Mortgage Loan Originator (MLO) Licensing Practice Test 2026 – Your All-in-One Guide to Exam Success!

During a dry settlement, the key characteristic is that documents are executed, but no funds are disbursed at that moment. This situation typically occurs when the closing of a real estate transaction is completed, and the necessary legal documents are signed, but the actual transfer of funds—usually from the lender to the seller or to pay off existing mortgages—is delayed.

This can happen for various reasons, such as compliance checks, final approvals, or due to the timing of when checks can be cleared. The process allows the transaction to be formally documented while ensuring that all conditions are met before the funds move. This method protects all parties involved by ensuring that the final transfer of money only occurs once all contractual obligations are fulfilled and any required checks are completed.

In contrast, in scenarios where funds are immediately distributed or only partially disbursed at the time of signing, those situations do not fit the definition of a dry settlement.