July 8, 2025
Gaithersburg, MD--Perhaps the Realtors most exciting moment in a real estate transaction occurs when the Sellers have placed their final signatures on a Contract offer and the deal is fully and finally ratified. Obtaining a fully ratified contract is, after all, one of the most important steps in formally starting and ultimately completing the sale of the property. In fact, it often takes months of prospecting, cold calling, advertising, showing, negotiating and ultimately selling before the Buyer and Seller agree on mutually acceptable terms. Even in today’s real estate market, not every sale happens overnight, and getting to settlement can take from ten days to many months.
However, obtaining a Contract is not the time for the Realtor to sit back and relax. In fact, in order to ensure a truly smooth settlement, it is immediately after final Contract ratification when the Realtors toughest work will begin. Bringing the parties together is certainly an accomplishment. But keeping them together is the real test.
In order to assist the Realtor in keeping the transaction alive, and to help in avoiding any liability in case the sale falls through, the following list is presented as a guide through the contract to settlement maze.
DEPOSIT THE DEPOSIT! This is one area where many Realtors have exposed themselves to serious liability by failing to expeditiously deposit the deposit check or arrange for the wiring of the deposit. Although this may seem to be a rather obvious step, it is not uncommon for a Buyer to ask the Realtor to “hold on to the check for a couple of days.” This act may be convenient for the Buyer, but it also places the Seller and Realtor at great risk. What happens if the Buyer changes his or her mind about the transaction and decides to stop payment on the check? What if the Realtor forgets about the check (which is often stapled to the inside of the file) and then discovers it only after the Buyer has breached the Contract and the Seller has made demand for the funds. In some jurisdictions, the standard Contract requires the Realtor to deposit the check upon ratification of the Contract. Finally, if the Buyer is going to wire the deposit, the Realtor and the Buyer need to double and triple check with the intended recipient of the wire to be certain that the wire instructions are correct and legitimate. Accepting wire instructions via regular e-mails is simply wrong and may ultimately lead to a loss of the Buyer’s money.
CHECK THE SELLER'S LOAN PAYOFF STATUS. Many Sellers do not understand the true amount of money that they owe on their loan. Often, the Sellers will look at the principal balance on their monthly mortgage statement, but they do not realize that they also owe interest, late fees, escrow shortages and other miscellaneous payoff fees. This can lead to a very disappointed Seller and mildly embarrassed Realtor when the bottom-line proceeds are much less than expected. Sometimes, the Seller will be embarrassed to tell their Realtor that they are behind on their mortgage payment, and this can lead to some last-minute surprises as well It is for this reason alone that the Listing Realtor should instruct their Seller to obtain a current payoff statement as soon as the listing is posted.
It is not unusual for the parties to a Contract to plan for settlement on the last day of the month. Unfortunately, if the Seller is paying off an older FHA loan, the Lender will be entitled to collect interest through the last day of the month in which settlement occurs. If
settlement is held on the last day of the month, this leaves the settlement company with no opportunity to transmit the loan payoff check or wire to the Sellers lender in time. The mere thought of paying an extra month’s interest on their loan has often caused Sellers to refuse to settle. If the Seller is paying off an older FHA loan, the Realtor should try to schedule settlement no later than the 25th of the month. This allows a few days for any unusual delay in settlement and also gives a two-day cushion for delivery of the payoff check or wire.
As a side note, even if there is no FHA loan payoff involved, trying to settle every transaction on the last day or two of the month is a recipe for problems. Lenders can be overwhelmed with closings, settlement companies only have so many hours in the day and issues can even arise as to whether the next month’s mortgage payment or homeowner’s association dues should be paid. Generally speaking, it is just a good practice to avoid scheduling every settlement on the last day of the month, even if it does appear to “save” the Buyer a few days of interest on their new loan, which we know is not really the case.
INITIAL REVIEW OF THE CONTRACT AND ALL ADDENDA FOR ANY SPECIAL REQUIREMENTS. Notwithstanding all of the excitement and confusion prior to settlement, one thing can certainly be counted on: If the Buyer specifically requested that the Seller perform certain repairs, remove the old swing set or leave the purple and gold curtains, then those will be the first items the Buyer looks at during their final walk-through inspection. The Realtor should remind the Seller of these special items and periodically check with the Seller to ensure that the work has been completed, or the items are not removed. Every settlement attorney has a story about the missing chandelier, the extra refrigerator that was “accidentally” taken by the movers or the blue mini blinds that are nowhere to be found. Also, many Realtors have unpleasant memories of having to buy a washer or dryer. If the Contract states that the washer and dryer convey, then inevitably, when the movers take them away, the Seller will look at the Realtor and ask for compensation for having to buy a replacement washer and dryer.
DELIVER THE CONTRACT AND ALL PERTINENT INFORMATION TO THE TITLE COMPANY EARLY IN THE TRANSACTION. While the procedures for setting up settlement can vary from State to State and even County to County, it is critical to immediately get the file opened with the settlement company and the title ordered. Beginning the process as early as possible will allow the title attorney as much time as possible to solve any title problems which may arise. It is not uncommon for the title attorney to discover unreleased trusts, judgments, survey defects or other similar problems. An early title search may also reveal whether there are additional owners who have to sign the Contract and Deed. In one recent case, an early search informed all parties that the Seller had filed for bankruptcy but had "forgotten" to tell his Realtor.
HAVE ALL POWER'S OF ATTORNEY REVIEWED BY THE TITLE ATTORNEY AND THE LENDER. It is becoming increasingly common for both Buyers and Sellers to utilize a Power of Attorney to transfer or acquire property. In most cases, the Buyers lender will require that their counsel review the Power of Attorney in order to ensure that it complies with the applicable underwriting guidelines, as well as state and local law. In addition, many out of state Sellers will utilize a Power of Attorney. In the event that the document is not prepared in compliance with the state requirements, the title attorney will not be permitted to utilize it at settlement. An early review of the document will avoid an unnecessary delay in settlement.
Many State now allow for a Remote Online Notary transaction. It is important to review the various State rules and confirm that the Seller qualifies for such a signing method. Generally speaking, the online platforms will require that the signer has a Social Security Number, as the number is used to gather the qualifying and identification
questions that confirm that the person signing really is the Seller. Also, many settlement companies will not allow a Seller to choose their own notary. For example, if a Seller claims to be out of town and asks for the papers in advance so that they can go to a Notary, this is the perfect fact pattern for Seller impersonation fraud. No Seller should be allowed to choose their own notary, and if your Seller is going to be out of town, a serious discussion must take place with the settlement company so as to satisfy all notary signing requirements.
ALWAYS REDUCE ANY SUBSEQUENT AGREEMENTS TO WRITING. If ever there is an opportunity for misunderstandings with regard to Contractual obligations, it usually occurs during the period after Contract ratification and prior to settlement when subsequent agreements are made. For example, the Seller may agree to perform additional repairs, pay certain fees, extend the settlement date or credit the Buyer with funds at closing. Another common problem occurs when the parties agree at the last minute to allow the Seller to stay in the house after settlement (a Post-Settlement Occupancy) and the parties do not properly reduce this agreement to writing. Inevitably, the Buyer will demand a security deposit, and the Seller will claim that no such issue was ever discussed.
FINAL REVIEW OF CONTRACT. At least three to five days prior to settlement, the Realtor should conduct a final "Contract check" and literally check off each special item in the Contract such as special repairs, items to be removed or items to convey. This will help to avoid any disputes at settlement and will also avoid giving the Buyer any reason to delay or attempt to cancel settlement.
FINAL TRANSACTION REVIEW. During the last week prior to settlement, the Realtor should perform a final check on various matters which could arise and ultimately delay settlement. The list should include, at a minimum, the following items:
a. Does the Lender have everything that they need, such as a well and septic report or a termite inspection report, if required? Have the solar panels been properly transferred? Have all required documents and verifications been given to the Lender?
b. Does the Lender have the Buyer's paid hazard insurance policy? If the property is a condominium unit, the Buyer still may be required to carry an insurance policy for their responsibilities with the condominium, such as interior repairs.
c. Has the Buyer arranged to obtain a cashier check? If the Buyer is wiring funds, have the instructions been verbally confirmed with a known person and/or phone number of the settlement company? Is the Buyer relying on e-mailed wire instructions? If so, then they are at risk of sending their money to a fraudster. No wire should be sent without multiple verifications. Also, many title attorneys will not accept a personal check for the balance of the purchase price at closing. The Buyer should check to see what the policy of the settlement company might be.
d. Does the title attorney disburse the Seller's proceeds at closing? If not, has the Seller been made aware of this? This concept varies by State, but many Sellers go by their own personally created rule, which is that if they don’t have money, then the Buyer doesn’t get keys.
e. Has the title attorney been notified of any last-minute changes, contract addenda, or problems which may arise at settlement?
f. If available, has the Seller's title insurance policy been provided to the title attorney in advance of closing? By providing this policy, the new owner may be able to obtain a reissue or discount rate on the title insurance.
g. Has the Seller been advised to keep the current hazard insurance policy in effect for several days after settlement? Many Contracts provide that the Seller will be responsible for any damages to the property until the Deed is recorded.
h. Has the settlement date, time and location been confirmed with the Lender, settlement company, Seller and Buyer?
SCHEDULE WALK-THROUGH INSPECTION EARLY. While the fast-paced real estate environment of the past few years led to many “as is” transactions, the script has flipped and now Buyers are requiring home inspection contingencies, final walk-through inspections and delivery of the property in near perfect condition. The most common settlement dispute involves the final walk-through inspection and the handling of any last-minute repairs. It is often the smallest of problems which pushes the Buyer over the edge and causes the distressing proclamation that "if you don't fix the leaking toilet, I'm not going to settle". Although last-minute repairs are certainly unavoidable, last-minute disasters can be easily eliminated.
If possible, the walk-through inspection should be held as early as possible. Ideally, this would allow at least a day or two to repair any last-minute problems. In the event the Seller is unable to complete the repairs, then an estimate should be obtained in advance of settlement. The title attorney will then be in a position, if permitted by the Lender, to escrow the precise amount of funds necessary to pay for the repairs, rather than a speculative amount which may serve only to anger the Seller. The Buyer will then be reassured that the work will be completed, and the Seller can rest easy knowing that an unreasonable amount of money will not be spent on the repairs.
If the Seller has not completed all necessary repairs pursuant to the Contract, or if last minute problems do arise, the Seller should be cautioned prior to settlement that an escrow of funds may be necessary. Given that many Lender underwriting guidelines no longer allow escrows, scheduling the final walk-through inspection one hour before settlement is a bad idea. That leaves everyone with very few options, other than to delay settlement so that the repairs can be completed. The best way to avoid problems at settlement is to avoid surprises at settlement and the best way to avoid surprises is to prepare the parties for all that may happen.
SETTLEMENT. If the Realtor has made it this far in the transaction, the odds are overwhelming that the worst of the potential problems have been avoided or at least identified and solved. However, even the most careful planning may not be enough to prevent a last-minute settlement problem.
Thus, if a last-minute issue arises, the Realtors should notify the settlement company in advance, even if it is a last second text message that is sent on the way to the settlement. Also, the Realtors should do their best to advise the Buyer and Seller of the problem and prepare them for what is likely to happen at settlement. Most participants in a transaction don’t even understand what happens at a settlement. They have heard stories about problems at a settlement, but they really don’t know what to expect at closing. While nobody likes problems at settlements, it is clear that absolutely everyone despises surprises at settlement. Therefore, if the Realtor prepares his or her own outline or checklist utilizing the above information, it may be possible to avoid last-minute disasters and hopefully keep the deal alive.
David Parker is an attorney and the Managing Director of Village Settlements-an Atlantic Closing and Escrow Company. His columns have appeared regularly in local newspapers, magazines, and newsletters. He is the co-author of the book, “Real Estate Practice in DC, Maryland and Virginia.” If you have a topic that you would like him to write about, he can be reached at dparker@villagesettlements.com.
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