Transaction Process Part II

Question 1

What does a standard home inspection cover?

Answer 1

A home’s major mechanical systems — electrical, plumbing, heating, and cooling — and its construction from roof to foundation, exterior to interior

Question 2

What does a typical inspection report include?

Answer 2

Information about poor workmanship and deterioration and it should also include information about projected repairs and identify problems that would occur if the property were remodeled.

Question 3

Name three types of inspections buyers can request.

Answer 3

Standard Home Inspection
Pest Inspection
Soil Inspection
Structural Inspection

Question 4

Explain what happens with every inspection ordered

Answer 4

For every kind of inspection ordered, the reports must be approved or rejected by the buyers or the lender, any repairs must be done and then re-inspected, and the buyers and lender must get notification of the final results

Question 5

A seller is required to deliver what type of title at closing?

Answer 5

Marketable Title

Question 6

What would a lender order a to be sure there are no liens on the property?

Answer 6

Title search

Question 7

Removing a cloud on a title requires which type of suit?

Quiet Title Suit

Answer 7

Quiet title suit

Question 8

Explain marketable title

Answer 8

A marketable title is one that is so free of defects that the buyer is certain he or she will not have to defend the title.

Question 9

What does a title search reveal?

Answer 9

The legal description of the property.
The owners of record.
Any outstanding liens or encumbrances on the property.

Question 10

What happens if any problem is found with either the physical layout of the property or in the title search results?

Answer 10

It creates a cloud on the title that must be resolved prior to closing on the loan.

Question 11

What is escrow

Answer 11

The process in which a disinterested third party holds all money and documents relating to a transaction until all of the terms and conditions of the escrow instructions have been satisfied.

Question 12

List three activities that take place during the escrow period.

Answer 12

Getting an appraisal.
Ordering pest control and other inspection reports.
Obtaining property insurance.

Question 13

What does prorated mean?

Answer 13

Divided proportionately between the buyer and the seller

Question 14

Name three items that are prorated for closing.

Answer 14

The most common items that are prorated include taxes, insurance, mortgage interest, and utilities.

Question 15

Any item that is prorated is shown on the settlement statement how?

Answer 15

As a debit to one party and a credit to the other party for the same amount

Question 16

Closing agents and lenders typically use one of two methods when calculating items that need to be prorated. Name the two methods.

Answer 16

The 12- month/360 day method and the 365 day method

Question 17

When do most of the important activities regarding a closing happen?

Answer 17

During the period between the signing of the agreement of sale and the actual closing date.

Question 18

List three things a licensee should do to help facilitate the closing

Answer 18

Check with the lender to see how loan approval is coming along.
Check the appraisal results and help the client decide how to proceed if it comes in low.
Keep track of any special provisions included in the sale, such as items of personal property.

Question 19

What can a lender require a borrower to do with regard to taxes and insurance and why would the lender make this requirement?

Answer 19

Lenders can require the borrower to maintain an escrow account for property taxes and insurance, so that the lender is sure money will be available for the payments.

Question 20

Who is responsible for reporting the real estate sale to the IRS?

Answer 20

The responsibility for filling out and submitting the form generally falls to the person who conducted the closing.

Question 21

Often lenders will make some type of inspection a condition of

Answer 21

approving the buyers’ loan. So inspections and their results are an important aspect of the closing process.

Question 22

For every kind of inspection ordered

Answer 22

the reports must be approved or rejected by the buyers or the lender, any repairs must be done and then re-inspected, and the buyers and lender must get notification of the final results.

Question 23

A seller is required to deliver

Answer 23

a marketable title at closing. A marketable title is one that is so free of defects that the buyer is certain he or she will not have to defend the title.

Question 24

In order to deliver a marketable title

Answer 24

the seller must have proof of ownership of the property, also known as evidence of title.

Question 25

Before a lender will agree to lend money on a property

Answer 25

the lender will order a title search to be sure there are no liens on the property.

Question 26

In real estate business and law, a title search or property title search is

Answer 26

the process of retrieving documents evidencing events in the history of a piece of real property, to determine relevant interests in and regulations concerning that property.

Question 27

The buyer of a property will usually purchase title insurance

Answer 27

which protects the buyer from any title problems that may arise after sale, such as liens that were missed during the title search.

Question 28

Chain of title

Answer 28

refers to the succession of property owners of record dating back to the original grant of title from the state to a private party

Question 29

If there is a missing link in the chronology of owners, or if there was a defective conveyance, the chain is said to be broken, resulting in a

Answer 29

Clouded title

Question 30

To remove the cloud, an owner may need to initiate a

Answer 30

suit to quiet title, which clears the title record of any unrecorded claims.

An action to quiet title is a lawsuit filed to establish ownership of real property (land and buildings affixed to land).

Question 31

The two forms of evidence most used in this process are

Answer 31

the abstract of title with attorney’s opinion and the title insurance policy.

Question 32

The Title Commitment document is in the same format as

Answer 32

the Title Insurance Policy but it is NOT an insurance policy. The commitment is a document showing the terms and conditions under which the company will issue a policy.

Question 33

Generally, the insurance policy that the title company issues will protect the policy holder against losses that arise from such “hidden” defects as:

Answer 33

Forged documents, such as deeds or mortgages
Undisclosed heirs
Mistaken legal interpretation of a will
Misfiled documents
Confusion arising from similarity of names
Incorrectly stated marital status
Mental incompetence

Question 34

Examples of a cloud on a title include:

Answer 34

Mechanic’s lien
Income tax lien
Property tax lien
Encroachment
Zoning violation
Deed problems, such as a name that is not legally correct or the lack of the appropriate signatures

Question 35

The term escrow is defined as

Answer 35

the process in which a disinterested third party holds all money and documents relating to a transaction until all of the terms and conditions of the escrow instructions have been satisfied.

Question 36

Some expenses paid at closing must be

Answer 36

prorated or divided proportionately between the buyer and the seller. The most common items that fall into this category include taxes, insurance, mortgage interest, and utilities.

Question 37

Any item that is prorated is shown on the settlement statement as

Answer 37

a debit to one party and a credit to the other party for the same amount.

Question 38

For items paid in advance

Answer 38

the buyer will receive a debit and the seller will receive a credit.

Question 39

Closing agents and lenders typically use one of two methods when calculating items that need to be prorated:

Answer 39

the 12- month/360-day method and the 365-day method.

Question 40

Also referred to as settlement,

Answer 40

the title closing is the culmination of the real estate transaction

Question 41

At the title closing:

Answer 41

The buyer completes his or her financing arrangements (referred to as closing the loan). The buyers deposit the down payment and closing costs into escrow.
The seller transfers the title. The sellers pay off any mortgage or other outstanding liens on the property.
Both the buyer and seller pay the necessary taxes, fees and other charges.

Question 42

The sale contract usually specifies where the closing will be held. It can be at any one of a number of office locations:

Answer 42

Title company
Lender
Attorney
Closing agent
County recorder

Question 43

Whether providing a lot of assistance or a little,

Answer 43

the licensee’s role is to check on the progress of activities along the way so that the actual closing will go as smoothly as possible.

Question 44

Lenders typically require at the very least a

Answer 44

title insurance policy and a homeowner’s insurance policy.

Question 45

The title to the property has transferred when

Answer 45

the deed is delivered and accepted by the buyer.

Question 46

All real estate sales must be reported to the Internal Revenue Service after closing

Answer 46

The sale must be reported on a Form-1099. The responsibility for filling out and submitting the form generally falls to the person who conducted the closing.