Title and Closing Procedures in the United States: A Guide to Property Transfers

Purchasing real estate in the United States involves a process that may differ significantly from property-transfer systems used in other countries.

The transaction usually includes a purchase contract, financing, inspection, appraisal, title examination, insurance, closing and recording. The rules and professionals involved can also vary by state.

In many parts of the country, a title company or escrow agent conducts the closing. Some states require or commonly use real estate attorneys. Buyers should therefore review the rules that apply in the state where the property is located.

What Is the Difference Between Title and Deed?

Two concepts are central to understanding a United States real estate transaction.

Title

Title refers to the legal ownership rights associated with the property. It represents the right to possess, use, rent, sell or transfer the real estate.

Deed

A deed is the written legal document used to transfer ownership from the seller to the buyer.

After closing, the deed is generally submitted to the public-recording office in the county where the property is located.

The Consumer Financial Protection Bureau explains that a buyer typically receives a deed showing that the seller transferred legal ownership of the home to the buyer.

The United States Property-Purchase Process

1. Budget and Financing

The buyer must first decide whether to purchase the property with cash or mortgage financing.

When a mortgage is used, the lender may review:

• Income and financial condition
• Credit history
• Down payment
• Existing debt
• Property value
• Taxes and insurance
• Source of funds

International buyers may be able to use foreign-national mortgage products. The down-payment, interest-rate and documentation requirements can differ from standard mortgage programs offered to United States residents.

2. Selecting the Property and Making an Offer

After selecting a property, the buyer submits a written offer.

The offer may include:

• Purchase price
• Earnest-money deposit
• Financing contingency
• Inspection period
• Appraisal contingency
• Closing date
• Allocation of closing expenses
• Furniture or equipment included in the sale

The seller may accept, reject or counter the offer. Once the parties agree and sign the purchase contract, the transaction moves into the due-diligence period.

3. Depositing Earnest Money

The buyer commonly submits an earnest-money deposit after the contract is signed.

The deposit is generally held in an escrow account controlled by a title company, escrow company, attorney or other authorized party rather than being paid directly to the seller.

At closing, the deposit is credited toward the buyer’s purchase price or closing expenses. If the transaction is cancelled, the contract determines whether the deposit is returned to the buyer or released to the seller.

Inspection and Appraisal

Home Inspection

A home inspection evaluates the physical condition of the property.

The inspector may examine:

• Roof
• Heating and air-conditioning systems
• Electrical installation
• Plumbing
• Foundation and structural components
• Doors and windows
• Swimming pool
• Appliances
• Evidence of moisture or water damage

If significant problems are discovered, the buyer may request repairs, renegotiate the price or cancel the transaction when permitted by the contract.

Appraisal

When mortgage financing is used, the lender normally orders an independent appraisal.

The appraisal estimates whether the property’s market value supports the purchase price and requested loan. A lender may decline to finance the portion of a purchase price that exceeds the appraised value.

An inspection and an appraisal serve different purposes. An inspection focuses on physical condition, while an appraisal focuses on market value.

What Is a Title Search?

A title search examines the property’s ownership history and identifies claims or restrictions that may affect the transfer.

The search may review:

• Whether the seller has authority to transfer the property
• Unpaid property taxes
• Existing mortgages
• Court judgments
• Contractor or mechanic’s liens
• Recording errors
• Easements
• Other ownership claims

Title search and title insurance services can represent a significant part of the closing costs. Title services may include the search, insurance policies and, in many states, the fee paid to the agent conducting the closing.

What Is Title Insurance?

Title insurance provides protection against certain ownership problems that arose before the property was purchased but were discovered later.

Potential claims could result from unpaid taxes, unpaid contractors, recording mistakes or another person claiming an earlier ownership interest.

Lender’s Title Insurance

A lender’s policy protects the mortgage lender’s financial interest. Mortgage lenders generally require this coverage.

Owner’s Title Insurance

An owner’s policy protects the buyer’s ownership interest and financial investment.

Owner’s title insurance is not federally required in every purchase, but it can provide important protection if someone later asserts a claim that existed before the buyer acquired the property.

What Is a Closing Disclosure?

For most residential purchases involving a mortgage, the lender must provide the buyer with a Closing Disclosure at least three business days before closing.

The form includes:

• Loan amount
• Interest rate
• Monthly payment
• Closing expenses
• Taxes
• Insurance costs
• Cash required from the buyer
• Payments made to the seller and other parties

The buyer should compare the Closing Disclosure with the most recent Loan Estimate and question unexpected differences before signing.

A standard mortgage Closing Disclosure may not apply to a cash purchase. The closing or title company may instead provide a settlement statement showing the money received and paid during the transaction.

Documents Signed at Closing

Closing documents depend on the state and financing structure.

Common documents include:

• Purchase contract
• Closing Disclosure or settlement statement
• Deed
• Promissory Note
• Mortgage or Deed of Trust
• Title documents
• Tax forms
• HOA or condominium documents
• Insurance documents
• Identity and ownership declarations

The CFPB recommends requesting important documents in advance, including the deed, Promissory Note and mortgage or security instrument.

Wire-Fraud Risk

Closing funds are commonly transferred by bank wire. Criminals may impersonate a real estate professional, title company or settlement agent and send fraudulent payment instructions.

Before transferring funds, buyers should:

• Verify instructions by telephone
• Use a previously confirmed official phone number
• Treat last-minute account changes as suspicious
• Confirm the beneficiary and account details
• Speak directly with the title or closing company

The CFPB warns that criminals may pose as settlement professionals and send last-minute changes to wire instructions in an effort to steal closing funds.

Recording the Deed

After the documents are signed and the funds have been distributed, the deed is submitted to the appropriate county recording office.

Recording places the ownership transfer into the public records. The title company or closing agent may later provide the buyer with a recorded copy of the deed and the final title insurance policy.

In Florida, documentary stamp tax on a recorded deed is generally paid through the county clerk or recording official when the deed is recorded.

Common Closing Costs

Closing costs may include:

• Mortgage origination fees
• Appraisal
• Home inspection
• Title search
• Title insurance
• Closing or escrow services
• Attorney fees
• County recording charges
• Property-tax adjustments
• Homeowners insurance
• HOA or condominium charges
• Documentary stamp and mortgage taxes
• Prepaid interest
• Escrow reserves for taxes and insurance

The allocation of these expenses between the buyer and seller depends on the purchase contract, state law and local practice.

Florida Documentary Stamp Taxes

Florida imposes documentary stamp tax on deeds and other documents transferring an interest in Florida real estate.

In Florida counties other than Miami-Dade, the deed tax rate is $0.70 for every $100, or portion of $100, of consideration.

In Miami-Dade County, the basic rate is $0.60 per $100. A surtax of $0.45 per $100 generally also applies, although the surtax does not apply to a deed transferring only a single-family residence.

Florida also imposes documentary stamp tax of $0.35 per $100, or portion of $100, on recorded mortgages and similar debt instruments.

The purchase contract should clearly state which party is responsible for these expenses.

Can Foreign Buyers Purchase Property in the United States?

Non-United States citizens can purchase real estate in many circumstances. However, applicable restrictions can depend on the state, property location, buyer’s citizenship, domicile and ownership structure.

Florida has specific restrictions affecting defined categories of foreign principals and certain agricultural property, property near military installations or critical infrastructure, and other real estate. These provisions do not apply identically to every international buyer. The buyer’s legal status and the specific property should be reviewed separately.

International buyers may be asked to provide:

• Passport
• Address verification
• Bank statements and source-of-funds documentation
• Company documents when purchasing through an entity
• Income and asset records when using financing
• An ITIN or EIN when required for tax or entity purposes

An ITIN is not automatically required merely to sign a deed. It may become necessary for tax filings, rental income, financing or a future sale.

What Is FIRPTA?

The Foreign Investment in Real Property Tax Act applies when a foreign person disposes of a United States real property interest.

The general FIRPTA withholding rate is 15% of the amount realized by the foreign seller. In most transactions, the buyer is treated as the withholding agent and can be held responsible if the required amount is not withheld and remitted.

Exceptions and reduced-withholding procedures may apply in qualifying transactions.

FIRPTA withholding is not necessarily the seller’s final tax liability. The foreign seller may later file a federal tax return and receive a refund or pay additional tax based on the actual taxable gain.

Property-Closing Checklist

Before completing a purchase, buyers should review:

• Contract cancellation rights
• Escrow arrangements
• Inspection deadline
• Appraisal result
• Title commitment and search
• Existing liens and taxes
• Owner’s title insurance
• HOA or condominium documents
• Property taxes
• Insurance premiums
• Flood and storm exposure
• Closing Disclosure
• Total closing costs
• Name or entity listed on the deed
• Ownership structure for joint purchasers
• Wire instructions
• Confirmation that the deed was recorded

Conclusion

A United States property transfer involves more than signing a deed. The process normally includes a purchase contract, inspection, appraisal, title search, insurance, financing, closing and county recording.

Depending on the state, the transaction may involve a title company, escrow agent, lender and real estate attorney.

International buyers should evaluate not only the purchase price but also title condition, closing expenses, property taxes, insurance, association restrictions and possible FIRPTA obligations when the property is sold.

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This article is provided for general informational purposes and does not constitute legal, tax, mortgage or investment advice. Buyers should obtain professional advice specific to the state and transaction.