CH 13: Contracts for Sale and Closing

Hazard insurance is paid _______.

annually at the beginning of the year

Property taxes are paid _______.

annually in arrears

conversion

borrowing from the escrow account to pay for other expenses -illegal

commingling

broker putting escrow deposit in a different account besides the escrow account -illegal

2 methods of allocating closing expenses

by local custom and by negotiation

assignment clause

can prohibit assignment

debit vs. credit

debit = pays money credit = receives money

paid outside closing (POC)

expenses already paid, but still shown in HUD-1 for accounting reasons and won't be added

default FL deed

general warranty deed

Interest on a mortgage is paid _______.

in arrears each month

The _____ broker is usually responsible for the successful completion of the closing.

listing

roles of the brokers

listing broker is an agent of the seller selling broker is a subagent of the listing broker and facilitator for the buyer (no legal role after contract is signed)

Intangibles tax on the Note

multiply by .002 -paid by the buyer -only paid for NEW financing, not when you assume an existing mortgage

If built before 1978,

must give a pamphlet about radon gas and lead-based paint

Statute of Frauds

old English law that serves as the basis for contract law -requirement that contracts be in writing

parol evidence rule

prohibits the admission of oral evidence in disputes involving written contracts

Bar Association

realtors jointly drafted contract form as a resolution to the risks of standard form contracts

3 types of proper description of the property

recorded subdivision plat method metes and bounds method government rectangular survey system

compensatory damages

repay the damages done

Doc Stamp tax on the Note/Mortgage/Contract

round to nearest $100, then multiply by .0035 -paid by the buyer

Doc Stamp tax on the Deed

round to nearest $100, then multiply by .007 -paid by the seller -key words "obtain new financing" and "purchase of property"

punitive damages

to punish and go above and beyond the damage caused

simultaneous issue

when a title company issues a policy to both an owner and a mortgagee

mutual assent

"a meeting of the minds" in offer and acceptance

When must the RESPA requirements be met...

-if a buyer obtains a NEW first mortgage loan from a federally chartered or insured lender -when the loan is insured by the FHA or guaranteed by the VA (conventional) -when the loan will be sold to one of the federally related secondary mortgage market agencies (Fannie Mae or Freddie Mac)

3 aspects of legal competency

-legal age -not incapacitated -having authority to enter into a contract

HUD-1 Form divides estimated closing costs into 3 groups...

-those that will not change at closing -those that may differ from the GFE estimates by an aggregate amount of 10% -those that have no limit for changes

obligations of the seller

-to deliver clear and marketable title to the property to the buyer at closing -to maintain the property in good repair until closing -to allow the buyer to inspect the property just prior to closing -to pay the agreed upon brokerage commission

rights of the buyer

-to obtain clear and marketable title at closing -to receive the property and appliances in the same condition they were when the contract was signed -to back out of the transaction if the property is substantially damaged or destroyed before closing

obligations of the buyer

-to pay the price on the terms specified in the contract at closing

rights of the seller

-to receive the sale price on the terms specified in the contract

an aggrieved SELLER can...

1. agree to rescind the contract 2. sue for damages 3. retain all or a portion of any deposits

an aggrieved BUYER can...

1. agree to rescind the contract 2. sue for damages 3. sue for specific performance

7 elements of a valid and enforceable contract for sale

1. competent parties 2. offer and acceptance 3. consideration 4. legal objective 5. no defects to mutual assent ~specific to the sale of real estate~ 6. written form (to be enforceable, not legal) 7. proper description of the property

3 defects to mutual assent

1. one party attempts to perpetrate fraud on the other party or makes a misrepresentation 2. a substantial error is made (ex. name on contract) 3. one of the parties is under duress, undue influence, or menace

RESPA requirements

1. special information HUD closing booklet 2. good-faith estimate of settlement costs (within 3 business days of the loan application) 3. mortgage servicing disclosure statement 4. uniform settlement statement HUD-1 Form (borrower can inspect statement 1 business day before closing) 5. prohibition against kickbacks

Lenders often require borrowers to add ______ of the borrower's estimated tax bill to their required monthly mortgage payments.

1/12 -these prepaid taxes are held in escrow -the lender will then pay the taxes on behalf of the borrower

A lender cannot demand an escrow "cushion" of more than _______ of the total charges in the annual escrow cycle.

1/6

earnest money

A cash deposit by a buyer at the time of the offer to establish credibility of the offer, and to provide recourse to the seller if the buyer reneges. -usually 5-10% of the purchase price

personal performance (contract)

A contract that requires a service or action on the part of one party. This includes leases and mortgage loans, for example, which require regular payments. Generally, these contracts are not fully assignable in that the lessee or mortgagor remains liable for the obligation.

In most straightforward transactions involving houses or other relatively small properties, the contract is: Prepared by the seller's attorney. Prepared by the buyer's attorney. Prepared by the broker. A form, with blanks filled in by the broker. A form, with blanks filled in by buyer and seller.

A form, with blanks filled in by the broker.

specific performance

A legal action brought in a court of equity, compelling a party defaulting on a contract to carry out the exact requirements of the contract rather than, for example, settling for damages -rests on 2 notions about land 1. a parcel of land is unique, and irreplaceable, and nothing except that parcel can make the aggrieved buyer whole 2. since value of land is often uncertain, the damages due to a seller's default could be difficult to measure

An earnest money deposit is: A preliminary contract. A provision in a contract for sale. A payment of money by a buyer to evidence good faith. An escrow provision. A conveyance.

A payment of money by a buyer to evidence good faith. -ex. security deposit on an apartment

escrow agent

A person or company that performs the closing function for a fee; escrow agents collect all needed documents and funds for disbursement at the closing.

To prevent a violation of the parol evidence rule, the __________________ requires certain contracts be in writing to be enforceable. A) Statute of Frauds B) Statute of Limitations C) Recording Statutes D) Doctrine of Duress

A) Statute of Frauds

Recording documents in public records provides ________________ notice of an interest in real property. A) constructive B) ample C) actual D) documented

A) constructive

The purpose of a closing statement is to: Determine who pays the brokerage commission. Allocate expenses and receipts of buyer and seller. Prorate expenses between buyer and seller. Account for moneys in a transaction. All but a above.

All but a above.

Real estate transactions do not close at the same time the contract for sale is signed by both parties because: An inspection must be made. Financing must be arranged. Title must be checked. Documents must be prepared. All of the above.

All of the above.

prorating

Allocation of costs and revenues between buyer and seller of real property at closing, based on the time of ownership by each party.

contracts with contingencies

An agreement for sale that makes the sale conditional on the buyer's obtaining something such as financing or a favorable engineering report.

estimated closing costs

An estimate of all the costs to be incurred at a real estate closing. Most commonly, the estimate is provided by a lender, in accordance with the requirements of the Real Estate Settlement Procedures Act (RESPA).

consideration

Anything of value given to induce another party to enter into a contract. -doesn't have to be equal or monetary

A contract with a minor is _____________ contract. A) an invalid B) a voidable C) an illegal D) an unenforceable

B) a voidable

A broker who receives an earnest money deposit from a buyer in connection with a purchase contract should immediately A) deposit the money in the brokerage firm's general operating account. B) turn over the money to a title company for deposit into their account. C) turn over the money to the seller for deposit into their checking account. D) do any of the above

B) turn over the money to a title company for deposit into their account.

Agent has until the end of the next business day to get the escrow check from the buyer to the broker.

Broker has 72 business hours from the time the escrow check leaves the buyer's hands to get it into an escrow account.

If a buyer assigns a purchase contract to a third party buyer, which statement would be TRUE? A) The assignor is immediately relieved from further responsibility under the contract. B) The assignment automatically terminates the contract and creates a new one in favor of the assignee. C) If the assignee fails to perform, the assignor may be held liable. D) Sellers cannot prevent a purchase contract from being assigned.

C) If the assignee fails to perform, the assignor may be held liable.

"Meeting of the minds" is an element of which contract requirement? A) competent parties B) legal objective C) offer and acceptance D) consideration

C) offer and acceptance

To the extent that the information is available, the borrower must be permitted ___________ to inspect the HUD-1 form. A) 24 hours B) 72 hours C) one business day D) three business days

C) one business day

The lender must provide a good-faith estimate of settlement costs to the borrower within A) 24 hours after the closing. B) 24 hour prior to the closing. C) 2 calendar days from the date the purchase contract was signed. D) 3 business days of the loan application.

D) 3 business days of the loan application.

Unless specified otherwise in the contract, sellers of residential property are required to A) deliver clear and marketable title at closing. B) convey the appliances in the same condition as when the contract was signed. C) provide a one-year home warranty at closing. D) a and b only

D) a and b only

When the purchase contract is signed by the buyer and seller, the buyer immediately receives A) marketable title. B) legal title. C) ostensible title. D) equitable title.

D) equitable title.

When contracts for the sale of real property are placed with a disinterested third party for executing and closing, they are said to be placed in: Safekeeping. A title company or financial institution. Option. Escrow. Assignment.

Escrow.

closing

Event at which possession and title to real estate normally are transferred from seller to buyer.

recording

Filing of a document with the appropriate public official or office in order to provide constructive notice to the public of a sales transaction or legal contract.

Which of the following conditions would be a defect to mutual assent in a contract for the sale of real property? One party attempts to perpetrate fraud on the other. The contract is in written form. The price is excessive. One of the parties is legally incompetent. The contract does not specify a time for closing.

One party attempts to perpetrate fraud on the other.

legal title

Ownership of property; for real estate, a lawful claim, supported by evidence of ownership.

two parts of a form contract

PART ONE Sections 1-9: items to be filled in about the specific property and transaction; need to be customized or negotiated PART TWO Sections 10-18: routine topics, less dependent on the specific transaction -Disclosures -Property Maintenance -Condition -Inspection and Examinations -Escrow Agent and Broker -Default and Dispute Resolution -Standards for Real Estate Transactions -clause 18F: concerning time; "time is of the essence" -> "drop-dead" default on contract; no "time is of the essence" -> "reasonable time" to fix problem -clause 8B: financing contingency clause

Which of the following is one of the "terms" of a real estate contract? Mechanical equipment must be in good condition. Title must be marketable. Price to be paid. Property must be free of termites. All of the above items are terms.

Price to be paid.

contract conditions

Specific requirements that must be satisfied by or for a party to a contract.

If a buyer defaults on a contract to purchase real property, which of the following is not a remedy the seller can pursue? Rescind the contract. Sue for damages. Sue for assignment. Retain all or part of the binder deposit.

Sue for assignment.

contract terms

The detailed requirements of a fully enforceable contract, such as the price, the down payment, any seller financing, provisions for inspections, type evidence of title, type of deed, dates, and other details of the transaction process.

contract for sale

The legal document between a buyer and seller that states the purchase price and other details of the transaction, and the detailed manner in which ownership rights are to be transferred. Is generally regarded as the most important contract in real estate.

Oral evidence in contract disputes is prohibited by: A parol contract. An executory contract. An inferred contract. An unspecified contract. The parol evidence rule.

The parol evidence rule.

equitable title

The right of someone to obtain full, legal title to real estate, provided the terms and conditions of the document creating equitable title (usually a contract for sale) are fulfilled.

Equitable title to real estate is: Legal ownership of property. Legal title obtained in a court of equity. Title obtained by adverse possession. A legal interest in a property conveyed by a listing contract to a broker. The right to obtain legal title conveyed by the contract for sale.

The right to obtain legal title conveyed by the contract for sale.

escrow

The status of real estate transactions that are closed through the help and intercession of a third party, called an escrow agent. The deed is delivered to the escrow agent for delivery to the buyer on performance of a condition (payment of the purchase price). -has to be held in a bank in the same state

rescission

The termination of a contract by cancellation. Under the Truth-in-Lending Act (TILA), a borrower's right to cancel a non-purchase loan contract within THREE days that is secured by his or her principal residence.

assignment

The transfer of the original lessee's rights under the lease contract to another tenant. The original lessee and the new tenant may be co-liable if rent payments are not made.

closing (settlement) statement

a document summarizing the financial flows that occur at closing; includes a detailed itemization of the expenses that must be paid by both buyer and seller at closing

Real Estate Settlement Procedures Act (RESPA)

a federal law that requires federally chartered or insured lenders to provide buyers and sellers of one-to-four-family homes, cooperatives, and condominiums with information on all settlement costs.