Closing is the most important part of a real estate transaction; yet, most title insurance companies prepare only a warranty deed and a settlement statement.

The Utah Supreme Court has stated that agreements made before closing generally become obsolete upon the delivery of the deed. The law refers to this principle as the doctrine of merger. Merger means that all prior agreements and understandings merge into the closing documents.

Merger can be very harsh. The parties may have a written or verbal agreement, which they intend to complete after closing. The seller may have made representations to the buyer, which the buyer expects to be honored. Unless specific terms appear in the closing documents, certain expectations may become unenforceable after closing.

The Supreme Court articulated the purpose of the merger doctrine. After people sign a real estate purchase contract, it is not uncommon for understandings to change. The courts should avoid reviewing evidence, whether written or verbal, about events prior to closing. Instead, the courts must adhere to the closing documents, because the closing documents provide the most current status of the parties understanding and agreement.

Properly prepared closing documents are the answer. A closing agreement may be used. A “survival” clause can, and often should, be added to the real estate purchase contract.

Why do title companies fail to prepare closing agreements? Most title companies do not have attorneys training the escrow agents. Most escrow agents have probably never even considered the importance of a closing agreement.

At iKnowRealEstate.NET, we would like to educate you and your clients about closing agreements. Title companies and realtors should be preparing these as a standard part of real estate purchase transactions. The preparation of a closing agreement simply requires the buyer and the seller to agree about those terms which they want to survive the closing.

If you have any questions about the legal aspects of real estate, we are available to speak to organizations about subjects of interest.