Unit 22: Closing the Real Estate Transaction

GFE closing costs that may or may not change

(1) No-tolerance fees- may not increase before closing, including lender charges for taking, underwriting, and processing the loan application (2)Ten percent tolerance fees - cannot increase by more than 10 percent in any given category, including settlement services for which the lender selects the provider or for which the borrower selects the provider from the lender's list (3)Unlimited tolerance fees- are out of the lender's control, including services for which the borrower chooses the provider (such as escrow and title insurance)

Sellers Concerns at Closing

(1) Sellers want assurance that the buyer has obtained the necessary financing (2) and that the buyer has sufficient funds to complete the sale. seller's main interest is to receive payment for the property.

Buyers Concerns at Closing

(1) the seller can deliver the title that was promised in the purchase agreement (2) the property is now in essentially the same condition it was in when the buyer and the seller agreed to the sale.

Types of settlements RESPA Applies to

(1)First-lien residential mortgage loans made to finance the purchases of one-to four-family homes, cooperatives, and condominiums, for either investment or occupancy (2)second or subordinate liens for home equity loans when a purchase is financed by a federally related mortgage loan

practices prohibited by RESPA

(1)Kickbacks, fee-splitting for referral fees, and unearned fees (2)Homesellers requiring that homebuyers buy title insurance from a particular company (3)Prohibits lenders from requiring excessive escrow account deposits, money set aside for taxes, hazard insurance, and other charges

Closing involves 2 Major Events

(1)Promises made in the sales contract are fulfilled (2)Mortgage funds are distributed to the buyer

Methods for calculating proration

(1)Yearly charge divided by 360 day year (a banking or statutory year), or 12 months of 30 days (2)Yearly charge divided by 365 (a calendar year), and then the actual number of days in the proration period is determined, and this number is multiplied by the daily charge

Mortgage Disclosure Improvement Act

A federal law that dictates the timeliness of certain disclosures that affect the date of closings. (1) 3 business days from application to provide the truth-in-lending (TIL) statement and good-faith estimate (GFE) (2) 7 business days before the signing of loan documents, after the borrower receives the final truth-in-lending statement and GFE (3) 3 business days to wait for closing if the annual percentage rate (APR) has changed more than 0.125 percent from the original or most recent TIL and GFE

Affiliated Business Arrangement (AfBA)

A package of business arrangements between real estate brokerage firms and affiliated mortgage companies or other settlement service providers, when there is more than a 1 percent common ownership between the companies. RESPA requires that consumers be informed of the availability and costs of other lenders.

Uniform Settlement Statement (HUD-1)

A special HUD form that itemizes all charges to be paid by a borrower and a seller in connection with the settlement; also called the HUD-1 form.

Transfer tax

A tax paid when title passes from one owner to another.

Recording Fees

Also known as filing fees, seller usually pays for recording charges necessary to clear all defects and furnish the purchaser with clear title according to the terms of the contract

Truth in Lending (TIL)

An act which requires lenders to inform borrowers of all direct, indirect and true costs of credit.

Paid outside of Closing (POC)

Charges required by the lender that are paid before closing

Prorations

Expenses, either prepaid or paid in arrears, that are divided or distributed between buyer and seller at the closing. They are necessary to ensure that expenses are divided fairly between the seller and the buyer.

Borrowers have the right to inspect the completed HUD-1, to the extent that the figures are available, one week before the closing.

False

If the lender changes the interest rate to the extent that the annual percentage rate (APR) increases by more than 0.125 percent from the original Truth-in-Lending (TIL) statement, settlement is delayed for at least seven business days.

False

Items customarily charged to the buyer include recording the satisfaction of mortgages, quitclaim deeds, and affidavits.

False

The licensee must be authorized to act as the principal's agent under a properly executed affidavit if the licensee is going to represent a party at a closing.

False

The taxing body that levies general real estate taxes in Pennsylvania is the county government.

False

When a purchase is financed by a private mortgage loan, requirements of the Real Estate Settlement Procedures Act (RESPA) apply.

False

The purchaser pays the appraisal fees in a real estate transaction.

False -either the seller or the purchaser pays depending on who orders the appraisal

IRS Reporting Requirements

Information to be reported includes the sales price, the amount of property tax reimbursement credited to the seller, and the seller's Social Security number.

Walk-through

Or the final inspection; shortly before the closing takes place, the buyer verifies that necessary repairs have been made, the property has been well maintained.

Good Faith Estimate (GFE)

Settlement costs: 3 page estimate of all closing fees that must contain the exact language specified by HUD, making it easier for borrowers to compare loan conditions from one lender to another within three days of the loan application as required by the Real Estate Settlement Procedures Act (RESPA).

Title or Opinion of Title

The attorneys opinion of title is a statement of the quality of the sellers title. Discloses all liens, encumbrances, easements, conditions, and restrictions on the property. The attorney's opinion is not a guarantee of title.

Closing (Settlement and transfer)

The conclusion of the real estate transaction. The point at which ownership (title) of a property is transferred in exchange for the payment of the selling price. It is the culmination of many efforts-finding clients, negotiating offers, solving problems, coordinating inspections. Main concerns are that buyer receives marketable title, and seller receives the purchase price.

Real Estate Settlement Procedures Act (RESPA)

The federal law that requires certain disclosures to consumers about mortgage loan settlements. The law also prohibits the payment or receipt of kickbacks and certain kinds of referral fees that can increase settlement costs for home buyers.

Survey

The process by which boundaries are measured and land areas are determined; the on-site measurement of lot lines, dimensions, and position of a house on a lot, including the determination of any existing encroachments or easements. A current survey confirms that the property purchased is exactly what the buyer wants.

Deed preparation fee

This fee is charged by the preparer of the new deed; it is customarily paid by the seller.

Mortgage servicing disclosure statement

This statement tells the borrower whether the lender intends to service the loan or to transfer it to another lender. It also provides information about resolving complaints.

Certain real estate closings must be reported to the Internal Revenue Service (IRS) on Form 1099-S.

True

Subtracting the total of the buyer's credits from the total debits equals the actual amount of cash the buyer must bring to closing.

True

Closing office or Closing Agent

Usually attorney of buyer or seller, a broker, or a representative of the lender or the title company. Orders and reviews title insurance policy or title certificate, surveys, property insurance policies, and other items. They also review the purchase agreement, and prepare a closing statement indicating the division of income and expenses between the parties

Face-to-face closing

When a closing takes place face-to-face. Usually those attending are: (1)Buyer (2)Seller (3)Real estate salespersons or brokers (Buyer's and seller's) (4)Seller's and Buyer's attorneys (5)Representatives of the lending institutions involved with the buyer's new mortgage loan, , buyer's assumption of the seller's existing loan, or the seller's payoff of an existing loan (6)Representative of the title insurance company

Debit

a charge—an amount that the party being debited owes and must pay at closing.

Credit

an amount entered in a person's favor—an amount the party has paid or an amount for which the party must be reimbursed.

Prepaid Items

are expenses to be prorated (such as fuel oil in a tank) that have been prepaid by the seller but not fully used. They are, therefore, credits to the seller.

Accrued Items

are expenses to be prorated that are owed by the seller (such as water bills and interest on an assumed mortgage) but will be paid later by the buyer. The seller, therefore, pays for these items by giving the buyer a credit at closing.

Mortgage Reduction Certificate

certifies the amount owed on the mortgage loan, the interest rate, and the date and amount of the last interest payment. Used when assuming the sellers existing mortgage loan.

The Real Estate Settlement Procedures Act (RESPA) applies to the activities of

lenders financing the purchase of a borrower's residence.

Escrow Account

mortgage lenders require that borrowers provide a reserve fund to pay future real estate taxes and insurance premiums. Also know as a impound account.

Special information booklet or HUD booklet

must be given at the time of application or provided within three days of loan application, provides the borrower with general information about settlement (closing) costs. It also explains the various provisions of RESPA, including a line-by-line description of the Uniform Settlement Statement (HUD-1).

Home Valuation Code of Conduct (HVCC)

requires that the borrower be provided with a copy of the home's appraisal within three business days of closing.

Title Expenses

seller is required to furnish evidence of good title and pay for the title search. If the buyer's attorney inspects the evidence or if the buyer purchases title insurance policies, the buyer is charged for the expense.

affidavit of title

sworn statement in which the sellers assure the title insurance company (and the buyer) that no other defects in the title have occurred since the date of the title examination. The seller has no need to execute an affidavit of title if closed through an escrow.

Closing Escrow

the buyer and the seller never meet; the paperwork is handled by an escrow agent

Passing Papers

the parties in the transaction sit around a table and exchange copies of documents

The condition of the seller's title is generally determined from a

title commitment or title insurance policy.

Pennsylvania Title Insurance Rating Bureau

title insurance rates set by this bureau. The rates cover the initial title search, the later search to bring down the title to the closing date and the title insurance policy

Closings may be held at a number of locations, including the office of the title company, the real estate broker, or the recorder of deeds.

true

The exchange

when the parties are satisfied that everything is in order. The seller delivers the signed deed to the buyer, who accepts it. All pertinent documents are then recorded in the correct order to ensure continuity of title.