6-A Real Estate Closing Flashcards
Marketable Title
= title that is free and clear from encumbrances or other defects
Title Search
= thorough examination of public records to verify property’s legal ownership , discover liens, encumbrances etc.
Actual Notice
= information that has been received rather than implied
Chain of title
= clear unbroken, chronological record of ownership of property
- in NY going back to grant from King of England
Suit to quiet title
= lawsuit filed to remove cloud on title
- in NY article 15 Proceeding
- court can issue a quitclaim or judicial deed
Cloud on title
= any document, claim, lienor encumbrance that results in unmarketable title
- gap in chain of title
Abstract of title
= result of title search
= summary of legal history of property, shows chronological overview of all recorded documents and transactions affecting the title
Title insurance
= protects lenders and homebuyers from financial loss due to defects in title (undisclosed heirs, improper deed etc.)
- paid with one time premium
RESPA
= Real Estate Settlement Procedures Act=Regulation x
- measurements to provide homebuyers and sellers with settlement cost disclosures
- reducing closing costs by prohibiting kickbacks and referral fees
- applies when 1-4 family house is financed by mortgage (not vacant land or 25 + acres)
- overseen by CFPB- Consumer Financial Protection Bureau
- two purposes: 1 ensuring buyers can make informed decisions, 2. Prohibit unlawful practices by real estate settlement providers (kickbacks, referral fees), which increase settlement cost for buyers
RESPA Section 6
= protects homeowners against fraudulent activity in connection with mortgage loan, lender is required to reply in writing within 20 days of complaint, resolve complaint within 60 days
RESPA Section 8
= prohibits settlement providers from offering, accepting or participating in 1. Kickbacks, 2. Fee splitting, 3. Unearned fees
RESPA Section 9
= prohibits seller, developer or attorneys from requiring the buyer to use a particular title insurance company.
RESPA Section 10
= limits the amount of escrow a mortgage lender can collect during loan term
RESPA settlement Service
= prohibits a required use of a specific settlement service provider
settlement service
- Origination of a loan
- Mortgage Broker Services
- Title Services
- Attorney Service
- Document Preparation
- Inspections
- Insurance
- Credit Reports
- Real estate Agents
- Taxes and Assessments
- Transaction Details by real estate broker to ensure proper closing
Kickback
= per RESPA 8a cash or other things of value, offered to agent as incentive for business referrals under the table
afBA
= affiliated business arrangement
- RESPA allows referrals as long relationship is disclosed
- referring party must give afba disclosure to consumer at or prior to referral
Closing/ settlement
- final exchange in purchase of property
- 2 closings take place at the same time: 1. closing of buyers mortgage loan 2. closing of sale/transfer of title
Parties involved in closing
- Homeowner/Seller: grant property to buyer and receives payment
- Buyer: pays for and receives title
- Licensed Real Estate Agents: full filling fiduciary role
- Real Estate Attorneys: to protect clients interests
- Lender Representative: Mortgage company representative executes all loan documents, ensure that property has clear title, prepare settlement statement, disburse funds to seller
- Title Company Representative: reviews documentation, finalizes deed and title transfer
- Real Estate Broker: commission is paid
Closing Documents
- Sales Contract: most important, terms and conditions of transaction
- Closing Disclosure Form: when mortgage loan is involved seller receives 2 page closing disclosure form, buyer 5 pages (details of mortgage loan, purchase price, loan fees etc)
- Mortgage Promissory Note: buyer agrees to pay mortgage loan
- Deed of Trust: gives lender legal right to foreclose on the property if buyer fails to pay loan
- Deed: transfers ownership from grantor to grantee
- Closing Disclosure: buyer (and seller) has to receive this 3 days before closing per RESPA regulations from lender, informs what funds must be brought to the closing
- Escrow Disclosure Statement: agreement to pay monthly certain amount into escrox account to pay taxes and insurance premiums
- Survey: buyers lender might require survey to ensure valid property description
- NY Real Estate Transfer Tax Return: purchase price x 0.004
- IRS Form 1099 S: settlement officer is required to submit documentation to IRS to report sellers proceeds
- Real Property Transfer Report: form RP5217 ensures update of tax records
- Real Estate Settlement Procedure Act Document : given to buyer, provides additional info about closing documents and mortgage obligations
- Homeowner insurance lenders require homeowner insurance be sufficient to replace home in case of fire etc.
additional Closing forms required in NY State
- Form TP 584: NY state Real Estate Transfer Tax Return
- Form RP 5217: Real Property Transfer Report
Special Assessments
= charges imposed on property for improvements or obligations (street repairs, installation of sidewalks etc)
- paid by seller
Settlement Statement
= documents summarizing closing costs expenses to be paid by seller and buyer prior closing
- any cost to buyer or seller can be listed here
- escrow deposits and homeowner insurances must be listed
Closing Cost
- all debits owed but buyer are totaled and added to purchase price, then credits are totaled and subtracted= how much money buyer needs to bring to closing
- mortgage amount shows up as credit for buyer since lender will bring the money
Seller Closing Cost (buyer everything else)
- Attorney Fees
- Brokers commission
- Condo or coop fees
- Escrow fees
- Equalizations fee
- Existing Liens Payments
- Miscellaneous title fees
- Mortgage Satisfaction fee
- NYC Transfer tax
- Property Tax
- Recording fees
- State Transfer tax
Transfer Tax
=$4 per $1000 of purchase price and rounded up to the next $2 ($4 when higher than $500): $120000/$1000=$120.30 x$4=$481.20 = $483
- Mansion tax: additional tax of 1% when purchase price higher than $1mil
- NYC in addition to real estate transfer tax NYC has additional transfer tax 1% for properties up to $500k and 1.425% for higher
Mortgage recording tax
- paid buy buyer
- in NY 0.75% of mortgage amount
- in counties with public transportation its 1.25% (buyer pays 1%, lender0.25%)
Proration
= division of expenses between buyer and seller in proportion to the actual usage
- Expenses can be accrued or prepaid
-
Accrued Expenses
= cost has been incurred but not paid (seller will be debited, buyer credited)
- Mortgage interest (paid at the end of month),
- special assessments
- property taxes
- utility used but not yet billed
Prepaid Expenses
= charges already paid by seller (seller will be credited, buyer debited)
- homeowners insurance,
- NY property tax (due beginning of the year),
- HOA fees
Calculate Proration
- either 365 day- used when closing occurs mid months-
- or 360 day – 12 month each 30 days
- Determine if expense is accrued or prepaid
- Divide expense by 12 then divide that amount by 30 for day rate
- Determine usage period to be allocated to each party
- Multiply monthly/daily rate by usage period
- Calculate which party receives credit and which debit
- Note: buyer responsible for closing date
