Ch 12 Test

Question 1

Where is prepaid interest noted on the settlement statement?
A. Only as a credit for the seller
B. Only as a credit for the buyer
C. Only as a debit for the seller
D. Only as a debit for the buyer

Answer 1

D.  Only as a debit for the buyer
Prepaid interest (also known as interim interest) is listed as a debit for the buyer on the settlement statement.

Question 2

Which of the following would normally be a debit for the buyer?
A. Commission
B. Unpaid property taxes
C. Standard policy of title insurance
D. Loan origination fee

Answer 2

D. Loan origination fee

Like most charges connected with a new loan, the origination fee is usually a debit for the buyer.

Question 3

To help finance the purchase, the buyer is going to obtain a new 80% conventional loan. Where is the buyer’s loan reflected on the settlement statement?
A. Only as a debit for the buyer
B. Only as a credit for the buyer
C. As a credit for the buyer and a debit for the seller
D. As a debit for the buyer and a credit for the seller

Answer 3

B. Only as a credit for the buyer

The buyer’s loan is listed only as a credit for the buyer. The buyer’s loan is part of the purchase price already credited to the seller, so it does not appear on the seller’s side of the statement.

Question 4

Which of the following is true about a settlement statement?
A. The sum of one party’s debits must equal the sum of the other party’s credits
B. The buyer’s total debits and credits must match the seller’s total debits and credits
C. The buyer’s total debits must equal the buyer’s total credits
D. The balance due to the seller is listed in the seller’s credit column

Answer 4

C. The buyer’s total debits must equal the buyer’s total credits

Question 5

All of the following are exempt from the licensing requirements of California’s Escrow Law except a:
A. title company
B. real estate broker handling escrow for another broker’s transaction
C. savings and loan
D. real estate broker handling escrow for his own transaction

Answer 5

B. real estate broker handling escrow for another broker’s transaction

Question 6

Funds remaining in the seller’s impound account after the seller’s loan is paid off will appear on the settlement statement as a:
A. credit for the buyer and a debit for the seller
B. debit for the buyer and a credit for the seller
C. debit for the buyer
D. credit for the seller

Answer 6

D. credit for the seller

Question 7

A rental property is sold. The tenant paid the $900 monthly rent on the first of the month, and the transaction closed on the tenth of the month. Which of the following statements is true?

A. Seller owes buyer $600
B. Buyer owes seller $600
C. Seller owes buyer $300
D. Buyer owes seller $300

Answer 7

A. Seller owes buyer $600

Question 8

Which of the following events would terminate an escrow?
A. Death or incapacity of a party
B. Revocation of the escrow instructions by the broker
C. Mutual agreement of the parties
D. Withdrawal from escrow by either party

Answer 8

C. Mutual agreement of the parties

Question 9

Which of the following is designed to determine under what conditions and at what time the escrow agent will distribute the money and documents involved in a real estate transaction to the proper parties?
A. Escrow instructions
B. Settlement statement
C. Purchase agreement
D. Listing agreement

Answer 9

A. Escrow instructions

The escrow instructions dictate the terms and conditions under which the escrow agent will act.

Question 10

If the annual property taxes are $2,156, what would the per diem rate be?
A. $5.81
B. $5.91
C. $6.01
D. $6.10

Answer 10

B. $5.91

Question 11

Under the Real Estate Settlement Procedures Act, a closing agent must provide the borrower with:
A. a closing disclosure form
B. a property disclosure statement
C. the loan’s annual percentage rate
D. certified copies of buyer and seller closing statements

Answer 11

A. A closing disclosure form

RESPA requires the lender to give the borrower a uniform settlement statement.

Question 12

The property appraisal cost $250. In a typical real estate transaction, the expense would be listed as a:
A. $125 debit for the buyer and $125 debit for the seller
B. $250 debit for the buyer
C. $250 debit for the seller
D. $250 debit for the buyer and a $250 credit for the seller

Answer 12

B. $250 debit for the buyer

Question 13

Which of the following would not be prorated at closing in the sale of a rental property?
A. Prepaid property taxes
B. Interest on seller's existing loan
C. Security deposit
D. Interest on buyer's new loan

Answer 13

C. Security deposit

A security deposit would not be prorated at closing, since it must continue to be held in trust. It would simply be transferred from the seller to the buyer.

Question 14

The buyer’s good faith deposit appears on the settlement statement as a:
A. debit for the buyer and a credit for the seller
B. credit for the buyer and a debit for the seller
C. credit for the buyer only
D. debit for the buyer only

Answer 14

C. credit for the buyer only

The good faith deposit appears on the settlement statement as a credit for the buyer only. Since the full purchase price has already been credited to the seller, there is no mention of the good faith deposit on the seller’s side.

Question 15

What is the primary purpose of the settlement statement?

A. To provide a detailed accounting of each party’s expenses and credits, and the amount each will receive or be required to pay at closing
B. To disclose the true costs of financing to both buyer and seller
C. To provide documentary evidence of closing costs for state and federal authorities
D. To provide the necessary documentation for a proper conveyance of title

Answer 15

A. To provide a detailed accounting of each party’s expenses and credits, and the amount each will receive or be required to pay at closing

Question 16

A property is sold on a land contract. On the settlement statement, the amount of credit extended would be:
A. only a debit for the buyer
B. only a debit for the seller
C. a credit for the buyer and a debit for the seller
D. a debit for the buyer and a credit for the seller

Answer 16

C. A credit for the buyer and a debit for the seller

For a land contract, the amount of credit extended would be listed as a debit for the seller and as a credit for the buyer.

Question 17

RESPA applies to all of the following except a:
A. purchase money first loan made by a bank
B. senior mortgage loan made by a mortgage banker to finance a condominium unit
C. loan used to finance 50 acres for residential development
D. VA loan used to finance a fourplex

Answer 17

C. loan used to finance 50 acres for residential development

RESPA doesn’t apply to loans used to purchase 25 acres or more.

Question 18

When the buyer is assuming the seller’s existing loan, how would the loan balance appear on the settlement statement?
A. As a credit for the buyer only
B. As a debit for the buyer only
C. As a credit for the buyer and a debit for the seller
D. As a debit for the buyer and a credit for the seller

Answer 18

C. As a credit for the buyer and a debit for the seller

If a buyer assumes a seller’s loan, the assumed balance is a credit for the buyer and a debit for the seller.

Question 19

Prepaid fire insurance would be listed on the settlement statement as a:
A. debit for the buyer
B. debit for the seller
C. credit for the buyer
D. credit for the seller

Answer 19

D. Debit for the buyer

The buyer is usually required to pay for one to three years’ worth of hazard insurance in advance.

Question 20

Under the Real Estate Settlement Procedures Act, how much can an escrow agent charge for preparation of the required disclosure forms?
A. Nothing
B. $25
C. 1/2 of 1% of the loan amount
D. 1% of the loan amount

Answer 20

A. Nothing

An escrow agent may not charge a separate fee for the preparation of the uniform settlement statement.