Home Selling Tip: Act Now to Avoid Costly Closing Delays Later

Imagine you’ve spent months getting your home ready to sell and finally it’s a few days before closing and the title company calls saying you can’t convey your home because you don’t have a clear title. Apparently, a bank you paid off 15 years ago when you refinanced your mortgage never removed the lien, and that bank was sold 10 years ago. Now the bank that purchased it has no evidence that the loan was paid off. It’s up to you to prove you paid the loan, but the loan documents are locked in a storage facility 1,000 miles away in another state where you plan to buy a new home.

What will you do? You may have to fly or drive to the facility and pay the fees associated with accessing your stuff, if possible, to get the lender payoff statement. As a result, the closing is delayed, and the buyers, who were set to move in on closing day, want you to pay their costs associated moving and storing all their stuff for the week or so it takes to resolve the issue.

All that could have been avoided had you organized key documents and kept them handy before your home went on the market. In that case, you could have e-mailed the document to the title company at a moment’s notice, giving the title attorney time to resolve the issue and close on time.

While few people like paperwork, such cases underscore how important it is for sellers to compile all documents long before they list their homes. Getting all essential documents related to the property together may prevent major headaches and remove costly hurdles on your way to the closing table.

So, as you declutter when preparing your home for sale, remember to pull out the old boxes of files and stacks of paperwork and begin sorting. Once you find the key documents detailed below, you can create a file to keep handy should the need for this paperwork arise before closing. Even better, it’s a good idea to scan the documents and keep them electronically so documents can be e-mailed to relevant parties on short notice. Here’s what you should look for:

Prior loan documents. Make sure you have paperwork related to every mortgage, home equity loan, and/or refinance you have done on your home. You may need these documents to remove what title companies will tell you are “clouds on title.” Clouds include existing mortgages that will be paid off at closing, but they can also include liens from mortgages that were paid off during refinancing or at the end of a loan. As the example above shows, there are cases when banks and other lenders inadvertently fail to remove the liens, which prevent the seller from conveying the property with a clear title.

Many times, you can just reach out to the bank and get them to provide the documents necessary to remove the lien. But what if be bank has gone out of business, been sold, or is otherwise unable to find your documents? That can lead to serious closing delays that will cost you time and money. So keep those documents handy rather than packing them up and putting them in storage where accessing them might be very inconvenient or expensive.

Title policies. It’s always good to have all of your title policies handy in case there is a title issue that can’t be resolved without use of the title insurance that you purchased originally. That may be relatively rare, but it’s possible that the insurance will be needed to resolve unexpected clouds on your title related to claims made by prior owners or their heirs.

In addition, the title policy can become part of your negotiation on inspection repairs, if the policy is less than 10 years old. That policy may provide the buyer will a substantial discount when they buy title insurance at closing, potentially saving them a thousand dollars or more. Wouldn’t you rather hand over the title policy in lieu of cash to cover inspection-related costs? Some buyers might ask for it as part of the contract as well, so it can be used as a bargaining chip at that point as well.

Warranties. Keeping a file of all the items in the house that have warranties can be helpful because these will also have value to the buyer. For example, if you installed windows that came with a lifetime home warranty that can convey to new buyers, that’s an excellent item you can provide the buyer. That warranty can give an otherwise nervous buyer some assurance that their home maintenance costs will be manageable, reducing the chance that they will exercise their inspection contingency, forcing you to put your home back on the market and start over. Plus, buyers may ask for these things, and it’s just easier and an act of good faith to hand them over. In addition to windows, look for all warranties including anything related to the roof, HVAC, hot water heater, appliances, and any other improvements you made on the property. And if you’ve done a lot of great work on the house, these documents will indicate that the property has been well maintained and will help get your home sold as well.

Contractor receipts. In addition to warranties, it’s a good idea to have receipts from contractors to demonstrate they were paid as well, especially if you ever had a dispute with a contractor over payment. While contractor liens on your property will expire much sooner than mortgages, they still can cause problems. It’s also a good-faith activity to help the buyer, who might ask for this information, to see what work was done, who performed it, and when.

Angela Logomasini and her husband Christopher Prawdzik are licensed Realtors® with Samson Properties in Alexandria. Operating as D.C. Region Real Estate, they serve the Virginia, Washington, D.C., and Maryland real estate market and offer comprehensive real estate services, including 4½% full-service listings.