Potential Problems That Can Delay or Derail Real Estate Closings in California

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Author: Staff

Buying and selling real estate in California is a complicated machine with many moving parts. Everything must be in working order before the deal can close. Most problems that arise in the days or weeks leading up to a closing might cause the machine to sputter, but the parties involved in the transaction can set everything back in order. Some issues, though, can cause big enough problems that they delay the closing date—or derail it altogether. This could be a major problem that changes the nature of the deal for the buyer or seller, or it could be a small problem that simply goes unnoticed for too long. For California real estate investors, knowing how to adapt to unforeseen problems is just as important a skill as knowing how to identify and avoid problems in the first place.

Title Problems

In almost any real estate transaction that includes mortgage financing, the lender will require title insurance. The title company will conduct a search of the property’s title history to look for anything that might affect the buyer’s—and therefore the lender’s—interest in the property.

Any defect in title raises the possibility of some third party asserting their own interest in the property. Liens, which give creditors a non-possessory interest in real property, are a common type of title defect. Before a closing may proceed, all title defects must be resolved to the satisfaction of the title insurance company.

Inspection or Appraisal Problems

A buyer is typically responsible for hiring an inspector as part of the due diligence process. Inspectors are licensed by the state of California to inspect real property for a wide range of problems. If an inspection finds serious flaws in the property, such as shoddy electrical wiring or a bad foundation, this can derail the sale entirely, or delay it while the seller makes repairs.

Lenders often perform appraisals to make sure that the value of the property is equal or close to the purchase price or loan amount. If the appraised value is less than the amount of financing, the lender is likely to delay closing while they seek additional information.

Financing Problems

Some California real estate investors pay cash for properties. Many require financing. Most homebuyers need a mortgage loan. A significant number of real estate closings therefore cannot proceed without financing. No loan in the world should ever be considered a “done deal” until the lender has disbursed the money. Between the time a buyer applies for a loan and the closing date, much can go wrong.

Document Errors

Real estate closings involve a great volume of documents. Even in “paperless” systems, a closing still requires a dozen or more—often many more—signatures. The only document that is absolutely essential to a real estate closing is the deed, which conveys title from the seller to the buyer. Federal and state law often require many more documents than this, however, especially when financing is involved.

Laws like the Truth-in-Lending Act and the Real Estate Settlement Procedures Act require signatures on various documents at the closing. Any error or omission on a required document, such as a misspelled name or an incomplete form, can bring the entire process to a halt, hopefully only temporarily.

Problems During the Walkthrough

Just before closing, many buyers like to do a final walkthrough of the property, to confirm that it is in the same condition it was when they decided to buy it. If it is in a lesser condition, the seller is likely to hear about it.

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