Key Takeaways
- The Closing Disclosure replaced the HUD-1 for residential mortgage transactions under TRID (2015) and must be delivered 3 business days before closing.
- Prorations divide taxes, rent, insurance, and HOA dues between buyer and seller based on the closing date.
- Wire fraud exceeds $400M in annual losses — always verify wire instructions verbally at a known phone number.
- Dry closing states separate document signing from fund disbursement by 1-3 days; wet closing states complete both on the same day.
Closing day is when ownership officially transfers and funds change hands. The settlement statement itemizes every dollar flowing into and out of the transaction, while the funds transfer process moves hundreds of thousands of dollars through wire transfers that must be executed with precision and security. Understanding these mechanics prevents costly errors and protects against the growing threat of wire fraud.
Settlement Statements: HUD-1, ALTA, and Closing Disclosure
The settlement statement is the master financial document of the closing, detailing every charge, credit, proration, and payment. Historically, the HUD-1 Settlement Statement was the standard form for all real estate closings. Since October 2015, the TILA-RESPA Integrated Disclosure rule (TRID) replaced the HUD-1 with the Closing Disclosure (CD) for most residential mortgage transactions. Commercial transactions and cash deals may still use the HUD-1 or ALTA Settlement Statement.
The Closing Disclosure must be delivered to the borrower at least 3 business days before closing — the "3-day rule." If any of three specific terms change after delivery (APR increase of more than 0.125%, loan product change, or addition of a prepayment penalty), a new CD must be issued with another 3-day waiting period. This rule is designed to prevent closing table surprises but can delay closings when last-minute changes trigger re-disclosure.
The ALTA Settlement Statement (adopted by the American Land Title Association) is increasingly used alongside or in place of the HUD-1 for commercial transactions. It provides a more detailed breakdown of title charges, recording fees, and prorations. Regardless of format, every buyer should review the settlement statement line by line before closing day, comparing it to the original contract terms and loan estimate.
Prorations, Wire Transfers, and Fraud Prevention
Prorations divide shared expenses between buyer and seller based on the closing date. Property taxes, rent, insurance premiums, and HOA dues are prorated so that each party pays only for their period of ownership. For example, if annual property taxes are $6,000 and closing occurs on March 15, the seller owes 74 days of taxes ($1,216.44) and the buyer owes the remaining 291 days ($4,783.56). Prorations appear as credits and debits on the settlement statement.
Funds transfer at closing occurs primarily through wire transfers. The buyer's lender wires the loan proceeds to the title company or closing attorney, and the buyer wires their remaining cash-to-close amount. After closing, the title company disburses funds: payoff of the seller's existing mortgage, real estate commissions, recording fees, title insurance premiums, and the net proceeds to the seller.
Wire fraud has become one of the most significant threats to real estate transactions. The FBI's Internet Crime Complaint Center reported over $400 million in losses from real estate wire fraud schemes in recent years. Criminals hack email accounts of real estate agents, title companies, or attorneys and send fraudulent wire instructions. Prevention requires verbal verification of all wiring instructions using a known phone number (never a number from an email), never changing wire instructions via email, and confirming receipt of wires within one hour of transfer.
Dry Closings vs. Wet Closings
States differ in how they handle the relationship between document signing and fund disbursement. In "wet" closing states (the majority), documents are signed and funds are disbursed on the same day. The buyer signs loan documents, the lender funds the loan, and the title company disburses proceeds — all in a single closing session.
In "dry" closing states (including California, Oregon, Washington, and several others), documents are signed first, then there is a gap before funds are disbursed and the deed is recorded. This gap — typically 1-3 business days — exists because the lender reviews signed documents before authorizing fund release. Buyers in dry closing states should not expect keys on signing day. Understanding your state's closing process prevents confusion and incorrect expectations about when ownership actually transfers.
Guided Practice: Reviewing a Closing Disclosure
You are buying a $300,000 property with 20% down. Your Closing Disclosure arrives 4 days before closing.
- 1Verify purchase price ($300,000) matches the contract.
- 2Confirm loan amount ($240,000) and interest rate match your loan estimate.
- 3Check origination charges against the Loan Estimate — fees cannot increase beyond tolerance limits (0% for some, 10% for others).
- 4Review prorations: property taxes ($4,200/year prorated to closing date), HOA dues ($250/month prorated).
- 5Verify earnest money credit ($6,000) appears as a buyer credit.
- 6Calculate total cash-to-close: down payment ($60,000) + closing costs ($8,500) - earnest money credit ($6,000) = $62,500.
- 7Call the title company at their verified phone number to confirm wire instructions before sending funds.
Key Takeaways
- ✓The Closing Disclosure replaced the HUD-1 for residential mortgage transactions under TRID (2015) and must be delivered 3 business days before closing.
- ✓Prorations divide taxes, rent, insurance, and HOA dues between buyer and seller based on the closing date.
- ✓Wire fraud exceeds $400M in annual losses — always verify wire instructions verbally at a known phone number.
- ✓Dry closing states separate document signing from fund disbursement by 1-3 days; wet closing states complete both on the same day.
Sources
Common Mistakes to Avoid
Waiting until closing day to review the Closing Disclosure for the first time.
Consequence: Errors or unexpected charges discovered at the closing table create pressure to sign despite discrepancies, or trigger last-minute delays that can jeopardize the closing.
Correction: Review the Closing Disclosure line by line as soon as it arrives (at least 3 business days before closing). Compare every figure to the original contract and loan estimate. Request corrections immediately.
Sending wire transfers based on email instructions without verbal verification.
Consequence: Criminals who have compromised email accounts send fraudulent wire instructions that redirect hundreds of thousands of dollars to untraceable accounts — these funds are rarely recovered.
Correction: Always call the title company at a phone number you independently verified (from their website or business card, never from an email) to confirm wire instructions before sending any funds.
Test Your Knowledge
1.How many business days before closing must the Closing Disclosure be delivered to the borrower under TRID?
2.What is the single most important wire fraud prevention measure in real estate transactions?
3.In a dry closing state, what happens after documents are signed?