What Can Go Wrong on Closing Day on a House?

The day a real estate transaction concludes, known as closing day, represents a significant milestone. While many closings proceed smoothly, unforeseen issues can arise, potentially delaying or even derailing the transaction. Understanding these potential challenges is important for all parties involved to navigate the process effectively.

Financial and Loan-Related Complications

Financial and loan-related issues frequently emerge as primary causes of closing delays or failures.

Buyer’s Loan Approval

A buyer’s loan approval can face last-minute complications even after initial pre-approval. This might occur if there are changes in the buyer’s credit score, new debt, or discrepancies during employment verification. Lenders conduct a second credit check just days before settlement, and substantial changes can jeopardize loan approval.

Appraisal Shortfalls

Appraisal shortfalls are a common financial hurdle. If the property’s appraised value comes in lower than the agreed-upon purchase price, a mortgage lender will not lend more than the appraised value. This creates an “appraisal gap” that the buyer needs to cover out-of-pocket, renegotiate the purchase price with the seller, or, if an appraisal contingency is in place, potentially withdraw from the deal without penalty.

Funding Delays

Funding delays can disrupt the closing schedule. Issues with wire transfers, such as missing bank cut-off times, bank holidays, or unexpected fraud prevention checks, can prevent funds from reaching the closing agent on time. Accurate wire instructions are important, as a small mistake can lead to delays. If a final walk-through reveals significant damage or issues that the lender deems to impact the property’s value or habitability, it could halt funding until the issues are resolved.

Mortgage Underwriting Conditions

Mortgage underwriting conditions often require additional documentation or clarification late in the process, contributing to potential delays. Underwriters review a borrower’s financial stability and ensure loan compliance, requesting items like recent pay stubs, bank statements, or gift letters. Delays can occur if borrowers change jobs, make large, unexplained deposits, or fail to provide requested documents promptly. Swiftly responding to these requests is important to keep the process on track.

Property and Title Discoveries

Issues related to the physical condition of the property or its legal ownership can unexpectedly surface, impacting the closing.

Unresolved Repair Issues

Unresolved repair issues, particularly those agreed upon after the initial inspection, can delay closing if they are not completed or are done unsatisfactorily. Lenders, buyers, and title companies often require all agreed-upon fixes to be verified before funds are released or ownership is transferred. If these repairs remain unfinished, buyers may seek credits, require funds to be held in escrow, or even choose to walk away.

Final Walk-Throughs

Final walk-throughs, conducted just before closing, can uncover new damage or unexpected issues not present during earlier inspections. These surprises, such as missing fixtures or newly discovered water damage, may require last-minute negotiations, repairs, or financial concessions from the seller, potentially pushing back the closing date. Addressing these findings promptly with the real estate agent and seller is important to find a resolution.

Title Defects

Title defects can delay or prevent closing. These issues affect the legal ownership rights of a property. Common title problems include:
Unreleased liens (such as mortgages, tax liens, or contractor’s liens from previous owners)
Undisclosed easements
Survey discrepancies
Errors in public records
Missing heirs
Forged documents

These issues create clouds on a title, requiring resolution before clear ownership can transfer. Title insurance protects against many unforeseen claims, but resolving them can take time.

Unpermitted Work

The discovery of unpermitted work on the property can cause complications. Renovations or additions performed without the necessary building permits might not meet current building codes, potentially leading to expensive corrections, fines, or issues with future insurability. If unpermitted work is found, it can lower the home’s appraised value, causing the lender to reject the buyer’s application or requiring the seller to obtain retroactive permits. In some cases, sellers are legally required to disclose known unpermitted work.

Document and Agreement Discrepancies

Errors, omissions, or misunderstandings within the legal and financial paperwork can create significant delays.

Document Errors

Typos, incorrect names, wrong addresses, or miscalculated figures on essential documents like the Closing Disclosure are common. The Closing Disclosure details the final terms of the mortgage loan and closing costs. It must be provided to the buyer at least three business days before closing. Any material errors require correction and a new three-day review period, inevitably delaying the closing.

Missing Required Documents

Missing required documents can halt the process. Crucial paperwork might be needed to validate legal authority or clear title, such as:
A power of attorney
A divorce decree
A trust agreement
A death certificate

Without these documents, parties may be unable to legally sign or transfer ownership. Gathering and verifying all necessary documentation in advance prevents delays.

Last-Minute Changes

Last-minute changes to the purchase agreement, such as requests for adjustments to terms, contingencies, or credits, can derail the closing. Any changes close to the closing date often trigger new review periods and require re-approval from all parties and potentially the lender. This can introduce new complexities and delays.

Contractual Misunderstandings

Misunderstandings of contractual terms by any party can lead to disputes at the closing table. Ambiguities regarding repair responsibilities, prorated expenses, or specific contingencies can cause friction and necessitate re-negotiation or clarification, prolonging the closing process. Clear communication and thorough review of the contract by all involved parties can help prevent such misinterpretations.

Logistical and Communication Hurdles

Beyond financial, property, and document-specific issues, logistical challenges and communication breakdowns can impede a smooth closing.

Scheduling Conflicts

Scheduling conflicts, such as the unavailability of key parties like buyers, sellers, real estate agents, attorneys, or notaries, can directly delay the signing. Coordinating schedules for multiple individuals requires careful planning.

Utility Transfers

Delays in utility transfers can create issues for property transfer and possession. Buyers are responsible for arranging the transfer or setup of utilities like electricity, water, and gas into their name before closing. If this step is overlooked or encounters administrative problems, it can delay the buyer’s ability to take full possession and use of the property.

Key Exchange Problems

Problems with key exchange can cause delays. The physical transfer of keys, access codes, or garage door openers needs to be coordinated precisely, often after funds have been disbursed and the deed recorded. Any miscommunication regarding key handover can disrupt the buyer’s move-in plans.

Poor Communication

Poor communication among real estate agents, lenders, title companies, attorneys, or the parties themselves is a frequent cause of misunderstandings and delays. A lack of transparency, delayed responses, or inconsistent information about deadlines, required actions, or changes can create problems. Establishing clear communication channels and assigning a communication lead can help mitigate these issues.

Cold Feet

A buyer or seller getting “cold feet” and attempting to back out of the transaction at the last minute can lead to immediate transaction failure and potential legal consequences. While contingencies in the contract might allow for a penalty-free exit (e.g., a failed inspection), backing out without a valid contractual reason can result in the forfeiture of earnest money for the buyer or a breach of contract lawsuit for either party.