Chapter 12: Closing the Real Estate Transaction

Question 1

The Know Before You Owe laws require the buyer to receive their Closing Disclosure:
A. 3 calendar days before closing
B. At the time of closing
C. 3 business days before closing
D. 5 business days before closing

Answer 1

C. 3 business days before closing
(Buyers must receive the Closing Disclosure 3 business days prior to closing. A “business day” under the federal statute defines a business day as Mon-Sat. Sundays and 10 federal holidays are not counted)

Question 2

What is the Closing Disclosure entry for a loan on a purchase money mortgage?
A. credit seller, debit buyer
B. credit buyer, debit seller
C. credit buyer only
D. debit seller only

Answer 2

B. credit buyer, debit seller
(A purchase money loan is seller financing. It would be deduced from the amount the seller would receive and the buyer would get a credit for the loan in the same manner as the buyer would be credited for any loan they are obtaining)

Question 3

Closing will take place on November 15th. Annual real estate property taxes are $1,260 and have been paid by the seller in advance. Which of the following would be the appropriate Closing Disclosure entries?
A. $1,102.50 debit seller/credit buyer
B. $157.50 credit seller/debit buyer
C. $1,102.50 credit seller/debit buyer
D. $157.50 debit seller/credit buyer

Answer 3

B. $157.50 credit seller/debit buyer
(The taxes are $1,260. The daily amount of the taxes are $3.50 ($1,260 divided by 360). The seller has been in the property for 315 days. The amount they owe is 315 x $3.50 = $1,102.50. They have paid $1,260. $1,260-$1,102.50 = $157.50 credit. At closing, the buyer will be debited the $157.50 and the seller will be credited the $157.50)

Question 4

If personal property taxes appear on a residential Closing Disclosure, these taxes are normally:
A. prorated between seller and buyer
B. single entry debit to seller if the tax bill has been received and not yet paid by seller
C. a double entry item, debit seller/credit buyer, if taxes are to be paid later in the year by buyer.
D. both B and C

Answer 4

D. both B and C
(Typically personal property taxes are not included on the Closing Disclosure. If they have been paid by the seller there is no entry to make. If they have not been paid they will typically be a single entry debit to the seller. They are only prorated if they have not been paid by the seller and are to be paid later in the year by the buyer)

Question 5

Assume annual real estate taxes amount to $1,800 and have been paid in advance by the seller. If settlement date is set for September 15, which of the following is true?
A. credit seller $525; debit buyer $1,275
B. debit seller $525; credit buyer $525
C. credit buyer $525; debit seller $1,275
D. Credit seller $525; debit buyer $525

Answer 5

D. Credit seller $525; debit buyer $525
(The annual taxes are $1,800. The daily amount is $5 ($1,800 divided by 360). The seller has been in the property 255 days. The seller owes 255 x $5 = $1,275. They paid $1,800-$1,275 = $525 credit. At closing, the seller will be credited the $525 and the buyer will be debited $525)

Question 6

You are purchasing a four-unit apartment building and will close on November 14. Each apartment rents for $575 per month. On November 1, one apartment is vacant and the other tenants have paid the November rent. Compute the rent proration through the day of closing and indicate the proper entries on a Closing Disclosure.
A. $805 credit seller/debit buyer
B. $805 debit seller/credit buyer
C. $920 credit seller/debit buyer
D. $920 debit seller/credit buyer

Answer 6

D. $920 debit seller/credit buyer
(3 apartment rents of $575 have been collected for a total of $1,725. The daily amount of rent is $57.50 ($1,725 divided by 360). The tenants have been in the apartment for 14 days. $57.50 x 14 = $805 is the seller’s share of the rent.. $1,725-$805 = $920. This is the amount which must be debited to the seller and credited to the buyer)

Question 7

Anne buys a home from Kim. She agrees to assume Kim’s existing mortgage loan, which carries an interest rate of 8% and is paid in arrears. Closing is set for July 20. The principal balance of the loan on July 1 is $130,000. How will the prorated interest for July be entered on the Closing Disclosure?
A. credit Kim and debit Anne for $288.90
B. debit Anne and credit Kim for $577.78
C. credit Anne and debit Kim for $577.78
D. credit Anne and debit Kim for $288.90

Answer 7

C. credit Anne and debit Kim for $577.78
(The loan is for $130,000. The annual interest is $10,400 ($130,000 x 8%). The daily interest is $28.8889 (10,400 divided by 360). The interest covering the July period will be paid in full by the buyer on August 1. The seller occupied the property for 20 days in July. $28.8889 x 20 = $577.778 (rounded up to $577.78). The buyer will be credited this amount and the seller will be debited this amount)

Question 8

Determine the excise tax to be paid on a house that sells for $268,210 if the buyer makes a $25,000 down payment and the seller takes back a second mortgage for $50,000?
A. $536.42
B. $537
C. $533
D. $538

Answer 8

B. $537
(Excise taxes are paid on the sales price. The amount of the tax is $1 for each $500 of value. Always round up the sales price to the next $500 level. The sales price is $268,210, rounded up to $268,500. $268,500 divided by $500 = $537. It will be debited to the seller)

Question 9

How much did Michelle net from a sale of her home at $205,000? Her expenses were: - Commission at a rate of 4.6% - $51,000 loan payoff - Excise tax at the standard rate - Deed preparation $15 - Courier fee of $15 for her lender to overnight her payoff documentation.
A. $144,130
B. $144,301
C. $144,311
D. $145,712

Answer 9

A. $144,130
(The commission paid was $9,430 ($205,000 x 4.6%). The loan payoff was $51,000. The excise taxes were $410 ($205,000 divided by $500). The deed preparation fee was $15. The courier fee was $15. $205,000-$9,430-$51,000-$410-$15-$15 = $144,130)

Question 10

The buyer is going to assume the seller’s 7% loan with a loan balance of $82,000 as of the day of closing, which will be August 11. Of the following, which would be correct Closing Disclosure entries?
A. $175.38 debit seller/credit buyer and $82,000 debit seller/credit buyer
B. $175.38 credit seller/debit buyer and $82,000 debit seller/credit buyer
C. $82,000 credit seller/debit buyer
D. $82,000 debit seller/debit buyer and $175.38 credit seller/credit buyer

Answer 10

A. $175.38 debit seller/credit buyer and $82,000 debit seller/credit buyer
(The amount of the loan is $82,000. The annual interest is $5,740 ($82,000 x .07). The daily interest is $15.9444 ($5,740 divided by 360). The seller has been in the home 11 days. $15.9444 x 11 = $175.38)

Question 11

Linda is buying a home for $125,000 with a 10% down payment and borrowing the balance at 7% for 30 years. Closing is August 22, and the lender requires Linda to pay interim interest. Which of the following is true?
A. Linda will be given a credit of $196.88
B. Linda will be given a debit of $196.88
C. Linda will be given a debit of $175.00
D. Linda will be given a credit of $175.00

Answer 11

B. Linda will be given a debit of $196.88
(The loan amount is $112,500 ($125,000 x 90%). The annual interest is $7,875 ($112,500 x 7%). The daily interest is $21.875 ($7,875 divided by 360). Linda will pay interest from the day of closing (8/22) to the end of the month, which is 9 days. $21.875 x 9 days = $196.875 (rounded up to $196.88))

Question 12

The Know Before You Owe provisions of the Dodd Frank Act are enforced by the Consumer Financial Protection Bureau (CFPB). These laws require:
A. that the closing of a transaction be held within 90 days of the date of the sales contract
B. that disclosure be made of all settlement costs prior to the settlement date
C. that the buyer and seller be given disclosures 5 days prior to the closing date
D. that lenders follow certain advertising procedures when advertising credit

Answer 12

B. that disclosure be made of all settlement costs prior to the settlement date
(There are two such disclosures required. One is the Loan Estimate issued by the lender within 3 business days of loan application. The other is the Closing Disclosure which must be delivered to the buyer 3 business days prior to closing)

Question 13

Who is legally permitted to sign documents and execute binding closing documents on behalf of someone else?
A. an attorney at law
B. a real estate licensee
C. a spouse
D. an attorney in fact

Answer 13

D. an attorney in fact
(An attorney in fact is not a lawyer. An attorney-in-fact is a person who holds a power of attorney. Only an attorney-in-fact may sign documents of behalf of someone else)

Question 14

All of the following are true about the borrower’s Loan Estimate EXCEPT:
A. It is subject to permissible variations in relationship to the Closing Disclosure
B. A licensee is required to review the Loan Estimate of their borrower for its accuracy and completeness
C. It is provided with an accompanying booklet “Know Before You Owe”
D. It must be provided to the borrower within 3 business days of loan application

Answer 14

B. A licensee is required to review the Loan Estimate of their borrower for its accuracy and completeness
(A licensee is required to review the Closing Disclosure for its accuracy and completeness, not the Loan Estimate)

Question 15

All of the following borrowers should receive a Loan Estimate, EXCEPT:
A. a borrower who is purchasing a vacation rental
B. the buyer of a condominium or townhome
C. the borrower who is purchasing a home from a FSBO
D. the purchaser of a vacant lot

Answer 15

D. the purchaser of a vacant lot
(The loan estimate is required on purchases involving 1-4 unit residential properties. A vacant lot is not subject to the provisions of RESPA or the Dodd Frank “Know Before You Owe” laws)

Question 16

A licensee is acting as a dual agent representing both the seller and the buyer of a residential property. In regard to the Closing Disclosure statements which of the following statements is true?
A. The licensee should keep the disclosure statements separate and confidential
B. Because the licensee represents both parties. They are required to provide both the Sellers Disclosure and the Buyers Disclosure to both of the parties
C. The licensee should encourage the parties to give written consent to share their Closing Disclosures
D. The licensee must refrain from reviewing either of the Disclosures because it will provide them with the confidential information of the other party

Answer 16

A. The licensee should keep the disclosure statements separate and confidential
(One of the primary aspects of the Dodd Frank Act is to maintain the separate and confidential financial information of the parties)

Question 17

A broker is permitted to transfer funds they are holding as an escrow agent to the closing attorney for the purposes of settlement:
A. Any time prior to 10 days before closing
B. No sooner than 10 days prior to closing
C. On the 10th day prior to closing
D. Only between the time of closing the transaction and recordation

Answer 17

B. No sooner than 10 days prior to closing
(The Good Funds Act requires that the money be transferred from the escrow agent to the settlement or closing agent no sooner than 10 days prior to closing)

Question 18

The TRID disclosures required at the settlement of a real estate transaction combine the disclosures that are required under which two federal laws?
A. FCRA & ECOA
B. ECOA & Reg Z
C. RESPA & TILA
D. The Good Funds Act & RESPA

Answer 18

C. RESPA & TILA
(The acronym TRID stands for Tila and Respa Integrated Disclosures. The Disclosures combine the provisions of the Real Estate Settlement Procedures Act and the Truth in Lending Act)

Question 19

Which of the following would be exempt from the providing of a mandatory Disclosure Statement three business days prior to settlement or closing?
A. a buyer who can demonstrate an undue hardship caused by the delay
B. a transaction where the buyer and seller both mutually agree to waive the disclosure timeline
C. a seller who is financing an impending foreclosure
D. a buyer who is purchasing a lot and has a separate agreement with a contractor to build a custom home.

Answer 19

D. a buyer who is purchasing a lot and has a separate agreement with a contractor to build a custom home.
(The disclosures must be provided in the settlement of 1-4 unit residential transaction when the borrower is obtaining a mortgage. They do not apply to cash transactions or the sale of land)

Question 20

All of the following changes will require the issuance of a new Closing Disclosure and the providing of a new 3-day review period, EXCEPT:
A. an increase in the APR
B. a change in the loan product
C. the addition of a prepayment penalty
D. the addition of a home inspection fee

Answer 20

D. the addition of a home inspection fee
(A new disclosure and mandatory review period is required only for increases in the APR, changes in the loan product or the addition of a prepayment penalty. The statute regulates and controls the charges and fees from the lender)