Closing Procedures Flashcards
Closing
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.
the bank will require the title search to reveal:
The legal description of the property
The owners of record
Any outstanding liens or encumbrances on the property
the title insurance policy that the title company issues will protect the policy holder against losses that arise from such “hidden” defects as:
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
cloud on the title
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
Examples cloud on the title
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
In some instances, the borrowers might have to file a suit to quiet title
whereby a judge will remove the fault in the title so that the loan process can move forward.
Escrow
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.
The person who coordinates the escrow process
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
Typical steps escrow process
Select the escrow company
Fax the purchase contract
Open the Escrow
Info needed for opening escrow
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
Pre closing task list
Appraisal Pest control/inspection reports arrainging and approving financing order complete title search and title insurance obtain property insurance get all paperwork in order
title closing
Also referred to as settlement, the title closing is the culmination of the real estate transaction
at title closing….
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.
primary attendees at the closing
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.
Others who may attend the closing
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.
Standared home inspection
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.
pest inspection
A pest inspection is a check for damage caused by wood-eating insects like termites, carpenter ants or beetles.
soil inspection
A soil inspection is the examination of the soil conditions on the property to determine if there is any settling or drainage problems.
structural inspection
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.
Environment inspection
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.
most common type of insurance
home insurance
Most basic homeowner policies, known as HO-2 policies, provide coverage for`
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
coinsurance clause
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.
Role of the agent in closing
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
Lender Role
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.
lenders can require
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.
buyers and sellers role
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.
After all the closing documents have been signed…
the settlement agent arranges for the recording of the grant deed and security instrument.
After recording, the settlement agent:
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.
If problems arise from the walk-through inspection of the property prior to closing
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.
Delivery of the deed
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.
IRS Reporting Requirements
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
The loan servicing entity should…
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.
escrow or impound funds (also called reserves)
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.
Form 1098
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.
In the event a property is sold, the loan servicer must provide the borrower with following information:
The exact amount owed for principal and interest.
Any late payments that are outstanding.
Any penalty fees for prior late payments.
assignment
When another lender buys a mortgage loan,
