MEMORANDUM
FROM: Allison Tipton
RE: Closing and Funding: When is Transfer of Title Official?
An issue that has been continuous in the real estate realm is the buyers question, “When do I get my keys?” While the answer to this should be simple, the language presented in the contract can make this determination a bit more complex than anticipated.
In many of the contracts supplied by the Texas Real Estate Commission, the language under the “Buyer’s Possession” clause states that, “Seller shall deliver to Buyer possession of the Property in its present or required condition upon closing and funding.” The phrase that makes this seemingly simple clause so arguable is “closing and funding.” Generally, closing is the final step in the real estate contract when the parties sign off on all of the final documents, the deed gets recorded and the buyer gets the keys. But, this can pan differently depending on how the term “funding” is deciphered. The dictionary definition of funding is the act of providing financial resources, therefore the simple act of having a funding source fulfills this word. Funding can also be defined as the process of wiring (releasing) money from the mortgage lender to title or escrow prior to or at the closing of a real estate transaction, meaning that funding is the act of physically transferring funds from the lender. The fact that the term “funding” can be defined in different ways is what makes the timing of possession an issue, since possession can’t take place until closing AND funding.
While case law on the subject is seemingly sparse, it appears that agents across Texas are discussing these transaction issues on blogs and articles across the web. One out of state home buyer had the issue where the contract stated that possession will take place upon closing and funding. The buyer’s escrow agent said that they “closed and funded” in the same day, but the seller wouldn’t have his money until the next Monday due to the 3pm closing on a Friday. Therefore, the seller instructed his agent to withhold the keys until he received his money. The buyer stated that both the buyer’s and seller’s Realtors agreed that it is customary to receive the keys immediately, but the seller had the right to withhold the keys until the money was received. Another real estate agent in Texas described closing and funding as two completely separate steps, meaning that generally, you will not receive keys until the loan has funding, meaning the transfer of money has been verified and received by the seller. Therefore, if you close on a Monday and the funds do not go through by the end of the day, you are not allowed possession of the property until the funds go through, whenever that may be.
Other Texas real estate agent articles stated that, “Closing is when both buyer and seller have signed the final documents. Funding is when the monies are released,” and, “While you are at the title company and signing closing documents you are closing. Once the home is closed and the title company has received all monies for the sale of your home and a funding number from the mortgage company, funds can be disbursed and the transaction is considered funded.” In Capcor at KirbyMain, L.L.C. v. Moody Nat'l Kirby Houston S, L.L.C., a Texas case discussing disclosure, the seller’s agent had received a wire transfer of part of the funds from the lender, but was still missing part of the funds that were being paid by the buyer itself. The agent in this case stated during this situation that, “The purchaser funds are still outstanding. Please be advised that this transaction is not closed until all funds are received.” The parties to the transaction had used an “Unimproved Property Contract” promulgated by the TREC, which included the “closing and funding” possession clause. While this case does not make any determinations regarding the closing and funding language, it does show that one interpretation of the phrase is that funding does not occur until funds are received.
The “closing and funding” phrase has proven to have its pitfalls and definition confusion. However, it does appear that while the general consensus of buyer possession is that it happens upon closing, if funding is also a requirement, the keys will not be handed over until the funds have been received by the seller. Therefore, if you close on one day, but the funds are not transferred until a later date, the buyer will not receive the keys and possession of the property until that later date upon which the funds were finally transferred to the seller. So, while it may disputed and construed in different ways, the general consensus in Texas on when a buyer gets their keys seems to be after closing when the funds are received by the seller.