Dry Closing

What Is a Dry Closing?

A dry closing is a type of real estate closing in which the entire closing requirements are fulfilled except for the disbursement of funds. A real estate closing is the completion of a transaction involving the sale or exchange of real estate. In a dry closing, all involved parties agree that the closing can still happen and the funds are transferred as soon as possible after the closing has occurred.

A dry closing is different than a traditional real estate closing (sometimes called a "wet" closing); in a traditional closing, the title to the property is transferred to the purchaser, and all finances pertaining to the purchase are also settled at the same time.

How a Dry Closing Works

A dry closing usually occurs when there has been some delay in the funding of the loan required for a real estate transaction. Usually, funds have been approved and are fairly guaranteed. While a traditional closing usually includes both the necessary paperwork and the exchange of funds, a dry closing is performed with no exchange of funds. In a dry closing, it may take a couple of days–or even a couple of weeks–for the funds to be deposited.

Dry closings are not uncommon. In some cases, a dry closing happens if a lender hasn't yet financed the transaction. In other cases, a buyer may still need to satisfy a condition with the lender, or a seller might have to resolve an issue with the property before a buyer will close. In any such scenario, a dry closing holds the closing open until the issues are resolved and the parties can complete the closing process.

Dry closings may also occur because lenders prefer to review closing documentation before releasing loan funds. This strategy puts pressure on the closing agent to correct documentation problems before the mortgage is funded. While some states require wet closings, other states–such as California–give lenders the option of choosing either a wet closing or a dry closing. The prevailing opinion in these states is that dry closings assure lenders, buyers, and sellers that a home purchase is legal and complete before funding. In California, if a lender chooses a dry closing, no funds change hands until all documentation is submitted.

Buyers and sellers typically tend to favor wet closings; buyers want to get into their new home, and sellers want their money. Buyers do not legally own their new property until their mortgage funds, and sellers have not legally sold their property until the funding occurs. However, by state practice or lender preference, mortgages are usually funded very quickly (between 24 to 48 hours).