Auditing the Settlement Statement Before You Sign

The settlement statement is the arithmetic of your Claremont closing. Buyers commonly receive a Closing Disclosure from the lender and an estimated statement from escrow; sellers receive a seller's statement. Whatever the form, the job is the same: it accounts for every dollar entering and leaving the transaction and shows what you bring or take away.

Most people scan the bottom line and sign. That is understandable and it is a mistake, because almost every figure on the page is checkable against a document you already have, and errors on closing statements are ordinary rather than exotic.

What follows is a method, not a list of amounts. Every figure in your transaction is specific to it.

Read it as four questions

Strip away the formatting and the statement answers four things. What is the agreed price and what has already been paid toward it. What is being borrowed and on what terms. What third parties are being paid and for what. What ongoing items are being divided between the two parties because the ownership date falls mid-period.

Read in that order and the page stops being a wall of numbers.

Section one: price and credits

Confirm the sale price matches the purchase agreement, including every amendment. Confirm the deposit is credited, in the amount actually delivered, on your side of the ledger. Confirm any negotiated credit toward closing costs or repairs appears, and appears in the form the contract described, because a credit structured one way and delivered another can create a lender problem.

This is the section where a superseded number survives most often. If price or credits were amended late, verify the statement reflects the LAST amendment, not the first.

Section two: loan figures

The loan amount, the interest rate, and the term should match your loan documents exactly. Lender charges should be compared against the disclosures you received earlier in the process, which exist precisely so you can compare. Federal rules constrain how far certain categories may increase from those earlier disclosures without a valid changed circumstance.

You are not expected to know which category each fee falls in. You are expected to ASK when a number moved, and the lender is expected to explain and document why. A shrug is not an answer.

Section three: title, escrow, and government

Here sit the title and escrow charges, recording, transfer tax, and the various small items. Two habits are worth forming.

First, check that you are not being charged for something the contract assigned to the other party. Who customarily pays which items VARIES BY COUNTY in California, varies further by locality, and is in every case negotiable and controlled by your contract, not by a rule. If your agreement allocates an item, the statement should follow the agreement.

Second, check that policies were issued as agreed. If an owner's policy was to be issued, confirm it is there. The distinction between the two policies is in the owner's and lender's policy guide, and any endorsements should correspond to something someone actually requested, per the endorsements guide.

Section four: prorations and payoffs

Prorations divide continuing items at the closing date: property taxes, association dues, sometimes rent and deposits on a tenant-occupied property. The mechanics are simple division, and the errors come from the INPUTS. Verify the tax figures come from the current bill, that the closing date used is the right one, and that association dues match the association's own demand rather than an estimate.

Payoffs are the other input-driven section. Every existing loan, lien, or judgment being cleared should tie to a written demand from that creditor, and the demand governs. If a payoff appears with no corresponding demand in your file, ask for it. Where liens are being cleared, the general path is in the lien clearing guide.

A payoff for a loan you believe was satisfied years ago is a real event, not a clerical slip, and it is covered in the unreleased mortgage guide.

The disciplines that catch the most

ASK FOR IT EARLY. Request the estimated statement several days before signing, not at the table. A number you see for the first time while a notary waits is a number you will not question.

TIE EVERY LINE TO A DOCUMENT. Contract, loan disclosure, tax bill, association demand, payoff demand, invoice. Any line that ties to nothing is the line to ask about. It may be perfectly legitimate; you are entitled to know what it is.

WATCH THE REVISIONS. Statements are commonly revised more than once. Compare versions rather than re-reading the newest in isolation, because a change made to fix one thing occasionally moves another.

CONFIRM WIRE INSTRUCTIONS BY VOICE, using a number you obtained independently. This is not an accounting point, it is the single highest-consequence item in the closing, and it belongs beside the statement review because it happens at the same moment.

When something is wrong

Say so before signing, and get the correction in a revised statement rather than a verbal assurance. Escrow follows written instructions; a promise made at the table does not change the disbursement.

If the disagreement is about what the contract requires rather than about arithmetic, that is a question for your agent and, where the stakes justify it, a real estate attorney. Escrow is neutral and cannot interpret the contract for you or advise you on your rights.

For the sequence around signing and recording, see the title and closing guide. Anthony Grynchal has been licensed in California since November 2009.