Property Title and Closing: Part 2

Ad Valorem

A Latin phrase meaning according to value used to refer to taxes assessed on the value of property.

Abstract of Title

A brief, chronological summary of the recorded documents affecting title to a particular parcel of real property.

Cloud on the Title

A claim, encumbrance, or defect that makes the title to real property unmarketable.

Chain of Title

A clear and unbroken chronological record of the ownership of a specific piece of property; the chain of deeds and other documents transferring title to a piece of property from one owner to the next, as disclosed in the public record.

Face to face closing

A closing conducted with all parties present

Subrogation

A company issuing title insurance usually reserves the right to pursue third parties to regain any claim money paid.

Escrow Agent

A disinterested third party who conducts an escrow closing.

Property inspection reports

A document from a professional home/property inspector about the conditions of a property and it's structures. These are often required by a lender before approval of a loan is granted. These include inspections for termites, structural integrity, septic systems, and radon gas, among others.

Certificate of Title

A document prepared by an attorney stating the attorney's opinion of the status of the title to a piece of property, after performing a title search and reviewing the public records. Also called an Opinion of Title.

closing disclosure

A document required by the Real Estate Settlement Procedures Act 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 generically a settlement statement.

Bill of Sale

A document used to transfer title to personal property form one person to another.

Suit to Quiet Title

A judicial proceeding to determine who has title to a piece of property, or to remove a cloud from the title. Sometimes called a Quiet Title Action.

Wild Deed

A recorded deed that will not be discovered using the grantor-grantee indexes because of a break in the chain of title.

Lis Pendens

A recorded notice stating that a lawsuit is pending that may affect title to the defendant's real estate.

Title Report

A report issued by a title company, disclosing the condition of the title to a specific piece of property.

Affidavit of Title

A statement, sworn in front of a notary public or other authorized official, by the seller or grantor of property that identifies the grantor, identifies the grantor's marital status, and certifies that the grantor has no new judgments, liens divorces, unrecorded deeds, or other potential title defects since the title examination was completed. It also certifies that the grantor is indeed in possession of the property. Also called Vendor's Affidavit.

Credits

A sum of money that is to be received

Location Survey

A survey that determines if a property's buildings encroach on adjoining property, or an adjoining property's buildings encroach on the subject property. This is not a staked survey where flags are placed on the actual property lines. Also called a Surveyor Location Report.

Title Search

A systematic search of the public record to determine all rights and encumbrances affecting title to a piece of property.

Hidden Risk

A title risk that is not apparent during an examination of the public records, such as forgery. Hidden risks are covered under standard title insurance policies but not covered by a certificate of title.

Continuation

A title search performed just prior to settlement in order to bring a preliminary title report up to date and ensure that no intervening rights to the property have come up. Also called a continuance, Bring-Down or Update

Marketable Title

A title that is free and clear from undisclosed encumbrances or other defects that would expose a purchaser to litigation or impede a purchaser's ability to enjoy the property or to later sell the property. Marketable title is required to be delivered by the seller to the purchaser at settlement.

Owner's Policy

A type of title insurance issued in the name of the property owner. Coverage runs from the time of purchase for as long as the policyholder owns the property.

Lender's Policy

A type of title insurance that the lender may have drawn in its own name to protect its interests in the property. This policy is for the loan amount that's outstanding at the time a claim would be paid. Also called a Mortgagee's Policy.

Lender's Policy

A type of title insurance the lender may have drawn in its own name to protect its interests in the property. This policy is for the loan amount that's outstanding at the time a claim would be paid. Also called a Mortgagee's Policy.

Statutory Year

A year based on a monthly rate that considers each month to be 30 days. There are 360 days in a statutory year

Lou wants to build a 13.5 x 20 x 6 pool. The excavation will cost $40 per cubic yard. how much will the excavation cost? A. $2,400 B. $10,800 C. $21,600 D. $64,800

A. $2,400 - to find the cubic yards, you divide by 27, which is 60 cubic yards. at a cost of $40 per cubic yard, the excavation will cost $2,400.

Broker Carol negotiates a 7% commission for selling Rob's house. When the house sells for $389,000, how much will Carol earn if she pays the first 10% of her commission to her national realty company as a franchise fee? A. $24,507 B. $27,230 C. $29,953 D. $37,733

A. $24,507

The premium for a two-year insurance policy on a home is $460. The policy was purchased and paid for August 1, 2005. The house sells and the closing takes place June 2, 2007. Using a 365 day year, what is the seller's credit? A. $37.17 B. $37.69 c. $37.81 D. $74.36

A. $37.17

Bonnie sold her condo for $105,050. She paid off the $58,000 owed on her mortgage, 7% commission, attorney fees of $200, and recording and closing fees of $345. What was the net to seller? A. $39,151.50 B. $39,189.65 C. $43,211.50 D. $43,249.65

A. $39,151.50

A buyer asks for a chronological summary of the liens, encumbrances, chain of title, transfers, and deeds that have been recorded for the property he is about to purchase. Which of the following would fulfill the buyer's request? A. abstract of title B. title insurance C. title report D. title search

A. Abstract of title - provides essential provisions of every recorded document pertaining to a particular parcel of land, lines, encumbrances, chain of title transfers etc.

An owner may use various deeds to voluntarily transfer his or her right, title or interest in a property. Which of the following may NOT be used? A. administrator's deed B. deed in trust C. quitclaim deed D. warranty deed

A. Administrator's deed - administrators deed is executed pursuant to a court order. The statutory deed is used to convey title to property that is transferred by court order, not by the owner.

What is an expense on a settlement statement for which the cost has been incurred but the expense has not been paid? A accured item B. good faith estimate C. prepaid item D. propration

A. accured item - such as real estate tax

An abstract of title is a A. chronological summary of the essential provisions of every recorded document pertaining to a particular parcel of land. B. Contract whereby a title insurance company indemnifies the owner that title is free of defects and hidden risk. C. sworn statement from an attorney that title is good. D. written declaration by a person executing an instrument before an officer authorized to give a note.

A. chronological summary of the essential provisions of every recorded document pertaining to a particular parcel of land

On a settlement statement, the buyer's mortgage is a A. credit to the buyer B. credit to the seller C. debit to the buyer D. debit to the seller

A. credit to the buyer - People often think of a mortgage as a debit, but on the settlement statement it is actually a credit to the buyer against the purchase price obligation which is a debit; it reduces the amount of money that the buyer must bring tot he closing table.

Roberta is buying Ralph's house. She is assuming his mortgage. Is that mortgage on the property as a lien, and if so, will it be excluded from the title insurance? A. yes, it's a lien on the property, and yes it will be excluded B. yes, it's a lien on the property, but no, it will be excluded C. no, it's not a lien on the property, but yes, it will be excluded D. no, its not a lien on the property, and no it will not be excluded

A. yes, it's a lien on the property, and yes, it will be excluded. An assumed mortgage is a lien that will stay with the property. It will show up as an exception to the title insurance coverage.

American Land Title Association

ALTA - The association that developed an extended-coverage policy of title insurance for lenders ( same coverage available to buyers ). Members agree to promote uniformity quality and professional standards in title insurance policies. Polices issued by ALTA members follow specific guidelines.

Extended Coverage

An expanded form of title insurance in which coverage's and restrictions are similar to a standard coverage policy with additional protections. It covers additional defects in the title such as unrecorded interests that may be discovered only through actual inspection of a survey. Extended coverage is frequently required by lenders.

Mortgage

An instrument that creates a voluntary lien on real property to secure repayment of a debt.

Promissory Note

An instrument that spells out the financial terms of the loan and provides evidence of the promise to pay a specific amount of money to a specific person within a specific time frame. A written, legally binding promise to repay a debt.

Title Insurance

An insurance policy guaranteeing that title to property is good title and insuring the policyholder against loss or damages from defects in the title.

Homeowners insurance

An insurance policy that will cover loss or damage to the home or property in the even of fire or other disasters.

Debits

Any sum of money that is owned

Carlos was closing on a house he's purchasing for $150,000. The sellers agreed to reimburse him $500 for a termite inspection and $500 for a damaged door. Carlos also negotiated to pay the sellers $500 more if they would leave the draperies and blinds. With these credits and debits considered how much does Carlos owe on the property? a. $149,000 b. $149,500 C. $150,000 d. $150,500

B. $149,500

A property with a market value of $260,000 is assessed at 50%. if the tax rate is 3.2% or $.032, what are the annual property taxes? A. $2,080 B. $4,160 C. $8,125 D. $8,320

B. $4,160

Jason, a real estate broker, also owns the mortgage company his buyer chooses. Which of the following is true under RESPA? A. Jason must advise his buyer to select a different mortgage company. B. Jason may refer the buyer to his mortgage company as long as he discloses his interest in the company to the buyer. C. Jason may not refer buyers to his mortgage company, but if the buyer chooses the company independently, this is permitted, as long as Jason discloses his interest in the company. D. Jason may not refer buyers to his mortgage company, but if the buyer chooses the company independently, Jason has no obligation to disclose his interest in the company.

B. Jason may refer the buyer to his mortgage company as long as he discloses his interest in the company to the buyer.

Gary just bough Happy Acres Farms from Vic. At closing, who signs the new deed? A. Gary only B. Vic only C. both Gary and Vic D. Gary, Vic, and a witness, usually the settlement officer

B. Vic only - The deed that grands property to the buyer is required to be signed only by the seller, Vic.

A debit is NOT a. a sum of money that is owed b. a sum of money that is to be received C. money that must be paid to the other party D. seen as a charge on a balance sheet

B. a sum of money that is to be received

The seller's share is A. a declaration of how much you'll make in commission from a transaction B. an estimate of the amount of money a seller gets from a transaction C. a safety feature for the seller in case she doesn't get as much money as she wants D. the total accounting of the expenses the seller is responsible for at closing.

B. an estimate of the amount of money a seller gets from a transaction

Bob's layer examines an abstract of title and gives Bob the opinion that the title is vested in owner Alvin. This opinion is called A. abstract of title B. certificate of title C. chain of title D. title report

B. certificate of title - also known as opinion letter, is given by a lawyer who has examined an abstract of title; the lawyer forms an opinion as to whom the title is vested in.

Which is the last step in the process of conducting a closing? a. buyer hands over funds b. commission is paid c. earnest money deposit is received d. seller hands over executed deed to the property

B. commission is paid. - the closing agent will disburse commission funds to the broker after the exchange of deed and consideration take place.

A deed should be recorded in order to provided A. actual notice to a buyer B. constructive notice to the world C. lis pendens D. proof of ownership

B. constructive notice to the world

Extended coverage title insurance differs from standard coverage title insurance by A. extending the period of time that insurance coverage is effective B. covering additional defects in title that may be discovered only through a survey C. protecting against known defects D. protecting against forged documents and improper deeds.

B. covering additional defects in title that may be discovered only through a survey. - extended and standard coverage would protect against forged documents and improper deeds and neither protects against known defects. The length of coverage is the same in both - as long as the owner owns the property.

What would NOT appear in a title report? A. pending lawsuit B. satisfied mechanic's lien C. unpaid mortgage D. utility easement

B. satisfied mechanic's lien - the report shows only the current defects or clouds on the title. Satisfied liens would appear on the abstract but not on the title report.

Evelyn sold her condo for $110,000. Her broker received a 7% commission. Assuming Evelyn was responsible for no other expenses, what was her net share? A. $101,200 B. $102,000 C. $102,300 D. $103,400

C. $102,300 - Evelyn would receive 93% of the sale price

In the MLS/BLC, it state that the listing managing broker will pay 3% as a co-op fee to the selling managing broker. Selling manager broker David earns a total of $5,340 commission. What was sale price of the property? A. $76,286 B. $112,140 C. $178,000 D. $186,900

C. $178,000

The market value of a property is $90,000 and is assessed at 35%. The annual taxes are $1,260. What is the tax rate? A. 2.8% B. 3.5% C. 4.0% D. 4.2%

C. 4.0%

Jim buys a triangular shaped lot with 60 front feet. Each side of the lot is 100 yards deep. What is the square footage of Jim's lot? A. 3,000 square feet B. 6,000 square feet C. 9,000 square feet D. 18,000 square feet

C. 9,000 square feet - convert the depth from yards to feet (100 x 3 =300). Then, to find the square footage of a triangular lot, divide the base of the triangle by 2 (60 / 2 =30), then multiply by the depth (30 x 300 = 9,000).

Lisa buys a house and records her deed. Later she sells the house to Scott, but Scott does not record his deed. Scott sells the land to Will, and Will records his deed promptly. Whose deed is the will deed? A. Lisa B. Scott C. Will D. None of the deeds are wild

C. Will - There's a break in the chain of title; the record shows only Lisa's deed and Will's deed. The link between them (Scott's deed) is missing, so Will's deed is a wild deed.

A title examiner tries to establish the present owner of a certain property by reviewing the public record to find all encumbrances and all the previous conveyances. The title examiner is trying to establish A. abstract of title B. certificate of sale C. chain of title D. opinion of title

C. chain of title - a string of successive conveyances from one owner tot he next owner arranged consecutively from the first recorded owner of the property to the current owner is called a chain of title.

A mortgagee's title policy is designed to protect which party against loss? A. buyer B. seller C. lender D. lender and buyer

C. lender - Mortgagee's title policy assures a lender that it has a valid first lien against the property. The buyer is protected by the woner's policy of title insurance.

Homeowner's insurance might be an example of an A. accrued item on a settlement statement B. good faith estimate C. prepaid item on a settlement statement D. unnecessary expense that may be slipped into closing paperwork

C. prepaid item on a settlement statement

A deed must be acknowledged in order to be A. accepted B. convey title C. recorded D. valid

C. recorded

Rich gives Jill a quick claim deed. A title insurance company issued a policy indicating that Rich had a clear title to the property. Three months later, a mechanic's lien against the property for $12,000 is discovered. The court orders Jill, as owner of the property, to clear the lien. Who should Jill go after to recover the money? A. both Rick and the title company C. Rick only C. the title company only D. the title company and the real estate agent

C. the title company

Settement

Closing on a real estate transaction

Property taxes are levied against the A. acquisition cost of the property B. adjusted sales price of the property C. appraised value of the property D. assessed value of the property

D. assessed value of the property - the assessed value of the property is the market value multiplied by the tax ratio.

What is the title company's primary responsibility? A. conducting the closing after all conditions of the closing have been met B. giving an executed deed for the property to the closing agent C. providing financing for the purchase D. researching the title

D. researching the title

David asks his lawyer for a certificate of title on property that David is about to buy. What is David asking his attorney to do? A. give David a document stating David can make improvements to the property B. issue a certificate telling David he's entitled to a deed upon court confirmation of a sheriff's sale C. issue a certificate telling David exactly how much is still owed on his mortgage and that the bank cannot contest that amount D. review an abstract of title and give an option to David as to who is the owner of the property

D. review an abstract of title and give an opinion to David as to who is the owner of the property - A certificate of title, also known as an option letter, is given by an attorney after examining an abstract of title stating the attorney's opinion as to who owns a particular property.

Discharge of Mortgage

Discharge or satisfaction of a mortgage, or release of lien, that happens once the seller's mortgage on the property is paid off. The lender issues the discharge of contract, and the seller should have this document recorded.

Evidence of Title

Evidence of title to real estate is provided through a title report or issuance of title insurance.

Accrued Items

Expense items on a settlement statement for which the cost has been incurred, but the expense has not yet been paid.

Prepaid Items

Expense items on a settlement statement the seller has already paid in advance, usually at the beginning of the year for the rest of the year or longer.

Assessments

Fees or costs paid by the buyer or the seller at closing. Also referred to as closing costs

HUD

The Department of Housing and Urban Development; government agency that deals with housing issues.

Proation

The allocation of expenses between buyer and seller in proportion to their actual usage of an item represented by the expense.

Proration

The allocation of expenses between buyer and seller in proportion to their actual usage of an item represented by the expense.

Adjusted Sales Price

The amount of money received from the sale of property minus the selling expenses; such as broker fees, attorney fees, etc.

Abstract

The chain of title to a piece of land

Commissions

The compensation paid to someone in lieu of or in addition to his or her regular salary. (Commissions may be a flat rate or percentage of sales price, but can only be counted as income if they are consistent)

Survey

The process of precisely measuring the boundaries and determining the area of a parcel of land.

Assessed Value

The value placed on property by a taxing authority (e.g. county assessor) for purposes of taxation. (Usually with real estate, value is a fraction of the true value)

Marketable Title

Title free and clear of objectionable encumbrances or defects, so that a reasonably prudent person with full knowledge of the facts would not hesitate to purchase the property.

closing

Transfer of real property ownership from seller to buyer, according to terms and conditions in a sales contract or escrow agreement; the final stage in a real estate transaction

Simultaneous Issue

When an owner's title insurance policy is issued at the same time as the mortgagee title insurance policy.

Standard Coverage

With standard title insurance coverage, the title insurance policy states all possible clouds or problems with the title, like liens or unpaid taxes. Title insurance protects the homeowner from claimants not stated in the insurance policy including defects in the public records such as forged documents, improper deeds, and other mistakes in the public records.

Escrow closing

a closing by a disinterested third party, often an escrow agent.

Real estate settlement procedures act (RESPA)

a federal law administered by the department of housing and Urban Development (HUD) that deals with real estate closing and sets forth specific closing procedures and guidelines. Implemented by Regulation X

credits

a sum of money that is to be received

Which document provides a summary of a property's entire title history? a. abstract b. deed c. survey d. title report

a. abstract

What is the document that transfers title of personal property from one person to the other? A. bill of sale B. deed. c. settlement statement D. title report

a. bill of sale

Seller's share

an estimate of the money a seller should receive from a real estate transaction based on a certain selling price after all costs and expenses have been paid. Also called Net to Seller or Seller's Net

Debits

any sum of money that is owed

What type of closing is conducted with all parties present? a. abstract b. escrow c. face to face d. settlement

c. face to face

settlement statements a. are documents that transfer ownership at closing b. are required for all property transfers c. provide a financial accounting of a buyer's closing costs. D. remove any cloud on the title

c. provide a financial accounting of a buyers closing costs.

Lois is buying a condominium. Settlement is March 31. The seller pays condo fees on the first of every month. How will these fees appear on the settlement statement? a. a three-month credit to the buyer b. a three-month debit to the buyer c. a nine month debit the buyer d. they will not appear on the settlement statement

d. they will not appear on the settlement statement - the fee is paid every month so there is no reason to prorate that fee when closing is on the last day of the month. It won't appear on the settlement statement

Prepaid items

expense items on a settlement statement that seller has already paid in advance, usually at the beginning of the year for the rest of the year or longer.

Reconciliation

verifying the debits and credits have been added and subtracted correctly on a real estate settlement statement.

Standard Coverage

with standard title insurance coverage, the title insurance policy states all possible clouds or problems with the title, like liens or unpaid taxes.