitate to ask questions. The closing attorney will be more than happy to explain any term that you may not fully understand.

In the final part of our three part series, we will discuss The Mechanics of Signing Documents at a Real Estate Closing.

Stiles Law is a firm concentrating in real estate conveyancing and mortgage lending services, representing buyers, sellers, borrowers, banks, mortgage companies, investors, builders and developers in all of their real estate and mortgage transactions.