Real Estate National Exam Ch 14

Question 1

Two major events involved in closing?

Answer 1

1. The promises made in the sales contract are fulfilled.

2. The mortgage funds are distributed to the buyer.

Question 2

D: Final Inspection

Answer 2

AKA: Walk-Through

Shortly before the closing takes place.

The buyer, accompanied by the real estate professional, verifies that necessary repairs have been made, that the property has been well maintained, that all fixtures are in place and that no unauthorized removal or alteration of any part of the improvements has taken place.

It is not a time to reopen negotiations, but to verify that the condition of the property is in compliance with the terms of the contract.

Question 3

D: Survey

Answer 3

Provides information about the exact location and size of the property.

Typically, the survey indicates the location of all buildings, driveways, fences, and other improvements located on the premises.

The survey should also indicate any existing easements and encroachments.

The cost of the survey is negotiated in the sales contract.

The survey is important in verifying the legal description of the property.

Question 4

D: Title Evidence

Answer 4

Most require that the seller produce a current abstract of title or title commitment from a title insurance company.

When an abstract of title is used, the purchaser’s attorney examines it and issues an opinion of the title.

The attorney’s opinion of title is a statement of the quality of the seller’s title, and it lists all liens, encumbrances, easements, conditions, and restrictions that appear in the record and to which the seller’s title is subject.

The attorney’s opinion is not a guarantee of title.

Question 5

D; Payoff Statement

Answer 5

The exact amount required to pay the existing loan is provided in a current payoff statement from the lender, effective the date of closing.

The payoff statement notes the unpaid amount of principal, the interest due through the date of the proposed payment, the fee for issuing the certificate of satisfaction or release deed, credits to the seller (if any) for tax and insurance reserves, and the amount of any prepayment penalty.

The same procedure is followed for any other liens, such as a second mortgage or home equity loan, that must be released before the buyer takes the title.

Question 6

D: Mortgage Reduction Certificate

Answer 6

certifies the amount owed on the mortgage loan, the interest rate, and the date and amount of the last interest payment..

When a buyer assumes the seller’s existing mortgage loan.

Question 7

D: Affidavit of title

Answer 7

Happens as the later part of the title search process.

This is a sworn statement in which the seller assures the title insurance company and the buyer that no other defects in the title have occurred since the date of the title examination.

The affidavit gives the title insurance company a basis on which to sue the seller should the statements in the affidavit be incorrect.

In areas in which real estate sales transactions are customarily closed through an escrow, the escrow instructions usually provide for an extended coverage policy to be issued to the buyer effective the date of closing.

The seller then has no need to execute an affidavit of title.

Question 8

What real estate closings need to be reported to the IRS?

Answer 8

1. Lan (improved or unimproved) including air space.
2. Inherently permanent structure, including any residential, commercial, or industrial building.
3. A condominium unit and its appurtenant fixtures and common elements (including land)
4. Share of a cooperative housing corporation.

Question 9

What information needs to be reported to the IRS on a real estate closing?

Answer 9

1. Sales Price
2. Amount of property tax reimbursement credited to the seller
3. Sellers SSN.

Question 10

If the closing agent does not notify the IRS the responsibility for the filing forms falls on the?

Answer 10

Mortgage lender, although the real estate professionals or the parties to the transaction ultimately could be held liable.

Question 11

Who are the parties that may attend to a face-to-face closing?

Answer 11

1. the buyer
2. the seller
3. the real estate professionals
4. The seller’s and buyer’s attorneys
5. A representative of the lending institution involved with the buyers’ new mortgage loan, the buyer’s assumption of the seller’s existing loan, or the seller’s payoff of an existing loan.
6. A representative of the title insurance company.

Question 12

D: Closing agent

Answer 12

AKA: Closing Officer

The closing agent may be a representative of the title company or lender, the real estate professional representing one of the parties, or the buyer’s or the seller’s attorney.

Some title companies and law firms employ paralegal assistants who conduct closings for their firms.

The closing agent orders and reviews the title insurance policy or title certificate, survey, property insurance policy, and other items.

After the sales contract is reviewed, the disclosure statement that indicates the division of income and expenses between the parties is prepared.

Finally, the time and place of closing are arranged.

Question 13

Explain the exchange part of closing.

Answer 13

The exchange is made when the parties are satisfied that everything is in order.

After the buyer and the seller have signed all the necessary paperwork, the seller delivers the signed deed to the buyer, who accepts it.

All pertinent documents are then recorded in the correct order to ensure continuity of the title.

For instance, if the seller pays off an existing loan and the buyer obtains a new loan, the seller’s satisfaction with the mortgage must be recorded before the seller’s deed to the buyer.

Because the buyer cannot pledge the property as security for the new loan until ownership has been transferred, the buyer’s new mortgage or deed of trust is recorded only after the seller’s deed to the buyer is recorded.

Question 14

D: Escrow Closing

Answer 14

A disinterested third party is authorized to act as an escrow agent or escrow holder, and coordinate the closing activities.

The selection of the escrow agent is determined by negotiation, custom, or state law.

The escrow agent may be an attorney, a title company, a trusted company, an escrow company, or the escrow department of a lending institution.

Although a few states do not permit certain transactions to be closed in escrow, escrow closings are used to some extent in most states.

Question 15

Explain the Escrow Procedure

Answer 15

After the sales contract is signed, the buyer and seller execute escrow instructions to the escrow agent.

Once the escrow instructions are received by the escrow agent, they can be changed only at the written direction of both buyer and seller.

The real estate professional who is holding the earnest money turns it over to the escrow agent, who deposits it in a special trust, or escrow, account.

The buyer and the seller deposit all pertinent documents and other items with the escrow agent before the specified date of closing.

The escrow agent has the authority to examine the title evidence. When a marketable title is shown in the name of the buyer, all other conditions of the escrow agreement have been met, and the parties have received the disclosure statement, the agent is authorized to disburse the purchase price to the seller, minus all charges and expenses.

The agent then records the deed and, if a new loan has been obtained by the buyer, the mortgage or deed of trust.

If the escrow agent’s examination of the title discloses liens, a portion of the purchase price can be withheld from the seller.

The withheld portion is used to pay the liens to clear the title.

If the seller cannot clear the title, or if for any reason the sale cannot be consummated, the escrow instructions usually provide that the parties be returned to their former status, as if no sale occurred.

The escrow agent returns the documents of title to the seller and returns the purchase money to the buyer.

Question 16

What does the seller deposit with the escrow agent?

Answer 16

1. The deed conveying the property to the buyer.
2. Title evidence (abstract and attorney’s opinion of title, certificate of title, title insurance, or Torrens certificate)
3. Existing hazard insurance policies
4. A letter or mortgage reduction certificate from the lender stating the exact principal remaining, if the buyer is assuming the seller’s loan.
5. Affidavits of title if required.
6. A pay off the statement
7. Other instruments or documents necessary to clear the title or to complete the transaction.

Question 17

What does the buyer deposit with the escrow agent?

Answer 17

1. The balance of the cash needed to complete the purchase, usually in the form of a certified check.
2. Loan documents, if the buyer secures a new loan.
3. Proof of hazard insurance, and flood insurance if required.
4. Other necessary documents such as inspection reports required by the lender.

Question 18

D: Mortgage Disclosure Improvement Act (MDIA)

Answer 18

Enacted in July 2008 as an amendment to the Truth in Lending Act (TILA) to require mortgage loan cost disclosures to consumers.

Early disclosure (a good-faith estimate) of mortgage loan cost must be provided within three business days of receiving a consumer’s application for a mortgage loan; a creditor must wait seven business days after providing the early disclosures before closing the loan; and a creditor must provide new disclosures and wait an additional three business days before closing the loan, if a change occurs that makes the annual percentage rate quoted in the early disclosure inaccurate beyond a specified tolerance.

Took effect July 31, 2009.

The requirements of the MDIA are now incorporated into the CFPB disclosure requirements.

Until the applicant/borrower receives the Loan Estimate, the lender may collect only a reasonable fee for accessing the applicant’s credit history.

In addition, the lender must provide a statement to the loan applicant indicating that the applicant is not obligated to complete the transaction simply because disclosures were provided or because the individual applied for a loan.

Generally, if the APR increases more than 0.125% from that stated in the Closing Disclosure, the creditor must provide a new disclosure with a revised APR and wait an additional three business days before closing the loan.

The consumer is permitted to accelerate the process if a personal emergency, such as a foreclosure, exists.

Question 19

D: TILA-RESPA Integrated Disclosure Rule (TRID)

Answer 19

AKA: Know Before You Owe

To implement provisions of the Dodd-Frank Act intended to combine and clarify financing disclosures to consumers.

This rule applies to transactions originating on or after October 3, 2015.

Question 20

RESPA does not apply to what transactions?

Answer 20

1. Loans on large properties, more than 25 acres.
2. Loans for business or argicural purposes.
3. Construction loans or there temporary financing.
4. Vacant land, unless a dwelling will be placed on the property within two years.
5. A transaction financed solely by a purchase-money mortgage taken by the seller.
6. An installment contract ( contract for deed)
7. A buyer’s assumption of a seller’s existing loan but if the terms of the assumed loan are modified, or if the lender charges more than $50 for the assumption, the transaction is subject to RESPA regulations.

Question 21

RESPA prohibits what practices that increase the cost of settlement services?

Answer 21

1. Section 8 prohibits kickbacks and fee-splitting for referrals of settlement services, and unearned fees for services not actually performed. Violators are subject to criminal and civil penalties, including a fine up to $10,000 and/or imprisonment up to one year. The consumer may privately pursue a violator in court; the violator may be liable for an amount up to three times the amount of the charge paid for the service.
2. Section 9 prohibits the home seller from requiring that the buyer purchase title insurance from a particular company. The buyer may sue the seller for such a violation; the violator is liable for up to three times the amount paid for the title insurance.
3. Section 10 prohibits the lender from requiring excessive escrow account deposits for such items as taxes and hazard insurance.

Question 22

D: Affiliated Business Arrangement (ABA)

Answer 22

The practice of one company offering a package of services to consumers.

Question 23

RESPA permits an ABA between a real estate brokerage and a mortgage company or other settlement service provider when?

Answer 23

1. There is a 1% or more common ownership between the companies, as long as the consumer is clearly informed of the relationship among the service providers.
2. Participation is not required.
3. Other providers are available
4. The only thing of value received from the arrangement, in addition to permitted payments for services provided, is a return on the ownership interest.

Question 24

RESPA places limits on the amount that a lender may require is what amount?

Answer 24

on a monthly basis, the lender may require only one-twelfth of the total of the disbursements for the year, plus an amount necessary to cover a shortage in the account.

No more than one-sixth of the year’s total disbursements may be held as a cushion (a cushion is not required).

Once a year, the lender must perform an escrow account analysis and return any amount over $50 to the borrower.

Question 25

D: Mortgage Servicing Transfer Statement

Answer 25

Disclosure required by the lender if the lender intends to sell or assign the right to service the loan to another loan servicer.

The loan servicer must notify the borrower 15 days before the effective date of the loan transfer, including in the notice the name and address of the new servicer, toll-free telephone numbers, and the date the new servicer will begin accepting payments.

Question 26

TILA-RESPA Integrated Disclosure Rule (TRID) repalce four old forms with what new forms.

Answer 26

1. The Loan Estimate

2. Closing Disclosure

Question 27

TILA-RESPA Integrated Disclosure Rule (TRID) does not apply to what transactions?

Answer 27

1. Equity Lines of Credit
2. Reverse Mortgages
3. Mortgages Secured by a mobile home or a dwelling that is not attached to the land.
4. Creditors who make five or fewer mortgages in a year.

Question 28

D: Loan Estimate (LE)

Answer 28

Form replaces the initial Truth in Lending Statement (TIL) and the Good Faith Estimate (GFE).

This form highlights the information that historically has been the most important to consumers.

Interest rate, monthly payment, and total closing costs are clearly presented on the first page.

The Loan Estimate form must be provided to the consumer three business days after a loan application is submitted to the lender.

The Loan Estimate must contain the exact language specified by the CFPB, making it easier for borrowers to compare loan conditions from one lender to another.

The only fee that the lender may collect before the loan applicant receives the Loan Estimate is the fee for a credit report.

Once the Loan Estimate is issued, the lender is committed to making the loan on the indicated terms and may only modify the Loan Estimate in certain specific instances.

If certain information or circumstances change after the original Loan Estimate is issued, a new Loan Estimate must be issued.

Some closing costs or fees may or may not change prior to settlement.

The last page of the Loan Estimate is a summary of the loan terms that the consumer can use to compare different loans and terms to aid in price shopping.

The lender is responsible for the accuracy of the Loan Estimate as well as the actual costs that the lender charges, which are shown on the Closing Disclosure form.

Question 29

What are the categories of the fees that are listed on the Loan Estimate (LE)?

Answer 29

1. No tolerance—fees that may not increase before closing: lender charges for taking, underwriting, and processing the loan application, including points, origination fee, and yield spread premium.
2. 10% tolerance—fees that cannot increase by more than 10% in any given category: settlement services for which the lender selects the provider or for which the borrower selects the provider from the lender’s list, title services, and title insurance if the lender selects the provider, and recording fees.
3. Unlimited tolerance—fees for services that are out of the lender’s control: services for which the borrower chooses the provider (such as escrow and title insurance), impounds for taxes, mortgage interest, and the cost of homeowners. insurance.

Question 30

D: Closing Disclosure

Answer 30

Form itemizes all charges that are normally paid by a borrower and a seller in connection with the settlement, whether required by the lender or another party or paid by the lender or any other person.

The Closing Disclosure form replaces the HUD-1 Settlement Statement and the final TIL.

The form provides more information about the costs of taxes and insurance and how the interest rate and payments may change in the future.

It also warns consumers about things they may want to avoid such as prepayment penalties.

The borrower must receive a completed Closing Disclosure at least three business days before the closing.

If a new Closing Disclosure is required because a creditor has made a significant change to the loan terms (such as an increase in the APR greater than 0.125%, a different loan product, or the addition of a prepayment penalty), a new three-day waiting period begins.

Question 31

True or False

RESPA regulations apply to any residential mortgage loan made to finance the purchase of a one- to four-family home or to refinance an existing mortgage.

Answer 31

False

Question 32

D: Closing Statement

Answer 32

A detailed cash accounting of a real estate transaction showing all cash received, all charges and credits made, and all cash paid out in the transaction.

Question 33

How to determine how much a buyer needs to bring to closing?

Answer 33

Any buyer expenses and prorated amounts for items prepaid by the seller are added to the purchase price.

Then the buyer’s credits are totaled. Credits to the buyer include the earnest money (already paid), the balance of the loan the buyer obtains or assumes, and the seller’s share of any prorated items the buyer will pay in the future.

Finally, the total of the buyer’s credits is subtracted from the total of the buyer’s debts to arrive at the actual amount of cash the buyer must bring to closing.

The buyer usually brings a cashier’s or certified check.

Question 34

Ture or False & Why?

A debit on a closing statement is an amount entered in a person’s favor—an amount that has already been paid, an amount being reimbursed, or an amount the buyer promises to pay in the form of a loan.

Answer 34

False

A debit on a closing statement is an amount for which the party is liable.

Question 35

D: Prorations

Answer 35

Expenses, either prepaid or paid in arrears, are divided or distributed between the buyer and the seller at the closing.

The final proration figure will vary slightly, depending on which computation method is used.

The final figure also will vary according to the number of decimal places to which the division is carried.

All the proration calculations here are computed by carrying the division to three decimal places and then rounding to the nearest cent only after the final proration figure is determined.

Question 36

What are the general guidelines for preparing the closing statement?

Answer 36

1. In most states, the seller owns the property on the day of closing, and prorations or apportionments are usually made up to and including the day of closing. A few states specify that the buyer owns the property on the closing date. In that case, adjustments are made as of the day preceding the day on which the title is closed.
2. Mortgage interest, general real estate taxes, water taxes, insurance premiums, and similar expenses are usually computed by using 360 days in a year and 30 days in a month. In some areas, however, prorations are computed on the basis of the actual number of days in the calendar month of closing. The agreement of sale should specify which method will be used.
3. On almost every mortgage loan, the interest is paid in arrears. A mortgage payment due on June 1, for example, includes interest due for May. The buyer who places a new mortgage loan on May 31 may be pleasantly surprised to learn that the first mortgage payment is not due for another month.
4. Accrued or prepaid general real estate taxes are usually prorated at the closing. In some states, real estate taxes are paid in advance; that is, if the tax year runs from January 1 to December 31, taxes for the coming year are due on January 1. In this case, the seller, who has prepaid a year’s taxes, should be reimbursed for the portion of the year remaining after the buyer takes ownership of the property. In other areas, taxes are paid in arrears, on December 31 for the year just ended. In that case, the buyer should be credited by the seller for the time the seller occupied the property. When the amount of the current real estate tax cannot be determined definitely, the proration is usually based on the last obtainable tax bill, often with a percentage increase—say, 10%—to account for a likely reassessment.
5. Special assessments for municipal improvements such as sewers, water mains, or streets are usually paid in annual installments over several years, with annual interest charged on the outstanding balance of future payments. The seller normally makes the current payments, and the buyer assumes all future payments. The special assessment installment generally is not prorated at the closing. A buyer may insist that the seller allow the buyer a credit for the seller’s share of the interest to the closing date. The agreement of sale may address the manner in which special assessments will be handled at closing.
6. Rent is usually adjusted on the basis of the actual number of days in the month of closing. The seller customarily receives the rents for the day of closing and pays all expenses for that day. If any rents for the current month are uncollected when the sale is closed, the buyer often agrees by a separate letter to collect the rents, if possible, and remit the prorated share to the seller.
7. A security deposit made by a tenant to cover the cost of repairing damage caused by the tenant, or the last month’s rent which has been collected in advance, is generally transferred by the seller to the buyer without prorating. The only exception would be if the property were being transferred in the last month of the lease; thus, the last month’s rent would be prorated.

Question 37

D: Accrued Items

Answer 37

Are expenses to be prorated (such as water bills and interest on an assumed mortgage) that are owed by the seller but will be paid after the sale by the buyer.

The seller pays for these items by giving the buyer credits for them at closing.

Question 38

D: Prepaid Items

Answer 38

Are expenses to be prorated (such as fuel oil in a tank) that have been prepaid by the seller but not fully used up, so they become credits to the seller.

Question 39

What are the two methods of calculating a proration?

Answer 39

1. The yearly charge is divided by 360-day year ( called banking or statutory year) or 12 months of 30 days each.
2. The yearly charge is divided by 365 days to determine the daily charge, and the actual number of days in the proration period is determined, with this number multiplied by the daily charge.

Question 40

What months has 30 days?

What month has 28 or 29 in a leap year?

What months has 31 days?

Answer 40

30 days has Sep, April, June, Nov

Feb

Jan, March, May, July, Aug, oct, dec

Question 41

The annual real estate taxes on a property amount to $18,000. The seller has paid the taxes in advance for the calendar year. If the closing is set for June 15, which statement is TRUE?

A) Credit the buyer $9,750; debit the seller $9,750.

B) Credit the seller $9,750; debit the buyer $9,750.

C) Credit the seller $18,000; debit the buyer $8,250.

D) Credit the seller $8,250; debit the buyer $9,750.

Answer 41

B) Credit the seller $9,750; debit the buyer $9,750.

The answer is to credit the seller $9,750; debit the buyer $9,750.

The sellers should get credit for the unused portion of their prepaid real estate taxes.

When taxes are paid on a calendar-year basis, the sellers get credit for that portion of the year between closing and December 31.

A property with an annual real estate tax of $18,000 is taxed $1,500 per month ($18,000 ÷ 12 months = $1,500). Between June 15 and December 31 there are 6½ months.

So 6½ times the monthly taxes of $1,500 yields a proration of $9,750 to be credited to the seller and the same amount debited (charged) to the buyer at closing.

Question 42

Expenses to be prorated (such as lawn care services) that have been paid by the seller but not fully used up are called?

Answer 42

Prepaid Items

Expenses to be prorated are those for services that the seller has paid for, but which have not yet been performed.

Question 43

A statement provided by the lender informing the borrower of its intention to service the loan or to transfer it to another lender is called?

Answer 43

The Mortgage Servicing Transfer Statement

The lender will inform the borrower of its intention to service the loan or to transfer it to another lender is called the Mortgage Servicing Transfer Statement.

Question 44

The principal balance on an assumed mortgage loan is entered on the closing statement as?

Answer 44

A debit to the seller and a credit to the buyer

The principal balance on an assumed mortgage loan is listed as a debit to the seller and a credit to the buyer.