Revising Your Real Estate Closing Checklist for COVID-19 – JD Supra

Whitman Legal Solutions, LLC
Student instrumental musicians are given a checklist for instrument maintenance and supplies. For a string instrument, the instrument maintenance list might look something like this:
Violin: Clean, Bridge and sound post in proper location, bridge not warped, no open cracks or seams, pegs move smoohly.
Strings: Not unwrapped or false, wrapped properly on pegs
Bow: Not warped, bow grip not loose or damaged
Bow hair: clean, not thinned, and proper length
Most commercial real estate attorneys have a similar list for closings. It will include finalizing forms of all documents, assuring the deed is recordable, delivering signed documents into escrow, reviewing and approving the settlement statement and supplying wire transfer information, and arranging for transfer of management.
The coronavirus (“COVID-19”) pandemic hasn’t changed most musician’s checklists. But COVID-19 has made instrument repairs more challenging or impossible as luthiers, which are considered “non-essential businesses,” close their doors.
Because attorneys and real estate mortgage lenders and title companies have telecommuting capability, most commercial real estate closings can proceed–even where non-essential businesses must close. However, COVID-19 still requires changes to standard closing checklists.
This article is part of a series discussing COVID-19 and real estate law. Previous articles are available in my Bach to Business blog. This article discusses how COVID-19 might affect commercial real estate closing mechanics. Readers interested in learning about commercial real estate closings when there isn’t a global pandemic should read my article Anatomy of a Real Estate Transaction—Closing.
Closing Mechanics Before COVID-19
Today’s commercial real estate closings frequently occur without the buyer and seller ever setting foot in the same room. Before the closing, the parties exchange documents via email, document share site (Dropbox or SharePoint, for instance), or a secure portal. Documents, such as the deed and mortgage (which must be recorded in county records), are signed, notarized, and sent via a traceable overnight delivery service, like FedEx, to the escrow agent.
Frequently, the parties send all documents before the closing date, so they are in the escrow agent’s hands at the closing. Many transactions have a “soft closing” the day before the actual closing. During the soft closing process, the escrow agent will collect all documents and confirm that all documentation necessary for the closing is in escrow.
Sometimes, the buyer wires its equity as part of the soft closing. Most commonly, the buyer’s mortgage lender won’t wire funds until the closing date.
Once the escrow agent has all funds and signed documents, the parties and lender will authorize closing. The closing itself usually consists of the escrow agent distributing documents, sending wire transfers to the parties on the settlement statement, and the parties sending congratulatory emails. After the closing, the title company also will record the deed and mortgage and deliver the title policy to the buyer and mortgage lender.
How COVID-19 Affects Closing Mechanics
At first, it might appear that COVID-19 wouldn’t impact commercial real estate closings. They are already mostly handled electronically or via FedEx. Yet recent government orders closing non-essential businesses and ordering people not engaged in essential activities to stay at home can affect closings.
Yet, COVID-19 restrictions have the potential to play havoc with even the best-planned closing. Main areas of concern include:
· Closure of a party’s, lender’s, or the escrow agent’s offices
· Closure of government offices
· Access to required witnesses and notaries
· Distribution of documents where originals are required
· Limitations on personal movement
Still, with careful planning, and a closing checklist updated for COVID-19, parties frequently can close their commercial real estate transactions despite the pandemic.
Business Office Closures
As of the writing of this article, the governors of California, Connecticut, Illinois, Louisiana, Maryland, New Jersey, New York, and Oregon, to name a few, have closed all “non-essential businesses.” States differ in their definition of non-essential businesses.
My article Coronavirus—Is Your Business Essential? discusses which businesses are essential and may remain open. Mortgage lenders usually will be essential and may open. Title companies are considered essential in some states, and most remain open.
However, just because a business can remain open doesn’t mean its offices will be open. Employees may be telecommuting to encourage social distancing. Title company closure can create a challenge in delivering documents into escrow for closing.
Government Office Closures
Two government offices are necessary for most commercial real estate closings: the state Secretary of State, and the county recording office.
The state secretaries of state (or the Department of Assessments and Taxation in Maryland) (“Secretaries of State”) are responsible for forming and maintaining business records for business entities formed or qualified in their states. Those offices also issue certificates of good standing, confirming that the business is in good status in their states, which title companies and mortgage lenders require when the buyer or seller isn’t an individual.
All Secretaries of State have closed public counters where the public can drop off orders. Usually, parties can submit online orders, at least through a specialized service company, such as CSC or CT.
Some county real estate recording offices are closed. Fortunately, many accept electronic recording. But others are accepting deeds for recording only via U.S. Mail. Title companies aren’t covering the gap (insuring the risk of there being a recording or indexing delay) where recording offices have closed.
Witness and Notary Availability
To be recordable, deeds, mortgages, and other documents must be notarized. Title companies also usually require a FIRPTA affidavit certifying foreign person status and a title affidavit regarding possible unrecorded property encumbrances. Affidavits also must be notarized.
For a document to be notarized, the signer appears in front of a notary. Appearance via technology, even videoconference, isn’t acceptable.
Traditionally notary laws haven’t allowed parties to appear by videoconference, so the person who signs recordable documents usually will need to appear personally in front of a notary. Fortunately, banks are open, and most bank branches have at least one notary. Some title companies are open, and many have notaries. Also, there are mobile notary services where a notary will go to the signer’s location. Also, a few states have relaxed requirements to allow virtual notaries.
Some states require one or more witnesses to recordable documents in addition to the notary. Under some circumstances, that individual can’t be related to the signer.
Therefore, the need to witness or notarize documents need not be an obstacle to closing. However, the mechanics may be more challenging than usual due to business closures and social distancing practices.
Delivery of Documents
Commercial real estate closings usually aren’t handled in person. Instead, the parties sign the documents and send them to the title company. Frequently, these deliveries are sent via FedEx or a similar delivery service.
There are three ways COVID-19 could interfere with the delivery of documents:
Due to stay-at-home orders, senders may not be able to get to FedEx boxes to send packages.
The recipient’s business address may be closed and unable to receive FedEx shipments.
FedEx deliveries could be delayed due to high demand or worker illness.
Parties under stay-at-home orders may be able to arrange for FedEx to pick up the package from their homes. UPS and USPS also offer pickup.
Senders should verify the address before sending and confirm that someone will be available to receive packages. If circumstances change while the package is en route, it may be possible to redirect the package to another address through the shipper’s website.
Parties should send documents early to allow for delayed delivery times. To eliminate unnecessary delay, most senders should waive signature for packages delivered to a residence or an office with limited staffing.
Additional Closing Checklist Items During the Coronavirus Pandemic
VERIFY SIGNER AVAILABILITY Signers should check any stay-at-home restrictions in their state or locality to ensure they can leave their homes, at least to go to a bank to have documents notarized. Signers involved in an essential business under the state’s stay-at-home order may be able to leave their homes to sign documents. For information on essential businesses, read my article Coronavirus—Is Your Business Essential?
If preferred signers cannot appear in front of a notary personally, see if the state allows virtual notaries. If not, check whether a signer in another state is available. The business may need to appoint an additional authorized signer in another state if the preferred signer’s state’s restrictions make notarization of documents impossible.
There should be a backup signer in case the preferred signer becomes ill or is put under strict quarantine due to exposure to COVID-19.
VERIFY NOTARIZATION REQUIREMENTS. Verify with the title company how recent notarizations must be on recordable documents (probably not an issue). Sign and have documents notarized early.
LOCATE A NOTARY. Check to see if the state where the signer is located allows virtual notaries. If not, verify a notary is at the desired bank location. Or, arrange for a mobile notary.
VERIFY WHEN CERTIFIED DOCUMENTS BECOME “STALE.” Verify with the title company and mortgage lender (if a buyer) how recent certified documents must be. Order any required good standing and entity formation documents from the state Secretary of State early.
CHECK RECORDING OFFICE STATUS. Verify whether government recording offices are open. Determine whether online recording is an option.
VERIFY DOCUMENT DELIVERY OFFICE ADDRESS. Confirm whether document recipients’ offices will be open. If not, obtain an alternate address.
CHECK DELIVERY SERVICE STATUS. Determine whether the preferred delivery service is delivering packages on time. Adjust the sending date or select an alternative delivery method if necessary.
ARRANGE DOCUMENT PICKUP/VERIFY DROP OFF LOCATION. If you plan to drop off the package, verify that the location is open. Drop boxes inside of buildings may not be accessible to FedEx and other services due to building closures. If necessary, arrange for pickup from the signer’s location.
Government restrictions and business closures require that parties plan to ensure their transactions can close on time. However, it’s crucial that parties who can move forward do so. The economy depends upon the continuation of as much business activity as can be safely completed in compliance with government requirements.
This series draws from Elizabeth Whitman’s background in and passion for classical music to illustrate creative solutions for legal challenges experienced by businesses and real estate investors.
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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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