Ch. 12 - Closing Disclosure Quizes

Ivan is buying Martha's property for $200,000. At settlement, she pays 6% commission on the sale in addition to $8,500 in other settlement costs. She owes $92,000 on the existing mortgage, which is paid from the proceeds of the sale. How much will Martha receive at settlement, assuming she is debited $1,000 for the due diligence fee Ivan has already paid her and there are no other credits or debits?

$86,500

The closing costs shown in the Loan Estimate must be available for at least

10 business days. - The estimate of the charges and terms for all settlement services, but not the interest rate, must be available for at least 10 business days from when the LE is provided.

Let's look at another example. John purchases Tina's property for $100,000. He agrees to assume her first mortgage of $64,000, which has a current balance of $51,200. He also gets a loan from a bank for $10,000. The escrow officer tells John that his settlement costs total $1,500. How much cash does John need to bring to settlement?

100,000 - 51,200 = 48,800 - 10,000 = 38,800 + 1,500 = 40,300

The standardized Closing Disclosure must be given to the borrower in the transaction at least _________ prior to closing.

3 business days

According to RESPA, which of the following would LEAST LIKELY be considered a settlement service provider?

moving company wrong answers: real estate appraiser / real estate broker / mortgage loan originator

A lender discovers that there is an error on the Loan Estimate that requires redisclosure. The revised LE must be provided to the borrower within _____ of receiving information sufficient to make that determination.

3 business days - When necessary, a revised LE must be provided within three business days of receiving information sufficient to make that determination.

If a lender discovers an error on Closing Disclosure that resulted in the borrower paying more than necessary, the lender must issue a corrected CD and send a refund to the borrower within

60 days

Jack is buying Larry's house for $245,900. He gets a loan for $198,600. What is the required excise tax due at settlement?

$492.00

When a Loan Estimate is provided to a borrower, it is considered to be provided in good faith when the actual closing costs are lower than those shown on the

Closing Disclosure.

A real estate broker is required to calculate debits and credits and complete the Closing Disclosure or other settlement statement.

False

As long as the total that is disclosed on the Loan Estimate does not increase by more than 10 percent from the total disclosed on the Closing Disclosure, that grouping of fees is considered disclosed in good faith

True

It is usually the responsibility of the buyer to pay the appraisal fee to determine the value of the property being sold.

True

Items typically prorated between buyer and seller at settlement include property taxes, homeowners association fees, rent on investment property.

True

Remember that if a corrected Closing Disclosure is required, certain changes could push back the closing date by as much as six business days (three business days for the buyer to receive a corrected CD from the lender followed by the three business-day waiting period).

True

The loan that a borrower gets to purchase property is considered a credit to the buyer.

True

The seller is responsible for the expense of preparing a new deed.

True

As long as an escrow/impound account is required for property taxes, the lender must provide the borrower with an Escrow Statement

once a year. - After the loan closes, servicers must provide borrowers with an Annual Escrow Statement for as long as the impound account is required.

An ________________ is a document prepared by an attorney stating the attorney's opinion of the status of the title to a piece of property as of the date it is issued. The buyeris generally responsible for these expenses.

opinion of title

The Closing Disclosure

provides a financial accounting of a buyer's and sellers' closing costs.

if a local taxing jurisdiction sets the tax rate at $2.15 per $100 of assessed value, and the property's assessed value is $83,000, the property tax would be calculated as follows: $83,000 (assessed value) / $100 = 830 830 x $2.15 =

$1,784.50 property tax

Borrower Fred is getting a loan for $80,000 to purchase a property for $120,000. He pays two points in loan origination fees and one discount point to get a better interest rate. He paid $325 for an appraisal and $65 for a credit report. Assuming he will not owe PMI or interim interest, what are Fred's total finance-related closing costs?

$2,790 - A point is 1% of the loan amount, and he is paying 3 points total: $80,000 x 0.03 = $2,400. Add the appraisal and credit report fee to find total finance-related closing costs of $2,790.

Seller Jeanne just sold her house for $379,000. Her listing agreement indicates that she will pay 6.5% of the sales price as commission when the transaction closes. How much commission does she owe (rounded to the nearest dollar)?

$24,635

Let's practice with a simple example. Ivan is buying Martha's property for $200,000 and gets a loan for 80% of the purchase price. He already paid a $4,800 earnest money deposit and a $1,000 due diligence fee. Without considering any other settlement costs or credits, what is the balance Ivan needs to bring to settlement?

$34,200

The actual annual percentage rate for a fixed rate loan shown on a Closing Disclosure is considered accurate if it is not more than ______ higher than that shown on the Loan Estimate.

1/8% - The APR is generally considered accurate if it does not vary above or below that initially disclosed on the LE by more than 1/8% for a regular transaction.

A week after closing, a borrower discovers that she overpaid a settlement charge that was on the Closing Disclosure. The lender must reimburse her and send her a corrected Closing Disclosure within

60 days.

The earliest that a mortgage loan may close is __________ days after a borrower receives the Loan Estimate.

7 business days

The Loan Estimate must be given to a borrower at least ______ before loan consummation.

7 business days and 3 days for closing disclosure

Tina sells her property to John for $100,000. He assumes her first mortgage of $64,000, which has a current balance of $51,200. Tina will pay a 3% commission to the listing broker, and the escrow officer tells her that her other settlement costs total $650. How much will Tina receive at settlement?

Begin by adding up Tina's debits. $51,200 (loan balance) + $3,000 (commission) + $650 (settlement costs) = $54,850. Then subtract her debits from the purchase price: $100,000 - $54,850 = $45,150. Tina should get $45,150 at settlement.

A transaction item affects both parties, always a debit to one party and a credit to the other party that appears on both sides of a ledger or settlement statement.

Double-Entry

A debit to the seller on a settlement statement means that the seller will receive that amount.

False

For every debit to the seller indicated on a settlement statement, there must be a corresponding credit to the buyer, and vice versa.

False

It is usually the responsibility of the seller to pay home inspection fees.

False

Which is NOT required to be given to a borrower within three business days of a completed loan application?

Initial Escrow Statement - The Initial Escrow Statement must be given to a borrower within 45 days of closing. The other disclosures are required to be given within three business days of a completed loan application. wrong answers: Loan Estimate / Mortgage Servicing Disclosure Statement / Your Home Loan Toolkit

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

Prepaid Expenses

____________, also known as ad valorem taxes ("according to value"), are based on the assessed value of the property as determined by a local tax assessor.

Property taxes

A real estate broker rents office space from a title company at a discount in exchange for referring customers for settlement services. Which federal law does this arrangement violate?

RESPA

The Loan Estimate and Closing Disclosure were created under the provisions of which federal rule?

TRID

Which statement about the Closing Disclosure is FALSE?

The Closing Disclosure must be given to a borrower at least three calendar days prior to close. - The Closing Disclosure must be given to a borrower at least three business days prior to close. wrong answers: A seller-only Closing Disclosure may be prepared that excludes the buyer's loan details. / The Closing Disclosure replaces the HUD-1 Settlement Statement and the Final Truth in Lending Statement. / The Closing Disclosure and Loan Estimate are known as the "Know Before You Owe" disclosures.

While an updated Closing Disclosure would be required if a discrepancy is discovered, which change would NOT require a new three-business day waiting period?

The escrow requirements have increased by 15%. wrong answers: The APR increases 1/4% on a fixed rate loan. / The loan product changes from fixed rate to adjustable. / A penalty for paying off the loan early is added.

Which change to a Closing Disclosure would trigger a new three-business day waiting period before a loan can close?

The lender decides to add a prepayment penalty to the loan. wrong answers: The borrower decides to pay some discount points to lower the interest rate. / The seller agrees to reimburse the buyer for the cost of the survey. / The lender decides to include the homeowners association fees in the escrow.

Which federal law requires that borrowers be shown how much they are going to pay for credit terms as the annual percentage rate?

Truth in Lending Act

The purpose of the Closing Disclosure is to provide

an accounting of actual settlement costs.

Under the provisions of RESPA, which is NOT required for a completed loan application?

background check of the borrower

A lender gives the borrower a list of recommended title insurance companies. If the borrower chooses a company that is NOT on the list, the actual cost of the policy

can exceed the estimate by any amount.

When comparing the charges on a Loan Estimate and a Closing Disclosure, which of these charges could legitimately change by any amount?

interim mortgage interest - Depending on what day the closing takes place, the interim mortgage interest owed by the borrower could be different from what was shown on the Loan Estimate. The other charges may not change or may not change above a certain tolerance.

Which of these expenses would NOT be itemized as "Other Costs" on Page 2 of the Closing Disclosure?

loan origination fee wrong answers: commission / home inspection fee / homeowner association fees

When evaluating a Loan Estimate, which of the following expenses is subject to a 10% tolerance?

services the borrower can shop for - Of these, the only charges that are subject to a 10% cumulative tolerance are third-party charges that the borrower is allowed to choose.

The purpose of the Closing Disclosure is to

summarize the financial aspects of a real estate transaction.

What is the purpose of the Closing Disclosure?

summarize the financial aspects of a real estate transaction.

A ___________ is the process of determining the physical size and boundaries of the property. While the buyer generally bears the expense of a survey, it would likely be the seller's responsibility to cover any expenses associated with clearing up any cloud on the title, such as an encroachment, that is revealed by the survey.

survey

Of these, who is responsible for ensuring that the buyer receives the Closing Disclosure?

the lender

Each of the following settlement charges can exceed the estimate by an amount EXCEPT

transfer tax charges. wrong answers: property taxes. / property insurance premium. / prepaid interim mortgage interest.

Ollie is selling his property to Bianca for $96,000. It has an assessed value of $48,000. If the tax rate in his town is $3.05 per $100 of assessed value, what are the annual property taxes?

$366 - If the annual property tax bill is $1,464, the monthly bill would be $122 ($1,464 / 12). Three months of property tax would be $366 ($122 x 3). In addition to whatever Bianca owes for the prorated taxes, which would be based on the closing date as we'll see in the next unit, she will be debited for $366 that will be deposited into the escrow account the lender uses to pay her property taxes for her when they come due.

Amy is buying Jordan's house for $215,800. The excise tax is $1 for every $500 of transaction value or fraction thereof. How much must Jordan pay at settlement when he sells his house to Amy?

$432.00

Escrow reserves are :

(insurance, property tax)

A lender must provide a Loan Estimate to the borrower within _________ of completing a loan application.

3 business days

Which federal entity is responsible for enforcing RESPA?

CFPB

A standardized 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; required for all RESPA-related transactions. Also called Settlement Statement.

Closing Disclosure

Money offered as an indication of good faith regarding the future performance of a purchase agreement.

Earnest Money

To determine how much a buyer owes at settlement, you need to start with the sale price, add all buyer credits and subtract all buyer debits.

False - It's the opposite for a buyer. The sale price is a debit to the buyer, so to determine how much the buyer owes, you add the debits to the sale price and subtract the credits.

Borrower Fred paid the appraisal fee and credit report fee outside of closing. These will appear on a settlement statement as a debit to him.

False - Since he has already paid these expenses, at closing they may appear as P.O.C., or paid outside of closing but would NOT be calculated as a debit or a credit.

A contract between a homeowner and a home warranty company that provides coverage for the repair or replacement of named components of the home for a specified period of time, such as one year.

Home Warranty

Certain loans require a borrower to pay a private mortgage insurance (PMI) premium to protect a lender against default on a loan by a borrower, usually when the loan-to-value is more than 80%. There may be an upfront PMI payment in addition to a monthly payment. (Note that a lender might require a buyer to deposit mortgage insurance premiums into the escrow account.)

Mortgage Insurance Premiums.

Any expenses associated with a real estate transaction that are paid outside of closing or before closing. Such payments may be noted on a settlement statement as such but are not reconciled as credits.

Paid Outside of Closing (P.O.C.)

Which is MOST LIKELY to be a bona fide reason for holding loan consummation before the waiting periods have expired.

The seller is facing a foreclosure action.

A tax levied on the transfer of a piece of real property from one person to another; it could be levied by the state, the county, or the municipality; in North Carolina, called Excise Tax.

Transfer Tax

A debit is money you owe, and a credit is money coming to you.

True

All debits owed by the buyer are totaled and added to the purchase price. Then the credits are totaled and subtractedfrom the total debits to determine how much money the buyer must bring to settlement.

True

An escrow account, sometimes called an impound account depending on where you live, is set up by your mortgage lender to pay certain property-related expenses. ... Many lenders require that you pay your taxes and insurance using escrow, so they can make sure that the bill gets paid.

True

Commission Rate x Sales Price = Commission

True

A borrower applies for a loan on Thursday, December 17. The lender mails the Loan Estimate to her the next day, and then emails the Closing Disclosure to her on Tuesday, December 22. What is the soonest that closing could take place?

Wednesday, December 30

A lender may allow a borrower to pay a higher interest rate in order to lower the upfront closing costs for a borrower.

Yield Spread Premium

When a changed circumstance has occurred to the loan product after the Closing Disclosure has been delivered to the borrower, the loan originator must

deliver a revised Closing Disclosure and apply a new three-day waiting period before loan consummation.

An ________ deposit is a credit to the buyer since it represents funds already paid and it reduces the amount of cash the buyer must bring to settlement.

earnest money

when real estate is transferred to a new owner, an _________, also referred to as areal estate transfer tax is levied on the property based on the property value. The seller is responsible for paying this fee to the register of deeds in the county in which the real estate is located when the deed is presented to be recorded.

excise tax

If a revised Loan Estimate is emailed to the borrower, it is considered to be received by the borrower

three business days after the email is sent if receipt is not verified earlier. - A revised Loan Estimate is considered received by the consumer on the day it is provided if delivered in person. If it is mailed or delivered electronically (email, fax, etc.), the consumer is considered to have received it three business days after the disclosures are mailed or transmitted.

A borrower owes $3,600 this year for property tax. What is the maximum amount the lender can collect every month for the impound/escrow account?

$300 - RESPA limits the amount a lender may require a borrower to put into an escrow account or impound account to no more than 1/12th of the total of all disbursements payable during the year (one month). In this case, the maximum is $300 a month.

Item on a settlement statement for which the cost has been incurred, but the expense has not yet been paid. Such expenses are considered to be paid in arrears.

Accrued Expense

Jason, a real estate broker, also owns the mortgage company his buyer chooses. Which of the following is TRUE under RESPA?

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

Which document must be provided to a borrower within three business days of completing a loan application?

Loan Estimate

A borrower applies for a loan on Saturday, February 8. The lender mails the Loan Estimate to him on Monday, February 10. He stops by the lender's office on Friday, February 14 to pick up the Closing Disclosure. Closing is scheduled for Tuesday, February 18. On Monday, February 17, the lender contacts the borrower to inform him that the APR on his fixed rate loan had changed by 3/8% since the borrower had neglected to lock in the interest rate. The lender says he will mail the corrected disclosure that day. What is the soonest this loan could close?

Monday, February 24

Karen applies for a loan on Wednesday, June 13. The lender mails her the Loan Estimate the next day. On Monday, June 18, the lender emails Karen the Closing Disclosure. What is the earliest this loan may close?

Monday, June 25 - The earliest a loan may close is the seventh business day after the initial Loan Estimate is provided to the borrower. But borrower Karen must receive the Closing Disclosure at least three business days before the loan closes. If the lender emails the CD, she is considered to have received it three business days after it was mailed, which in this case would be Thursday, June 21. The loan can close three business days later, which is Monday, June 25.

The following are the common double-entry items in a real estate transaction:

Sale price of the property (Credit Seller / Debit Buyer) Due diligence fee (Debit Seller / Credit Buyer) Real estate taxes (if prorated) Homeowners association fees (if prorated)

The Loan Estimate must be given no later than how many business days after the creditor receives the consumer's completed application?

Three

Borrower Joe applies for a loan on Monday, March 1, and the lender hands him the Loan Estimate before he leaves. On Thursday, March 4, the lender mails Joe the Closing Disclosure. What is the earliest this loan may close?

Thursday, March 11

___________ is an insurance policy guaranteeing that title to property is good title and insuring the policyholder against loss or damages from defects in the title. A title insurance policy offers the best proof of marketable title. Different policies may be issued to protect the: Lender (ALTA) Policy. This title insurance policy is usually purchased by the buyer to protect the lender by ensuring the lender's encumbrance is the first lien on the property. Owner's Policy. This optional policy protects the new owner's title to the property. In North Carolina, it is usually the buyer who pays for an owner's policy, but this expense may be negotiable.

Title insurance

A double-entry item affects bothparties as a debit to one party and a credit to the other party. Common double-entry include the sale price of the property (credit seller / debit buyer); due diligence fee (debit seller / credit buyer); real estate taxes (if prorated); homeowners association fees (if prorated).

True

A due diligence fee is an agreed-upon amount that the buyer pays the seller directly for the right to terminate the contract for any reason or for no reason during the due diligence period. In most transactions, this nonrefundable fee is considered to be a credit to the buyer, again, since it reduces the amount of cash the buyer must bring to settlement. However, the due diligence fee is also a debit to the seller, since the fee was paid directly to the seller prior to closing.

True

Lenders often require borrowers to establish an escrow account—sometimes called an impound account or reserve account—into which the borrower makes periodic payments to cover the property taxes and property insurance that is owed (and, sometimes, homeowners association fees). The necessary amount, which is prorated over the next 12 months, is added to the monthly principal and interest due for loan repayment to protect the lender's interest in the property by ensuring these important payments are made. At closing, a buyer is usually required to prepay a designated number of months, usually anywhere between two and six months, into the escrow account. This would be a debit to the buyer.

True

Let's look at an example. Let's say a property sells for $267,300. To determine the excise tax the seller owes, first divide by $500: $267,300 purchase price / $500 = 534.6 That .6 indicates there is an additional fraction of $500, so you need to round up to the next whole dollar amount to find that the excise tax is $535.

True

Providing funds to a borrower to purchase a home carries with it a great deal of financial risk for the lender, who is said to have an insurable interest in the property. To protect that collateral, therefore, lenders normally require the buyer to obtain homeowner's hazard insurance. This is a policy that covers loss or damage to the home or property in the event of a fire or another disaster such as a tornado, snow, or hail. Lenders generally require the policy to be sufficient to replace the home or reimburse the mortgage amount with the lender being named on the actual policy.

True

Recording a deed makes its existence clear to third parties as part of the public record and ensures against lost documents. While a deed is NOT required to be recorded to be valid, an unrecorded deed does not protect the new owner against challenges to title. Therefore, the buyer is responsible for paying any fees associated with recording the deed. The buyer would also pay any fees associated with recording his or her mortgage, even though it is done to protect the lender's interest.

True

Typical buyer credits include the amount of the mortgage loan since the lender brings that amount to settlement; earnest money deposit and due diligence fee paid before settlement.

True

paid or interim interest represents the cost of borrowing money over the period of time between your mortgage closing date and the date of your first payment.

True

when a home warranty is included on a settlement statement, the expense could be a debit to the seller OR to the buyer, as negotiated between the parties.

True

The earnest money deposit and due diligence fee that Ivan paid shows as a credit to him on a settlement statement.

True - Since he's already paid those expenses, they would be considered a credit.

The loan amount is a credit to the buyer.

True - Since the lender brings the loan amount to settlement, that counts as a credit to the buyer.

To determine how much a seller will receive at settlement, you need to start with the sale price, add all seller credits and subtract all seller debits.

True - The sale price is a credit to the seller, so to determine how much the seller will receive, you add the seller's credits to the sale price and subtract the seller debits.

A borrower applies for a loan on Monday, August 1 and receives a Loan Estimate that day. The lender delivers a Closing Disclosure to the borrower via courier on Tuesday, August 2. What is the soonest that closing could take place?

Tuesday, August 9 - Since the borrower received the Closing Disclosure on Tuesday, August 2, the three-business day rule would allow closing on Friday that week, but both waiting periods must expire, and a loan cannot close until the seventh business day after the initial Loan Estimate is provided. That makes the earliest closing Tuesday, August 9.