Ch 12 Quizzes Flashcards
T/F: If there is no provision in escrow instructions specifying a termination date, the escrow will terminate after 60 days.
False
An escrow will terminate after a reasonable time if no closing date is specified.
T/F: An escrow is terminated by the death or incapacity of either party.
False
An escrow can only be terminated when the transaction closes, on the termination date itself (or after a reasonable period of time, if no termination date is specified), or by mutual agreement of the parties.
T/F: A real estate broker can provide escrow services for a fee without being a licensed escrow agent, as long as the services are related to a transaction in which the broker is also providing the brokerage services.
True
In California, a real estate broker may charge a separate fee for escrow services when handling escrow for a transaction for which she is providing other brokerage services.
T/F: As a general rule, escrow can be terminated before closing only if the buyer and seller mutually consent to its termination.
True
Neither party can terminate an escrow unilaterally, without the other’s consent. Likewise, the death or incapacity of one party will not terminate the escrow.
T/F: A real estate broker represents a buyer in the purchase of a home. He will also provide escrow services for the transaction. In his role as escrow agent the broker is classified as a dual agent, representing both the buyer and the seller.
True
When a real estate broker provides escrow services, he is representing both the buyer and the seller.
T/F: At the beginning of the escrow process, the buyer and the seller sign written escrow instructions, appointing the escrow agent to act as their dual agent.
True
The instructions direct the escrow agent to take all of the necessary steps to close the transaction in accordance with the purchase agreement.
A settlement statement = AKA ____
Closing statement
A ____ statement sets forth all the financial details of the transaction
Settlement
The loan origination fee and the documentary transfer tax are part of the ____ cost
Closinf
T/F: The settlement statement often specifies which party is responsible for paying certain closing costs
False
The PURCHASE AGREEMENT form often specifies which party is responsible for paying certain closing costs
T/F: If certain costs arent specified in the purchase agreement, the escrow agent will usually allocate the cost according to custom or general practice.
True
For example, in southern California, the seller customarily pays for the owner’s title insurance policy, unless otherwise agreed.
Alternatively, the buyer and the seller may negotiate the allocation of particular costs.
T/F: In most residential transactions, the settlement statement is part of the closing disclosure form required by the Real Estate Settlement Procedures Act
True
Who generally prepares and delivers the closing disclosure form to the parties?
The BUYER’S lender
* BUT if the transaction doesn’t involve a lender, the escrow agent prepares a settlement statement.
What does a settlement statement consist of?
A list of the payments to be made or received at closung
What is a debit
An amount to be paid BY one of the parties
What is a credit
An amount to be paid TO one of the parties
When one party owes a payment to the other party, that amount will show up on the settlement statement as a ___ for the paying party, and as a ___ for the receiving party.
(Debit / credit)
Debit
Credit
T/F: When one of the parties will be required to make a payment to a THIRD party, that amount appears on the settlement statement in the paying party’s debit column.
BUT it isn’t listed in the other party’s columns at all.
True
T/F: If the seller pays the premium for the owner’s title insurance policy to the title insurance company, This premium is listed in both the seller’s debit column and the buter’s credit column
False
It is only listed in the seller’s debit column since it is NOT a payment to or from the buyer
T/F: The total in the buyer’s credit column must equal the total in the buyer’s debit column
True
* and the total in the seller’s credit column must equal the total in the seller’s debit column
Where will the unused portion of the seller’s impound account appear on the settlement statement?
Seller’s credit
The unused portion of the seller’s impound account will be returned to the seller, so it is a credit at closing. The exception is if the buyer is assuming the loan and, with it, the reserve account; in that case, it would be a credit for the seller and a debit for the buyer.
Where does the purchase price appear on the settlement statement?
Debit buyer / credit seller
Where does the buyer’s new loan appear on the settlement statement?
Credit buyer
The buyer’s debit column lists all the charges to the buyer; the credit column shows how the buyer is going to pay the charges. The loan is not a charge; it’s a source of money, so it’s a credit for the buyer.
How will a prepayment penalty be treated at closing?
Debit seller
This is a charge the seller’s lender may impose on the seller for paying the loan off before the end of its term. In such a case, the seller is debited.
A survey was conducted to confirm the property’s boundary. Where will the cost of the survey appear on the closing statement?
Debit buyer
The survey benefits the buyer, and in the absence of any agreement to the contrary, the cost of the survey is a debit for the buyer.
The transaction is seller-financed, with the seller carrying back a deed of trust as security for the balance of the purchase price. Where does the financed portion of the purchase price appear on the settlement statement?
Credit buyer / debit seller
The credit extended by the seller helps the buyer pay for the property; the same amount is deducted from the purchase price to determine how much money the seller will receive at closing.
Where does the lender’s policy of title insurance show up on the settlement statement?
Debit buyer
If a buyer is going to assume the seller’s existing loan, how is this arrangement treated on the settlement statement?
Credit buyer / debit seller
The buyer is using the seller’s existing loan to finance the transaction, so credit the buyer. The assumed loan balance will also be subtracted from the purchase price to determine the balance owed the seller, so that will be a debit for the seller.
T/F: Items typically prorated include property taxes, mortgage interest, and rent
True
The seller is responsible for the general real estate taxes up to the day of closing; the buyer is responsible for them after the day of closing.
Who is responsible for the actual day of closing?
The parties will decide (or rely on local custom to determine) which one is responsible for the actual day of closing.
** most often, the buyer is responsible
Note:
- If the seller has paid the taxes in advance, covering a period beyond the closing date, he is entitled to a partial refund.
- On the other hand, if the seller hasn’t paid the year’s taxes yet, he may be required to pay a certain share at closing.
Which of the following may not be prorated on a closing statement?
A. Delinquent interest on a non-secured loan
B. Property taxes
C. Insurance premiums
D. Mortgage interest
A. Delinquent interest on a non-secured loan
Taxes, insurance, and mortgage interest payments are typically prorated on a closing statement. But interest on a loan that is not secured by the property is entirely the seller’s obligation and would not be included on the closing statement. (Additionally, delinquent payments on any loan, secured or not, would be entirely the seller’s responsibility.)
The 3 main steps in prorating an expense:
1) Determine the daily rate of the expense (the per diem rate).
2) Determine the number of days for which one party is responsible for the expense.
3) Multiply that number of days by the per diem rate to determine that party’s share of the expense.
In CA, property owners may pay their taxes in two installments - one due by ___ and one due by ___.
November 1st
February 1st
On the settlement statement, the escrow agent would list the refund amount for the prepaid property taxes as a credit for the ___ and the same amount as a debit for the ___.
Seller
Buyer
T/F: The seller’s final interest payment may be prorated
True
because on a mortgage loan, the interest is generally paid in arrears, after it accrues
T/F: Both buyer and seller are responsible for the closing date for their respective mortgages
True
As with insurance policies, the seller’s mortgage ends on the closing date, and the buyer’s mortgage begins on the closing date.
The seller’s final interest payment will be listed as a ___ for the seller on the settlement statement.
debit
T/F: For a new loan, the buyer’s prepaid interest is prorated
True
The initial mortgage paymwnt is usually not due until the first day of the 2nd month after closing
Of the following items, which would be least likely to appear on a closing statement as a debit to the buyer?
A. Interest on an assumed loan
B. Prorated taxes
C. Prorated insurance premiums
D. FHA discount points
A. Interest on an assumed loan
Because loan interest is paid in arrears (the month after it accrues), any interest due on an assumed loan is the seller’s responsibility. Interest not paid by the seller would therefore be listed as a credit for the buyer on the closing statement.
The annual property taxes are $2,340. What are the per diem taxes?
$6.41
Divide $2,340 by 365 days to find the per diem rate ($2,340 ÷ 365 = $6.41)
Which of the following items are not generally prorated on a settlement statement?
Rent, property taxes, the escrow fee or prepaid interest on the buyer’s loan
The escrow fee
Rent, property taxes, and prepaid interest on the buyer’s loan are all expenses that would be prorated.
The escrow fee may be split between the buyer and seller, but it would not be prorated.
Which of the following items would appear on the settlement statement as a debit for the buyer? A. Appraisal fee B. Prepayment penalty C. Broker's commission D. All of the above
A. Appraisal fee
The appraisal is usually required by the buyer’s lender and is paid for by the buyer, so it appears as a debit to the buyer.
If the transaction involves a rental property, which of the following must be prorated?
A. Rent
B. Tenant security deposits
C. Documentary transfer tax
D. All of the above
A. Rent
The buyer would be entitled to a prorated share of any prepaid rent from tenants. Security deposits, however, would simply be transferred from the seller to the buyer.
T/F: A residential broker refers all clients to a particular title insurance company. The broker receives $10 for each referral. This practice is illegal.
True
The Real Estate Settlement Procedures Act has strict prohibitions against kickbacks.
T/F: Escrow agents must submit Form 1099-S to the IRS regardless of the property’s sales price.
False
If a principal residence is sold for $250,000 or less and the seller certifies that none of the gain is taxable, Form 1099-S doesn’t have to be filed.
T/F: If the seller in a transaction is a nonresident alien, 15% of the amount realized from the sale must be withheld and forwarded to the IRS within 20 days after the closing date.
True
This is a requirement of the Foreign Investment in Real Property Tax Act.
T/F: The Real Estate Settlement Procedures Act applies to the purchase and financing of residential dwellings of five units or less.
False
RESPA is limited to loans used to finance the purchase of residential dwellings (or land on which a dwelling will be built with the loan proceeds) of FOUR units or fewer.
T/F: A buyer assumes an existing mortgage loan without the lender’s approval. In this transaction, the lender is exempt from the RESPA requirements.
True
This is one of the listed exemptions from the Real Estate Settlement Procedures Act.
