☑️ Chapter 15: The Successful Mortgage Closing Flashcards
Real Estate Appraisals:
An ______ is an estimate or opinion of value as of a certain date that is supported by objective data from the marketplace. There are several important concepts in that short definition.
• An appraisal is ONLY an _____; it is not a GUARANTEE of value. While it is an opinion of value, however, it must be supportable and based on facts.
• The estimate of value is AS OF a certain _____. As change is constantly occurring, the value is also subject to constant CHANGE. Therefore, an appraisal is only valid as of its EFFECTIVE date, which establishes terms, conditions, and economic circumstances upon which the value is ESTIMATED.
A. Appraisal
B. Estimate or Opinion
C. Date
Real Estate Appraisals:
The appraisal industry is a regulated industry, as prescribed by Congress in 1989 with the passing of the H.R.1278 - ______ Act of 1989, commonly known as _______. In this bill, the certification and licensing of appraisers for all federally-related transactions was implemented. Appraisal requirements continue to mandate this requirement.
“Title XI: Real Estate Appraisal Reform
Amendments - Amends the Federal Financial
Institutions Examination Council Act of 1978 to establish the Appraisal Subcommittee to monitor: (1) State and Federal certification and licensing of appraisers involved in federally-related transactions; and (2) the procedures and activities of the Appraisal Foundation.
Requires the Subcommittee to submit an annual status report to the Congress and to maintain a national registry of State-licensed appraisers eligible to perform appraisals in federally-related transactions.
Mandates that each State whose appraiser certification and licensing program complies with this Act transmit to such Subcommittee an annual roster of appraisers eligible to conduct federally-related transactions.
Directs the Appraisal Subcommittee to report to the Congress the results of studies regarding:
(1) the sufficiency of real estate data to permit appraisers to estimate property values properly in federally-related transactions; and (2) the feasibility of extending the appraisal provisions of this Act to personal property relating to Federal financial and public policy interests.”
A. Financial Institutions Reform, Recovery, and Enforcement Act of 1989
B. FIRREA
Real Estate Appraisals:
An appraisal is developed by a certified and licensed appraiser. There are education and apprenticeship requirements to become a certified and licensed appraiser. All appraisals are ordered, usually by the loan processing staff, through an _____ to maintain the appraisal independence that is required for a federally-regulated loan transaction. The AMC:
a) “Administers an appraiser panel of _____ contract appraisers to perform real property appraisal services in this state for clients.
b) Receives requests for real property appraisal services from clients and, for a fee paid by the client, enters into an agreement with one or more independent appraisers to perform the real property appraisal services contained in the request.
c) Otherwise serves as a _____ liaison of appraisal management services between clients and appraisers.”
A. appraisal management company (AMC)
B. independent
C. third-party
Real Estate Appraisals:
Appraisal Approaches:
Appraisers value properties using three different approaches. Each approach is independent of the others and is performed separately to arrive at an opinion of value. Many factors can drive the appraiser’s choice in the application of the approaches, such as the type of property being appraised, and the type and extent of research and analysis needed in an assignment. As a result, the appraiser could elect to use one, two, or ALL _____ of the different approaches.
A. Three
Real Estate Appraisals:
Appraisal Approaches:
_______: Develops an opinion of value of real property by comparing the property being appraised with other similar properties, called comparables or comps, which have sold recently in the same market area as the subject property. This approach is most often used in evaluating residential real property.
A. Sales Comparison Approach
Real Estate Appraisals:
Appraisal Approaches:
The Sales Comparison: approach is considered the most _____ and ______ of the three appraisal methods because it is rooted in ______.
This belief is implied in the Fannie Mae definition of market value as the most probable price that a property should bring in a competitive and open market. With a truly objective appraisal, another buyer should agree with the value and be willing to pay the same price for the property. By looking at enough comparable sales, the assumption is made that the resulting appraisal analysis reflects the actions of typical real estate buyers in the marketplace.
A. Useful and Accurate
B. Actual Market Activity
Real Estate Appraisals:
Appraisal Approaches:
_______: Develops an opinion of value for a property by calculating the cost of the land, site improvements, the cost to build the structure on the land, and the cost of any depreciation to the property to reproduce the property. The cost approach is best used for relatively _____or for unusual or special purpose properties that have few or no comparables and do NOT produce _____, such as hospitals, schools, or churches.
A. Cost Approach
B. New Construction
C. Income
Real Estate Appraisals:
Appraisal Approaches:
_________: Sometimes called the ______ approach, this approach estimates the value of real estate by analyzing the revenue, or income, the property currently generates or could generate, often comparing it to similar properties. This approach is most widely used with _______ or _______ properties.
A. Income Approach
B. Capitalization
C. Commercial
D. Investment
Real Estate Appraisals:
Reconciliation:
Opinions of value from all fully-developed approaches are reconciled to arrive at the best estimate of value.
Rarely, if ever, are the value estimates from these three approaches equal. The estimates from each of the _____ approaches are NEVER merely AVERAGED. This is where the appraiser’s knowledge and experience are _______. Reconciliation involves giving EACH method an appropriate _____ depending on the _____ of property being analyzed and the amount and accuracy of _____ available.
A. Three
B. Invaluable
C. Weight
D. Type
E. Data
Real Estate Appraisals:
Updating or Recertifying an Appraisal:
Sometimes it may be necessary to RE-ADDRESS an appraisal, such as when a NEW lender evaluates a loan application. While it may seem to be a simple request from a lender’s perspective, an appraiser is obligated to consider a request to readdress-or update–an appraisal as a _____ assignment. This makes sense when you recall that an appraiser’s opinion of value is technically _____ ONLY as of the DATE of the appraisal, so if the lender is looking for a more current value, a new appraisal is required.
A. New
B. Valid
Real Estate Appraisals:
Updating or Recertifying an Appraisal:
A _______ report may be necessary to confirm whether certain conditions in the original appraisal have been met, such as when the property was “subject to” some repair or renovation or when the appraisal was performed on a property under construction. A _____ verifies that the “subject to” conditions of the original appraisal have been met and that the original opinion of value is valid.
Note that a recert, also called a completion report, does not change the effective date of the valuation.
If significant time has passed between an original appraisal that was “_______” some condition and the actual completion of the improvements, it may be necessary to have BOTH a recertification to REMOVE the condition and an UPDATE to get a more current date for the value.
The appraisal must be _____ if it will be ______ days or older as of the date of the promissory note, and a NEW appraisal is required after ______ days.
A. recertification of value (442 recert of value)
B. Recert
C. Subiect To
D. Re-Certified
E. 120 Days
F. 180 Days
Property Insurance:
_______ insurance is coverage that INDEMNIFIES a person with an interest in the property for a loss caused to the property by a covered PERIL. Standard homeowner’s insurance policies require the INSURED to carry an amount sufficient to cover the cost to ________ the structure as the minimum amount of insurance on the property. Homeowner’s insurance will most likely have a deductible amount that the borrower must first pay in the event of any loss. The lender has guidelines for the maximum deductible amount also.
The borrower is free to choose a home insurance company of his choice, but the company must meet the lender requirements. It is a good idea to provide the new homeowner, especially a first-time buyer, with the lender requirements for property insurance early in the loan process so there will be no confusion at closing.
A new homeowner may also receive a discount for insuring her automobile and other articles with the hazard insurance provider
A. Property
B. Replace
C. (BUNDLE & SAVE)
Property Insurance:
Lender’s Interest:
The lender has an ______ interest in the property used as collateral for a loan. Lenders, therefore, generally REQUIRE a ______ clause be added to the buyer’s property policy to cover the lender’s interest in preservation and reconstruction of the property after a loss.
Most lenders also REQUIRE the buyer to pay the first year’s insurance premium in FULL _____ to closing. This charge will be documented in the ______.
A. Insurable
B. Mortgage Clause
C. Prior
D. Loan Estimate
Property Insurance:
Lender’s Interest:
If there is an _____ account set up for payment of hazard insurance:
• The lender incorporates the premium, along with the current property taxes, into an escrow account.
The lender is allowed to maintain a ______ cushion for all escrowed items.
This amount is placed in what area of the loan estimate?
Page _______ Section ________
• The insurance cost and property taxes are then ______ over the next ______ months to determine a monthly insurance and property tax payment amount that is then ADDED to the monthly ____ and _____ due for loan repayment.
This amount is placed in what area of the loan estimate?
Page _______ Section ________
• On payment of the amount due each month, the insurance and tax portion of the payment is deposited into the client’s ______ account.
• When property taxes and insurance become due, the _____ forwards these amounts from the balance in the borrower’s escrow account to the respective recipients.
A. Escrow
B. Two-Month (or 1/6 of a year)
C. Page 2, Section F
D. Prorated
E. 12
F. Principal and Interest
G. Page 2, Section G
H. Escrow
I. Lender
Property Insurance:
Lender’s Interest:
If the buyer does not comply with the lender’s insurance requirements, the lender has the right to place insurance on the property to cover its interest in the event of a loss. This _______ insurance by the lender covers ONLY the lender’s loan value in case of a covered loss to the structure. It does NOT provide for any contents or _____ property coverage for the buyer. It also will NOT provide any liability protection in case of a lawsuit against the buyer.
A. Force-Placed
B. Personal
Property Insurance:
Flood Insurance:
Flood insurance is designed to REDUCE the cost of national emergencies. When communities enforce and participate in the ______ Program, the cost of natural disasters due to flooding is minimized.
Flood insurance considers the lowest point at which a flood is likely to occur and dwellings located below that elevation point are considered to be in a flood zone. The risk of flood potential is considered and properties are identified as residing in a ______ Area.
A. National Flood Insurance
B. Special Flood Hazard Area (SFHA)
Property Insurance:
Flood Insurance:
A _______ is defined by
______ as the land area covered by the floodwaters of the base flood. Special Flood Hazard Areas represent the area that will be inundated by the flood event having a ___-percent chance of occurring in any given year. The ___ -percent annual chance flood is also referred to as the base flood or _____ -year flood.
• Properties in Zone ____ or ___ are considered “______” and require MANDATORY flood insurance to be obtained from the _____. Zones A, AO, AE, V or VE are some of the high-risk flood zone designations.
• Moderate flood hazard areas, labeled Zone B or Zone X, are the areas between the limits of the base flood and the 0.2-percent-annual-chance (or 500-year) flood. Flood insurance is optional in these areas.
• The areas of minimal flood hazard, which are the areas outside the SHA and higher than the elevation of the 0.2-percent-annual-chance flood, are labeled Zone C or Zone X. No flood insurance is required in these areas.
A. Special Flood Hazard Area (SFHA)
B. FEMA
C. 1%
D. 1%
E. 100
F. A or V
G. High Risk
H. NFIP
Property Insurance:
Flood Insurance:
Flood insurance coverage is REQUIRED to be maintained until the loan _____ is satisfied. A standard flood insurance policy ONLY insures the ____ and NOT the homeowner’s contents, unless the owner purchases additional coverage or an additional policy for personal property protection.
Flood insurance often REQUIRES a _____ deductible before paying for any covered loss.
If flood insurance is NOT obtained by the borrower, the lender will obtain ______ insurance to protect its investment from the ____ of a flood.
A. Obligation
B. Home
C. High
D. Forced-Place
E. Perils
Property Insurance:
PMI Cancellation:
Once the increased risk of loss from borrower default has been reduced; when the loan-to-value ratio is reduced to _____% or less), mortgage insurance has fulfilled its purpose. In the past, many lenders did NOT cancel PMI, WHEN when the risk was REDUCED. The ______Act of 1998 requires lenders to automatically cancel PMI when a home has been paid down to ____% of its original VALUE or attained ____% EQUITY based on the original value, assuming the borrower is NOT delinquent.
The law has some EXCEPTIONS , such as for MULTI-family units, non-OWNER-occupied homes, mortgages on SECOND homes, and SECOND mortgages.
A. 80%
B. Homeowners Protection Act of 1998 (HPA)
C. 78%
D. 22%
Remember: If it’s a second home they might not be there often enough to notice if there is a leak or bad wiring that can cause a fire.
Property Insurance:
Private Mortgage Insurance:
Private mortgage insurance (PMI) is offered by _____ companies to INSURE a lender against DEFAULT on a loan by a borrower where there is loss of collateral value at the time of the default.
The insurer SHARES the lender’s risk, but only _____ of the risk. The insurer does NOT insure the _____ loan amount, but rather the UPPER portion of the loan that EXCEEDS the standard ____% LTV. The amount of PMI coverage can vary but is typically ___% to ___% of the loan amount.
After the sale of the SECURITY, the proceeds may NOT be sufficient for the lender to RECLAIM all the lender’s losses from the principal balance, foreclosure, and other costs.
The LENDEE may be able to pursue a _____judgment against the borrower for any losses, depending on state statutes. This is referred to as _______.
A. Private
B. PART
C. ENTIRE
D. 80% LTV
E. 20% to 25%
F. Deficiency
G. Recourse
Title Insurance:
When conveying real property, the seller is generally expected to deliver a ______ title; that is, a title that is FREE and CLEAR from undisclosed encumbrances or other defects that would expose a purchaser to ______ or IMPEDE a purchaser’s ability to enjoy the property or to later sell the property easily. A title search of the public records, also known as a title _____, is necessary to determine ownership and the quality of the title prior to _______. The title search, usually performed by an _____ or a title company, starts with the chain of title and results in the creation of an ______, which is a complete HISTORICAL summary of title to a piece of property.
A. Marketable
B. Litigation
C. Examination
D. Conveyance
E. Abstractor
F. Abstract of Title KUHIMANA
Title Insurance:
Chain of Title:
The chain of title is a clear and ______ chronological record of the ownership of a specific piece of property.
______ the chain of title simply means tracing the successive conveyances of title, starting with the current deed and going back a suitable number of years. Each owner is linked to the previous owner and the subsequent owner through deeds, forming a chain of title as disclosed in the public records.
A. Unbroken
B. Tracing
Title Insurance:
Chain of Title:
Lenders require a _____-month chain of title to appear on the ______ title report. This provides the ownership of the property and dates of ownership as a method to make sure the property is NOT being ______ flipped.
A gap or flaw in the chain of title creates UNCERTAINTY , which is referred to as a _____ on the title. A cloud on the title could be something simple.
For example: Sue JONES buys a house; she gets married and is now Sue Smith. When she sells the house, the grantor name on the deed is Sue SMITH. This creates an ______ in the title.
NOTE: If a _____ title CANNOT be produced a closing may have to be POSTPONED.
A. 24 Month
B. Preliminary
C. Illegally
D. Cloud
E. Ambiguity
F. Marketable
Title Insurance:
Chain of Title:
The abstract, chain of title, and any pertinent documents are examined by the title company to identify any ______, which are ________ INTERESTS in real property that encumber or burden a real property owner’s title.
Common encumbrances include:
Easements: An easement is a right to use another person’s real property for a _____ purpose. An easement creates limited rights for the easement holder related to the land surface, its airspace, or subsurface. An easement that grants ACCESS to property is commonly referred to as a _____ and is typically transferred to the NEW owner.
A. Encumbrances (BURDENS)
B. Non-Possessory
C. Particular
D. Right of Way (ROW)
Title Insurance:
Chain of Title:
The abstract, chain of title, and any pertinent documents are examined by the title company to identify any encumbrances, which are non-possessory interests in real property that encumber (or burden) a real property owner’s title. Common encumbrances include:
Liens. A lien is NOT only a ______ INTEREST in property; it is ALSO a financial ENCUMBRANCE.
Liens are typically security for a debt that gives the creditor, or lien holder, the RIGHT to _____ on the debtor’s property if the debt is NOT paid.
In foreclosure, the property is generally SOLD and the LIENHOLDER collects the _____ of the debt from the PROCEEDS of the foreclosure sale.
A mortgage is a ______ lien. _____ liens include TAX liens, MECHANIC’s liens (placed by someone hired to build or improve property), and JUDGEMENT liens (attached through court action).
A. Financial
B. Foreclose
C. Amount
D. Voluntary
E. Involuntary
Title Insurance:
Chain of Title:
Liens against a property DON’T prevent its _____, but the liens STILL EXIST. The buyer takes the property subject to the liens. This means that the buyer takes the property along with the liens, but WITHOUT being personally liable. The buyer must keep paying the liens to RETAIN the property, but only ____ EQUITY in the event of DEFAULT.
The creditor CANNOT go after the _____ owner personally for these debts because the new owner did NOT assume the debts. In most real estate transactions, however, the _____ must CLEAR the title of liens at CLOSING by ____ off the debts.
A. Transfer
B. Loses
C. New
D. Seller
E. Paying
Title Insurance:
Chain of Title:
It is important for the MLO to CAREFULLY review the ____ title report for undisclosed liens and encumbrances or property flipping when the report is received. An experienced MLO will review the report for ACCURACY of all details, including the seller’s and borrower’s names, the address of the property, sale price, and loan amount.
The amount of property taxes for the property will be _____ on the report as well as any homeowner association and property assessments that may be required to be paid.
A. Preliminary
B. Disclosed
Title Insurance:
Chain of Title:
A review of the legal description of the property is essential to ____ the property type.
• If the legal description describes the property as “Lot 1234”, then the property is owned in _____.
• If the legal description uses the word “Unit 1234” to describe the property, then the property is most likely a _______.
The financing options are different for each of these property types.
A _____ or ______, is used to bring down the title report from its preliminary issuance to the current date of the settlement to account for any new defects or clouds.
A. Verify
B. Fee Simple
C. Condominium
D. Continuation or Continuance
Title Insurance:
The preliminary title report NOT ONLY provides information about encumbrances, legal descriptions, and other items but is the document that INFORMS the homeowner and the lender of the items that will be _____ by title insurance and the items that will be EXEMPT from ____.
Title insurance protects:
• Lenders (and sometimes property owners) against loss due to _____ over ownership of a property and defects in the title NOT found in the search of the public record.
• Lenders and property owners from claimants NOT listed in the insurance policy, including DEFECTS in the public record such as FORGED documents, IMPROPER deeds, undisclosed HEIRS, errors in a property’s legal DESCRIPTION, and other mistakes.
A. Covered
B. Coverage
C. Disputes
Title Insurance:
Title insurance does NOT generally CURE defects, although a title company could potentially ______ the property and FIX the problem. More commonly, it simply INSURES against losses (up to the coverage amount specified in the policy) due to title defects other than those specifically ______. It may REQUIRE the title company to go to court, if necessary, and defend its policyholder against any claim against the ownership of the land.
A title insurance policy, generally paid for with a _____ premium, may have different INSURED parties, such as the homeowner and the lender.
A. Purchase
B. Excluded
C. One-Time
Title Insurance:
Mortgagee’s Policies:
The mortgagee’s or ______ policy protects protects the lender’s interests in the property. Sometimes called a _____, the mortgagee’s policy is for the loan amount outstanding at the time a claim is ____. The owner’s policies and the mortgagee’s policies typically COINCIDE, so the title insurance issuer is NOT paying _____ on the SAME claim. The existence of a mortgagee’s policy helps facilitate the sale of the mortgage to the _____ market.
A. Lender’s
B. Lender’s Loan Policy
C. PAID
D. Twice
E. Secondary
Title Insurance:
Owner’s Policies:
_____ insurance policies are issued in the name of the property owner. It may be paid for by the buyer OR seller as indicated in the sales contract.
An owner’s policy:
• Insures that the title to the property is FREE from liens, encumbrances, and defects except for those listed as EXCEPTIONS.
• Generally covers losses and damages if the title is _____ or if there is NO right of access to the property (this does NOT necessarily mean simply vehicular access; it could include pedestrian access, water access, etc.).
Coverage runs from the ____ of purchase for as long as the policyholder OWNS the property, usually with NO additional premium. When the property is sold, the NEW buyer must purchase a ____ policy and be named as the _____ to collect on a claim from a title DEFECT. An owner’s policy does continue to protect the owner who has given a ______ deed to a subsequent owner.
A. Owner’s fee title
B. Unmarketable
C. Time
D. New
E. Beneficiary
F. Warranty
Closing:
After the loan is approved by underwriting and all
“_______” conditions are met.
For example:
The LENDER may request to see a closing statement from the sale of the borrower’s ______ home, a FINAL inspection report, or property INSURANCE policy; the lender issues a _____ to close the loan and the necessary documents are prepared for closing.
A. Prior to Doc
B. Previous
C. CLEARANCE (CLEAR)
Closing:
Closing _____:
• Completes the process of granting a loan, as funds are disbursed to the settlement agent in accordance with the Closing Disclosure.
• Involves transfer (i.e., recording) of ownership of real property from seller to buyer, according to the terms and conditions of the sales contract or escrow agreement if the transaction involves the sale of real property.
The FINAL stages of a real estate transaction occur when the seller receives ______ for property (funding - cash, mortgage, etc.) and the buyer receives _____, usually via a _____ that is recorded in the public record.
A. or Funding
B. Value
C. Title
D. Deed
Closing:
Closing Procedures:
The closing process may also be referred to as settlement or loan consummation. The mechanics of closing are the responsibility of either an ____ agent or an _____. This settlement agent may be the lender’s ______ escrow department, an INDEPENDENT escrow company, or a TITLE insurance company.
A. escrow/title/settlement
B. attorney
C. in-house
Closing:
Closing Procedures:
With a sales transaction, the settlement agent ____ follows the instructions of both the borrower and seller, as per the sales contract, agreement, or a separate set of escrow instructions (a copy of the sales contract OR escrow instructions MUST be provided to the settlement agent, the title company, and the lender).
The settlement agent:
• Gathers all necessary DOCUMENTS.
• Calculates the various PRORATIONS, ADJUSTMENTS, and fees charged to each party.
• Compares the Loan Estimate of closing costs to the Closing Disclosure to verify the proper ______ with disclosed fees.
A. Simultaneously
B. Tolerance
Closing:
Closing Procedures:
Each party receives a Closing Disclosure that complies with TILA. Under TILA, the creditor is responsible for providing a copy of the _____ Disclosure to the borrower _____ business days in advance of the closing.
The settlement agent has the responsibility to provide the Closing Disclosure to the seller in advance of closing.
A. Closing
B. Three
Closing:
Closing Procedures:
In addition to the Closing Disclosure, lenders must provide borrowers with an initial escrow statement WITHIN _____ days of closing. To review, this disclosure ITEMIZES the estimated taxes, insurance premiums, and other charges ANTICIPATED to be PAID from the escrow account during the FIRST _____ months of the loan.
A. 45 Days
B. 12 Months
Closing:
Closing Procedures:
IRS Form 4506-T:
Underwriters REQUIRE the lender to obtain a completed and signed Form _____ from all borrowers at BOTH the initial ______ and _____. This form gives the lender permission to request electronic transcripts of federal _______ from the IRS. Under current requirements, the LENDER determines when to SUBMIY the form to the IRS (or designee) to obtain the TAX information. These transcripts are used to verify the borrower’s income with the intention of helping to reduce instances of mortgage _____.
A. Form 4506-T
B. Application
C. Closing
D. Tax Returns
E. Fraud
Closing:
The LENDER wants to ensure that there are no unforeseen problems during closing, that the loan papers (e.g., PROMISSORY note, MORTGAGE, DEED) are signed, and then makes one final _______ to ensure everything is in order.
If a borrower is NOT able to appear in person to execute the loan documents, he may DESIGNATE a person to execute the legal documents in his place. This is called a _______. A person designated as a POA may NOT be a PARTY to the transaction, such as the real estate agent or loan officer, and is OFTEN times a close FAMILY member.
Once the necessary documents have been _______, loan funds may then be disbursed to the PROPER parties, according to the sales contract or escrow instructions.
NOTE: that NOT only must an individual MLO be licensed to do business in that state, but the MLO’s employing company generally MUST ALSO be licensed in that state.
A. Check
B. Power of Attorney (POA)
C. Recorded
Real Success:
Closing procedures may be different from state to state-or even from one part of a state to another.
For Example: In some states, an _____ is required to close the loan. Other states allow a _____ agent to perform the loan closing. Closings may be conducted in escrow, which means they are handled by a DISINTERESTED third party, or ______, where all parties are present. A borrower who CANNOT attend a closing may be able to use a power of attorney (if one exists specific to the property being transferred), subject to lender ________.
Another IMPORTANT point to keep in mind is that settlement costs may also differ from region to region.
For Example: In some areas, the _____ traditionally pays fees related to the title while in other areas, the ____ pays title fees. Regardless of local practices, the determination of who pays certain fees may be NEGOTIATED during the sales process and DOCUMENTED in the purchase contract.
When an MLO takes an application for a state with which he is _______, the MLO must research the mortgage regulations and laws in that state. Licensing requirements may also be different. An MLO cannot _______ a mortgage loan in a state where he is NOT licensed per the SAFE Act.
A. Attorney
B. Title
C. Roundtable
D. Approval
E. Seller
F. Buyer
G. Unfamiliar
H. Originate
