Real Estate 100- Chapter 16

Front 1

An accounting of funds to the buyer and seller at the completion of a real estate transaction.

Back 1

Settlement statement

Front 2

Deposit of documents and funds with a neutral third party plus intructions as to how to conduct the closing.

Back 2

Escrow closing

Front 3

The moment at which title passes from seller to the buyer

Back 3

Deed delivery

Front 4

To divide the ongoing income and expenses of a property between the buyer and the seller

Back 4

Prorate

Front 5

A federal law that deals with procedures to be followed in certain types of real estate closings.

Back 5

RESPA (real estate settlement procedures act)

Front 6

The person or firm in charge of an escrow

Back 6

Escrow agent

Front 7

An escrow for the purpose of financing property not in connection with a sale

Back 7

Loan escrow

Front 8

Refers to the closing costs paid by the buyer or seller that did not go through the closing agent

Back 8

Outside of the closing

Front 9

A list of anticipated closing costs given to the borrow by the lender as required by RESPA

Back 9

Good faith estimate (GFE)

Front 10

Federally related lenders are required to use this particular closing statement format

Back 10

HUD-1 (HUD settlement statement)

Front 11

The day on which the closing is finalized; also called the settlement date

Back 11

Closing date

Front 12

The process of completing a real estate transaction

Back 12

Title closing

Front 13

A final inspection of the property just prior to the settlement date. This is to protect both the buyer and the seller and is also good practice prior to closing

Back 13

Walk-through

Front 14

A meeting at which the buyer pays for the property and receives a deed for it; also called a settlement meeting

Back 14

Closing meeting

Front 15

Shows the unpaid balance on a loan and is provided by the lender.

Back 15

Beneficiary statement

Front 16

A method to avoid rescheduling a closing meeting when a document, known to be on it's way, has not yet arrived

Back 16

Dry closing

Front 17

As a means of closing a real estate transaction, how does an escrow closing differ from a settlement meeting?

Back 17

The key difference is that an escrow is a common agent of the parties to the transaction. This eliminates ghe need for each party to attend the closing and personally represent himself.

Front 18

What are the duties of an escrow agent?

Back 18

Escrow agent duties include preparation of escrow instructions, holding a buyer's earnest money, ordering title search, obtaining title insurance, making prorations, loan payoffs, loan disbursement, deed and mortgage delivery and handling papers and paperwork relative to the transaction.

Front 19

Is an escrow agent the agent of the buyer or the seller? Explain.

Back 19

The escrow agent is an agent of the buyer with respect to the buyer'a role in the transaction and an agent of the seller with respect to the seller's role. The same holds true for the lender, title company, and so on. The escrow agent's duty is to treat all parties fairly and not serve one party to the exclusion of the other.

Front 20

Why is it important to have the buyer and seller sign mutual release papers if a transaction does not close?

Back 20

Without release papers, the buyer has a vaguely defined liability to buy and the seller can still be required to sell.

Front 21

The buyer agrees to accept the seller's fire insurance policy as part of the purchase agreement. The policy costs $180 and covers the period from January 16 through the following January 15, and the settlement date is March 12. How much does the buyer owe to the seller (closest whole dollar)?

Back 21

$180 divided by 12 equals $15 per month or 50 cents per day. Using standard 30-day months and presuming the buyer is the owner commencing with the settlement date, there is 1 month and 26 days used, and there are 10 months and 4 days remaining. For this remaining coverage, the buyer pays the seller 10 times $15 plus 4 times $0.50 equals $152.00

Front 22

A buyer agrees to assume an existing 8% mortgage on which $45,000 is still owed; the last monthly payment was made on March 1 and the next payment is due April 1. The settlement date is March 12. The local custom is to use a 30-day month and charge the buyer interest proration. To whom is it credited? To whom is it charged?

Back 22

Daily rate equals $45,000 times 8% divided by 360 equals $10. The buyer is credited 11 days times $10 equals $110. The seller is debited (charged) the same amount.

Front 23

In real estate closing, does the buyer or seller normally pay for the following items: conveyance tax, deed preparation, lender's title policy, loan appraisal fee, mortgage recording and mortgage release?

Back 23

BUYER: lender's title policy, loan appraisal fee, and mortgage recording.

SELLER: conveyance tax, deed preparation and mortgage release

Front 24

During a walkthrough, the buyer should

Back 24

test heating and air conditioning systems and plumbing.

Front 25

A buyer and seller are more likely to shake hands upon completing the real estate transaction at the

Back 25

Settlement meeting. The buyer and seller do no meet during an escrow closing, so could not shake hands. Both are rarely present when the offer is presented and when notified of offer acceptance.

Front 26

A settlement agreement may take place in the offices of

Back 26

any location acceptable to all parties

Front 27

When a real estate settlement is held in escrow

Back 27

there is no closing meeting and escrow closing may be conducted by mail.

Front 28

At a closing meeting, the seller would sign what?

Back 28

Deed to the property

Front 29

At a closing meeting, the buyer would sign what?

Back 29

The mortgage on the property and the Promissory note.

Front 30

At a closing meeting, the lender would sign what?

Back 30

The satisfaction piece

Front 31

Is the following statement correct? " In the course of a settlement meeting, the seller should deliver the deed to the purchaser before the purchaser signs the note and mortgage."

Back 31

Yes, because the purchaser must hold title to the property before he can mortgage it so the deed must be delivered before the mortgage is signed. Buyer cannot mortgage property which he does not own

Front 32

What is NOT a purpose of a settlement statement?

Back 32

Setting limits to fees charged at closing

Front 33

Settlement statements provide the following

Back 33

- Provide am accounting of all funds involved in the transaction
- Identity all parties who receive funds from the transaction
- Meet RESPA requirements

Front 34

The final action to be taken to complete a real estate transaction is to

Back 34

record appropriate instruments

Front 35

What is disbursed at a "dry closing"?

Back 35

nothing

Front 36

During an escrow closing

Back 36

buyer and seller do not meet

Front 37

While a buyer's funds are held by the escrow agent, they are kept

Back 37

In a trust account

Front 38

Settlement by an escrow agent does not eliminate the need for a real estate broker, an attorney or title insurance therefore the buyer and seller

Back 38

do not meet because closing is handled by a third party

Front 39

In an escrow closing, funds are disbursed

Back 39

after necessary recordings take place

Front 40

At an escrow closing, the closing, delivery of title and recordation take place

Back 40

at the same time

Front 41

In an escrow closing, the escrow agent serves as agent for

Back 41

both the buyer and the seller

Front 42

One advantage of the escrow closing method is that it can eliminate

Back 42

a personal confrontation between buyer and seller

Front 43

An escrow can be used when a property is being refinanced, a mortgage loan is being paid off, or when a sale is being made under an installment contract EXCEPT when

Back 43

a lease is signed, specifically a lease with option to buy is negotiated.

Front 44

Typical time between purchase contract signing and settlement will most likely be for

Back 44

30-60 days after the signing of a purchase agreement

Front 45

"Time is of the essence" in real estate purchase contract most nearly means

Back 45

parties are expected to close on time but that reasonable delays for reasonable reasons will probably be tolerated

Front 46

If the seller and buyer find that the real estate purchase cannot be completed and agree orally to simply drop it with no further liability to either party, they should

Back 46

sign mutual release papers because the contract must be rescinded in writing

Front 47

The buyer and seller sign a real estate purchase contract with the closing to take place in 45 days. Before the closing, the seller gets a better offer on the property. Can the seller accept the better offer?

Back 47

Yes, the original contract s legally enforceable however the better offer could be accepted if the seller and buyer agree to rescind their contract.

Front 48

Taxes, all rents from income producing properties, and an assumed homeowners insurance policy are among items prorated at the settlement or escrow closing EXCEPT

Back 48

Title insurance policy because the buyer pays this in full.

Front 49

Prorations of items in a real estate closing are made usually as of the date of

Back 49

title transfer

Front 50

On June 13, a buyer agreed to assume the seller's 8% loan, which has a balance of $36,720 as of June 1. The day of closing belongs to the seller. Interest on this loan would be prorated as follows:

Back 50

The proration is a debit to the seller and credit to the buyer of $106.08, computed as follows:

$36,720 X .08 / 12 = $244.80 per month interest

$244.80 / 30 = $8.16 per day X 13 = $106.08

Front 51

The Internal Revenue Code provides that the seller's proceeds from all sales of real estate must be reported to the IRS on Form 1099 except a

Back 51

Principal residence. Unless the gain on the property is excluded as a principal residence the Internal Revenue Code provides that the seller's proceeds from all sales of real estate must be reported.

Front 52

A property on which the annual taxes are $662.40 was sold and settlement will take place on April 14. The taxes in this community are on a calendar year basis and are not yet paid. Based on 30-day months and charging the buyer with the day of closing, the proration will be as follows:

Back 52

Charge the seller $189.52. Since the taxes have not been paid, the prorated amount would be a charge to the seller and computed as follows:

$662.40 per year / 12 months = $55.20 per month

$55.20 per month / 30 days = $1.84 per day.

Jan 1 to April 12 = 3 months, 13 days
(Days of closing is charged to the buyer)

3 X $55.20 = $165.60; 13 X $1.84 = $23.92

Front 53

Taxes of $1,320 were paid in advance for the full calendar year. The property was sold and closing took place on August 16. Purchaser was responsible for the day of closing. Taxes would be prorated as follows:

Back 53

Prepaid taxes will result in a credit to the seller and a debit to the purchaser. The computation is as follows:

$1,320 per year / 12 months = $110 per month

August 16 to December 31= 4.5 months
(taxes prepaid by the seller)

$110 X 4.5 = $495 credit seller, debit buyer

Front 54

A buyer obtained a new loan to buy a home. Closing will take place on December 5, and loan payments are to fall on the first of each month. To accomplish this, the interest proration on this loan will be a

Back 54

charge to the buyer and a credit to the lender, prorated forward. The buyer will be charged interest for the remainder of December at closing. The first monthly payment will be due on Feb 1 for the month of Jan.

Front 55

There is a street improvement assessment currently against the seller's house. If the seller is to sell the property,

Back 55

The seller and the buyer can negotiate which of them will pay the assessment.

Front 56

What does NOT comply with the provisions of RESPA?

Back 56

Sales financed by an installment contract.

Front 57

A couple sold the home they owned free and clear. They accepted a down payment of 25% of the purchase price and carried back a note and mortgage for the remainder. Would the provisions of RESPA apply to this couple?

Back 57

No, because no federally related lender was involved, therefore the sale is not covered by the provisions of RESPA

Front 58

Among other things, RESPA prohibits

Back 58

kickbacks and/ or fees for service not actually performed during the closing process, but does not prohibit the buyer from selecting the title insurance company.

Front 59

The amount of advance tax and insurance payments collected at closing by a lender for deposit in an impound or escrow account

Back 59

is limited to the owner's share of accrued taxes prior to closing, plus 1/6 of the next year's estimated tax and insurance payments. RESPA limits tax and insurance escrows required by a lender at closing. Some lenders voluntarily pay interest, and some states require that they do so.

Front 60

Under provisions of RESPA,

Back 60

payments outside of the escrow are prohibited. RESPA requires that the buyer be given an estimate of closing charges and costs in advance of closing, but does not prohibit payments outside of escrow. The lender must use the HUD Uniform Settlement Statement, which must be available to the buyer the day before settlement.

Front 61

If the property being sold is a condominium unit, there will be a monthly homeowners' association payment to be prorated. Suppose the monthly fee is $120 and is paid in advance on the first of the month. If the closing takes place on the 20th, then

Back 61

The buyer owes the seller $40 for the unused portion of the month.

$120 / 30 = $4 per day seller paid for month in advance so buyer owes seller for 10 days. 10 days X $4= $40

Front 62

The seller pays 70% of closing costs and the buyer pays the balance. If closing costs are $540, how much more does the seller pay than the buyer?

Back 62

70% X $540 = $378 (seller pays)
30% X $540 = $162 (buyer pays)

$378 - $162 = $216 (answer)

Front 63

A two-family flat rented for $300 for one unit and $450 for the other. Both rentals were due on the first of each month. Property was to be closed on November 15 with the seller responsible for the day of closing. Both rents were paid on time. How much would the seller be debited or credited?

Back 63

$450 + $300 = $750 rent paid Nov 1 for Nov.

$750 / 30 = $25 per day

$25 X 15 days = $375 (answer); debit seller, credit buyer

Front 64

Taxes of $500 per year are on a calendar basis and are paid for the current year. A vacation cabin is sold for $35,000. Settlement will be on May 1. Your commission is 6%. The mortgage balance is $22,790 and interest has been paid to May 1. Disregarding the miscellaneous charges, how much will the owner receive at the settlement?

Back 64

$500 / 12 X 8 (months after settlement) = $333.33

$35,000 X .06 = $2,100 commission

$35,000 - $22,790 - $2,100 + $333.33 = $10,443.33 (answer)

Front 65

There is a principal balance of $9,000 on a mortgage. The interest rate is 71 / 2% per annum. The taxes and insurance total $540 per year. The monthly payment is $130, which covers interest, taxes, and insurance and the balance is applied to reduce the principal. What is the principal balance after the monthly payment is made?

Back 65

$540 / 12 months = $45 months of taxes and insurance

$9,000 X .075 / 12 = $56.25 loan interest for month.

$130 - $56.25 - $45 = $28.75 principal reduction

$9,000 - $28.75 = $8,971.25 (answer)

Front 66

At closing, on November 18, a buyer assumes the existing second mortgage of $12,000. Interest at 10% per annum has been paid up to and including Oct 31. Prorate the amount of interest that will be credited to the buyer. (Use a 30-day month and charge the buyer with the day of closing.)

Back 66

Seller owes buyer for the first 17 days of Nov.

$12,000 X .10 interest / 360 days per year X 17 days = $56.67 (answer)

Front 67

County taxes of $300 have been paid through the end of the year and annual school taxes of $540 have been paid through next June 30. Settlement is held on November 1 and belongs to the buyer. How much proration credit is due to the seller?

Back 67

County taxes for Nov. and Dec., credit seller

2 months = $300 / 12 X 2 months = $50
School taxes for Nov thru June, credit seller

8 months= $540 / 12 X 8 months = $360

$360 + $50 = $410 (answer)

Front 68

June 11 is the settlement day on a 10 unit apt building. Each unit rents for $600 per month, and all but one tenant has paid for June. If the buyer is responsible for the day of settlement, who would be debited and who would be credited and how much?

Back 68

The seller has collected rent for 20 days in June on 9 units that now belong to the buyer.

$600 / 30 days= $20 per day per unit

20 days X $20 per day X 9 units = $3,600. Credit the buyer and debit the seller $3,600