Chapter 14 - Closing the Real Estate Transaction

Question 1

Prior to closing the buyer needs to:

Answer 1

Confirm that everything is in place for the loan to fund at closing

The buyer’s funds required to close are available

Review documents that they will want to read so as to expedite the closing process

Prepare for the walk thru to make sure that the property is in proper condition and that the inclusions that should be left are there and the exclusions have been removed.

Verify that inspection items have been completed and receipts provided.

Question 2

What kind of check is used for transactions?

Answer 2

Cashiers Check

Question 3

Prior to closing the seller needs to:

Answer 3

Confirm that any inspection items to be repaired are complete and receipts are available

Arrangements have been made to transfer utilities if possession is being delivered at closing

Confirm that all keys, including any mailbox keys, and garage door openers, warranties, manuals etc are available to provide to the buyer.

Confirm that the property is ready to be delivered to the buyer as specified in the contract.

Question 4

Face to Face Closing:

Answer 4

Colorado conducts face to face closings in which the buyer, seller, loan officer, listing agent and selling agent meet at a title company or other location with a closing officer for the title company that has provided the title policy.

Question 5

The title company in the closing scenario

Answer 5

is responsible for closing the real estate portion of the transaction and the loan package in accordance with the terms of the contract and as directed by the lender.

The title company closer will present all documents, obtain signatures, notarize signatures, collect funds and disburse funds

Question 6

The closer cannot offer _____ but can only present documents.

Answer 6

advice

Question 7

The seller will sign an affidavit stating that the seller has not made…

Answer 7

any repairs that have not been paid for or that the seller does not intend to pay for.

Question 8

Since water can become a lien on a property, the title company will..

Answer 8

make arrangements so the water bill can be transferred into the buyers name and will pay the water bill at closing.

will be escrowed at closing from the seller’s proceeds.

Question 9

Once closing is completed, the closer will..

Answer 9

make all recordings, forward the loan package to the lender, etc.

Question 10

When can the keys be transffered to the buyer?

Answer 10

The keys etc. can then be transferred to the buyer if possession is to be delivered at closing or at “time and date of delivery of deed”.

Question 11

In order for the title company to conduct the face to face closing,

Answer 11

the buyer and seller must execute a set of closing instructions which is due on or before the title deadline of an executed contract.

Question 12

Escrow Procedures:

Answer 12

An escrow is a method of closing in many states in which the buyer and seller have a third party conduct the closing and the buyer and seller are not present .

Question 13

Does colorado do escrow procedures?

Answer 13

While Colorado does not conduct closing this way, it is possible for a face to face closing to become an escrow closing in limited circumstances.

Question 14

Frequently, the lender’s funds for the loan are not available at the closing as they are supposed to be. If they are not available, the….

Answer 14

closer will obtain all of the signatures, have the parties sign an escrow agreement and make the disbursements when the lenders funds arrive – usually by wire transfer.

Question 15

It is important for a licensee to do everything possible to make sure…

Answer 15

that the lender wires funds in time for them to be available at closing as the seller may have back to back closings.

Question 16

The title company is required to report a home sale to the IRS under certain conditions and may be required to collect _% of the sales price on behalf of the Colorado Department of Revenue.

Answer 16

2%

Question 17

If the sale meets the guidelines per IRS rules in which taxes from the sale would not be due, then the title company is __________ to report the sale to the IRS.

Answer 17

not required

These requirements include that the property be the seller’s primary residence for two of the previous 5 years.

Question 18

The 2% rule may be averted if the property was the seller’s primary

Answer 18

residence just prior to the closing

Question 19

If an out of state residence sells a Colorado property, they will have (or not have) the 2% withheld to be credited against their Colorado income tax due

Answer 19

have

Question 20

What is RESPA? What is it for?

Answer 20

The Real Estate Settlement and Procedures Act

enacted to protect the public from abusive lending practices.

RESPA guidelines apply to loans that are federally insured or are financed by banks, savings and loans, etc. and other institutions that are FDIC or FSLIC insured and mortgage loans to be sold on the secondary market

Real estate brokerages may offer lending, title, and settlement services provided it is disclosed in writing to buyers.

Real estate brokers may not collect referral fees from title companies, lenders, surveyors or appraisers for work referred.

RESPA requires that lenders provide a borrower with a good faith estimate of settlement charges within 3 days of taking a loan application.

Question 21

RESPA requires that lenders provide a borrower with a good faith estimate of settlement charges within _ days of taking a loan application.

Answer 21

3

Question 22

Uniform Settlement Statement (HUD-1) includes all charges that will…

Are items paid by the borrower and seller outside closing required by the lender to be in the HUD-1 form?

Do buyers have right to inspect a completed HUD-1? How many days before closing?

Are side deals between the buyer and seller acceptable?

Answer 22

be collected at closing, whether required by the lender or another party.

Items paid by the borrower and seller outside closing and not required by the lender are not included on the HUD-1 form.

Buyers have the right to inspect a completed HUD-1 form, to the extent that figures are available, one business day before the closing.

It is important that there be NO “side deals” between the buyer and seller that are not disclosed on the HUD-1 settlement statement.

Question 23

What are charges required by the lender at or before closing indicated as?

Answer 23

Charges required by the lender that are paid or before closing are indicated as paid outside of closing (POC).

Question 24

Real estate licensees must retain real estate transaction records for ____

Answer 24

a period of 4 years after closing – the real estate brokerage will provide this service.

Question 25

What is a Debit and Credit?

Answer 25

A Debit is a charge, an amount that a party owes or must pay at closing

A Credit is an amount that reduces the amount that party owes – eg. accounting for taxes or HOA fees already paid by the party.

Question 26

Proration:

Answer 26

The process of who is responsible for how much

Question 27

The difference between the buyer’s debits and credits is the amount

The difference between the seller’s debits and credits is the amount

Answer 27

the buyer must bring to closing in the form of a cashier’s check (certified funds)

of the check payable to the seller if such an amount exists.

Question 28

Items usually paid by the seller include:

Answer 28

Real estate commissions, 
Attorney’s fees, 
Owner’s title policy, 
HOA transfer fees, 
and any item agreed to in the contract

Question 29

Items usually paid by the buyer include:

Answer 29

origination and discount points, 
appraisal, 
lender’s title policy, 
prepaid interest and HOA fees, 
attorney’s fees, other loan fees, 
and any other items agreed to in the contract.

Question 30

What are the two methods of Prorations?

Answer 30

360 day banking year (National only)

365 day calendar year (Related to Colorado)

Question 31

What kind of Proration is Colorado based on?

Answer 31

Colorado prorations will be based on a 365 day calendar year.

Question 32

In Colorado, when does the buyer own the home? and why?

Answer 32

In Colorado, the buyer owns the home the day of the closing for proration purposes.

Question 33

Real estate taxes and HOA fees are prorated and allocated to..

Answer 33

the party that owned the property for those days.

Question 34

Items for prorations may be those prepaid by the seller –

Answer 34

in which case the seller gets a credit and the buyer is debited