Many clients who fully involve themselves with the content of their transaction documents (particularly the Purchase and Sale Agreement and the various "addenda") will often pay far less attention to the documents they sign at Closing, possibly because of the sheer quantity of documents presented to them by the closer or because the closing documents appear ever more technical and beyond common understanding than the Purchase and Sale Agreement itself. In my opinion this is a mistake, since although it does not normally cause a serious problem, it can do so given the right (wrong) circumstances.

The following are steps which should be included in either a buyer's or seller's "due diligence" prior to Closing.

1. Attorney Review. Make sure the escrow officer closing your transaction provides copies of all documents you will be signing to your attorney 48 hours before you are scheduled to sign (although some dollar amounts in the settlement statement will not be final until date of Closing). This will allow your attorney time to review the documents and discuss any appropriate changes with you and the closing agent.

2. Review Settlement Statement. You should review the proposed Settlement Statement (normally a "HUD-1") to be sure you understand the credits and charges and agree with them. Five or ten dollars for a recording fee is not a big deal, but an unexpected "processing" or "document" fee of several hundred dollars would be. The buyer should be sure all deposits are credited.

3. Seller Financing Note and Deed of Trust. Although the notes and deeds of trust used by banks and savings and loans are included by the lender on a "take it or leave it" basis (and are not negotiated between the buyer and seller in any event), the forms of the promissory note and deed of trust given to the seller as part of seller financing vary to a great extent. Different notes have different terms with respect to late charges, attorney fees, default interest rates, etc., and deeds of trust can vary also, principally as to whether they are to contain a "due-on-sale" clause (which typically provides that if the buyer sells the property, or any interest therein, all sums secured by the deed of trust shall be immediately due and payable at the option of the lender).

Since most sellers who provide financing will want a due-on-sale clause, I was surprised in a recent transaction in an outlying county to find that the deed of trust form included with the closing documents sent to me by the escrow did not have this condition. When I discussed the form of the deed of trust with the closing officer, she informed me that closers in that county do not include such clauses unless clearly called for by the Purchase and Sale Agreement.

It is good practice always to attach the form of the note and deed of trust to the Purchase and Sale Agreement and have the parties initial these forms, since the provisions in them represent terms of the agreement, just as the price and closing date do. Since that did not occur in this case (my involvement was later), my client received a somewhat less favorable form of note and deed of trust than he would have otherwise.

4. Fractional Interests Reflected on Note. If there is more than one buyer, with each receiving a fractional interest, that will be reflected on the deed (i.e., "Joe Jones, Susan Smart, and Tom Tuesday, each as to an undivided one-third interest"). The seller will not want any note accepted by him/her to read that way, however, since it can be anticipated that each buyer will argue that he/she is liable only for one-third of the amount if sued on the note. The seller will want the note to read more like "Joe Jones, Susan Smart and Tom Tuesday, jointly and severally promise to pay . . .," so that the full amount can be collected from any one of the buyers. Again, it is good practice to reference the form of the note in the purchase and sale agreement.

5. Form of Statutory Warranty Deed. Most sellers think they are just "signing over" the property at Closing. They are actually doing much more than that - they are making warranties as to the title to the buyer. These warranties need to be accurate, since the seller can be liable to the buyer, or even a remote grantee, if the title is not as described in the Statutory Warranty Deed. And while as a practical matter the buyer will look to his/her title insurer if the title is not as insured, the buyer's title policy does not protect the seller (nor would it protect the buyer against a title defect or exception listed as an exception on the Preliminary Commitment even though not excepted on the deed).

A Statutory Warranty Deed, should include the specific exceptions on the title company's most recent version of its Preliminary Commitment shown as exceptions on the deed. I prefer specific language in preference to catchall language such as "subject to liens and encumbrances of record" sometimes found in deeds. A sophisticated seller will not want potential liability for a title defect or outstanding interest she never intended to warrant against, and buyers deserve to see clearly on the deed those title defects and exceptions affecting the property they are buying.

Although closing documents themselves are not normally the cause of problems in a transaction, it is always a good idea to include an attorney early on in planning your transaction to help avoid some of these problems.

The above is furnished as general information relevant in the State of Washington only and may not be relied on as legal advice, specific to any situation or otherwise, by any person, whether or not a client of the firm.