CO Real Estate - Closing and Settlement Flashcards
In colorado who is responsible for closing statements for the parties?
The designated broker that represents them
What are debits?
Money owed
What are credits?
Money received (or deducted)
who pays for title insurance?
The seller
Who pays broker fee and fee to notarize on warranty deed?
The seller
Common seller closing statement outline
+ Credit sales price to seller (received)
- Debit what seller owes based on when bills are owed (broker and notary fees, prorated share of water)
- Debit seller portion of taxes for the year
What does the buyer typically pay for at closing?
Tax certificate
Documentary fee
Fee to record deed
Portion of water if paid in advance
Common buyer settlement statement outline
- Debit Sales price from buyer
- Debit tax certificate, notary fee and recording
- Debit prorated share of water
What are brokers duties at closing?
ensuring correct paperwork is drafted, signed by correct parties and recorded with the County Clerk
How long does a listing broker have to deposit earnest money received relating to an accepted offer?
3 days - in an escrow account that belongs to a brokerage firm or title company
Who is responsible for the closing of a transaction?
The designated broker - they must also sign and be responsible for the closing statement as it applies to the party with whom the broker has a BROKERAGE RELATIONSHIP
When are closing statements delivered?
License law requires delivery at the time of delivery and acceptance of title
What if a broker can’t attend a closing?
The employing broker can designate another broker from the firm to attend closing who will then share the responsibility of the closing with the original broker and the employing broker
Are closing companies authorized to prepare legal documents in a closing?
No, so the closing company does so under the authority and responsibility of the listing broker who hires them as a scrivener
Listing broker is obligated to pay for the legal documents that are prepared by the closing company
Typical seller debits include
Owner’s Title Insurance
Unpaid property taxes for preceding year
Prorated property taxes for portion of current year
Notary fee for warranty deed
Broker’s commission
Prorated water and HOA if paid in arrears
Loans of the seller that are assumed by the buyer
Seller’s loans that are to be paid off
New seller carry loans
Closing fees determined by the contract
Typical buyer debits include
Selling price from contract
Loan closing costs
Premium for new hazard insurance
Recording fees for warranty deed and deed of trust
Documentary fee
Notary fee for documents buyer signs
Closing fees
Tax certificates
Prorated water and HOA if paid in advance
Typical seller credits includ
Selling price from contract
Proration of bills if paid in advance
Typical Buyer credits include
Earnest money already paid
Security deposits transferred from seller
Current year’s prorated property taxes
Amount of any loans assumed by the buyer or any new loans created as part of the purchase price
What is the broker column used for on the 6 column worksheet used to draft closing statements?
To keep track of bills the broker needs to pay for the responsible party or to note earnest money that will be a credit to buyer HOWEVER NO CLOSING STATEMENT IS CREATED FOR BROKERS
Debit on 6 column
An amount the party owes, reduces party’s bottom line
Credit on 6 column
An amount the party receives, increases party’s bottom line
Broker debit on 6 column
An amount deposited into the broker’s escrow account
Broker credit on 6 column
A check out of the broker’s escrow account
Selling price
ALWAYS a debit to buyer
Always a credit to seller
Seller loans to be paid off (not assumed)
Always a debit to seller
Title insurance
Always a debit to seller
Extended Title coverage
Negotiable
Mortgagee’s policy premium
Always a debit to the buyer
Title examination by buyer’s attorney
Always a debit to buyer
Recording fees
Typically a debit to buyer except for recording of any release of prior liens
Recording the warranty deed
Always a debit to buyer
Recording the deed of trust
Always debit to buyer
Recording a release of deed of trust
Always a debit to seller
documentary Fee
$0.01 per $100 of purchase price
Always a debit to buyer
Certificate of taxes due
Always debit the buyer
Unpaid Taxes from Preceding years
Always a debit to seller
Unpaid taxes from current year
Always debit to seller
Special Taxes/Assessments
Always debit to seller - even if assumed by buyer then it won’t appear on the closing statement
Broker’s fees
Always a debit to seller
Loan Origination fees
Typically a debit to buyer
Loan discount points
Debit the buyer unless contract states otherwise
Survey costs
Negotiable
Credit Reports
Always debit to buyer
Appraisal fee
Negotiable
Loan transfer fee
Typically, debit buyer
Loan payment Due
Never prorate a monthly payment that is passed due
Always debit seller
Lender Reserve Impound Accounts
Established with lender to holds funds to pay taxes and insurance bills that come due
Buyer/borrower funds may be held for following:
Annual property taxes
Annual hazard insurancepremium
Always a debit to buyer
Premium for new insurance
Always debit buyer
Closing Fees
Negotiable per contract
Earnest money deposits
Always a credit to buyer
Should a closing statement balance?
Yes, every debit should have a matching credit in another column
If the seller has more debits than credits at the end of a closing statement what is this?
A deficit closing
Colorado contract to buy and sell states proration items will be _____ closing
TO CLOSING (not through)
How many days does a year have when prorating in Colorado?
365
Months have ___ days in Colorado when prorating?
Exact number of days
The document from the county treasurer that summarizes the current status of taxes
Certificate of taxes due
_________ a document creates constructive notice of the contents of the document
Recording
Who are the four parties in a typical closing?
Buyer, Seller, brokers, closing company hired by buyer and seller in the closing instructions
Four most typical ways to close a real estate purchase
Cash
Assumable Loan
Seller-carry loan
New Loan
What is a seller-carry loan?
When the seller agrees to accept the buyer’s promissory note and record a deed of trust, which will be in second position behind the original deed of trust. This loan helps the buyer with the down payment money but reduces the cash available to the seller at closing (basically the buyer is paying for some of the seller’s equity)
What should a broker do if they think the figures in a lender’s new loan statement are incorrect?
Verify with the employing broker or closer that the figures are incorrect
Call the lender to get the figures checked (only the lender can change them)
How is a deed of trust mortgage treated on a closing statement if being assumed?
Debit to seller, credit to buyer
Who pays interest on a loan for closing month if it is paid in arrears?
Seller will owe buyer interest for the portion of the month they owned
How do calculate interest prorations on an assumed loan?
12 months!! All other interest proration calcs should be using 365 days
When should a loan payment due be prorated?
Never
Who pays to record the deed of trust?
The buyer
Who pays to record a warranty deed
The seller or buyer depending on if new deed or releasing old deed
In a typical contract to buy and seller who pays for the appraisal?
Negotiable
The broker credit total column is a combination of what?
Credits for bills paid and the amount of the check due to the seller
Who has the overall responsibility for the proper accounting of a closing done in the listing broker’s office?
Listing brokerage and listing broker
Deed of trust payable to: on a closing statement is typically seen as:
the only entry from the new lender that will be a credit
Deed of trust payoff to:
Included in the lender pay out and is a single entry debit to the seller
Who is responsible for costs directly associated with borrowing money/a new loan?
The buyer, unless stated otherwise in the Contract to buy/sell if seller has agreed to pay anything
Release of deed of trust paid by
Seller, debit to seller
Loan origination fee?
Debit to buyer
Discount points/loan discount fee?
Negotiable, but usually buyer unless stated otherwise in contract
Lender reserves?
Always debit to buyer
Gross amount of new loan?
A credit to the buyer (single entry)
What are examples of lender payouts?
Recording the new deed of trust and payment of loan origination fees (no broker entry or offsetting credit, just a debit to the responsible party) then the net proceeds show as a debit to the broker
Document who’s purpose is to provide essential information to the county assessor to help ensure fair and uniform assessments for all property for property tax purposes
Real Property Transfer Declarations TD1000
Definition of good funds
Cashier’s check from a commercial bank
Teller’s check from a thrift institution such as a savings and loan or credit union
Wire transfer
NOT CASH
What should be issued if a minor issue found and corrected by both parties before closing?
A memorandum of the adjustment settled by check or cash (signed by both parties)
State law on nonresident sellers?
Requires the closing entity withhold potential income tax for sales in excess of $100K, which is 2% of the sales price or the entire net proceeds, whichever is less
Exception to the withholding law
If the property was the seller’s principal residence
A document recorded to indicate that a lien has been paid off is a
release of deed of trust
To protect against defects in title, a lender will usually require the buyer to purchase
a mortgagee’s title insurance policy
A loan that is neither guaranteed nor insured by a government agency is called a
Conventional loan
A conventional loan with a loan to value ratio greater that 80% will typically require
Private Mortgage Insurance
An assumption loan close uses ____ entries
A new loan close is mostly _____ entry
Double
Single
Four main types of entries on a settlement worksheet
- Seller and buyer exchanges of funds
- Funds held by the broker until closing
- Bills paid by the broker on behalf of seller or buyer
- New loan items handled by the lender, not the broker (no broker entry and no offsetting credit, just debit the party that pays)
Where should closing entities forward withheld income tax after a transaction closes?
Immediately to the Colorado department of revenue
Interest on a new loan or seller carry second?
Always debit the buyer (borrower) and credit the seller for days owed for the month of closing
