Closing is the moment when all parts of a real estate transaction come together. But what may surprise buyers is that even at closing you may need still-more paperwork.

Huh? Between sale agreements, disclosures, and mortgage applications wasn't there enough paperwork? What more could anyone possibly want?

As it turns out, there is one item closing agents are likely to demand: evidence that you have homeowner's insurance.

Virtually all of what it takes to finalize a real estate transaction will be handled at closing. The settlement agent will take in money from the buyer and the lender and pay out money to the seller, tax collectors, and others. But in many cases, homeowner's insurance will be shown as "POC" on the settlement form or "paid out of closing."

In effect, you need to obtain homeowner's insurance on your own. This is good news because it means you have the opportunity to shop for rates, terms, and coverage. Once you've made your choices, you must then provide evidence at closing to show that you have adequate coverage.

Lenders are interested in homeowner policies because they will be named as the "mortgagee." At closing this may seem insignificant, but if you have a claim this little bit of paperwork will become important.

Imagine that a few years from now, whoops, there's a fire in the kitchen. The fire department comes, no one is hurt, and for the most part the home is okay. But there is damage. The stove is ruined, cabinets are burned, the kitchen and dining room are covered with soot, and the fire department has knocked out holes in several rooms searching for smoke and hidden sparks.

So now you have a claim. The insurance company is there just about instantly and your check arrives shortly.

But the check is made out to you -- and the lender. To cash that check the lender must sign off.

What's happening is this: When you bought the home you got a mortgage. The house is the lender's security, something to assure that the loan will be re-paid. If there is a fire at the property, the lender's security will be devalued. For this reason lenders require borrowers to have homeowner's insurance.

Lender practices in the event of an insurance claim vary. Some will merely sign off on the check, while others will only release money as receipts come in.

What's the right homeowner's policy and the right coverage for you? It's best to sit down with a local insurance broker well before closing to get your answers. Ask about costs, coverage, limits and exclusions. Ask about replacement cost coverage -- generally the sale price of the property less the value of the land.

Ask the insurance broker what paperwork you should to bring to closing -- and confirm this information with the closing agent. The insurance broker will provide the forms you need. At settlement, when the matter of homeowner's insurance pops up, just hand in your forms. It's the last paperwork you're likely to need.

Published: July 26, 2001

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Peter G. Miller, also known as OurBroker®, is the author of six real estate books -- including The Common-Sense Mortgage -- and is the original creator and host of America Online's Real Estate Center. Peter's weekly columns appear in more than 100 newspapers nationwide, he is also published in a variety of other media outlets and he is a frequent speaker at national events and conventions. Peter welcomes your questions, comments, and news releases via e-mail at .