Q: We are selling our house in the District and have contracted to buy one in another state. Closing is scheduled for a day after the settlement on our District house. We have just learned, however, that we will not receive our money on the day of settlement, and that it may take up to five days before we get the check. Is this fair?
A: No, it is not fair, neither to you nor to your buyer. But you are caught up in the system and change is slow in coming.
At settlement, the attorney or title company must be satisfied that the title is up to date. Prior to settlement, a title search is undertaken to determine the true ownership of the property. While it is highly unlikely, there is always the possibility for a seller to give a deed to another person who can record it just before the settlement. Thus, a title rundown is always required up to the date of settlement.
In New York and many other cities, I understand that settlements are conducted in the land records office. This permits a quick rundown, and if title is acceptable, the seller gets the proceeds check immediately. While this is a good idea, in the Washington metropolitan area there are logistical and economic considerations that limit this type of practice. Thus, sellers generally have to wait a few days until the settlement process is complete.
To complicate the matter, in the District we generally conduct what is known as "dry settlements." Mortgage lenders are under no legal obligation to get loan proceeds check to the settlement attorney (or title company) on the date of settlement, and thus they "play the float" for a few days.
In fact, many mortgage lenders generally will take up to three or four days following settlement in which to produce the loan proceeds - while at the same time charging the borrower interest from the date of settlement. Thus, borrowers often find themselves paying interest on money that has not yet been lent.
In Maryland, the law requires that mortgage lenders produce the loan on the date of settlement, and thus the only delay is the run-down of title.
This does not mean that you have no remedies. Here are some suggestions to help speed up your sales proceeds.
1. When you first learn where settlement on your house will take place, call that office. Tell them you need your proceeds immediately. The office may be able to assist if there is sufficient advance warning.
2. Find out who is making the loan to your buyer. Determine that lender's policy regarding advance disbursement to the settlement office. Often, if you tell the lender of your concerns, an effort will be made to expedite the loan check.
3. Find out if an "assignment of funds" letter is appropriate. If you are going to settle on your new house before the check is ready, many title attorneys and companies will accept a letter that irrevocably assigns you sales proceeds to the new settlement office. These assignment letters are generally acceptable here in the Washington area, but I doubt that they will assist you in your move out of his locale.
4. Make arrangements to have all papers hand-delievered. Often a lender will not write the loan check until after they have reviewed the mortgage instrument. If you have to rely on the United States mail to get papers back and forth, this may delay you considerably.