Titles - Drafting, review, and negotiation of closing docume...

Learning Outcomes

This article explains the drafting, review, and negotiation of closing documents in real estate title transfers, including:

• Identifying the main types of closing documents used in title transfers and distinguishing their legal functions.
• Explaining the statutory and common law requirements for drafting, execution, acknowledgment, and delivery of each instrument.
• Recognizing typical negotiation points, allocation of risk, and cost responsibilities for buyers, sellers, lenders, and closing agents.
• Evaluating common defects, omissions, and inconsistencies in deeds, settlement statements, and affidavits, and predicting who bears the loss.
• Applying these principles to MBE-style multiple-choice questions involving delivery, recordation, marketable title, and merger issues.
• Understanding the consequences of errors or misrepresentations in closing documents, including available contract, tort, and title-insurance remedies.
• Describing procedures and strategic options for resolving disputes at or immediately after closing, such as escrow holdbacks or reformation.
• Distinguishing among forms of deeds and covenants of title and explaining how they interact with title insurance coverage.
• Analyzing how doctrines such as equitable conversion, financing contingencies, and as-is clauses affect parties’ rights when closings go wrong.

MBE Syllabus

For the MBE, you are required to understand the process and legal requirements for the preparation, review, and negotiation of closing documents in real property transactions, with a focus on the following syllabus points:

• Identifying the standard closing documents in a title transfer
• Understanding the legal effect and enforceability of each document
• Recognizing the roles and obligations of buyers, sellers, lenders, and closing agents at closing
• Applying statutory and contractual requirements for document execution, acknowledgment, and delivery
• Evaluating the consequences of errors, omissions, or disputes at closing
• Assessing remedies and procedures for resolving closing document issues, including reformation, rescission, damages, and specific performance
• Applying the merger doctrine and the concept of marketable title to determine which promises survive closing
• Understanding the interaction between deed covenants, title insurance, and recording statutes when title defects emerge

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is typically required for a deed to be effective at closing?
   1. Notarization only
   2. Delivery and acceptance
   3. Recording in the land registry
   4. Judicial approval
2. If a settlement statement contains a miscalculation that benefits the seller, which party is primarily responsible for detecting the error before signing?
   1. The buyer
   2. The closing agent
   3. The seller
   4. The lender
3. A buyer discovers an undisclosed lien on the property after closing. Which closing document is most relevant to the buyer’s remedy?
   1. The deed
   2. The bill of sale
   3. The settlement statement
   4. The seller’s affidavit
4. Which party is generally responsible for preparing the deed in a residential real estate transaction?
   1. The buyer’s attorney
   2. The seller or seller’s attorney
   3. The lender
   4. The title insurer

Introduction

In a real property transaction, the closing is the final step where legal ownership is transferred and the parties’ contractual obligations are fulfilled. The drafting, review, and negotiation of closing documents are critical to ensure that title passes as intended, all conditions are met, and both parties’ interests are protected. Errors or omissions at this stage can lead to costly disputes or loss of rights, and many MBE questions test who bears the risk when something goes wrong in the paperwork.

Key Term: Closing
The event (often an escrow process rather than a single meeting) at which the buyer pays the purchase price, the seller delivers a deed, and related documents are exchanged so that legal title passes according to the contract.

Closings may occur as:

• A traditional “table closing,” where all parties meet and sign
• An escrow closing, where documents and funds are delivered to a neutral third party to be held and released when stated conditions are satisfied

Key Term: Escrow Closing
A closing in which a neutral escrow agent holds funds and documents and releases them only when specified conditions in the escrow instructions are met.

Most MBE questions assume a generic U.S. system of private real property, with an escrow-type closing and standard documents. State-specific variations are usually ignored unless the question expressly states them.

The Closing in the Life of a Real Estate Transaction

The closing does not stand alone; it is the final stage of the land sale contract.

• First, the seller and buyer sign a contract for sale that must comply with the Statute of Frauds and usually promises to deliver marketable title at closing.
• Between contract and closing, the parties satisfy contingencies (inspection, financing, appraisal), the title company searches the records, and the lender underwrites the loan.
• At closing, the parties exchange the deed, funds, and other closing documents. Once this occurs, most contract obligations merge into the deed.

Key Term: Marketable Title
Title reasonably free from doubt in fact and law—no defects, liens, or encumbrances that a reasonable buyer would object to or that expose the buyer to litigation.

On the MBE, the seller’s contractual promise is usually to deliver marketable title at closing, not before. If the seller can cure defects by the scheduled closing date (for example, paying off a mortgage with closing proceeds), title is still considered marketable.

Because of the merger doctrine, the buyer’s rights after closing will usually depend on the content of the deed (and any collateral agreements that expressly survive), rather than on the earlier contract.

Key Term: Merger Doctrine
The rule that, at closing, the contract for sale merges into the deed so that, absent fraud or collateral promises, the buyer’s rights are governed by the deed’s terms rather than the earlier contract.

To keep certain promises alive—such as repair obligations, indemnities, or rent prorations—the parties must either:

• Include them in the deed itself, or
• Place them in a separate agreement that states it will survive closing.

This interaction between the contract, deed, and collateral agreements is a recurring MBE issue when a defect is discovered after closing.

Types of Closing Documents

The main closing documents in a title transfer typically include the deed, settlement statement, bill of sale (for personal property), affidavits, title insurance documents, and, where applicable, mortgage or loan documents. Each serves a distinct legal function and must meet specific requirements to be effective.

Key Term: Closing Documents
Written instruments executed and exchanged at the closing of a real property transaction, evidencing the transfer of title, payment of funds, security for loans, and satisfaction of contractual obligations.

The core documents include:

• Deed – transfers legal title to the real property
• Settlement statement / closing disclosure – itemizes financial aspects of the transaction
• Bill of sale – transfers ownership of personal property (e.g., appliances) included in the sale
• Affidavit of title and related affidavits – provide sworn assurances from the seller
• Title insurance commitment and policy – insure the buyer (and sometimes the lender) against covered title defects
• Promissory note and mortgage or deed of trust – evidence and secure the buyer’s loan
• Escrow agreement – governs any funds or documents to be held beyond closing

Key Term: Deed
The legal instrument by which title to real property is transferred from seller to buyer at closing.

Key Term: Settlement Statement
A document itemizing all credits, debits, and adjustments between the parties at closing, including purchase price, taxes, and fees.

Key Term: Closing Disclosure
In a residential, federally related mortgage transaction, the lender’s detailed disclosure of loan terms and closing costs provided to the borrower, often paired with the settlement statement.

Key Term: Bill of Sale
A document transferring ownership of personal property from the seller to the buyer, often executed at the same time as the deed to avoid disputes over included items.

Key Term: Affidavit of Title
A sworn statement by the seller confirming that the seller holds title, is not subject to undisclosed liens or claims, and has not entered into new encumbrances since the title search.

Key Term: Title Insurance Commitment
A preliminary binder in which the title insurer agrees to issue a title insurance policy if specified requirements (such as paying off liens) are satisfied at closing.

Key Term: Promissory Note
The borrower’s written, enforceable promise to repay the loan, specifying principal, interest, and repayment terms.

Key Term: Mortgage or Deed of Trust
The security instrument by which the buyer gives the lender a lien on the property to secure repayment of the loan.

Key Term: Escrow Agreement
A written agreement instructing an escrow agent how to hold and disburse funds or documents, either for the main closing or for post‑closing obligations (such as repair escrows).

Deeds and Their Forms

On the MBE, you must distinguish among the standard deed forms and their covenants.

Key Term: General Warranty Deed
A deed in which the grantor gives the broadest covenants of title, warranting against all defects in title, whether arising before or during the grantor’s ownership.

Key Term: Special Warranty Deed
A deed in which the grantor warrants only against defects arising from the grantor’s own acts or omissions, not from earlier owners.

Key Term: Quitclaim Deed
A deed that conveys whatever interest, if any, the grantor has in the property at the time of conveyance, but gives no covenants of title.

Key Term: Covenants of Title
Promises in a deed about the quality of the grantor’s title, such as covenants of seisin, right to convey, against encumbrances, quiet enjoyment, and warranty.

Key Term: Present Covenants
Deed covenants that are breached, if at all, at the moment of conveyance (e.g., seisin, right to convey, against encumbrances).

Key Term: Future Covenants
Deed covenants that are breached, if at all, when the grantee is later disturbed in possession (e.g., quiet enjoyment, warranty, further assurances).

The form of deed matters because it defines what remedies the grantee has if a title defect later appears. An exam question may specify that the contract called for a general warranty deed but the seller tenders a special warranty or quitclaim deed; that is a material discrepancy.

Affidavits and Certificates

In addition to the affidavit of title, closings often involve:

• Non‑foreign status affidavits (to avoid federal withholding)
• Possession or occupancy certificates (stating who is in possession)
• Gap indemnities (assuring nothing has been recorded since the last title update)
• HOA estoppel letters (stating assessments due)

Misstatements in these affidavits can create separate contract, tort, or statutory liability.

Title Insurance Documents

At closing, the title insurer typically issues:

• A title insurance commitment (before or at closing), listing requirements and exceptions
• An owner’s and, if there is a loan, a lender’s policy

Key Term: Owner’s Title Insurance Policy
A policy issued for the buyer’s benefit, insuring against covered title defects existing as of the policy date, up to the purchase price.

Key Term: Loan Policy (Lender’s Title Insurance Policy)
A title insurance policy that protects the lender’s security interest, usually in the amount of the loan, against covered title defects.

The commitment is not itself insurance; it is a promise to issue a policy if listed requirements are met (for example, paying off existing mortgages). The policy is what creates enforceable insurance coverage.

Key Term: Title Gap (Gap Period)
The interval between the last title search and the recording of the buyer’s deed and mortgage, during which intervening liens could theoretically arise.

Title insurers often provide “gap coverage” so that the buyer and lender are protected against defects recorded during this period.

Loan Documents

The key loan documents are:

• The promissory note, which is the borrower’s personal obligation to repay
• The mortgage or deed of trust, which gives the lender a lien on the property

These documents typically include:

• Acceleration clauses (loan becomes due on default)
• Due‑on‑sale clauses (requiring payoff on transfer)
• Covenants to maintain insurance and pay taxes

Errors in these documents—such as an incorrect legal description in the mortgage—can impair the lender’s security and raise priority issues under recording statutes.

Escrow and Post‑Closing Agreements

The main escrow agreement may govern the entire closing, but the parties can also create smaller escrows for specific purposes, such as:

• Holding funds to pay final utility bills or taxes
• Holding back money for agreed repairs
• Escrowing a portion of proceeds until an old lien release is recorded

These post‑closing escrows are especially important when a title defect cannot be immediately cured but the parties still wish to close.

Drafting and Review Requirements

Each closing document must be drafted to comply with statutory requirements and the terms of the sale contract. On the MBE, questions often turn on whether a deed was validly created and delivered, or whether a party can escape liability by pointing to a defect in the closing paperwork.

Deed Elements and Formalities

Key drafting requirements include:

• Deed elements – The deed must:
  • Be in writing
  • Identify grantor and grantee
  • Contain words of present conveyance (“grant,” “convey,” “transfer”)
  • Describe the property with sufficient certainty
  • Be signed by the grantor (and any spouse whose interest must be released)
  • Comply with state formalities for acknowledgment or witnessing

An error in the legal description can be fatal if it renders the land unidentifiable. Minor errors (like a missing middle initial) are generally harmless.

Because the deed conveys an interest in land, it must satisfy the Statute of Frauds. Parol evidence may be used to clarify an ambiguous description, but not to supply an essential term that is completely missing.

The exam also tests the form of deed:

• General warranty deed (broadest covenants)
• Special warranty deed (warrants only against the grantor’s own acts)
• Quitclaim deed (no covenants; conveys whatever interest, if any, the grantor has)

If the contract promised a general warranty deed, but the seller tenders a quitclaim deed, the buyer may refuse to close or claim breach.

Drafting must also ensure that:

• The correct capacity is used (for example, an individual signs either personally or as trustee, not both)
• Entities act through properly authorized officers or managers
• All co‑owners who must sign actually sign (for example, both spouses in a community‑property state or both joint tenants)

Authority problems can render the deed void or voidable and are common in MBE questions involving corporate sellers or signatures by purported agents.

Review of Title and Encumbrances

Before closing, the buyer’s attorney typically:

• Reviews the title commitment, including:
  • Requirements that must be satisfied at or before closing
  • Exceptions that will not be covered by insurance
• Orders an updated title search just before closing to limit the title gap
• Confirms that:
  • Mortgages, tax liens, and judgments will be paid off and released
  • Easements, covenants, and other restrictions match what the contract allowed

Failure to address a listed exception—such as a recorded easement—may prevent the buyer from later claiming that title was unmarketable, because the buyer had notice through the commitment and deed.

Settlement Statement and Closing Adjustments

Key Term: Closing Adjustments
Prorations or credits made at closing to account for items such as taxes, utilities, or rents, ensuring each party pays or receives their fair share for the period they own or occupy the property.

The settlement statement must reflect:

• Purchase price and earnest money credits
• Prorated real estate taxes and assessments
• HOA dues, rents, or security deposits being transferred
• Title insurance premiums, recording fees, transfer taxes
• Loan fees and prepaid interest

Both parties must carefully review the statement before signing; failing to detect an obvious miscalculation may leave a party with limited recourse. On the MBE, a party who signed despite an obvious error often bears the loss, unless there is fraud or mutual mistake.

Because many contractual promises “merge” into the deed at closing, careful drafting is essential.

To preserve obligations beyond closing (such as repair promises or indemnities), they should be written into the deed or into separate collateral agreements that expressly survive closing.

Allocation of Drafting Responsibilities

The drafting responsibility is typically:

• Seller or seller’s attorney – prepares the deed and seller’s affidavits
• Buyer or buyer’s attorney – reviews deed, prepares buyer’s closing documents, and ensures contract contingencies are met
• Lender – prepares the note, mortgage or deed of trust, and many loan disclosures
• Closing agent – prepares the settlement statement and coordinates signatures and disbursements

This allocation is frequently tested indirectly: for example, who is at fault if a deed misstates the buyer’s name, or if the mortgage omits a parcel.

Negotiation of Closing Documents

Negotiation at closing often focuses on the allocation of closing costs, the form of the deed, the content of affidavits or certificates, and the timing of possession. Parties may also negotiate last‑minute adjustments for property condition or discovered defects.

Key Term: Escrow Closing
A closing structure where an escrow agent coordinates the exchange of funds and documents, and has limited authority defined by written instructions rather than by either party’s unilateral demands.

Common negotiation topics include:

• Form of deed:

  • Buyers usually prefer a general warranty deed
  • Sellers may offer a special warranty or quitclaim deed, especially in foreclosures or estate sales
  • Parties may compromise: for instance, a special warranty deed plus a separate indemnity from the seller for specific known risks

• Cost allocation:

  • Who pays transfer taxes, recording fees, and title insurance premiums is often negotiable
  • Local custom is relevant but does not control unless written into the contract
  • On the MBE, if the contract is silent, cost allocation questions are usually not outcome‑determinative unless one party misrepresents the custom

• Possession and risk:

  • Whether the buyer takes possession at closing or later (e.g., seller rent‑back)
  • How to handle damage occurring between contract and closing (often governed by equitable conversion and casualty clauses)

• Title issues:

  • If the updated title search reveals unreleased liens or unrecorded easements, parties may:
    • Agree on an escrow holdback to pay off liens
    • Postpone closing for the seller to cure
    • Renegotiate price or walk away if the title is unmarketable under the contract

• Personal property:

  • Appliances, window coverings, and other items may be included or excluded by bill of sale
  • The bill of sale clarifies whether UCC rules may apply to any goods being transferred

• Liquidated damages and deposits:

  • Contracts often state that, if the buyer defaults, the seller may keep the earnest money as liquidated damages.

Key Term: Liquidated Damages Clause
A contract provision that sets a fixed sum or formula for damages in case of breach, enforceable if it was a reasonable estimate of likely loss at the time of contracting and not a penalty.

On the MBE, such a clause is enforceable only if:

• Actual damages were difficult to estimate when the contract was made, and
• The amount is reasonable in light of anticipated (and often actual) damages

Negotiations should be reflected in revised written documents; unwritten “understandings” made at the closing table are difficult to enforce and will not modify the plain language of the deed or settlement statement on the exam.

Execution and Delivery

For a deed or other closing document to be effective, it must be properly executed (signed by the required parties), delivered to the appropriate recipient, and, in most cases, accepted. Delivery and acceptance are essential for title to pass.

Key Term: Delivery and Acceptance
The act of physically or constructively transferring a signed deed or document to the grantee, with the intent that it become immediately effective, and the grantee’s acceptance of it.

Execution requirements generally include:

• Grantor’s signature on the deed
• Proper acknowledgment before a notary or attestation by witnesses (depending on state law)
• If a corporate or LLC grantor is involved, signature by an authorized officer or manager

Loan documents (note and mortgage or deed of trust) must be signed by the borrower; the mortgage must comply with recording statutes to secure the lender’s priority.

Key Term: Recordation
The act of placing an instrument such as a deed or mortgage in the public land records to give notice to third parties and establish priority under the applicable recording statute.

Recording is not required to make a deed valid between grantor and grantee, but failure to record may cause the grantee to lose priority to a subsequent bona fide purchaser under race, notice, or race–notice statutes.

Delivery can be:

• Direct – Grantor hands the signed deed to the grantee with intent to presently transfer title
• Constructive – Grantor records the deed, or delivers it into escrow with instructions to deliver upon satisfaction of conditions

If a grantor delivers a deed to an escrow agent with written instructions to deliver it to the grantee upon payment, most jurisdictions treat the grantor’s death or attempt to revoke after that point as ineffective; the deed will be delivered when the condition is met.

If a deed is delivered directly to the grantee but subject to an oral condition (for example, “This deed is effective only if you marry my daughter”), the condition is generally ignored and delivery is treated as unconditional. To create an enforceable condition, it should be placed in the deed or implemented through an escrow arrangement.

Acceptance is usually presumed when the conveyance benefits the grantee. A grantee may, however, reject a deed (for example, if it conveys unwanted obligations, like a contaminated property with significant liability).

Common Risks and Disputes

Risks at closing include errors in the documents, undisclosed liens, failure to satisfy contract contingencies, or last‑minute disputes over adjustments. If a dispute arises, parties may delay closing, seek escrow arrangements, or, in some cases, terminate the contract.

Common issues include:

• Defective deed:
  • Missing grantor signature
  • Inadequate property description
  • Incorrect identity or capacity of the grantor
  • Attempted oral conditions on delivery

On the MBE, a deed delivered to the grantee subject to an oral condition is usually treated as an unconditional delivery. A forged deed, by contrast, is void and cannot pass good title even to a bona fide purchaser.

• Title defects:
  • Undisclosed liens, adverse claims, or unrecorded easements may:
    • Breach the covenant against encumbrances in a warranty deed
    • Trigger coverage under a title insurance policy (if not excepted)
    • Support a breach of contract claim for failure to deliver marketable title (if the defect existed at closing)

Key Term: As‑Is Clause
A contractual clause stating that the property is sold in its current condition, without warranties as to physical defects, but not protecting a seller who commits fraud or active concealment.

An as‑is clause does not excuse the seller from disclosing known latent defects or from liability for misrepresentation.

• Settlement statement errors:
  • Mathematical mistakes or misallocated costs may lead to:
    • Post‑closing reimbursement claims
    • Claims of misrepresentation if a party relied on the other’s erroneous figures

The more obvious the error, the harder it is for the mistaken party to avoid its consequences.

• Casualty loss before closing:

  • A fire or storm may damage the property between contract and closing. Under the doctrine of equitable conversion (commonly tested in Property), the buyer usually bears the risk after the contract is signed, unless the contract or statute provides otherwise.
  • Parties may respond by:
    • Renegotiating the price
    • Having the seller assign insurance proceeds to the buyer
    • Cancelling the contract if a risk‑allocation clause allows it

• Financing failure:

  • If a buyer cannot obtain financing and the contract includes a financing contingency, the buyer may be able to terminate without breach—if the buyer made reasonable, good‑faith efforts to obtain the loan.
  • If no such contingency exists, inability to obtain a loan is generally not an excuse; failure to close based on financing is usually a breach.

Key Term: Financing Contingency
A contract clause making the buyer’s duty to close conditional on obtaining a specified loan (amount, term, interest rate) by a stated deadline, often requiring reasonable efforts by the buyer.

• Misstatements in affidavits:

  • False seller affidavits (e.g., denying liens or tenants) may lead to:
    • Contract claims
    • Tort claims for fraudulent or negligent misrepresentation
    • Potential claims under title insurance if the misstatement produces a covered loss

• Post‑closing discovery of physical defects:

  • If the defect violates a deed covenant (for example, an encroachment that causes loss of title to part of the land), the buyer may sue on the covenant.
  • If the defect is purely physical (for example, a leaky roof) and not reflected in the deed, the buyer’s remedies depend on:
    • Contract warranties and disclaimers
    • Whether the seller fraudulently concealed the defect
    • Any surviving repair agreements

If closing does not occur because one party is unwilling or unable to perform, remedies may include:

• Specific performance (often available for the buyer where the seller refuses to convey)
• Damages for breach, including consequential damages if foreseeable
• Rescission and restitution (return of deposit)
• Reformation of instruments to correct scrivener’s errors where intent was clear

Worked Example 1.1

A seller prepares a deed that mistakenly omits the buyer’s middle initial, but all other information is correct. At closing, the buyer signs the settlement statement and accepts the deed. Later, the buyer discovers the omission and is concerned about the validity of title. Is the deed effective?

Answer:
Yes. Minor errors such as omission of a middle initial, where the parties and property are otherwise clearly identified, do not invalidate the deed. The key requirements are proper execution, delivery, and acceptance with intent to transfer title. If needed, the parties can record a corrective deed, but the original transfer was valid.

Worked Example 1.2

A buyer discovers after closing that the seller failed to pay outstanding property taxes, which were not reflected on the settlement statement. The buyer is now liable for the unpaid taxes. What remedy is available?

Answer:
The buyer may have a claim against the seller for breach of contract or for reimbursement under the settlement statement. If the seller signed an affidavit of no outstanding taxes, the buyer may also pursue remedies for misrepresentation. In addition, if the deed contained covenants against encumbrances, the unpaid taxes may constitute a breach of that covenant.

Worked Example 1.3

A contract requires the seller to deliver a general warranty deed. At closing, the seller tenders a quitclaim deed instead. The buyer objects and refuses to close. The seller insists the difference in deed form is minor. Who is correct?

Answer:
The buyer. The deed form is a material term; a general warranty deed includes broad covenants of title that a quitclaim deed does not. Because the tendered deed does not conform to the contract, the seller has not properly performed. The buyer may refuse to close and may seek specific performance or damages.

Worked Example 1.4

Grantor signs a deed to Buyer and gives it to an escrow agent with written instructions to deliver the deed to Buyer when Buyer pays the full purchase price. Before Buyer pays, Grantor dies. Buyer tenders the price to the escrow agent, who delivers the deed. Did title pass to Buyer?

Answer:
Yes. Delivery to an escrow agent with clear instructions to deliver upon performance of a condition is an effective conditional delivery. Grantor’s death does not revoke the escrow. Once Buyer pays as required, the deed is delivered and title passes as of that moment.

Worked Example 1.5

A contract for sale of a house provides that “closing is contingent on Buyer obtaining a 30‑year mortgage at an interest rate not exceeding 6%.” Buyer makes only minimal efforts to obtain financing and is turned down by one lender. Buyer then declares the contingency unsatisfied and refuses to close. Seller sues for breach. How is this resolved?

Answer:
Buyer has a duty to make reasonable, good‑faith efforts to satisfy the financing contingency. A single perfunctory loan application likely does not suffice. If Buyer failed to make reasonable efforts, Buyer cannot rely on the unsatisfied contingency and is in breach for failing to close.

Worked Example 1.6

The contract describes the property as “Lot 5, Green Acres Subdivision,” but the deed mistakenly describes “Lot 6, Green Acres Subdivision.” All other details are correct, and both parties intended to transfer Lot 5. After closing, the error is discovered; Lot 6 belongs to a third party. What is the likely result?

Answer:
As between seller and buyer, this is a classic scrivener’s error. A court in equity may reform the deed to reflect Lot 5, based on clear evidence of mutual intent. However, if a bona fide purchaser has meanwhile acquired an interest in Lot 6 from the record owner, reformation cannot prejudice that bona fide purchaser. The buyer’s main remedy is against the seller (and possibly the closing professionals) rather than against the innocent third party.

Worked Example 1.7

Seller, married, signs a deed conveying the homestead to Buyer, but Seller’s spouse does not sign. Local law requires both spouses to join in any conveyance of homestead property. Buyer records the deed. Later, the spouse claims a continued interest. What is the effect?

Answer:
The deed is valid only as to the interest that Seller could lawfully convey. If homestead law requires spousal joinder, the non‑signing spouse’s homestead interest is not conveyed, and Buyer has less than full title. This may breach the covenant of seisin or marketable‑title promise. Buyer’s remedies are against Seller (for breach of contract or deed covenants) and possibly under title insurance if the homestead right was not excepted.

Worked Example 1.8

The title commitment listed an existing recorded easement for a shared driveway, shown as an exception. The deed was delivered and recorded without mention of the easement, and Buyer’s title policy expressly excepted it. After closing, Buyer objects that the easement makes the title unmarketable and demands rescission. Is Buyer entitled to rescind?

Answer:
Probably not. The easement was disclosed in the commitment and excepted from the title policy. If the contract allowed “subject to matters of record” or the buyer accepted the commitment without objection, the seller has delivered the title bargained for. Because the easement was known and accepted, it ordinarily does not make title unmarketable as between these parties.

Worked Example 1.9

At closing, the settlement statement mistakenly charges the buyer for the full year’s property taxes, even though taxes are customarily prorated. Neither party notices. Months later, Seller realizes the mistake and demands reimbursement for Seller’s share of taxes. Must Buyer pay?

Answer:
It depends. If the contract or settlement statement clearly called for proration and the figure is plainly inconsistent with that, a court may treat the error as a mutual mistake and reform the statement or order reimbursement. But if the contract is silent and local practice alone suggests proration, the signed settlement statement may control. On the MBE, a party who overlooked an obvious arithmetic or allocation error in a document they signed often bears the loss unless the other party engaged in fraud or inequitable conduct.

Worked Example 1.10

Seller signs an affidavit of title stating that there are no tenants in possession. In fact, Seller has an unrecorded one‑year lease with a tenant who refuses to leave after closing. Buyer sues Seller. How is liability likely resolved?

Answer:
Buyer can claim breach of the affidavit and possibly fraudulent or negligent misrepresentation. Because a tenant in possession is a classic example of a party whose rights the buyer must respect, the misstatement is material. Depending on the deed form, the existence of the unexpired lease may also breach the covenant against encumbrances or quiet enjoyment. Title insurance may or may not cover the tenant’s rights, depending on policy language and exceptions; many policies exclude rights of parties in possession not shown by the record, particularly when the buyer had an opportunity to inspect.

Exam Warning

Errors in closing documents, even if unintentional, can shift liability or create title defects. Always check for compliance with statutory requirements and the sale contract before signing, and consider whether promises that matter to your client will survive the merger into the deed.

Revision Tip

Before the exam, practice identifying which party is responsible for preparing, reviewing, and signing each closing document, and know the consequences of errors or omissions, especially when they interact with doctrines like delivery, recordation, marketable title, and equitable conversion.

Key Point Checklist

This article has covered the following key knowledge points:

• Closings are implemented through a bundle of written instruments, not just the deed.
• Closing documents must be drafted, reviewed, and negotiated to meet both legal and contractual requirements.
• The deed, settlement statement, loan documents, title insurance, and affidavits each serve specific functions at closing.
• Proper execution (including any required acknowledgment), delivery, and acceptance are required for title to pass.
• Recording affects priority and notice but is not required for validity between grantor and grantee.
• The merger doctrine means most contract obligations regarding title and quality of the estate are replaced by the deed at closing.
• Marketable title is ordinarily measured at closing; defects existing at that time may support refusal to close or a claim for breach.
• Parties must carefully review the settlement statement and closing disclosure for accurate credits, debits, and closing adjustments.
• The form of deed (general warranty, special warranty, quitclaim) is heavily negotiated and affects post‑closing remedies through covenants of title.
• Escrow arrangements can manage risk and disputes, but escrow agents are bound by written instructions, not by one party’s unilateral wishes.
• Title insurance commitments and policies allocate risk of undiscovered defects and interact with deed covenants and recording statutes.
• Financing contingencies, as‑is clauses, and liquidated damages provisions are key contract tools whose meaning must be understood at closing.
• Defects in execution (such as missing spousal signatures) or in descriptions may require reformation or give rise to breach of covenants.
• Disputes or errors at closing can lead to claims for breach of contract, misrepresentation, breach of deed covenants, or title insurance coverage; remedies include specific performance, reformation, rescission, and damages.

Key Terms and Concepts

• Closing
• Escrow Closing
• Closing Documents
• Deed
• Settlement Statement
• Closing Disclosure
• Bill of Sale
• Affidavit of Title
• Title Insurance Commitment
• Promissory Note
• Mortgage or Deed of Trust
• Escrow Agreement
• Closing Adjustments
• Merger Doctrine
• Delivery and Acceptance
• Recordation
• Marketable Title
• General Warranty Deed
• Special Warranty Deed
• Quitclaim Deed
• Covenants of Title
• Present Covenants
• Future Covenants
• Owner’s Title Insurance Policy
• Loan Policy (Lender’s Title Insurance Policy)
• Title Gap (Gap Period)
• As‑Is Clause
• Liquidated Damages Clause
• Financing Contingency