Unit 14 Flashcards
Closing
conclusion of the real estate sales transaction when the title is transferred in exchange for payment of the purchase price
2 major events of closing
- promises made in the sales contract are fulfilled
2. mortgage funds are distributed to the buyer
What is closing process based on?
provisions of the sales contract
Buyers Concerns
- Seller can deliver title as promised
- property is in essentially the same condition as when buyer and seller agreed to sale
- result of any inspections
- survey
- title evidence
- any lease
Final Inspection
walk through; shortly before the closing, the buyer, accompanied by the real estate professional, verifies the necessary repairs have been made, that the property has been well maintained, that all fixtures are in place, no unauthorized removal or alteration of any part of the improvements has taken place
What is included in the payoff statement?
- Remaining Principal on the Loan
2. Interest on real estate loans (paid in rears)
Mortgage reduction certificate
certifies the amount owed on the mortgage loan, interest rate, and date and amount of the last interest payment
Affidacit of title
a sworn statement in which teh seller assures the title insurance company (and the buyer) that no other defects in the title have occured since the date of the title examination
Opinion of title
discloses all liens, encumbrances, easements, conditions, and restrictions of the property
What is the seller’s main concern?
receiving payment for the propeorty; assurance the buyer has obtained the necessary financing and will have sufficient funds to complete the sale
What are preapprovals conditional on?
Them keeping their job; consistency in employment; health
What is the real estate professional’s role at a closing?
varies; professional negotiator working out programs; look for clerical mistakes, math mistakes, posting errors,
Closing disclosure
document that itemizes the charges to the buyer and seller, debits, credits, defends commission check
Who has the biggest interest in a closing?
lender
Demands from lender at closing
survey, post control inspection, certificate of occupancy, mortgagee’s title insurnace policy, home owner’s insurance, set up escrow account
Who do real estate closings need to be reported to?
IRS
IRS Form 1099-S
form for sellers to fill out at closing
Face-To-Face Closing
closing happens at the same place
Who may attend a closing?
buyer, seller, real estate professionals, attorneys, title insurance representation, lending institution representative
Who is the closing agent?
representative of the title company or lender, real estate professional representing one of the parties (broker), or one of the attorney’s
What does the closing agent do?
orders and reviews the titel insurance policy or title certificate, survey, property insurance policy, other items
Disclosure statement
indicates the division of income and expenses between parties
The exchange
parties are satisfied that everything is in order at the closing
What needs to be recorded at closing?
- deed
2. deed of trust (mortgage)
DOD
Date of Deed; buyer moves in the same day of closing
Names for closing
settlement and transfer, passing papers
What is the main concerns at closing?
buyer receives marketable title; seller receives purchase price
Escrow closing
third party coordinates the closing activites on behalf of the buyer and seller
Escrow agent; Escrow Holder
disinterested third party
Who can an escrow agent be?
attorney, title company, trust company, escrow company, escrow department of a lending institution
Seller documents for escrow agent
- new deed
- title evidence
- existing hazard insurance policy
- mortgage reduction certificate
- affidavits of title
- payoff statement
- other necessary documents
Buyer documents for escrow agent
- certified check
- loan documents
- proof of new homeowner’s insurance
- other needed documents
Real Estate Settlement Procedures Act (RESPA)
federal law that requires certain disclosures about the mortgage and settlement process and prohibits certain practices that increase the cost of settlement services
When does RESPA apply?
a first-lien residential mortgage loan made to finance the purchase of a
1. 1-4 family house
2. cooperative
3. condo
Second or subordinate liens for home equity loans when the purchase is financed by a federally related mortgage loan
What does RESPA not apply to?
- loans on large properties
- loans for business or agricultural purposes
- construction loans or other temporary financing
- vacant land
- transaction financed solely by a purchase-money mortgage taken back by the seller
- installment contract
- buyer’s assumption of a seller’s existing loan
What does RESPA prohibit?
- kickbacks adn fee-splitting for referrals of settlement services, and unearned fees for services not actually performed
- home seller from requiring that the buyer purchase title insurance from a particular company
- the lender from requiring excessive escrow account deposits for such items as taxes and hazard insurance
Affiliated Business Arrangement (ABA) nickname
one stop shopping
Affiliate Business Arrangement (ABA)
a real estate firm, title insurance company, mortgage broker, home inspection company, or even a moving company may agree to offer a package of services to consumers to streamline the settlement process
When are ABA between real estate brokerage and mortgage company allowed by RESPA?
- participation is not required
- other providers available
- 1% or more common ownership between companies, as long as consumer is clearly informed of relationship
- only thing of value from arrangement is return on the ownership interest
Mortgage Servicing Transfer Statement
required if lender intends to sell or assign teh right to service the loan to another loan servicer; must notify the borrower 15 days before the effective date of the loan transfer
Loan Estimate form
replaces the intial Truth in Lending Statement (TIL) and teh Good Faith Estimate (GFE); highlights the information that historically has been most important to consumers
What categories are closign closts divided into
- No tolerance
- 10% tolerance
- Unliminted tolerance
No Tolerance
fees that may not increase before closing; lender charges
10% tolerance
fees that cannot increase no more than 10% in any given category; settlement services which lender selectrs the provider or borrower selects providor
Unlimited Tolerance
fees for services that are out of lender’s control; borrower chooses provider
CFPB
Consumer Finance Protection Bureau
Your Home Loan Toolkit
booklet providing borrower with general information about the settlement and how to find the best mortgage; must be given to buyer
Mortgage Disclosure Improvement Act
- changed how much money the lender can collect
- How you prepare for closing
- on the initial loan estimate document, the lender indicates what they believe their APR will be
If the APR changes more than 0.125% from that on the Closing disclosure, how long will closing the loan be delayed?
3 business days
Survey
provides information about the exact location and size of the property
What is a survey important for?
vertifying the legal description of the property
What does a survey indicate?
location of all buildings, driveways, fences, other improvements, existing easements, encroachments
What properties must fill out a Form 1099-S
- land, including airspace
- inherently permanent structure
- condo unit and its appurtenant fixtures and common elements
- shares in a cooperative
What needs to be reported in a Form 1099-S
sales price, amount of property tax reimbursement credited to seller, sellers SSN
Debit
amount ot be paid by the buyer or the seller at the closing
Credit
an amount payable ot the buyer or seller
Closing Statement
an accounting of the parties’ debits and credits
Credit tupes
- amount already paid
- reimbursement
- amount buyer promises to pay in the form of a loan
Credits to buyer
earnest money, balance of the loan, seller’s share of prorated items buyer will pay in future
Seller credits
purchase price, buyer’s share of prorated items
Seller’s debits
expenses to be paid by seller, seller’s share of prorated items to be paid by buyer, balance of any mortgage loan or other lien seller must satisfy
Items to be paid for on closing statement
broker’s commission, attorney’s fees, recording expenses, transfer tax, title expenses, loan fees, tax reserves adn insurance reserves, appraisal fee, survey fee, additional fees
Private mortgage insurance (PMI
buyer prepays one year’s mortgage insurance premium at closing on conventional loan
Mortgage Insurance Premium (MIP)
borrower owes a lump sum for payment of the MIP if the borrower’s loan is insured by FHA
Who normally pays the survey fee
purchaser who obtains mortgage financing
General rules for prorating
- made up to and including the day of closing; seller reponsible until after day of closing
- mortgage insterest, general real estate taxes, water taxes, insurance premiums and similar expenses are computed using a statutory year
- interest on mortgage loans are paid in arrears
- rent is adjusted on the basis of the actual number of days in the month
- accrued or prepaid general real estate taxes are prorated at closing
- special assessments for municipal improvements are paid in annual installments over several years with annual interest charged on the outstanding balance of future payments
- security deposit from tenent to cover the cost of repairing damage caused by them or the last month’s rent collected in advance are transferred by seller to buyer without prorating
Are prorates a single or double entry?
double entry
Why are prorations necessary
ensure that expenses and credits are divided fairly between the seller and the buyer
Statutory year
360 days, every month has 30 days
Accrued item
something to be prorated that are owed by the seller but will be paid after the sale by the buyer; debit to seller, credit to buyer
Prepaid Items
expenses to be prorated that have been prepared by the seller but are not fully used up; seller gets credit, buyer gets debit
Is an attorney’s opinion a guarantee of title?
no
What happens when the purchaser pays cash or obtains a new loan to purchase the property?
the seller’s existing loan is paid in full and satisfied on the record
Payoff statement
from the lender, the exact amount required to pay the existing loan
What is noted in the payoff statement
notes the unpaid amount in principal, interest due through teh date of the proposed payment, fee for issuing release deed, credit to seller for tax insurance reserves, amount of any prepayment penalty
bring down
second title search made after the closing and before any new documents are filed
In escrow procedures, when is the agent authorized to disburse the purchase price to the seller, minus charges and expenses
when marketable title is shown, all other conditions have been met, and parties have received disclosure statement
What happens if the escrow agent discloses liens?
a portion of the purchase price can be withheld from the seller to pay the liens
Federally related loan
one made by a bank, savings association, or other lender whose deposits are insured by a federal agency; a loan insured by teh FHA or guaranteed by the VA; loan administed by HUD; loan intended to be sold by the lender to Fannie Mae, Ginnie Mae, or Freddit Mac
Who is RESPA administred by?
HUD
Mortgage Disclosure Improvement Act (MDIA)
changed how buyers, seller, lenders, mortgage brokers, title agents, and real estate professioanls prepare for a closing
CFPB
Consumer Financial Protection Bureau
TILA-RESPA Integrated Disclosure Rule (TRID)
implements provisions of the Dodd-Frank Act intended to combine and clarify disclosures to consuemrs
How does RESPA prevent lenders from taking advantage of borrowers?
prohibits lenders from requiring borrowers to deposit funds in an escrow account for raxes and insurance that exceed certain limits
According to RESPA, what is the max amount a lender can require a borrower to put in an escrow account?
1/12 of the total of the disbursements for the year + an amount necessary to cover a shortage in the account
How much will RESPA allow in an escrow account as cushion
1/6 of the year’s total disbursements
What does TILA-RESPA replace? (TRID)
4 disclosure forms with 2 new ones: Loan Estimate and Closing Disclosure
Nickname for TRID
know before you owe
What do the Loan Estimate and Closing Disclosure forms not aply to?
home equity lines of credit, reverse mortgages, mortgages secured by a mobile home or dwelling not attached to land, creditors who make <5 mortgages a year
Whose responsible for the Loan Estimate and Closing Disclosure forms?
lender
When does the Loan Estimate form need to be provided to the consumer
3 business days after the loan application is submitted to the lender
What is the only fee a lender can collect before the loan applicant receives thier Loan Estimate
fee for credit report
What is included in the Loan Estimate Form
interest rate, monthly payment, total closing costs, exact language specified by the CFPB, loan terms
Closing Disclosure Form
itemizes all charges that are normally paid by a borrower and seller in connection with settlement, whether required by the lender or another party, or paid by the lender or any other person
What does the closing disclosure form contain?
more information about the costs of taxes adn insurance and how the interest rate and payments may change in the future; warns about things to avoid like prepayment penalties
When does the borrower have to receive the Closing Disclosure?
3 business days before the closing
Your Home Loan Toolkit
information booklet which must be provided by a creditor to a mortgage applicant as poart of the loan application process
What information is in the Your Home Loan Toolkit?
general information about settlement and how to find the best mortgage, as well as resources and a description of the Loan Disclosure Form
kickbakcs
unearned fees
What is RESPA’s rule on kickbacks
prohibits the payment of kickbacks in any real estate settlement service
What does RESPA say abotu referral fees?
prohibits referral fees when no services are actually rendered
Mortgage Disclosure Improvement Act (MDIA)
changed how buyers and sellers, lenders, mortgage brokers, title agents and real estate professionals preopare for closing
What does the Mortgage Disclosure Improvement Act protect consumers from?
prevents the consumer from receiving an enticingly low interest rate at the initial loan application and then learning at settlement that the lender is charging more fees
Who is usually responsible for paying the broker’s commission?
seller
Who usually pays for recording charges
seller
What are recording charges usually charged to the seller
recording of any release deed or satisfaction or mortgage, quitclaim deed, affidavit, satisfaction of mechanic’s lien
Who recording charges does the buyer usually pay for
charges that arise from the actual transfer of title
What loan fees do lenders charge?
origination fee, discount points
Credit/Debit/Buyer Seller/Prorated:
Principal Amount of New Mortgage
Credit to Buyer
Credit/Debit/Buyer Seller/Prorated:
Payoff of Existing Mortgage
Debit to Seller
Credit/Debit/Buyer Seller/Prorated:
Unpaid Principal Balance if assumed mortgage
Credit to buyer, debit to seller
Credit/Debit/Buyer Seller/Prorated:
Accrued interest on existing assumed mortgage
credit to buyer, debit to seller, prorated
Credit/Debit/Buyer Seller/Prorated:
Tenant’s security deposit
credit to buyer, debit to seller
Credit/Debit/Buyer Seller/Prorated:
Purchase money mortgage
Credit to buyer, debit to seller
Credit/Debit/Buyer Seller/Prorated:
Unpaid water and other utility bills
Credit to buyer, debit to seller, prorated
Credit/Debit/Buyer Seller/Prorated:
Buyer’s earnest money
credit to buyer
Credit/Debit/Buyer Seller/Prorated:
selling price of property
debit to buyer, credit to seller
Credit/Debit/Buyer Seller/Prorated:
fuel oil on hand
debit to buyer, credit to seller, prorated
Credit/Debit/Buyer Seller/Prorated:
prepaid insurance and tax reserve for mortgage assumed by buyer
debit to buyer, credit to seller, prorated
Credit/Debit/Buyer Seller/Prorated:
refund to seller of prepaid water charges and similar utility expenses
debit to buyer, credit to seller, prorated
Prepaid general real estate taxes
debit to buyer, credit to seller, prorated
How does a borrower start an escrow account
starts at closing by depositing funds to cover at least the amount of unpaid real estate taxes from the date of the lien to the end of the current month
What is the borrower responsible for maintaining as a condition of their mortgage loan?
adequate property insurance
