Unit 11 Exam

Question 1

Match:

Survey

Affidavit of title

Walk-through

Abstract of title

Bring down

Mortgage reduction certificate

A)
Requires an attorney’s opinion of the quality of the seller’s title

B)
A sworn statement in which the seller assures the title company and buyer that no other defects in the title have occurred since the date of the title examination

C)
Provides information about the exact location and size of the property

D)
Search of the public record made after closing

E)
Buyer verifies that required repairs have been made, the property has been well maintained, and no removal of improvements has taken place

F)
Certifies the amount owed on the mortgage loan, the interest rate, and the date and amount of the last interest payment

Answer 1

Survey = C

Affidavit of title = B

Walk-through = E

Abstract of title = A

Bring down = D

Mortgage reduction certificate = F

Question 2

Lenders generally require that a buyer obtain a mortgagee’s title insurance policy to ensure that the buyer takes good and marketable title at closing.

Answer 2

T

Question 3

As part of the title company’s preclosing title search, the sellers may be required to execute an affidavit of title.

Answer 3

T

Question 4

For each description, determine if it describes closing face-to-face or closing in escrow:

A)
May raise privacy concerns

B)
Not best approach if friction between parties

C)
Buyer and seller meet for the first time

D)
Third party acts on behalf of buyer and seller

E)
Buyer and seller execute escrow instructions

F)
Buyer and seller attend

G)
Documents provided to escrow agent before closing

Answer 4

face-to-face = A, B, C, F

Closing in Escrow = D, E, G

Question 5

In all closings in any state, the buyer and seller meet face to face.

Answer 5

F

Question 6

The person who coordinates the activities in an escrow closing is a disinterested third party.

Answer 6

T

Question 7

The Real Estate Settlement Procedures Act (RESPA) prohibits certain activities that can be used to take advantage of home buyers and sellers, increasing the cost of settlement services. Indicate whether each activity is permitted or prohibited by RESPA.

A)
Unearned fees for services

B)
Fee-splitting

C)
Kickbacks

D)
Reasonable escrow deposits

Answer 7

Permitted = D

Prohibited = A, B, C

Question 8

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 8

F

Question 9

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

Answer 9

T

Question 10

Items that buyers and sellers pay are shown on a closing statement. For each item, indicate who typically pays at closing.

A)
Loan fees

B)
Tax reserves

C)
Seller’s broker commission

D)
Insurance reserves

E)
Private mortgage insurance

F)
Recording deed to convey title

G)
Recording of release deed

H)
Seller’s attorney fees

I)
Recording of quitclaim deed

J)
Buyer’s attorney fees

Answer 10

Buyer = A, B, D, E, F, J

Seller = C, G, H, I

Question 11

RESPA requires lenders to maintain a cushion in a borrower’s escrow account equal to one-sixth of the total estimated amount of annual taxes and insurance.

Answer 11

F

Question 12

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 12

F

Question 13

Assume that a sale is to be closed on September 17. Using a 360-day year, prorate the current real estate taxes of $3,600 for the accrued period of 8 months, 17 days.

Answer 13

First determine the prorated cost of the real estate tax per month and day:

$3,600 ÷ 12 months = $300 per month

$300 ÷ 30 days = $10 per day

Next, multiply these figures by the accrued period and add the totals to determine the prorated real estate tax:

$300 × 8 months = $2,400

$10 × 17 days = $170

$2,400 + 170 = $2,570

Thus, the accrued real estate tax for 8 months and 17 days is $2,570. This amount represents the seller’s accrued earned tax. It will be a credit to the buyer and a debit to the seller on the closing statement.

Question 14

The accrued period from January 1 to September 17 runs 260 days (January’s 31 days plus February’s 28 days and so on, plus the 17 days of September).

Answer 14

$3,600 ÷ 365 days = $9.863 per day

$9.863 × 260 days = $2,564.38

Although these examples show proration as of the date of settlement, the agreement of sale may indicate otherwise. For instance, if the buyer’s possession date does not coincide with the settlement date, the parties could prorate according to the date of possession.

Question 15

A borrower is closing on a $114,300 loan with an interest rate of 4.75% on November 18. How much interim interest will be due at closing? The first full payment is due January 1.

Answer 15

30 days in November – 18 (days until closing) = 12 days + 1 (day of closing) = 13 days

$114,300 × 4.75% = 5,429.25 annual interest

$5,429.25 ÷ 360 = $15.081 interest per day

$15.081 × 13 days = $196.053 interim interest due at closing

$196.05 interim interest due at closing is the answer (rounded to the nearest cent).

Question 16

Prepaid items are expenses to be prorated (such as fuel oil in a tank) that have been prepaid by the seller but NOT fully used up and are credits to the buyer.

Answer 16

F

Question 17

Accrued items are expenses to be prorated (such as water and other utility bills) that are owed by the seller but will be paid later by the buyer.

Answer 17

T

Question 18

Match:

escrow

federally related loan

prepaid items

proration

banking year

closing

debit

credit

kickback

accrued items

A)
A 360-day period used in calculating prorations

B)
The type of loan in a real estate settlement governed by RESPA

C)
Expenses that have been paid by and are credited to the seller

D)
Expenses to be divided between the parties that are owed by the seller but later will be paid by the buyer

E)
A method of closing in which a disinterested third party acts as the agent of both buyer and seller coordinate the closing activities

F)
A charge that a party owes and must pay at closing

G)
The division of financial responsibility for various items between the buyer and seller

H)
An unearned fee, paid as part of a real estate transaction, that is prohibited by RESPA

I)
The fulfillment of a real estate sales contract

J)
An amount in a party’s favor that has already been paid, that is being reimbursed, or that will be paid in the future

Answer 18

escrow = E

federally related loan = B

prepaid items = C

proration = G

banking year = A

closing = I

debit = F

credit = J

kickback = H

accrued items = D

Question 19

Select the word that best completes the statements.

survey
buyer
title
payoff
FHA
Service
affidavit
TILA
RESPA
IRS
Loan
Transfer
Estimate
1099S
Closing 

A)
The property map that indicates any encroachments and easements is called the ___.

B)
One of the requirements of TRID is that no later than three business days after receiving a loan application, the lender must provide the borrower with a Loan ___ of the borrowing costs.

C)
Usually the ____ pays for recording charges, such as recording the deed, that are incurred in the transfer of title.

D)
The form that itemizes all charges to be paid by a borrower and seller in connection with settlement is called the ____ Disclosure.

E)
e closing agent or lender is usually responsible for filing Form ____ to report certain real estate sales to the IRS.

Answer 19

A) = Survey

B) = Estimate

C) = Buyer

D) = Closing

E) = 1099s

Question 20

The closing statement used for MOST residential closings is

A)
the Closing Disclosure.
B)
the Loan Affidavit.
C)
the Certification of Settlement.
D)
the Loan Estimate.

Answer 20

Explanation
The answer is the Closing Disclosure. The closing statement used for most residential closings is the Closing Disclosure prepared by the CFPB.

Question 21

Security deposits should be listed on a closing statement as a credit to

A)
the lender.
B)
the real estate professional.
C)
the buyer.
D)
the seller.

Answer 21

Explanation
The answer is the buyer. When investors buy an income property, rental security deposits held by the former owner are transferred to them. Buyers are credited for all existing security deposits at closing.

Question 22

Section 8 of RESPA prohibits which of the following actions?

A)
Unconscionable actions
B)
Kickbacks
C)
Misrepresentation
D)
Fraud

Answer 22

Explanation
The answer is kickbacks. Section 8 of RESPA prohibits kickbacks and fee-splitting for referrals of settlement services, as well as 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. Consumers 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.

Question 23

The Real Estate Settlement Procedures Act (RESPA) does not apply to loans on

A)
two-unit residential properties.
B)
cooperatives.
C)
properties located on more than 25 acres.
D)
condominiums.

Answer 23

Explanation
The answer is properties located on more than 25 acres. RESPA does not apply to loans on large properties such as those that include more than 25 acres of land.

Question 24

All of these items are usually prorated at closing EXCEPT

A)
rents collected in advance.
B)
unpaid general real estate taxes.
C)
prepaid general real estate taxes.
D)
appraisal fees.

Answer 24

Explanation
The answer is appraisal fees. Appraisal fees and credit report fees are paid before closing by the buyer; they are not prorated.

Question 25

At closing, the earnest money left on deposit with a real estate broker is

A)
a credit to the buyer.
B)
a credit to the seller.
C)
a debit to the buyer.
D)
a balancing factor.

Answer 25

Explanation
The answer is a credit to the buyer. The purchaser’s earnest (deposit) money is usually shown in a contract of sale as credited toward closing expenses and, if there is enough, toward any down payment.

Question 26

At closing, the seller would be credited for

A)
a new seller-carry loan.
B)
the sales price.
C)
the loan being assumed.
D)
the earnest money given to the broker.

Answer 26

Explanation

The answer is the sales price. Credits are good for buyers and sellers. The sales price is credited to the seller.

Question 27

Real estate property taxes will be prorated at closing and are $6,450 annually. If escrow closes June 15 and taxes for the year have not yet been paid,

A)
the buyer receives a credit of $2,687.50.
B)
the seller receives a credit of $2,956.30.
C)
the seller receives a credit of $2,687.50.
D)
the buyer receives a credit of $2,956.30.

Answer 27

Explanation
The answer is the buyer receives a credit of $2,956.30. With escrow closing June 15, real estate property taxes, which have not yet been paid, will be prorated at closing as follows: annual real estate taxes of $6,450 ÷ 12 months = $537.50 per month; $537.50 ÷ 30 days = $17.92 per day: $537.50 × 5 months (through June 30) = $2,687.50; $17.92 × 15 days = $268.80; $2,687.50 + $268.80 = $2,956.30 seller owes buyer.

Question 28

The sale price of a property is $230,000. Transfer tax to be paid by the seller at closing, based on $0.50 per $500, will be

A)
$134.17.
B)
$230.00.
C)
$95.80.
D)
$124.83.

Answer 28

Explanation
The answer is $230.00. Transfer tax to be paid by the seller at closing, based on $0.50 per $500 or fraction thereof, will be: $230,000 ÷ $500 = 460; 460 × $0.50 = $230 transfer tax owed by seller.

Question 29

It is customary for the cost of a survey to be

A)
negotiated in the contract.
B)
paid by the seller.
C)
paid by the buyer.
D)
paid one-half by the seller and one-half by the buyer.

Answer 29

Explanation
The answer is paid by the buyer. The purchaser who obtains the mortgage financing customarily pays a survey fee. Other arrangements may be negotiated in the contract but are not customary.

Question 30

Which charge noted on the Closing Disclosure must be the same or less than the charge noted on the Loan Estimate form?

A)
Cost of homeowners insurance
B)
Cost of settlement services when the lender selects the provider
C)
Lender charges for taking and underwriting the loan
D)
Cost of settlement services when the borrower selects the provider from the list provided by the lender

Answer 30

Explanation
The answer is lender charges for taking and underwriting the loan. Lender charges for taking and underwriting the loan stated on the Closing Disclosure must be the same or less than the charge noted on the Loan Estimate form.

Question 31

The title insurance company may be able to sue the sellers on the basis of any false or incorrect statements provided by the seller in

A)
the title search certificate.
B)
the title verification certificate.
C)
the affidavit of title.
D)
the certificate of title.

Answer 31

Explanation
The answer is the affidavit of title. Any false or incorrect statements provided by the seller in the affidavit of title may result in the seller being sued by the title insurance company.

Question 32

A real estate transaction may be completed by using an escrow agent or escrow holder who acts as

A)
the representative of the local community in making sure that the transaction proceeds smoothly.
B)
the representative of the real estate professional who has worked to bring the parties together and have a successful transaction.
C)
the agent of the buyer by making sure that the seller has met all the conditions of the sale before receiving the purchase price.
D)
a disinterested third party to make sure required documents and funding are in place before the transaction is completed.

Answer 32

Explanation
The answer is a disinterested third party to make sure required documents and funding are in place before the transaction is completed. The escrow agent may be an attorney, title company, trust company, escrow company, or the escrow department of a lending institution.

Question 33

In some parts of the country, closing is called

A)
settlement and transfer.
B)
table transfer.
C)
settlement and closing.
D)
transfer and closing.

Answer 33

Explanation
The answer is settlement and transfer. Closing procedures vary somewhat in different parts of the country; in some areas, itis called settlement and transfer.