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Two common questions we get from our selling real estate clients are: how do we get our money and when do we get our money?

In northern Illinois, we use title insurance companies to handle the disbursement of monies in real estate transactions. By using a title insurance company, you are provided with insurance that the funds will be disbursed to all the entities and people who are supposed to be receiving disbursements, and your buyers receive insurance that you had the authority to transfer ownership of the property and that there are no old liens or encumbrances attached to the property that would become your buyer’s problem. The cost of the title insurance policy for the buyer is a seller charge.  The fee is based on the sale price of the property, but as with any type of insurance, it is necessary to have provided should a problem ever arise with the title for the buyer.  The buyer’s title insurance policy actually helps protect the seller from the buyer filing suit against the seller from some unknown title problem.

Because the title insurance company is insuring the transaction, it has an interest in making sure the closing is handled correctly. Therefore, the title insurance agency conducts the closing.  Another benefit of utilizing a title insurance company is the title insurance agency acts as the middleman for the money part of the transaction.  That means it collects all of the monies from the buyer (and the buyer’s lender if applicable) and then pays directly out of the transaction all the parties entitled to a piece of the property including all the seller’s closing costs associated with the transaction such as the seller’s mortgage, realtor commissions, attorney fees, and other out-of-pocket expenses the seller may incur as part of the sale process.

As part of the closing process, the title insurance company will prepare a settlement statement showing line by line the seller’s expenses and buyer’s expenses with the totals at the bottom of the statement and math completed to reflect a final bottom-line number for each side of the transaction.  On the seller’s side it is the amount the seller will be receiving from the sale.  On the buyer’s side it is the amount the buyer must bring to the closing to complete the purchase.

 Some fees reflected on the settlement statement are:

  1. Title insurance
  2. Recording fees
  3. Transfer taxes
  4. Prorated property taxes
  5. Prorated expenses (HOA dues)
  6. Attorney fees
  7. Lender fees
  8. Appraisal fee
  9. Inspection fee
  10. Survey fee
  11. Realtor fees

Some credits reflected on the settlement statement are:

  1. Earnest money deposit
  2. Purchase price
  3. Net proceeds

With the current escrow laws imposed on the title companies, it is complicated to change the settlement statement the day of the closing.  That makes it imperative to look closely at the settlement statement as soon as you receive it prior to closing to confirm the numbers are correct.

The day of the closing the buyer must either wire to the title company the bottom-line amount the buyer is responsible to bring, or depending on the amount, a certified check made payable to the title company may suffice. Once the title company receives all the money, and all parties involved in the real estate transaction sign the required paperwork, then the title company “cuts checks” and disburses the funds.  After paying off the existing mortgage balance (if any) and any additional closing costs, the net proceeds are disbursed to the seller. The seller may receive the proceeds through a check or a wire transfer, depending on the seller’s directions to the title company.

Real estate professionals, including real estate agents and real estate lawyers, play an important role in calculating and coordinating the disbursement of funds and ensuring everyone receives the proper amounts.  As long as the real estate transaction closes without issue, you will have your money at the end of the closing.