Closing Procedures/Closing the Real Estate Transaction Lesson

Question 1

Estoppel Certificate

Answer 1

Estoppel is a legal prohibition which precludes a person from asserting or denying a fact or which precludes a person from exercising a specific right, such as the right to additional lawsuits.

An estoppel certificate is a document that is used for due diligence in real estate that will certify waiver of acceleration (if that is a clause of the original loan), state the exact balance due on closing, the amount of the last interest payment, and certifies that the lender allows the buyer to assume the seller’s loan.

Question 2

Landlord Tenant Estoppel

Answer 2

While we are covering the estoppel certificate, in the context of landlords and tenants, a tenant estoppel certificate is a certificate used by a third party to find out about the relationship between the landlord and the tenant. It is used in mortgage negotiations to establish facts and financial obligations, such as outstanding amounts due that can affect the settlement of a loan.

Question 3

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) established the Consumer Financial Protection Bureau, CFPB.

Answer 3

The consumer bureau is focused on one goal: watching out for American consumers in the market for consumer financial products and services

Question 4

Arrears

Answer 4

An account in arrears means simply that a payment on that particular account has been missed.

In real estate however, mortgage payments are paid in arrears meaning that mortgage interest is paid in arrears as a matter of course. Therefore, in the case of monthly payments, each payment covers principal repayment and mortgage interest for the month prior to the payment due date. That is also considered arrears.

Question 5

Accrued Items

Answer 5

Accrued items are expenses that are owed BY the seller but that will later be paid by the buyer, such as property taxes, any interest on an assumed mortgage, and all the utility bills that will be put in the buyer’s name.

Question 6

Prepaid Items

Answer 6

Prepaid items are expenses that need to be prorated, that include, for example, a load of wood for a property with wood heat that has already been purchased but not used up by a seller. The buyer receives this as a debit at closing, and the seller gets the credit. The buyer then pays for the wood.

Question 7

Debit

Answer 7

A debit is a cost to the buyer or seller at closing.

Question 8

Credit

Answer 8

A credit is a fund deposited to a buyer or seller at closing.