Ch 12

Question 1

When are real estate brokers are exempt from the escrow licensing requirement?

Answer 1

When handling escrow for a transaction in which they are also providing brokerage services.

Question 2

T/F: A real estate broker may charge a separate fee for escrow services

Answer 2

True
* note: real estate brokers are onlu exempt from escrow licensing requirements when handling escrow for a transaction in which they are also providing brokerage services.

Question 3

T/F: real estate brokers may not act as escrow agents for transactions in which they have no other involvement

Answer 3

True

Question 4

T/F: an escrow agent only represents the seller

Answer 4

False: An escrow agent is a dual agent until the escrow instructions have been fully executed

when a real estate broker provides escrow services, he is representing the buyer as well as the seller.

Question 5

Can a broker who was acting only as the seller’s agent when negotiating the sale also provide escrow services

Answer 5

Yes — however, he will be acting as a dual agent when providing escrow services. Once the escrow closes, the escrow agent becomes a separate agent for each principal.

Question 6

Regarding escrow procedures, which of the following is true?

A.Once escrow conditions are fully met, the agency changes from dual agency to separate agency

B.An escrow officer arbitrates disputes between the buyer and seller

C.A broker who does not have a separate license for handling escrow may handle escrow for transactions in which they have no other interest

D.Once the escrow agent has received escrow instructions from the parties, escrow is complete

Answer 6

A. Once escrow conditions are fully met, the agency changes from dual agency to separate agency

Before escrow instructions have been fully executed, the escrow agent is a dual agent, representing both parties. Once the conditions have been met and the transaction closes, if there are any further matters for the escrow agent to take care of on behalf of one of the parties, the escrow agent is considered to be acting as a single or separate agent for that party.

Question 7

Which of the following is not exempt from the escrow agent licensing requirement?

A. A broker in her own transaction who charges a separate escrow fee

B. A broker in her own transaction who does not charge a separate escrow fee

C. A broker handling escrow for other brokers’ transactions

D. An attorney at law

Answer 7

C. A broker handling escrow for other brokers’ transactions

A broker is not permitted to provide escrow services in a transaction in which she is not also acting as the broker (unless she complies with the escrow licensing requirements).

• An attorney at law or a real estate broker handling her own transaction is permitted to provide escrow services without being licensed as an escrow agent.

Question 8

T/F: the closing agent is always a licensed escrow agent

Answer 8

False

it might be a broker or one of the other parties exempt from the Escrow Law.

Question 9

T/F: On the settlement statement, the good faith deposit is listed in the buyer’s credit column and the seller’s deposit column

Answer 9

False
It is not listed in either of the seller’s columns

The buyer makes the deposit when the purchase agreement is signed, not at closing. At closing, the deposit is applied toward the PURCHASE PRICE

Question 10

T/F: in residential transactions, the broker’s commission is listed in the seller’s debit column in the settlement statement - it is not entered on the buyer’s side of the statement.

Answer 10

True

In residential transactions, the real estate brokerage’s commission is almost always paid by the seller.

Question 11

T/F: The financing for the transaction will always appear as a credit for the buyer on the settlement statement.

Answer 11

True

Whatever the source of the financing, it represents the portion of the purchase price that the buyer will not have to come up with in cash at closing.

Question 12

T/F: If the financing is a loan from a third party lender (such as a bank), the loan amount is listed in the buyer’s credit column. It is not listed in eithe r of the seller’s columns

Answer 12

True

Like the deposit, the buyer’s loan is part of the purchase price already credited to the seller, so no entry is made on the seller’s side of the statement.

Question 13

if the buyer is getting a loan from an institutional lender, the loan amount will appear on the settlement statement as one of the ___ (buyer/seller’s) ___ (debits/credits)

Answer 13

Buyer’s credits

Question 14

When one party is required to make a payment to the other, that amount will show up on the settlement statement as a ___ (debit/credit) for the paying party and also a ___ (debit /credit) for the receiving party

Answer 14

Debit
Credit

Ex: The buyer pays the purchase price to the seller, so the purchase price is listed in the buyer’s debit column, and also in the seller’s credit column.

Question 15

Like an assumption, seller financing reduces the ___’s (buyer / seller) cash at closing.

Answer 15

Seller’s

Question 16

If the buyer isn’t going to assume or take title subject to this existing loan, the seller will have to pay it off at closing. This amount will be a ___ for the seller on the settlement statement.

Answer 16

Debit

Question 17

T/F: If the buyer isn’t going to assume or take title subject to this existing loan, the seller will have to pay it off at closing. This amount is neither a debit nor a credit for the buyer

Answer 17

True

It is only a debit for the seller

Question 18

Some lenders charge a ___ penalty if the borrower pays the loan off before payment is due.

Answer 18

Prepayment

Question 19

Why do some lenders charge the borrower a prepayment penalty for paying off the loan before it’s due?

Answer 19

The penalty makes up for some of the interest the lender expected from the loan but is not going to receive because of the early payoff.

Question 20

If the seller is going to be charged a prepayment penalty, the lender will specify the amount of the penalty in the ____ statement.

On the ___ statement, the escrow agent will enter this amount as a ___ (debit / credit) for the seller.

Answer 20

beneficiary’s
settlement
debit

Question 21

T/F: Mortgage interest is paid into an impound account

Answer 21

False

Mortgage interest is paid directly to the lebder

Question 22

For which of the following loans are impound accounts required?
Select your answer below:

A. VA

B. FHA

C. Cal-Vet

D. All of the above

Answer 22

D. All of the above

An impound account (a reserve account for tax and insurance payments) is generally required for any of these types of loans

Question 23

In a closing statement, the term “recurring costs” refers to:

A. title insurance

B. costs common to all escrows

C. deed transfer taxes

D. impound items

Answer 23

D. impound items

Recurring costs are the expenses that a property buyer will have to pay each year, such as property taxes, mortgage interest, and fire insurance. Lenders often require borrowers to place funds for these expenses in an impound account (a reserve account), where they are held until payment is due.

Question 24

A lender is often authorized to include in a monthly mortgage payment a charge equal to 1/12th of the yearly insurance and taxes. This money is deposited into a/an:

A. balloon payment account

B. blanket account

C. impound account

D. PMI account

Answer 24

C. impound account

In many loans, money that will be paid toward recurring costs (such as insurance and property taxes) will be held by the lender in an impound account. It may also be referred to as a reserve account or escrow account.

Question 25

When the borrower sells the property, there may be some money left over in the impound account that the lender is required to refund to the borrower/seller. This sum will show up on the settlement statement as ___ (credit / debit) for the ___ (buyer /seller).

Answer 25

Credit

Seller

Question 26

Loan approval involves an appraiser’s fee, a credit report fee, and possibly a surveyor’s fee. As a general rule, the ___ (buyer / seller) pays these fees.

The escrow agent will treat all of them as debits for the buyer, unless the ___ agreement specifies that the seller will pay for one or more of them.

Answer 26

Buyer

Purchase

Question 27

For a new loan, the lender charges the borrower a(n) ___ fee to cover the administrative costs of making the loan.
The origination fee is almost always listed as a debit for the buyer on the ___ statement.

Answer 27

Origination

Settlement

Question 28

T/F: the lender may charge discount points at closing in exchange for a lower interest rate on the loan

Answer 28

True

The points are listed as a debit for whichever party pays the points

Question 29

T/F: If the buyer is assuming the sellers loan the lender won’t charge a(n) ___ fee, but It’s likely to charge a(n) ____ fee instead.
This is ordinarily a ___ for the ___

Answer 29

Origination
Assumption
debit
buyer

Question 30

A title insurance policy is paid for with a ___single premium, which is due at ___, when the policy is issued.

Answer 30

Closing

single

Question 31

The owner’s title insurance policy is the one that protects the ___ against undiscovered title defects.

Answer 31

buyer

Question 32

In northern California, custom dictates that the ___ pays the title insurance premium. In this case, it appears as a debit for the buyer.

Answer 32

Buyer

*it is the seller in southern California

Question 33

In a transaction financed with an institutional loan, the lender will require the ___ to pay for a lender’s title policy (or mortgagee’s policy), which protects the lender against undiscovered liens.

The premium for the lender’s policy is a __ for the ___, unless the ___ has agreed to pay for it.

Answer 33

Buyer
debit
Buyer
seller

Question 34

On the settlement statement, the cost of each inspection is a ___ for the party who agreed to pay for it.

Answer 34

debit

Question 35

Why will lenders require the buyer to obtain a hazard insurance policy?

Answer 35

They want to make sure that the property serving as security for the loan is kept insured

Question 36

The lender usually requires the buyer to pay at least one year’s __ insurance premium at closing, and two or three years’ premiums in some cases.

Answer 36

Hazard

Question 37

The hazard insurance premium is a debit on the ___ (buyer’s / seller’s) side of the settlement statement

Answer 37

Buyer’s

Question 38

T/F: The seller customarily pays the documentary transfer tax

Answer 38

True

Question 39

Real eatate excise tax = AKA __

Answer 39

documentary transfer tax

Question 40

The documentary transfer tax—also called the real estate excise tax is customarily paid by the seller, so it is a ___ for the seller

Answer 40

debit

Question 41

In some transactions, the buyer or the seller is represented by a lawyer instead of, or in addition to, a real estate agent.
Which party would be responsible for the attorney’s fees?

Answer 41

Each party is responsible for their own attorney’s fees

*this will be entered by the escrow agent as a debit for the appropriate party

Question 42

T/F: In most transactions, only the seller will have to pay certain recording fees.

Answer 42

False

In most transactions, both the buyer and the seller will have to pay certain recording fees.

Question 43

T/F: The escrow agent can charge an extra fee for filling out the 1099-s form.

Answer 43

False

Question 44

Form 1099-S is used to report the seller’s:
1)
2)
3)

Answer 44

Name
SSN
gross sale proceeds

Question 45

Who has the primary responsibility for reporting a real estate transaction to the IRS?

A. Lender
B. Broker
C. Escrow agent
D. Appraiser

Answer 45

C. Escrow Agent

The primary responsibility for reporting real estate transactions to the IRS lies with the party responsible for closing the transaction, which is ordinarily the escrow agent. If there is no escrow agent and no other party responsible for closing, the reporting duty falls to the mortgage lender. If the lender fails to report the sale, it’s the broker’s responsibility.

Question 46

The primary purpose of RESPA is to:

A. give buyers the chance to shop around for settlement services

B. give buyers the chance to shop around for brokerage services

C. Standardize settlement procedures

D. standardize settlement costs

Answer 46

A. give buyers the chance to shop around for settlement services

RESPA requires lenders to provide prospective borrowers with an estimate of closing costs. Borrowers (buyers) can use the information to comparison shop for settlement services.

Question 47

Broker Betty refers all of her clients to a particular title insurance company, who in turn pays her $20 per referral. Under RESPA, this is permitted:
Select your answer below:

A. as a matter of practice

B. as long as the broker discloses this fact to both buyer and seller

C. as long as the buyer and seller consent

D. under no circumstances

Answer 47

D. under no circumstances

Under RESPA, settlement service providers are forbidden from paying or accepting kickbacks or referral fees.

Question 48

RESPA and TILA require lenders to give which of the following to loan applicants?

A. A loan estimate form that discloses closing costs
B. A uniform disclosure statement
C. A mortgage insurance application
D. A bill of sale

Answer 48

A. A loan estimate form that discloses closing costs

RESPA and TILA require lenders to give loan applicants an estimate of the closing costs they will pay if the loan is approved. This must be provided at the time of application, or mailed to applicants within three days.