Everyone has heard the horror stories that pave the road from zTC contract to settlement.
* There was the recent account of a couple in the middle of divorce proceedings showing up at settlement without having worked out who would get how much from the sale of their house. For three hours they argued, while the buyer sat there waiting for an agreement.
* Then, there was the case of the local attorney buying a home that was owned by a bankrupt partnership. The bankruptcy trustee failed to approve the sale, even after the partnership had signed the contract, and the bank that held the first mortgage refused to release its lien. Settlement was delayed twice, and the lawyer, who had to retain counsel, drove back and forth between Columbia and Baltimore to get the necessary approvals of the bank, trustee and the bankruptcy court.
* Or, the one that was an owner's sale where the seller tried to settle 12 times during a three-month period. Before settlement, the potential buyer had convinced the seller to allow him to move into the house -- a mistake on the seller's part. It finally became apparent that the buyer was not who he claimed to be. The seller went from trying to sell the house to trying to evict the interloper.
And experts say that even though only about five to 10 percent of purchases actually collapse at the settlement table, the process can be frustrating.
But it does not have to be a bad experience, says Stuart Resnick, a real estate lawyer with Executive Title Group Ltd. in Owings Mills.
He and other real estate specialists agree that while buyers should be as knowledgeable as possible, the most important element for a smooth settlement is to work with a reliable, experienced real estate agent.
It is important to understand, for example, that lenders frequently do not know the details of what a title office does, and vice versa, but an experienced agent will be in touch with both on a regular basis.
Good agents can also help avoid misunderstandings, and although the agents work for the sellers, they will note potential foul-ups that might otherwise be overlooked. "A Realtor will catch a well that does not pass inspection in time to have it fixed, so settlement will not be delayed," says Betty Francis, marketing director of Maryland operations for Commonwealth Land Title Insurance Co. of Bel Air.
Experienced real estate agents understand things such as a HUD I. If one of the conditions of the approval of the loan is that the buyer must have realized the proceeds from the sale of the current home, a HUD I form, which documents this sale, will be required at settlement.
Buyers may also need bridge loans to complete the purchase and a good agent can frequently tell the buyer which lenders offer them.
In addition, the agent helps the buyer throughout the loan process, particularly in staying on top of the lender to insure that all the important information and papers are in order. Mr. Resnick advises his clients to be annoyances -- good ones -- to lenders.
"I tell buyers to call their lenders about once a week and say: 'I know you have everything you said you needed, but what else do you need?' "
Along with a quality agent, it is important to have a detailed and carefully prepared contract.
Edwin "Tee" Tillman, vice president of the Fountainhead Title Group of Columbia, suggests writing into the contract specific needs, such as those for home offices or swimming pools. This allows problems with covenants and zoning regulations to be checked, and resolved, before settlement.
Covenant problems can be checked by the agent, real estate attorney, title company or the buyer. If there are problems, it is up to the buyer to resolve matters with the covenant association.
Financing should be specifically written into the contract," Mr. Tillman says. "For example, if a buyer is looking for an 8 1/2 percent interest and for two points to be paid by the seller, what adjustments will be made if the interest rate reaches 8 3/4 percent by the time of settlement?"
He recommends writing "8 1/2 percent, or best obtainable rate, not to exceed 8 3/4 percent." Contracts should include terms for radon and other inspections, which these days are frequently handled by sellers; bacteria tests on well water and a "kick-out clause," which allows for contingencies, such as the buyer's inability to sell his current house.
The more specific the contract is, the less chance there is of a misunderstanding.
Lenders are also known for bombarding homebuyers with paper. It is important to read it all carefully and get clarification on points that the buyer does not understand, Mr. Resnick said. This material will contain information that is important for the buyers: interest rate disclosures, truth-in-lending statement, good faith estimate of closing costs, and letter of loan commitment.