April 29, 2025
Gaithersburg, MD--Very early in the settlement career of an attorney, the attorney was conducting a settlement and slowly going through the large stack of documents to be signed. Typically, attorneys go through the most important documents first, figuring that the parties are interested in what was being explained, excited about the settlement transaction, and closely paying attention to the transaction. The less interesting documents were often saved for the end, such as the fill in your name and phone number forms. The settlement attorney finished the key documents and jokingly said that “now we are going through the junk documents.” The Buyer, undoubtedly much older and experienced than the attorney stated, “Young man, if I have to put my signature on a document, then the document is not junk.” That exchange was a valuable lesson for all participants in a settlement transaction. Given that, below is a brief summary of the settlement documents that will be signed, keeping in mind that every document is important, and the parties should always ask questions if they do not understand what they are signing.
There are, in fact, many documents which both the Buyer and Seller will sign at settlement. Many are indeed self-explanatory, such as declarations that the Buyer intends to occupy the property, or that the Buyer has not given any false statements to the lender, or that the correct mailing address will be the property address. There will be forms that state that certain variations of a person’s name are indeed that person’s name. Or it could be a statement that the Buyer understands that the failure to make a payment could damage their credit report. Also, the Buyer will likely receive a First Payment Letter with an old-fashioned coupon for the first payment. All of these documents are, indeed, extremely important, and the parties to a settlement should pay careful attention to them.
There are also a number of documents that deserve even greater attention, as they are critical to the completion of the settlement. One of the most important documents that all parties will sign comes in various forms. It is the Closing Disclosure (CD). This document sets forth all of the costs and expenses of settlement, as well as the adjustments between the Buyer and Seller. In some cases, the Seller will have their own CD, the Buyer will have a CD that presents just the Buyer’s numbers and then there may be a combined Buyer and Seller CD. Also, it is possible that the parties to the settlement will sign an American Land Title Association, (ALTA) version of the numbers. This document contains the same numbers as the CD, but they are just presented a little differently, more like an accountant’s debit and credit statement. The key to the ALTA document is to confirm that the bottom-line cash due from the Buyer, and proceeds due to the Seller, match the bottom-line numbers in the CD.
The Buyer will also sign a Promissory Note, which is the Buyer/Borrower’s promise to repay the lender. The Buyer should review the Note in order to determine that the interest rate, loan amount, and term of the loan are correct. Additionally, the Note should state whether there exists a penalty for prepayment and that the late charge should not exceed the maximum amount allowed in the particular State. Finally, the Note may state that the loan is not assumable. This means that if the Buyer sells or transfers any interest in the property, the new Buyer will not be
allowed to take over the payments on the loan. Instead, the Buyers will be required to obtain their own loan.
Another document which the Buyer will sign is the Deed of Trust or Mortgage. This is the document in which the Buyer pledges the house as collateral for repayment of the loan. In the event that the Buyer fails to make the payments due under the Promissory Note, and the Lender properly notifies the Buyer of this default, then the Lender will be authorized to have the house sold at public auction or foreclosure. The person conducting the settlement, or perhaps the Buyer’s attorney in some States will review these documents to determine that they are properly drafted and will explain them to the Buyer at settlement.The Seller will also sign a document that is very important for the Buyer. It is the Deed, which transfers title from the Seller to the Buyer. It is especially important that the Buyer double checks to make sure that their name is spelled correctly and that the property being transferred is, in fact, the property that the Buyer has contracted to acquire. There have been cases where the wrong property has been transferred to a Buyer, and it can lead to a lot of problems for all parties involved to undo the incorrectly transferred property.
The Buyer should also look over the Deed to determine that the tenancy is correct. Buyers can take title as sole owner, tenants in common, joint tenants with the rights of survivorship and tenants by the entirety. The exact wording of these tenancies can vary by State, so the Buyer should carefully discuss this with the person conducting the settlement to be certain that the proper tenancy is established.
In the very old days, the documents were not available for review until the moment that the Buyer and Seller appeared for settlement. Sometimes, they did not even arrive until after settlement had commenced. Now, many lenders and attorneys will send out documents in advance so that the Buyer can take their time looking through everything that has to be signed. Some lenders are even doing “hybrid” settlements, where some documents are signed online, and others are signed at the settlement table. Also, with the change in certain Federal laws, the Buyer will get to see their final closing numbers days in advance of settlement, so that should eliminate many last-minute changes or surprises.
After settlement, the Buyer will receive copies of the signed documents. The copies may be delivered by e-mail, or, in some cases, they may be traditional photocopies. In any event, it is important for all parties to keep a set of copies of all papers that were signed at settlement. It may be years or even decades, but sometimes the acquisition settlement documents are important to review when it comes time to sell the house.
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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