Chapter 21 - Cosings

Question 1

The purpose of the closing event is to

a. confirm that the buyer has fulfilled all contract requirements prior to title transfer immediately after closing.
b. ensure that the seller has marketable title before monies are transferred.
c. conclude the process for loan approval.
d. exchange legal title for the sale price.

Answer 1

d. exchange legal title for the sale price.

Question 2

A buyer’s financing arrangements are often concluded at closing, because

a. lenders do not fund loans unless title is being transferred.
b. the lender wants to ensure proper handling of the collateral for the loan.
c. the loan term must coincide with title transfer.
d. the deed will be held as collateral for the loan.

Answer 2

b. the lender wants to ensure proper handling of the collateral for the loan.

Question 3

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

a. a first, second, or third mortgage lien is involved.
b. the loan is to be sold to the FNMA.
c. the buyer pays all cash for the property.
d. the property is a residential complex in excess of four units.

Answer 3

b. the loan is to be sold to the FNMA.

Question 4

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,

a. the buyer and seller must amend the contract before closing.
b. the contract is voidable, since the seller must pay the expense.
c. the buyer may pay or not pay the expense, at his or her option.
d. the buyer must pay the expense.

Answer 4

d. the buyer must pay the expense.

Question 5

A prorated expense on the settlement statement is

a. a debit to the buyer and seller
b. a credit to the buyer and seller
c. a debit and credit to the buyer and seller
d. a debit to one party and a credit to the other.

Answer 5

d. a debit to one party and a credit to the other.

Question 6

The amount a buyer owes at closing is equal to

a. the excess of the buyer’s debits over the buyer’s credits.
b. the excess of the buyer’s credits over the buyer’s debits.
c. the excess of the seller’s debits over the seller’s credits
d. the excess of the seller’s credits over the seller’s debits.

Answer 6

a. the excess of the buyer’s debits over the buyer’s credits.

Question 7

Which of the following are examples of closing items not prorated between buyer and seller?

a. Taxes and rents
b. Title insurance and inspection fees
c. Utilities and hazard insurance
d. Condominium assessments and special assessment payments

Answer 7

b. Title insurance and inspection fees

Question 8

Which of the following items are paid in arrears?

a. Taxes and insurance
b. Rents and interest
c. Taxes and interest
d. Rents and insurance

Answer 8

c. Taxes and interest

Question 9

Which of the following items are paid in advance?

a. Taxes and insurance
b. Rents and interest
c. Insurance and interest
d. Rents and insurance

Answer 9

d. Rents and insurance

Question 10

If a sale contract indicates that the day of closing is “the seller’s day,” this means that

a. the seller must pay prorated expenses inclusive of the day of closing.
b. the seller does not own the property on the day of closing.
c. the seller may elect the proration method on the day of closing.
d. the seller must pay the buyer’s portion of prorated expenses instead of the seller’s portion.

Answer 10

a. the seller must pay prorated expenses inclusive of the day of closing.

Question 11

Documentary stamps are used to

a. document the procedures employed to close a transaction.
b. document the payment of a transfer tax.
c. certify that a transaction was recorded.
d. mail closing documents to principal parties after closing.

Answer 11

b. document the payment of a transfer tax.

Question 12

What is the Internal Revenue Service’s Form 1099-S?

a. The buyer’s and seller’s capital gain form
b. A form that summarizes and reports transaction data from a closing
c. A form brokers must submit if the buyer or seller is a foreigner
d. A lender’s tax form showing that a loan was funded for a buyer

Answer 12

b. A form that summarizes and reports transaction data from a closing

Question 13

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?

a. $69.12
b. $70.00
c. $691
d. $692

Answer 13

d. $692

Question 14

If a seller paid $488 for transfer taxes at closing, and the rate was $1.00 for every $400 or fraction thereof of the sale price, what was the sale price?

a. $195,500
b. $1,950,000
c. $195,200
d. $1,952,000

Answer 14

c. $195,200