Closing Procedures

Question 1

Closing

Answer 1

Once a licensee has helped the buyers find a home, and the sellers have accepted the purchase offer, the buyers must now secure their financing (in most cases), get whatever inspections they want, and get a preliminary title report. The sellers must pay off any liens against the property, make or arrange for repairs and execute the deed.

Question 2

the bank will require the title search to reveal:

Answer 2

The legal description of the property
The owners of record
Any outstanding liens or encumbrances on the property

Question 3

the title insurance policy that the title company issues will protect the policy holder against losses that arise from such “hidden” defects as:

Answer 3

Forged documents, such as deeds or mortgages
Undisclosed heirs
Mistaken legal interpretation of a will
Misfiled documents
Confusion arising from similarity of names
Incorrectly stated marital status
Mental incompetence

Question 4

cloud on the title

Answer 4

Any problem found with either the physical layout of the property or in the title search results creates a cloud on the title that must be resolved prior to closing on the loan

Question 5

Examples cloud on the title

Answer 5

Mechanic’s lien
Income tax lien
Property tax lien
Encroachment
Zoning violation
Deed problems, such as a name that is not legally correct  or the lack of the appropriate signatures

Question 6

In some instances, the borrowers might have to file a suit to quiet title

Answer 6

whereby a judge will remove the fault in the title so that the loan process can move forward.

Question 7

Escrow

Answer 7

process in which a disinterested third party holds all money and documents relating to a transaction until all of the terms and conditions of the escrow instructions have been satisfied.

Question 8

The person who coordinates the escrow process

Answer 8

escrow agent or escrow holder.

In Texas, the escrow agent may be:

An attorney
A title company
A trust company
An escrow company
The escrow department of a lending institution

Question 9

Typical steps escrow process

Answer 9

Select the escrow company
Fax the purchase contract
Open the Escrow

Question 10

Info needed for opening escrow

Answer 10

The length of escrow
Terms of loans
Commissions
Instructions about inspections, such as termite reports
Personal property included in the sale
Legal description of the property
Earnest money deposit

Question 11

Pre closing task list

Answer 11

Appraisal
Pest control/inspection reports
arrainging and approving financing
order complete title search and title insurance
obtain property insurance
get all paperwork in order

Question 12

title closing

Answer 12

Also referred to as settlement, the title closing is the culmination of the real estate transaction

Question 13

at title closing….

Answer 13

The buyer completes his or her financing arrangements (referred to as closing the loan). The buyers deposit the down payment and closing costs into escrow.
The seller transfers the title. The sellers pay off any mortgage or other outstanding liens on the property.
Both the buyer and seller pay the necessary taxes, fees and other charges.

Question 14

primary attendees at the closing

Answer 14

Buyer - Pays for the property and receives clear title.
Seller - Conveys the property and receives payment.
Closing/escrow agent - Prepares all the documents that need to be signed at the closing, including the actual settlement statements that show all the debits and credits assigned to the buyer and seller in the transaction.

Question 15

Others who may attend the closing

Answer 15

Attorneys for the parties – Examine the documents to ensure that the best interests of the clients are being met.
Lender representative – Examines documents and makes sure the property getting the loan has clear title.
Real estate agent – Collects commission.
Title company representative – Reviews documents and answers questions about the title.

Question 16

Standared home inspection

Answer 16

A standard inspection covers a home’s major mechanical systems — electrical, plumbing, heating, and cooling — and its construction from roof to foundation, exterior to interior.

Question 17

pest inspection

Answer 17

A pest inspection is a check for damage caused by wood-eating insects like termites, carpenter ants or beetles.

Question 18

soil inspection

Answer 18

A soil inspection is the examination of the soil conditions on the property to determine if there is any settling or drainage problems.

Question 19

structural inspection

Answer 19

A structural inspection is a visual inspection of the foundation elements, bearing walls, beams and columns, floor slabs, framing, crawlspace areas, and drainage. The inspector observes these components for signs of movement, distress, damage, and/or the ability to adversely affect the rest of the structure.

Question 20

Environment inspection

Answer 20

This inspection looks at environmental issues such as radon, asbestos, lead-based paint, underground storage tanks or contaminated water. We discussed these issues in an earlier chapter.

Question 21

most common type of insurance

Answer 21

home insurance

Question 22

Most basic homeowner policies, known as HO-2 policies, provide coverage for`

Answer 22

Fire or lightning
Hail or windstorm
Explosion
Riot or civil commotion
Damage from aircraft
Vehicle damage
Smoke damage
Vandalism
Theft
Glass breakage
Falling objects
Weight of ice, snow and sleet
Accidental discharge or overflow of water or steam
Sudden accidental tearing apart of heating, air conditioning or hot water systems
Freezing of plumbing, heating, air conditioning systems or household appliances
Sudden accidental damage from artificially-generated electrical current
Property lost that was removed from the premises when in danger from fire or other hazards
Some liability coverage for personal injury and property damage caused by the policy holder

Question 23

coinsurance clause

Answer 23

This clause requires that the homeowner have insurance that is equal to 80% of the home’s replacement value. This does not include the price of the land.

Question 24

Role of the agent in closing

Answer 24

Never accept referral fees or tell your client to use a specific lender, etc.

Communicate w client
communicate w other parties agent
make sure escrow instructions are accurate
help order inspections
check with the lender
check with the appraiser
track special provisions
review title reports and information
insure buyer has homeowner's insurance
Seller is ready
rental agreement ready of necessary

Question 25

Lender Role

Answer 25

As with a broker, much of what the lender does relating to the closing happens long before the closing date comes.

As you know, the lender is primarily interested in protecting its interest in the property. In order to do that, lenders typically require at the very least a title insurance policy and a homeowner’s insurance policy. Depending on the individual circumstances, a lender might also ask for a survey and inspections.

Question 26

lenders can require

Answer 26

the borrower to maintain an escrow account for property taxes and insurance, so that the lender is sure money will be available for the payments. These are referred to as reserves.

Question 27

buyers and sellers role

Answer 27

primary parties,

They must verify that each of them has fulfilled the contract terms as stated.
Mortgage loan closed
each party pays all the appropriate fees associated with his or her side of the transaction.
sign the myriad of documents required to finalize the transaction. Finally, the closing agent will do whatever the local laws require to arrange for the recording of the transaction.

Question 28

After all the closing documents have been signed…

Answer 28

the settlement agent arranges for the recording of the grant deed and security instrument.

Question 29

After recording, the settlement agent:

Answer 29

Disburses funds as required by the contract, including funds due to the seller.
Pays off any amounts due for an existing mortgage loan or other liens on the property.
Arranges for a title insurance policy to be issued to the purchaser.
Several weeks after the closing, the purchaser should receive the original deed and title insurance policy.

Question 30

If problems arise from the walk-through inspection of the property prior to closing

Answer 30

monies from the seller’s proceeds may be left in escrow until the purchaser is satisfied that required repairs or replacements have been made. After the purchaser signs off that the work has been completed, any remaining funds are disbursed to the seller.

Question 31

Delivery of the deed

Answer 31

The title to the property has transferred when the deed is delivered and accepted by the buyer. Delivery and acceptance must occur during the lifetime of the seller.

Question 32

IRS Reporting Requirements

Answer 32

All real estate sales must be reported to the Internal Revenue Service after closing. The sale must be reported on a Form-1099.

Could be filed by
Closing officer
Lender
Selling/Listing broker
Buyer's broker
or US Treasury designee

Question 33

The loan servicing entity should…

Answer 33

Notifies the borrower of the appropriate mailing address to send the payment.
Restates the terms and conditions of the loan.
Verifies the amount of the payment to include principal, interest, taxes, insurance and any mortgage insurance required.

Question 34

escrow or impound funds (also called reserves)

Answer 34

must be analyzed periodically to be sure that adequate funds will be available at the time they are due. If there is either a shortage or a surplus of funds, the lender adjusts the monthly payment.

Question 35

Form 1098

Answer 35

Each January, the servicing lender must provide a Form 1098 to the borrower to include in his or her federal income tax return. The 1098 notifies the borrower of the total amount of interest and property taxes paid in the previous year. Interest and property taxes are both tax deductible.

Question 36

In the event a property is sold, the loan servicer must provide the borrower with following information:

Answer 36

The exact amount owed for principal and interest.
Any late payments that are outstanding.
Any penalty fees for prior late payments.

Question 37

assignment

Answer 37

When another lender buys a mortgage loan,