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The feel and look of a real estate transaction is considerably different than what it was just a short year ago. Today, in the midst of the COVID-19 pandemic, closings occur in a different manner and on a different time frame, which can cause concern for buyers and sellers, especially those who were used to the traditional and more predictable closing process. However, the new measures and protocols that have been put into place have allowed buyers and sellers to continue to transact business in a safe and effective manner.
Before the pandemic, buyers, sellers, excited friends and family, real estate agents, attorneys and/or settlement agents, a notary, and occasionally children and pets, once filled conference rooms and squeezed around closing tables, sitting so close the rooms would warm up to an uncomfortable degree. Everyone was usually in a great mood, trading memories and stories about the home or property that was about to be sold. Overall, closings were conducted trouble-free and any minor issues were resolved quickly. Buyers and sellers were blissfully unaware of most of the behind the scenes steps required to settle a transaction and would end with the traditional handshakes, signatures, occasional group picture, possibly a hug or two and the handing over of keys.
Real estate transactions are demonstrably different on this side of the pandemic, especially in Pennsylvania. The term “settlement date” is seemingly flexible in a way that it never has been, and arriving at the closing table – if you end up physically sitting at a table at all – and emerging unscathed by a “COVID-19 related issue” is a monumental feat. Social distancing protocols require attorneys and settlement agents to wear a face covering, sit at least six feet apart from the parties and utilize disposable pens, hand sanitizer and touchless thermometers. Due to CDC recommendations, and for obvious safety reasons, the presence of third parties at a closing is no longer allowed.
After the start of the pandemic, the entire real estate transaction process came under scrutiny because much of it required in-person action by multiple parties. Then, the issue of whether a business could remain open became an issue, hinging on whether it was deemed “essential” by Governor Wolf’s executive orders. Transactions which were days away from closing were delayed for weeks due to the closure of a vendor who was considered essential to the transaction, but who was not considered an “essential business” under the executive orders. Municipalities and municipal authorities were prohibited from performing required inspections, and tax collectors either stopped, or were delayed, in issuing lien certificates. Courthouses were closed to the public, which prevented proper abstracting of title and timely recordings (which continues to be an ongoing problem). Realtors were prohibited from showing homes and appraisers, inspectors and contractors were not permitted to enter homes to complete their work. In some cases, due to restrictions on in-person final appraisals and inspections, a buyer who happened to be selling their home in a back-to-back closing transaction could find themselves caught up in a situation where they were able to sell their current home, but were unable to move forward with the purchase of their new home, leaving them to scramble for a place to live. Closings were delayed for days, weeks and in some unfortunate cases, the closing date was “to be determined” and dependent on additional changes to the Governor’s executive orders.
The lender’s role in a transaction also became a difficult task with bank personnel and resources allocated to navigating PPP loans and addressing a massive flood of refinance loan applications due to historically low interest rates. Lender delays are a great deal more common now more than ever for the simple fact that they are overwhelmed. Lenders are dependent on their own vendors, including appraisers, inspectors, law firms, tax servicing agents and underwriters, who themselves have their own vendors on which they depend. In addition to the vendor delays, which were compounded post-pandemic, lenders had to wait on the IRS to provide tax transcripts, which became a process mired down by an impressive backlog. Additionally, due to the upheaval in the economy with the shutdowns and loss of employment by many in the country, lenders started requiring that buyers confirm multiple times that they are still employed. Lenders also began requesting information from borrowers to confirm that they have not been affected financially by the pandemic. COVID-19 and government shutdowns added to the burden imposed by lenders on borrowers and slowed the process down more than generally seen pre-pandemic.
Although new COVID-19 related requirements for lenders, buyers, seller, law firms and title companies can be daunting and frustrating, there is a positive impact on the industry. The need for social distancing has accelerated modernization of important elements of a transaction which may have otherwise taken years to occur. On October 29, 2020, Governor Wolf signed House Bill 2370 (Act 97 of 2020) permanently authorizing Remote Online Notarization (RON), which has been a hurdle for many lenders in Pennsylvania. Lenders are gradually moving toward a more digitally focused process and legalizing remote online notarization is a significant step for lenders who have been unable to move forward with digital transaction due to Pennsylvania’s rigid notary public laws. Public records offices are aggressively upgrading online services that resulted in Recorder of Deeds and Prothonotary/Court Records Offices becoming more efficient years ahead of schedule. These advancements with digital services due to COVID-19 were born out of necessity but will provide needed modernization to a process that was slow to evolve.
Due to the constantly changing guidance from the state, specific COVID-19 related shutdowns, and stay-at-home orders, a transaction can look very different after the property is listed for sale.
Tips for having a successful real estate closing during the COVID-19 Pandemic
- All parties to the transaction should ensure that they have access to a reliable computer and internet connection to provide electronically signed documents when needed.
- If you have questions, speak directly to the law firm or title company handling the closing.
- Make sure your sensitive information is secure. Identity theft and wire fraud are real issues.
Tips for Buyers
- Communication with your lender is imperative. Determine what information is needed and have it ready to deliver to your lender without delay.
- Before even entering into an agreement of sale or applying for a loan, have all of your financial paperwork in order including bank statements, investment portfolio, W-2s and tax returns.
- Speak with your real estate agent early in the process. Identify vendors you will need to hire to perform inspections (home, pest, sewage and radon, etc.) to ensure the availability of a particular vendor to complete an in-person inspection once you sign an agreement of sale.
- Have a contingency plan in place for living arrangements and storage in the event your closing is delayed for a few days or weeks as the COVID-19 rules and restrictions are constantly changing.
Tips for Sellers
- Be proactive and offer information that may be necessary upfront.
- If you are able, provide three (3) years of paid tax receipts and/or proof of up-to-date sewage and water account payments and/or Homeowner’s Association ReSale Certifications. If you happen to make a payment for one of these items, make sure you ask for a receipt.
- Call your local municipal office and inquire as to what inspections are required to sell a home in your municipality. A request from current owners may speed up the process with the municipality.
- Provide preliminary payoff statements and communicate with the title company about final payoff letters.
- If you have a prior title insurance policy, providing the policy to the lender or title company upfront may be a timesaver in completing the title search, including identifying any potential issues at the start of the closing process.
- A preliminary home inspection conducted pre-listing could address unknown issues and avoid delays for inspections and potential repairs.
Finally, regardless if you are the buyer or seller or just refinancing, understanding that we are in a pandemic and it is not business as usual, everyone is working toward the same goal and being flexible and patience are the most efficient tools any of us can utilize to make the process conclude as quickly and efficiently as possible. If you have questions or are looking for legal counsel regarding a real estate transaction, contact the Bowles Rice Southpointe office at 724.514.8915.