In the St. Louis real estate market, ‘split closings’—where buyers and sellers close at different title companies—are a common practice. This is in contrast to most parts of the country, where a single title insurance company manages the closing for both parties. Although rare nationally, split closings have become a hallmark of the St. Louis real estate scene.
In a split closing, each title company plays a distinct role. The buyer’s title company is typically responsible for producing the title insurance commitment, ordering buyer-related items (like surveys), and coordinating with the new lender on figures and requirements. Conversely, the seller’s title company takes the commitment from the buyer’s title company and assists the seller in clearing any liens, checking for assessments and specials, and verifying commission and earnest money. Each company then prepares a closing statement for their side, and the two companies reconcile the figures.
Despite being the norm in St. Louis, split closings come with their share of risks and inconveniences. To gain a deeper understanding of these challenges, I consulted Greg Miller, Manager at M&I Title, LLC. He outlined the most common risks and inconveniences stemming from split closings:
Risks and Inconveniences of Split Closings
- Potential Miscommunication: The division of responsibilities between two title companies can result in crucial information getting lost or misinterpreted. For example, discrepancies in settlement figures or misunderstanding regarding the readiness of documents can cause significant delays.
- Difficulty in Resolving Issues: On the day of closing, last-minute hurdles such as undiscovered liens, discrepancies in documents, or issues arising from the final walkthrough can be more cumbersome. Each title company may have different procedures for handling these issues, complicating coordination and resolution efforts.
- Delayed Seller Proceeds: For sellers, this delay means that the proceeds from the sale may not be available on the day of closing. This is particularly problematic for sellers who are relying on these funds to purchase another home simultaneously. The absence of timely proceeds can disrupt the entire chain of transactions, potentially leading to breaches of contract or the need for temporary, and often costly, financial arrangements.
- Buyer Possession Issues: Buyers, on the other hand, may face delays in gaining possession of their new home. Since a real estate transaction is not considered closed until it is fully funded and the deed has been delivered to the buyer, any delay in these processes means the buyer technically does not own the home. This could result in the buyer being unable to move into their new home as planned, leading to additional costs or complications, especially if they have already vacated their previous residence.
- Increased Costs: Sellers may face additional fees for closing services, courier charges for document transfers, and possibly higher coordination fees due to the involvement of an additional title company. These costs can vary widely and may also impact buyers if contractually passed on.
- Wire Fraud Vulnerability: The exchange of sensitive financial information between multiple parties increases the risk of interception by cybercriminals. The complexity of communication can make it easier for fraudulent wire transfer instructions to go unnoticed until too late.
Additional Considerations
- Privacy Concerns: With two title companies involved, sensitive personal and financial information is shared more broadly, increasing the risk of data breaches or unauthorized access.
- Complex Coordination for Agents and Lenders: Real estate agents and lenders must navigate communication between two companies, adding complexity to their roles and potentially straining relationships with clients due to unforeseen delays or issues.
- Risk of Non-Compliance: Each title company may interpret regulatory requirements slightly differently. This divergence can lead to compliance issues, affecting the legality of the closing process and potentially exposing all parties to legal risks.
- Customer Service Variability: With two companies involved, the level of customer service can vary, potentially leading to a disjointed experience for both buyer and seller. Inconsistent communication or service levels can increase stress and dissatisfaction with the process.
By understanding these expanded issues and additional considerations, professionals and clients in the St. Louis real estate market can better prepare for the complexities of split closings. Strategies such as enhanced communication protocols, clearer contractual agreements regarding responsibilities and fees, and increased vigilance against fraud can mitigate some of these challenges.
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