Chapter 13

Truth in Lending Act and Real Estate Settlement Porcedures Act require lender to disclose closing costs using 2 forms.... what are they?

1. Loan estimate form- within 3 day sof laon application- lender must disclose estimated closing costs to application 2. Closing Disclosure Form- 3 days before closing- lender must disclose the actual closing costs to buyer using discloser form.

Purposes of RESPA

1. To provide borrowers with information about their closing costs 2. To eliminate kickbacks (referral fees between settlement service providers) that unnecessarily increase cost of closing.

Proration Formula

1. divide annual expense by either 365 0r 360 (bankers year) to get per diem cost 2. then multiply applicable number of days to determine the prorated cost.

Requirements for RESPA

1. requirement for borrower to use particular title company/appraiser must be disclosed to the borrower 2. if lender refers borrower to affiliated service provider-their business relationship must be fully disclosed 3. lender cannot require excessive deposits (more than necessary to cover expenses) into impound account. 4. settlement servces-no referral or kick back fees or unearned fees for services not actually provided 5. seller may NOT require buyer to use particular title company

Family is being home and will be using 30k in cash to make down payment at closing. To comply with IRS rules... which form will need to be filed to report this transaction?

8300

Which of the following transactions is NOT subject to the Real Estate Settlement Procedures Act? A. An FHA-insured loan B. A contract for deed used in a seller-financed residential sale C. A conventional loan to finance the purchase of a three-unit residential building D. A VA-guaranteed loan

B. RESPA applies to institutional loans used to finance residential properties with up to four units. Seller financing, including a contract for deed, is not subject to the act

All of the following charges are usually prorated between buyer and seller at closing, EXCEPT: A. property taxes B. recording fees C. special assessments D. utility bills

B. Recording fees are usually paid by both parties at closing, but rather than prorating, each party pays the costs associated with recording the documents that benefit that party. (For instance, the buyer pays to record the deed, while the seller pays to record the lien release.) you do not prorate, rather each party pays costs associated with recording the documents that benefit that party RECORDING feed are paid for by BOTH parties at closing

The Barkers have entered into an agreement to sell their house. Their property is subject to a special assessment for neighborhood improvements. The buyers will not assume the special assessment, as per the purchase and sale agreement. $1,500 of the assessment remains unpaid at closing. This will show up on the settlement statement as a: A. credit to the buyer B. credit to the seller and a debit to the buyer C. debit to the seller D. debit to the seller and a credit to the buyer

C. Because the buyers are not assuming the special assessment, the Barkers must pay off any remaining balance on the special assessment. This will be a debit to the sellers, and it will not affect the buyers' side of the settlement statement.

A federal law requires lenders to give a booklet about shopping for a home loan to all prospective borrowers within three business days of loan application. What law is this? A. Fraud Enforcement and Recovery Act B. Home Loan Disclosure Act C. RESPA D. Truth in Lending Act

C. RESPA requires, among other things, that lenders give prospective borrowers a copy of a booklet about closing costs and the home buying process, entitled "Your Home Loan Toolkit."

The primary purpose of the Real Estate Settlement Procedures Act is to: A. ensure that the seller receives the purchase price, the buyer receives clear title to the property, and the lender's security interest in the property is perfected B. require lenders to disclose the complete cost of credit to consumer loan applicants C. promote uniformity and accuracy in the closing process by requiring closing agents to be state-certified D. provide borrowers with information about their closing costs and to eliminate kickbacks and referral fees

D. RESPA is a federal law that requires certain information about closing costs to be disclosed to loan applicants, and also prohibits kickbacks and referral fees that unnecessarily increase the cost of settlement.

Debits and Credits

Debit- pay-you owe Credit-receive- you get.

Escrow agents must be licensed

Department if Financial Institutions requires all escrow agents to be licensed only CORPORATIONS may be licensed as escrow agents- individuals are not eligible. those who pass exam can only be escroq officers

Form 8300

Escrow Agent Must use form 8300 to report having received more than $10,000 cash in a transaction. (helps government detect money laundering)

Security deposits

NOT prorated must be transferred to the new owner (the buyer). credit to buyer and debit to seller

R.E.S.P.A

Real Estate Settlement Procedures Act -federal law that affects how closing is handled in most residential transactions that are financed with institutional loans

True Statement about Real Estate Settlement Procedures Act?

Seller is PROHIBITED from choosing title insurance company at closing

Prorated Taxes

Seller is responsible for the property taxes up to the day of closing

In RESPA, is the borrower entitled to a loan estimate showing settlement costs within three days of submitting an application?

YES. Under RESPA- lender is required to give a prospective borrower an estimate of the settlement costs within three days after a written loan application is submitted.

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. Also called a closing statement.

Escrow agent

acts as a dual agent represents both buyer and seller and owes feduciary duties to both parties

In short, RESPA applies to:

all institutional lenders and to most residential loans RESPA does NOT apply to seller financed transactions/commercial transactions

Real Estate Settlement Procedures Act (RESPA) applies to:

applied to residential first mortgages. Applies to mortgages used to purchase a dwelling with up to 4 units. does NOT apply to commercial transactions or seller financing.

Transactions Covered by RESPA

applies to federally related loan transactions loan is federally related if: 1. the loan secured by deed of trust agi=ainst an existing residential property or lot with 1-4 units 2. condo or coop unit 3. lot with mobile home AND lender is federally regulated (Fannie Mae Freddy Mac Ginnie Mae

Escrow

arrangement where money and documents are held by a third party (escrow agent) on behalf of buyer and seller

The brokerage is NOT a party in escrow

brokerage is NOT a principal in the transaction and cannot direct escrow agent

Finalizing a real estate transaction is also called....

closing or settlement

Rent paid in advance is what?

credit to buyer and debit to seller

On a settlement statement, an earnest money deposit will be held by the brokerage firm until closing as:

credit to the buyer (buyer paid this and the buyer will get it back) since it has been ALREADY paid- it applies to the purchase price. (good faith, just paying some of the purchase price)

New loan is listed as credit or debit to the buyer?

credit to the buyer ()they will be GETTING money in order to use it to pay for the house) buyer loan is part of purchase price and is credited to the sellers so NO entry is made on sellers side.

Earenest money deposit appears as debit or credit to the buyer?

credit to the buyer - it is what the buyer wil have to pay. (no entry is made on sellers side)

Assuming a loan- credit or debit to the buyer?

credited to the buyer assumed loan balance is DEBITED to the seller as will as interest due on it because they OWE it to the buyer

Commission, debit or credit to seller?

debit to seller- they helped you sell your house so they will pay the commission

Discount Points

debit to the buyer- unless seller has agreed otherwise

Payoff of Sellers loan is debit or credit?

debit to the seller (they owe it) no entry is made on the buyers side of the settlement

Prepayment penalty- debit or credit?

debit to the seller- they owe it.

Escrow Instructions

document that has written instructions from both parties, that determent what conditions and at what time the agent will distribute the money/documents to the proper parties.

Sellers Reserve Account

during the loan term where the borrower makes regular payments towards recurring costs...kept in RESERVE ACCOUNT. (also called impound account)

Closing Cost and Settlement Statement

escrow agent/lender prepares settlement statement - sets forth all financial aspect of transaction -shows how much seller will take away at closing and how much buyer will pay

Form 1099-S

form escrow agent uses when reporting gross proceeds from the sale to the IRS If escrow agent or mortgage lender fail to report the sale- it becomes real estate agents responsibility

Death or Incapacity doesn't terminate escrow

if a seller dies shortly after depositing the deed in escrow and buyer fulfills terms of escrow... the escrow will close as agreed

Seller financing- debit or credit to seller??

if seller accepts a mortgage from buyer for part of purchase price- shows up as buyers credit

Routable Closing

in other states, closing involves parties meeting together to sign and exchange documents called "rountable closing" or "passing papers" real estate agent is present as well to collect commission

What are recurring costs?

include property taxes, insuarance, assessments, homeowners association fees (principal and interest payments are NOT recurring costs and DO NOT go into reserve accounts)

Prorated interest

interest on sellers mortgage accrues up to and including the day the transaction closes. it is always ahead.... so you need to count backwards.

Hazard Insurance

lender may require buyer to pay for hazard insurance- which would be debit to buyer

Settlement Services Requirement for RESPA requirement

lender, real estate agent/anoher type of privder ex title company) may NOT pay or reciveve kick backs (fee for referring customers) 2. pay or recieve unearned fees for services not actually provided 3. charge a fee for preparation of the impound account settlement

Earnest money check bounces, what should the broker do first?

notify the PRINCIPALS -since both principals are party to the escrow instructions, broker should notify them both and decide how they want to proceed.

Who pays for recording fees??

paid for by which ever party benefits from having the document recorded

Prorations

periodic expenses (property taxes, mortgage interst payments, hazard insurance premiums- prorated between buyer and seller

What is the purpose of an escrow?

protects each from from the other's change of mind. -ex: if seller doesn't want to sell property as agreed, he can't refuse to deliver deed to buyer once deed is signed and given to escrow agent, buyer fulfills conditions, and deposits purchase price into escrow, escrow agent must deliver deed to the buyer.

Real Estate agents acting as escrow

real estate agents are exempt from escrow license requirements when handling escrow in which they are an agent they CANNOT charge a fee- if they acharge a fee they would have to be licensed as an escrow officer

Preparing Settlement Statement

real estate agents should understand the process of preparing settlement statements so they can help clients read them. determining what charges and credits apply to given transaction selling agent should provide prospective purchaser with estimate of prospects closing costs.

Excise Tax

sales tax paid to the sate on selling price- typically debit to the seller

On a settlement statement- the sellers net proceeds are calculated by?

subtracting the sellers debits from the sellers credits

Balance due from buyer

to determine the amount the buyer needs to provide in cash at closing- escrow agent would subtract buyers total credits from buyers total debits.

Final Settlement Statement Balances

totals in buyers debit and credit column must be the same totals in sellers credit and debit column must be the same BUT totals in buyers and totals in sellers columns do not need to match

Documentary stamp tax is also called

transfer tax or excise tax One name for the tax paid by the seller based on a percentage of the selling price is the transfer tax (or documentary transfer tax). It may also be known as a stamp tax or excise tax.

Does RESPA apply to single family homes?

yes- RESPA applies to federally related loan transactions when mortgage/deed of trust will be secured by dwelling with up to 4 units.