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12 Cards in this Set

  • Front
  • Back

Escrow:


An arrangement in which something of value (such as money or a deed) is held on behalf of the parties to a transaction by a disinterested third party (an escrow agent) until specified conditions have been fulfilled.

Escrow agent:


A neutral third party who holds things of value on behalf of the parties to a transaction in an escrow arrangement.

Hazard insurance:

Insurance against damage to real property caused by fire, flood, theft, or other mishap.

Settlement statement:

A document that presents a final, detailed accounting for a real estate transaction, listing each party’s debits and credits and the amount each will receive or be required to pay at closing.

Debits and credits:

A debit is a charge or debt owed to another, and a credit is a payment owed to you.

Prepaid (interim) interest:

Interest on a new loan that must be paid at the time of closing; covers the interest due for the first month of the loan term.

FIRPTA:

The Foreign Investment in Real Property Tax Act, which requires that an escrow agent must withhold funds from the sale of real property by a seller who is not a U.S. citizen, in order to prevent tax evasion.


RESPA:


A federal law that governs residential real estate closings, requiring institutional lenders to make disclosures concerning closing costs to loan applicants, and requiring closing agents to prepare a uniform settlement statement.

Uniform settlement statement:


A settlement statement required for any transaction involving a loan that is subject to the Real Estate Settlement Procedures Act (RESPA).

1.


Most real estate transactions in California are closed through the escrow process. Money and documents are given to a neutral third party (the escrow agent), who holds them until they can be disbursed or delivered to the proper parties. The escrow agent may also handle a variety of other tasks, such as preparing documents for the parties to execute, ordering the preliminary title report, calculating and prorating closing costs, and preparing settlement statements.


2.


Some of the most important aspects of the closing process are inspections and repairs, approval of the buyer’s loan, the appraisal, and the purchase of hazard insurance and title insurance. As a real estate agent, you should have a checklist of what needs to be done and make sure everything is getting done in time for the closing date. It’s part of your job to keep the sale on track.


3.


You should be able to provide good estimates of the buyer’s net cost and the seller’s net proceeds. To do this, you need to be familiar with the standard closing costs and who typically pays them. You must also be able to prorate certain expenses, such as property taxes and hazard insurance.


4.


The income tax regulations that apply to real estate closings include Form 1099-S and Form 8300 reporting rules, the Foreign Investment in Real Property Tax Act, and the California withholding law. In some transactions, FIRPTA or the state withholding law requires a portion of the seller’s proceeds to be withheld and sent to the IRS or the Franchise Tax Board.


5.


The Real Estate Settlement Procedures Act, another federal law, helps home buyers and sellers understand their closing costs. RESPA applies to most residential real estate transactions financed with institutional loans. Key requirements include the good faith estimate of closing costs and the uniform settlement statement. The prohibition on kickbacks and referral fees is another important aspect of RESPA.


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