section 20 closing

Question 1

A meeting of principal parties where a seller transfers title and a buyer pays monies owed the seller and lender.

Answer 1

Closing

Question 2

A final inspection that should be conducted by the buyer as close to the closing date as possible. The buyer should inspect the property to make certain that the property is in the condition in which the seller states that it is, and that any repairs or other required actions have been performed.

Answer 2

Buyer’s Walk-Through:

Question 3

A statement provided by the lender if the seller’s mortgage lien(s) are to be satisfied at closing specifying the amount of unpaid principal and any interest due as of the closing date, plus fees that will be due the lender and any credits or penalties that may apply.

Answer 3

Payoff Statement:

Question 4

A statement provided by the holder of a note secured by a trust deed to show any unpaid balance. Even if the buyer is assuming the seller’s mortgage loan, the buyer will want to know the exact amount of the unpaid balance as of the closing date.

Answer 4

Beneficiary Statement:

Question 5

A closing where the principal parties deposit funds and documents with the appointed escrow agent, and the escrow agent disburses funds and releases documents to the appropriate parties when all the conditions of the escrow have been met.

Answer 5

Escrow

Question 6

A consumer protection statute enacted in 1974. Its purpose is to clarify settlement costs and to eliminate kickbacks and fees that increase settlement costs.

Answer 6

Real Estate Settlement Procedures Act:

Question 7

Final expenses that buyer or seller must pay at closing to complete the transaction. The sale contract identifies all selling terms and who pays which costs.

Answer 7

Closing Costs:

Question 8

An amount that one party must pay at closing or has already paid prior to closing.

Answer 8

Debit

Question 9

An amount that a party must receive at closing or that has already been received prior to closing.

Answer 9

Credit:

Question 10

Apportionment of expense and income items at closing. Examples of items prorated between buyer and seller include interest, insurance, taxes, and rent.

Answer 10

Proration

Question 11

At the time of closing, the seller has paid some items in advance that cover a period of time that goes beyond the closing date. In effect, the seller has prepaid some of the buyer’s expenses, and the buyer must reimburse the seller.

Answer 11

In Advance:

Question 12

At the time of closing, the seller has incurred certain expenses that have not been billed or paid at the time of closing and that the buyer will have to pay later.

Answer 12

In Arrears:

Question 13

Most states impose a tax when real estate is conveyed. The tax is usually paid when the deed is recorded, often in the form of documentary stamps purchased from the recorder where the deed is recorded.

Answer 13

Transfer Tax:

Question 14

During the period between the signing of the sale contract and the closing date,

the seller may continue to accept offers on the property.

the seller may not occupy or use the property.

buyer and seller are expected to remove any contingencies that are stated in the contract.

buyer and seller continue to negotiate the selling price if either party is dissatisfied.

Answer 14

buyer and seller are expected to remove any contingencies that are stated in the contract.

Question 15

When should a buyer undertake a “buyer’s walk-through” of a property that is under contract?

Immediately after the offer is accepted.

Immediately after closing.

As shortly before the closing date as possible.

As soon as all inspections have been completed.

Answer 15

As shortly before the closing date as possible.

Question 16

If a sale transaction is to occur in escrow,

the broker has no further involvement.

an escrow agent holds funds and documents until all parties have satisfied the conditions necessary for closing.

the seller’s broker holds the sale documents until the buyer has satisfied the terms of the contract.

the buyer’s escrow agent and the seller’s escrow agent complete the transaction.

Answer 16

an escrow agent holds funds and documents until all parties have satisfied the conditions necessary for closing.

Question 17

If the conditions of an escrow agreement are not met and the transaction cannot be completed, the escrow agent

levies a fine against the defaulting party.

assigns his or her fiduciary responsibilities to the seller’s broker.

returns funds to the buyer.

cancels the sale contract and destroys the transaction documents.

Answer 17

returns funds to the buyer.

Question 18

A buyer and a seller have employed an escrow agent to handle a closing. Which of the following statements is true?

Buyer and seller do not need to attend the closing.

The seller receives the earnest money deposit from the escrow agent as soon as the buyer delivers it.

The buyer receives legal title as soon as the seller accepts the down payment.

The escrow agent certifies the buyer’s earnest money check and provides the buyer with an opinion of abstract.

Answer 18

Buyer and seller do not need to attend the closing.

Question 19

If the Real Estate Settlement Procedures Act applies to a transaction, the lender must

give the seller a booklet describing settlement costs and procedures.

use a prescribed form to disclose settlement costs to the buyer.

sign an agreement with seller and buyer to act as closing agent.

allow the buyer to inspect the closing statement at least one week prior to the closing date.

Answer 19

use a prescribed form to disclose settlement costs to the buyer.

Question 20

o avoid violating the Real Estate Settlement Procedures Act, parties who are providing services to the buyer or seller in a transaction must

be paid before the closing date for any service they provide.

inform the closing agent of the cost of their services at least one week before the closing date

receive payment only from the funds held in escrow, not directly from buyer or seller.

disclose in writing any business relationships they have with other parties involved in the transaction.

Answer 20

disclose in writing any business relationships they have with other parties involved in the transaction.

Question 21

In the context of a closing, proration refers to

determining the amount of the commission that buyer and seller owe their respective agents at the closing.

apportioning an amount paid, received, or due according to the period of time that a party is responsible for the item.

determining which expenses the buyer and seller should pay unilaterally outside of the closing.

completing the settlement statement.

Answer 21

apportioning an amount paid, received, or due according to the period of time that a party is responsible for the item.

Question 22

If an item to be prorated affects buyer and seller, and no outside party, which of the following statements is true?

The item must be prorated and recorded as a debit to one party and a credit to the other party for the same amount.

The item must be prorated and recorded as a debit to one party; the remainder is recorded as a credit to the other party.

The party who is owed money receives a credit for the entire item, and the party who owes money receives a debit for the prorated amount.

The party who owes money receives a debit for the portion owed and a credit for the portion that is not owed.

Answer 22

The item must be prorated and recorded as a debit to one party and a credit to the other party for the same amount.

Question 23

An item is said to be paid in arrears if it is normally paid

on a monthly or yearly basis.

at some time after the expense is incurred.

only after it is billed.

whenever it is incurred.

Answer 23

at some time after the expense is incurred.

Question 24

Which of the following items is paid in arrears?

Apartment rent.

A flood insurance premium.

A loan origination fee.

A real estate tax bill.

Answer 24

A real estate tax bill.

Question 25

Which of the following items is paid in advance?

A special assessment for a sidewalk.

A commission to a real estate broker.

An insurance premium payment.

Interest on a home equity loan.

Answer 25

An insurance premium payment.

Question 26

A seller paid a $100 item in advance. At closing, the seller has “used” only $75 of this item. What should appear on the closing statement?

A debit to the buyer and credit to the seller for $25.

A debit to the buyer for $25 and a credit to the seller for $75.

A debit to the buyer for $25 and a credit to the seller for $100.

A debit to the buyer and credit to the seller for $75.

Answer 26

A debit to the buyer and credit to the seller for $25.

Question 27

A seller received a rental payment of $100 in advance. At closing, the seller has “earned” only $32 of this rent. What should appear on the closing statement?

A debit to the seller and credit to the buyer for $32

A debit to the seller for $68 and a credit to the buyer for $32.

A debit to the seller for $32 and a credit to the buyer for $100.

A debit to the seller and credit to the buyer for $68.

Answer 27

A debit to the seller and credit to the buyer for $68.

Question 28

A buyer will receive a water bill for an estimated $100 at the end of the month. At closing, the seller has used an estimated $43 in water. What should appear on the closing statement?

A debit to the seller and credit to the buyer for $57.

A debit to the seller and credit to the buyer for $43.

A debit to the buyer and credit to the seller for $57.

A debit to the buyer and credit to the seller for $43.

Answer 28

A debit to the buyer and credit to the seller for $43.

Question 29

A sale transaction closes on April 1, the ninety-first day of the tax year. The day of closing belongs to the seller. Real estate taxes for the year, not yet billed, are expected to be $3,150. According to the 365-day method, what is the seller’s share of the tax bill?

$776.71.

$785.34.

$959.54

$2,364.66.

Answer 29

$785.34.

Question 30

A sale transaction closes on July 4. The day of closing belongs to the seller. On January 1, the seller paid a hazard insurance premium of $375 for the calendar year. According to the 12-month/30-day method, what is the seller’s share of the insurance premium?

Answer 30

This method assumes all months are 30 days and the year is 360 days. The daily proration is therefore $375 ÷ 360, or $1.0416. The closing occurs on the 184th day of the year. Thus, ($1.0416 x 184) = $191.67. Note that if the day of closing is the buyer’s, there would be 183 day’s worth of prorated expense.

Answer 31

Assuming a 365 day year, the daily tax expense is ($1,100 ÷ 365), or $3.013. As taxes are paid in arrears, the buyer will be paying the annual bill. Thus, he will be owed a credit for the seller’s share of the bill, which is $3.013 x 244 days, or $735.34.

Question 32

If a seller paid $488 for transfer taxes at closing, and the rate was $1.00 for every $400 or fraction thereof of the sale price, what was the sale price?

Answer 32

$488 x $400 = $195,200

Question 33

Methods of stating the transfer tax due include quoting the tax as a percentage of the taxable consideration and as a dollar rate per $100.00 of total selling price. If the number of 100’s is not a whole number, it must be rounded up to the next 100. For instance, if a property sells for $345,600 and the tax rate is $1.00 per $500.00 “or any fraction thereof,” the tax stamps will cost:

Answer 33

345,600 ÷ 500.00 = 691.20

691.20 rounded up = 692

692 x $1.00 = $692

Question 34

What is the Internal Revenue Service’s Form 1099-S?

Answer 34

A form that summarizes and reports transaction data from a closing