Settlement

Question 1

Seller is selling a condominium. Seller and Buyer agree upon a sale price of $450,000. Seller has prepaid the property taxes for the entire tax year. Buyer will be moving into the property four months prior to the end of the tax year. Seller must pay off an outstanding mortgage lien of $350,000, and a mechanic’s lien of $2,500. Seller must also pay the brokerage fee to the licensee who brought the ready, willing, and able buyer to the transaction. In the closing statement prepared by the Settlement Officer, which of the following will be a credit to the Seller?

Answer 1

Prepaid property taxes.

*The seller will be reimbursed for the prepaid property taxes for those four months of the remaining tax year when the Buyer will own the property.

Question 2

Which of the following is the standard real estate settlement form for federally-related mortgage loans?

Answer 2

HUD -1 settlement statement

• The HUD -1 Settlement Statement is a standard form in used to itemize services and fees charged to the borrower by the lender or broker when applying for a loan. A final HUD -1 statement must be given to buyers one day prior to the signing of the documents. The HUD -1 settlement statement also contains a good faith estimate (GFE) which specifies the estimated loan costs.

Question 3

A developer purchases unimproved property to build a new subdivision. The land is $3,542.45 per acre. Here is the legal description of the property purchased: “The Northwest Quarter of the Southeast Quarter, of Section 26…” The acreage in Section 26 is typical for the government survey system. How much money did the developer pay–in total–for the property?

Answer 3

$141,698.00

• In the government survey system (aka “rectangular survey system”), an entire section of land is one square mile. One square mile contains 640 acres. One quarter of a section has 160 acres (640 ÷ 4 = 160). A quarter of a quarter section has 40 acres (160 ÷ 4 = 40). Here, the legal description states that the purchased property is a quarter of a quarter of a section, thus, 40 acres. If the land is $3,542.45 per acre and the land purchased is 40 acres, then the purchase price is $141,698.00 ($3,542.45 X 40 = $141,698.00).