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What documents are needed for a real estate closing?

On Behalf of | Jul 8, 2020 | Real Estate Litigation |

Real estate transactions can be long and tedious. The closing is intended to be the last act of that transaction. Closings, however, require preparation to avoid delay or possible real estate litigation.

The closing requires four documents. These are escrow, signing authority verification, due diligence and signing and processing title and closing documents.


Escrow helps assure nobody gets paid until their conditions were met. A neutral third party holds funds in an account until all the escrow agreement terms are met or one party withdraws from the deal in accordance with the escrow agreement.

Commercial escrow is more formal and controlled because of the money involved and complexity. The agent must verify that the escrow agreement was satisfied before funds may be released. Usually, the title agent serves as the escrow agent because of their familiarity with the transaction and their independence.

The parties must agree on the escrow agent’s duties and what satisfies escrow before the funds are released to the seller. Each escrow agreement usually contains clauses appointing the title agent to act as escrow agent, waiver of their fee and prohibiting the commingling of funds with other monies. These agreements have a statement directing when written instructions from the parties must be received before finds are released.

Legal entities

Two or more legal entities are usually involved. Parties want to restrict their liability in these expensive transactions and often create legal entities such as a corporation, LLP, or LLC for commercial real estate ownership. Existing legal entities buying more property may create a new legal entity or subsidiary to restrict the risks of buying or selling property.  

Signing authority

An individual must execute documents on behalf of these entities. Both parties will require proof that the individual signing documents has authority for executing these documents before escrow money is disbursed. Proof may be in the corporate charter, a resolution from the president or equity partners, or letters of authorization from the resident, CEO, or board of directors of the entity.

Due diligence

Parties may be more creative in structuring a deal and the closing to serve their interests because federal residential real estate protections do not apply. Both parties should carefully review the closing documents for accuracy and timely execution. They also have due diligence responsibilities.

Buyers should review whether the contract of sale was properly executed, receipt of most recent title insurance policy, updated survey report, receipt of authentic copies of leases, review of new environmental report, termination notice conditions and deadline for due diligence, all tenant estoppel deliveries, review of seller’s books and records, zoning compliance confirmation and search for remaining tax cases or liens.

Sellers should review whether the contract for sale was properly executed, the buyer delivered down payment to escrow agent, the escrow agent deposited funds in a separate interest bearing account, a response was filed to objections to the title and survey report and the buyer executed assignment and assumption of leases.

Title and closing documents

The parties must accept a title report and execute and review several closing documents.

The title report discloses commercial title issues such as easement and underground mineral rights. Both parties must review for errors and resolve problems before the transaction proceeds.

Zoning and building jacket reports help assure that the property is correctly zoned for its current and intended uses. These typically include letters from municipalities, endorsements to the title of the property or a title company’s detailed report.

Closing documents will include a quitclaim deed a special warranty deed or other deed which officially transfer property ownership once it is officially recorded. A title affidavit will accompany the executed deed.

An assignment and assumption of leases describe the benefits of lease transfers from sellers to buyers. These also transfer future liability for any violations of the lease to buyers and sets forth liability for lease breaches before sale. Tenants are also notified of ownership changes.

An attorney can help protect interests in these transactions. They may also prepare documents which facilitate a fair and valid deal.