3.4 Delaware Settlement Procedures

Who Conducts the Settlement

In Delaware a closing is called a settlement, and it is handled by a title company or a settlement attorney — not by the real estate salesperson. The settlement agent runs the title search, prepares documents, calculates the figures, collects and disburses funds, and records the instruments.

Settlement steps

1. Title search — examine the chain of title back through the county records.
2. Document preparation — deed, mortgage, note, affidavits.
3. Settlement statement — itemize every charge and credit.
4. Signing — parties execute documents.
5. Funding — collect buyer funds and loan proceeds, disburse payoffs.
6. Recording — record deed and mortgage with the Recorder of Deeds and remit the realty transfer tax.

Federal RESPA / TRID Timing

Delaware settlements ride on top of two federal consumer rules tested on the national portion but applied at every state closing:

• Loan Estimate (LE): the lender must deliver it within 3 business days of a complete loan application.
• Closing Disclosure (CD): the borrower must receive it at least 3 business days before settlement. A change in APR beyond tolerance, a new prepayment penalty, or a loan-product change restarts that 3-day clock.

Trap: The CD's 3-business-day waiting period is mandatory and cannot be waived for minor convenience. Test items often try to shorten it to one day or zero.

Reading the Closing Disclosure

The CD lays out debits (charges) and credits for each party. A buyer's debits include the purchase price and their closing costs; their credits include the earnest-money deposit and the new loan amount. A seller's credit is the sale price; debits include the loan payoff, commission, and their share of transfer tax. The settlement agent reconciles both columns so the buyer's cash to close and the seller's net proceeds are exact at the table.

Title Insurance

Title insurance protects against defects discovered after closing. Delaware buyers and lenders typically purchase two distinct policies.

A title policy covers losses such as unknown liens, errors in the public record, forged documents, undisclosed heirs, and other title defects. It is a one-time premium paid at settlement, not an annual charge. The owner's policy lasts as long as the insured (or heirs) hold an interest; the lender's policy declines with the loan balance.

Security Instrument: The Mortgage

Delaware uses a two-party mortgage as the security instrument — the promissory note is the promise to repay and the mortgage creates the lien. Unlike deed-of-trust states, there is no trustee, so enforcement is by judicial foreclosure through Superior Court, ending in a sheriff's sale, with deficiency judgments available.

Closing Costs and Recording

Closing costs are allocated by the Agreement of Sale and local custom. The realty transfer tax (about 4% total) and recording fees are paid at settlement, and the deed and mortgage are recorded at the county Recorder of Deeds.

Worked example: Annual property taxes of $3,650 ($10/day) are prorated at a June 15 settlement. The seller owns the property for the first ~165 days of the tax year and is charged ~$1,650; the buyer is credited that amount and assumes the remainder. Prorations always follow the contract's stated method and the actual settlement date.

Recording and Priority

Delaware is a race-notice recording jurisdiction: a deed or mortgage should be recorded promptly at the county Recorder of Deeds to give the world constructive notice and to fix lien priority. Generally, the first instrument recorded has priority — except that property tax liens jump ahead of earlier private liens. Recording the buyer's deed and the lender's mortgage is the final act of settlement and the reason title insurance can later defend the buyer's clear title.

Common Settlement Traps

• The agent does not run the settlement — a title company or attorney does. (Repeated because the exam repeats it.)
• Delaware uses a mortgage, not a deed of trust; there is no trustee and no out-of-court power-of-sale foreclosure.
• The owner's policy protects the buyer; the lender's policy protects the lender — do not swap them.
• Transfer tax and recording fees are paid at settlement, and the realty transfer tax (~4%) is customarily split 50/50 unless the contract says otherwise.