It’s referred to as a “dry closing” because funds aren’t handed out at closing. Usually (but not always) a dry closing is the result of a lender requirement to review all the signed closing documents prior to authorizing release of the money.
And normally it’s not the fault of anybody sitting around the closing table- it’s a lender requirement. Today the law requires a HUD 1 (closing form)to be in the purchaser’s hands at least one day prior to closing or the closing is delayed. In many cases, the person handling the closing simply faxes all the material to the lender and approval comes within 30-40 minutes. However, more and more, the lenders are not responding in a timely manner, government mandated timelines are not met or the lender is slow to wire the funds and this leaves both buyers and sellers in an awkward position.
Sometimes the seller is contractually obligated to provide occupancy at closing and they have vacated the property anticipating payment at the time of closing. Buyers expecting to move in the same day as closing and scheduled movers, appliance deliveries, cable/dish installation and a multitude of other things.
The rubber hits the road when everybody signs the closing documents and the seller doesn’t receive their money. And lately some title companies don’t disclose the delay in funding until documents have been signed at which time the seller has some options:
It’s obvious that “everybody” involved with the closing know about the status of payment(s) so they can plan accordingly . In a previous blog I covered potential closing delays caused by new government regulations added to the current lender requirement to review signed documents may have an impact on more and more closings. It would be helpful if all the parties were warned in advance about the possibility of a “dry closing”- but nothing in the normal documents requires providing this information to buyers and sellers.
Of course there are other reasons for dry closings. Sometimes the payoff on the seller’s mortgage can’t be obtained, condominium clear letters aren’t received, old liens against the property requiring a lot of footwork to clear, buyer did not provide required paperwork in a timely manner- delaying the loan process.
It would be helpful if buyers started asking their lender about their closing policy before the actual closing. Privacy regulations often prohibit lenders from communicating with anybody but the buyer- so agents are not aware of potential of a “dry closing”. Another solution would be escrow closings- where parties sign the paperwork by a specified date and the “closing” is scheduled for a future date. This gives the title company time to clear all the hurdles and hand out funds on the scheduled date. The down side of escrow closings is the added cost.
If you need more information about closing problems or real estate call or email.