Chapter 21

Question 1

What is one of the key purposes of the Real Estate Settlement Procedures Act (RESPA)?

Answer 1

To protect consumers from unethical practices during the closing process

Question 2

beneficiary
statement

Answer 2

statement provided by the
beneficiary of a trust deed or
mortgage loan, typically
requested by the borrower,
that outlines the current loan
balance, interest rate, and
payment history.

Question 3

buyer’s
walk-through

Answer 3

A final inspection conducted
by the buyer before the
closing to ensure that the
property is in the agreed-
upon condition and any
requested repairs have been
completed

Question 4

closing

Answer 4

The final step in a real estate
transaction where the
property is transferred from
the seller to the buyer, and all
financial transactions are
completed.

Question 5

closing
costs

Answer 5

The fees and expenses paid
by both the buyer and seller
during the closing of a real
estate transaction, including
loan origination fees, title
insurance, and property
taxes.

Question 6

credit

Answer 6

An amount credited to the
seller at closing, typically for
prepaid expenses or items
the buyer agreed to pay on
behalf of the seller, such as
property taxes or homeowner
association dues.

Question 7

debit

Answer 7

An amount owed or deducted
from the seller’s proceeds at
closing, such as unpaid
property taxes or utility bills.

Question 8

in
advance

Answer 8

When something is paid or
calculated before it is due or
before it has occurred.

Question 9

in
arrears

Answer 9

When something is paid or
calculated after it is due or
after it has occurred

Question 10

payoff
statement

Answer 10

A statement provided by a
lender detailing the amount
needed to fully pay off the
remaining balance on a loan,
including any accrued
interest and fees.

Question 11

proration

Answer 11

Proration is the division or
allocation of expenses, such
as property taxes or
homeowners association
fees, between the buyer and
seller based on their
respective ownership periods
during a real estate
transaction

Question 12

real
estate
broker

Answer 12

A licensed professional who
acts as an intermediary
between buyers and sellers
of real estate, assisting
clients with the purchase,
sale, or rental of properties in
exchange for a commission.

Question 13

transfer
tax

Answer 13

A tax imposed by state or
local governments on the
transfer of real property from
one owner to another,
typically calculated as a
percentage of the property’s
sale price

Question 14

A prorated expense on the settlement statement is

Answer 14

a debit to one party and a credit to the other

Question 15

A sale contract stipulates that a buyer is to pay the seller’s title insurance expenses. This practice is not customary in the area. In this case,

Answer 15

the buyer must pay the expense

Question 16

Which of the following items is paid in advance?

A special assessment for a sidewalk

A commission to a real estate broker

An insurance premium payment

Interest on a home equity loan

Answer 16

An insurance premium payment

Question 17

A sale transaction closes on April 1, the ninety-first day of the tax year. The day of closing belongs to the seller. Real estate taxes for the year, not yet billed, are expected to be $3,150. According to the 365-day method, what is the seller’s share of the tax bill?

Answer 17

$785.34

Question 18

In the context of a closing, proration refers to

Answer 18

apportioning an amount paid, received, or due according to the period of time that a party is responsible for the item

Question 19

If a sale transaction is to occur in escrow,

Answer 19

an escrow agent holds funds and documents until all parties have satisfied the conditions necessary for closing

Question 20

During the period between the signing of the sale contract and the closing date,

Answer 20

buyer and seller are expected to remove any contingencies that are stated in the contract

Question 21

A buyer and a seller have employed an escrow agent to handle a closing. Which of the following statements is true?

Answer 21

Buyer and seller do not need to attend the closing

Question 22

The Real Estate Settlement Procedures Act prescribes closing procedures that must be followed whenever

Answer 22

the loan is to be sold to the FNMA

Question 23

A buyer and a seller have employed an escrow agent to handle a closing. Which of the following statements is true?

Buyer and seller do not need to attend the closing

The seller receives the earnest money deposit from the escrow agent as soon as the buyer delivers it

The buyer receives legal title as soon as the seller accepts the down payment

The escrow agent certifies the buyer’s earnest money check and provides the buyer with an opinion of abstract

Answer 23

Buyer and seller do not need to attend the closing

Question 24

During the period between the signing of the sale contract and the closing date,

Answer 24

buyer and seller are expected to remove any contingencies that are stated in the contract

Question 25

Which of the following items are paid in advance?

Taxes and insurance

Rents and interest

Insurance and interest

Rents and insurance

Answer 25

Rents and insurance

Question 26

Documentary stamps are used to

Answer 26

document the payment of a transfer tax

Question 27

Which of the following items are paid in arrears?

Taxes and insurance

Rents and interest

Taxes and interest

Rents and insurance

Answer 27

Taxes and interest

Question 28

To avoid violating the Real Estate Settlement Procedures Act, parties who are providing services to the buyer or seller in a transaction must

Answer 28

disclose in writing any business relationships they have with other parties involved in the transaction

Question 29

Assume a seller at closing must pay transfer taxes at the rate of $1.00 for every $500 of purchase price, or fraction thereof. If the sale price is $345,600, how much tax must the seller pay?

Answer 29

$692

Question 30

A buyer will receive a water bill for an estimated $100 at the end of the month. At closing, the seller has used an estimated $43 in water. What should appear on the closing statement?

Answer 30

A debit to the seller and credit to the buyer for $43

Question 31

The purpose of the closing event is to

Answer 31

exchange legal title for the sale price