A dry closing occurs when a buyer has signed paperwork for the sale of a home, but the funds have not yet been released.
In real estate, a dry closing is a situation where the buyer has signed all documents relevant to the sale, but has not yet received the proceeds from the sale. Often, a dry close occurs when there is some sort of delay in the delivery of funds from a lender, but the funds are expected to be released soon. In the interim, the seller may choose to allow the buyer to take possession of the property or retain this privilege until the funds are dispersed and the sale is deemed complete.
A delay in the seller signing the required creditor paperwork can lead to a dry closing.
A dry closing can also occur when there is a need for the seller to interact with the lender in approving the loan. This can sometimes happen when the buyer is trying to finance the purchase through a government program. The seller must be willing to accept the terms associated with that program, typically by signing paperwork to that effect. Even if the buyer has been approved by the program, funds are not released until the seller indicates in writing their approval of the financing agreement.
Real estate professionals will react to a dry close in different ways. When there is assurance that the buyer has been approved for a mortgage through a mortgage banker or other type of finance company, the realtor may be willing to proceed with the deposit, as funds are likely to be available in a matter of days. Other realtors are afraid to proceed with the escrow deposit and transfer the title until the funds are actually received and payment is made to the seller. This is because regaining control of the title in the event that funding is reversed or denied for some reason can be somewhat difficult to manage. For this reason, real estate agents often recommend that sellers continue to hold ownership of the property until funding is received.
It is important to note that a dry close does not automatically mean that the funding source is suspect or that the buyer will not be able to proceed with the purchase. A dry close can occur for many reasons that have nothing to do with the buyer’s stock or creditworthiness. In most cases, the delay is due to a payment processing failure. Once the source of the delay has been identified, the creditor can resolve the issue and complete the transfer of funds to the seller or the seller’s agent.