Unit 8: Escrow & Closing

Which of the following items would most likely appear as a credit in the seller's closing statement? a. Prepaid taxes b. Delinquent assessment lien c. An assumed loan d. Title insurance premium

(a) A seller who prepays the taxes would expect to get the unused portion back, which would show up as a credit. In most transactions, sellers pay for title insurance and any delinquent assessment liens, which would show up as debits. The assumed loan is a debit to the seller and a credit to the buyer. [Escrow]

Which of the following is not covered by title insurance? a. A zoning ordinance, regulation, or plan b. Loss due to a missing signature of a spouse on a deed to community property c. Unpaid county property tax not shown in the policy d. Incompetence of a former seller

(a) Generally, title insurance does not cover legislative regulations like zoning laws. [Assuring Marketability of Title]

Which of the following statements concerning escrow is correct? a. A perfect escrow exists when the buyer's closing statement and the seller's closing statement are exactly identical. b. In order for the escrow to be able to close, the buyer may be required to pay more than the amount stated in the escrow instructions. c. The amount in the final closing statement must be the same as the amount in the escrow instructions. d. None of the above

(b) Closing costs are generally not included in escrow instructions. They are calculated just prior to closing and are included in the closing statement. [Escrow]

Which of the following statements regarding escrow procedures is correct? a. A broker may hold an escrow for compensation for other parties if the broker has no interest in the transaction. b. When the escrow requirements have been met, the escrow agency changes from being agent of both parties to an agent of each party. c. When the escrow holder is in possession of a binding contract between the buyer and seller, it is said to be a complete escrow. d. The escrow officer acts as an arbitrator of disputes between buyer and seller.

(b) During escrow, the escrow officer is a neutral third party who acts as an agent for both parties. At the close of escrow, the escrow officer becomes a single agent for each party. A broker may only act as an escrow in transactions in which he or she has an interest. The escrow officer delivers the deed to the buyer and the funds to the seller. [Escrow]

The reason for using an escrow when a deed of trust is conveyed is to: a. comply with the Civil Code. b. ensure that the conditions and instructions of the agreement are satisfied. c. allow for recordation of the deed. d. provide for third-party liability.

(b) Escrow is not required. However, escrow, acting as a neutral third party helps to guarantee that all terms and conditions of the agreement are met. [Escrow]

Which of the following best describes completed escrow? a. It is equivalent to a perfect escrow. b. The escrow holder has ceased being an agent for both parties. c. All escrow instructions have been carried out. d. All services of the escrow holder are involved.

(b) Escrow is not required. However, escrow, acting as a neutral third party helps to guarantee that all terms and conditions of the agreement are met. [Escrow]

Escrow instructions must be: a. chartered. b. executed. c. notarized. d. recorded.

(b) One of the meanings of the term execute is to sign. An escrow is officially open when both buyer and seller have signed the instructions and delivered them to escrow. [Escrow]

If a buyer assumes an existing loan when purchasing a single-family residence, the settlement statement at close of escrow would show the assumption of the loan as: a. a debit to the buyer. b. a debit to the seller. c. a credit to the lender. d. neither a credit nor a debit.

(b) Since the loan shifts from the seller to the buyer, the loan amount is debited against the seller and credited to the buyer. An assumed loan is shown as a credit to the buyer and a charge or debit to the seller. [Hint: ABC - Assumption by the Buyer is a Credit] If it were a NEW loan, only the buyer would be credited. [Escrow]

Which system of land description employs meridians and baselines? a. Metes and bounds b. Public Land Survey system c. Subdivision system d. Lot, block, and tract system

(b) The Public Land Survey System uses imaginary lines to form a grid to locate land. North-south longitude lines, called meridians, and east-west latitude lines called baselines, intersect to form a starting point from which distances are measured. [Land Descriptions]

Which of the following is regarded as a recurring cost in a closing statement? a. Escrow fees b. Recording fees c. Impound accounts d. Premiums for title insurance

(c) An impound account is a trust account set up for funds set aside for future, recurring costs relating to a property. It is used as needed. [Escrow]

When buying a home, a purchaser was given a grant deed and a standard policy of title insurance. Which of the following is warranted by the seller but is not covered by the standard policy of title insurance? a. The grantor is legally competent. b. The grantor actually signed the deed. c. The grantor has placed no undisclosed liens against the property. d. There are no forged deeds in the chain of title.

(c) As we learned previously, a grant deed offers an implied warranty that there are no undisclosed liens made by the grantor. A standard title insurance policy does not protect against undisclosed liens, although an extended policy would. [Assuring Marketability of Title]

An escrow agent is authorized to: a. give the buyer advice about available financing. b. change the escrow instructions when asked to do so by the listing broker. c. call for funding of the buyer's loan. d. authorize a pest control company to make corrective repairs.

(c) Escrow agents may not offer legal advice, and may only act on written instructions from the parties to the escrow. Escrow agents write lenders of record for payoff amounts and funding. They accept pest control and similar reports, but cannot authorize any work. [Escrow]

If an escrow holder receives pest control reports from two different companies, the escrow officer should: a. submit the estimate requiring the most work. b. contact both inspectors and determine which of the two reports should be accepted. c. contact the brokers to ask for instructions from the buyer and seller. d. contact the broker to ask for instructions from the seller.

(c) The escrow officer does not give advice; he or she waits for proper instructions from both parties' broker(s). [Escrow]

How would a loan for the purchase of a residence appear on the buyer's closing statement? a. Credit to buyer, debit to seller b. Debit to buyer, credit to seller c. Credit to buyer d. Debit to buyer

(c) Whenever a buyer has a loan (new or assumed) it is shown as a credit on the settlement statement. [Escrow]

After a property is declared tax-defaulted for failure to pay property taxes, the occupant of the property: a. must vacate immediately. b. must pay rent to the State of California. c. may continue to reside on the property unhindered. d. is freed of tax obligations immediately.

(c) While the property is in a tax-defaulted status, the owner does not actually lose title and keeps possession for five years. [Tax Issues in Transferring Real Property]

An example of an ad valorem tax would be: a. income tax. b. estate tax. c. bridge toll. d. property tax.

(d) Ad valorem means according to value. [Tax Issues in Transferring Real Property]

Which of the following title insurance policies protects against all risks? a. Standard policy b. Extended policy c. A.L.T.A. policy d. No policy insures against all risks.

(d) No form of title insurance will insure against changes in zoning regulations. [Assuring Marketability of Title]

County governments levy taxes through: a. property taxes. b. special assessments. c. transfer taxes. d. all of the above.

(d) Real property is taxed at the local level through ad valorem property taxes, special assessments, and transfer taxes. [Tax Issues in Transferring Real Property]

How do special property tax assessments differ from annual property tax assessments? a. Annual assessments have priority over special assessments. b. Special assessments are imposed only by local authorities. c. Judicial foreclosure is required for unpaid special assessments. d. Special assessments provide for local improvements.

(d) Special assessments are spent on specific local improvements such as streets, sewers, sidewalks, parks, and water supply and treatment. Only owners who are affected by the improvements pay the assessment. [Tax Issues in Transferring Real Property]

A buyer who wishes to insure title to real property when it is purchased should secure a(n): a. guarantee of title. b. abstract of title. c. certificate of title. d. title insurance policy.

(d) Title insurance insures and protects title to property. [Assuring Marketability of Title]

Written summary of all useful documents discovered in a title search.

abstract of title

A Latin phrase meaning according to value.

ad valorem

A list of all taxable property showing the assessed value of each parcel; establishes the tax base.

assessment roll

A statement of the unpaid condition of a loan and describes the condition of the debt.

beneficiary statement

Begins on January 1 and continues through December 31 of the same year.

calendar year

All terms of the escrow instructions have been met.

completed escrow

A small and short-lived trust arrangement.

escrow

Acts as a neutral agent of both buyer and seller.

escrow holder

Starts on July 1 and runs through June 30 of the following year; used for real property tax purposes.

fiscal year

A trust account set up for funds set aside for future costs relating to a property.

impound account

Good or clear saleable title reasonably free from risk of litigation over possible defects.

marketable title

Land description that delineates boundaries and measures distances between landmarks to identify property.

metes and bounds

Map of a subdivision indicating the location and boundaries of individual lots.

plat map

An offer to issue a policy of title insurance in the future for a specific fee.

preliminary report

Taxes used to operate the government in general.

property taxes

The division and distribution of expenses and/or income between the buyer and seller of property as of the date of closing or settlement.

proration

An area of land, one square mile, or 640 acres; 1/36 of a township.

section

Taxes used for specific local purposes.

special assessments

An insurance policy that protects the insured against loss or damage due to defects in the property's title.

title insurance policy

The way title will be taken.

vesting