Chapter 12 - Quiz - Part 1
Which of the following is an example of an encumbrance?
Lien. Encroachment. Deed restrictions.
Janine wants to buy a house from Phillip. She asks Theodore to search Phillip's title. What kind of title does Janine want Theodore to find in the land records?
Marketable title
Title which a reasonable purchaser, informed as to the facts and their legal importance and acting with reasonable care, would be willing and ought to accept is known as...?
Marketable title
What does the buyer want to make sure the seller can convey?
Marketable title
What types of tax deductions is a new owner of residential real estate generally eligible for?
Mortgage interest, taxes, points or loan origination fees paid.
You are the buyer's broker and notice on the final walkthrough that the hot water heater is broken. The buyer is financing with a conventional loan. What is the best option?
Negotiate with the seller's broker for the seller to offer a concession equal to the value of a new water heater. If agreed to, you would draw up an addendum for signature and forward to the settlement attorney.
Generally, how many land record offices will a title searcher have to visit to search a title?
One. Only the local records office will have to be visited, as land records are only filed with the local office.
Who is in charge of closings in North Carolina?
Only an attorney.
Cheryl signs a contract to buy a home. During the due diligence period, the inspector finds asbestos insulation that is beginning to deteriorate. What options does she have with all types of loans?
Persuade the seller to make repairs, make them herself, or back out of the contract and forfeit the due diligence money but not the earnest money. More restrictive loan types will require that the repairs be made before approving the loan, so repairing the asbestos after closing is not an option with all lenders. If Cheryl backs out during the due diligence period she loses only her due diligence fee and not the earnest money. She only loses the earnest money if she waits until after the due diligence period ends to back out.
In the purchase contract, the buyers are listed as Suzy Smith and John Doe. The loan documents are in the name of Susan Smith and John Doe. As the buyers' broker, what do you do?
Point this out to the buyer and attorney because the lender likely will not accept the signed settlement documents with this name difference.
In the purchase contract, the buyers are listed as Suzy Smith and John Doe. The loan documents are in the name of Susan Smith and John Doe. As the buyers' broker, what do you do?
Point this out to the buyer and attorney because the lender likely will not accept the signed settlement documents with this name difference. The loan documents are sent to the buyer three days before closing. During that time, the buyer and broker review them carefully and the buyer or the buyer's broker report any issues to the attorney. Even a slight difference in the name will cause many lenders to reject the documents signed at settlement and fail to fund the loan until new documents are signed. The broker should alert both the buyer and attorney of the difference. The attorney will communicate with the lender.
Which of the following is NOT the responsibility of the buyer's broker?
Providing a copy of the residential disclosure. The buyer's broker is responsible for coordinating with the lender. They will be sure the name on the purchase contract matches the loan, that the lender has a copy of the appraisal, and that the lender knows that required repairs have been made. The seller's broker has the responsibility of providing a copy of the residential disclosure.
Which of the following must come first at closing?
Signing the loan documents.The closing documents must be signed before the deed is transferred to the buyer. Once the documents are signed, the money can be transferred between the parties.
James is buying a home with a conventional loan that requires only that structural repairs be made. The home inspection reveals two cracked windows, two broken electrical outlets, and a patio door that doesn't lock. The estimated cost of making these repairs is $1,500. As the buyer's broker, what would you propose first?
That the seller either repair the items or offer James $1,500 (Dollars) in credits at closing. The job of the buyer's broker is to act in the best interest of the buyer. In this case, that would be to negotiate with the seller to either make the repairs or offer James enough cash at closing to pay for the repairs himself. Ordering a new home inspection will cost James more money and wouldn't serve any real purpose.
What is the buyer's due diligence period?
The 14 to 30 day period after the buyer signs the contract during which they determine if they can proceed. The due diligence period is a period negotiated in the purchase contract that occurs just after signing the contract, not before. It allows the buyer time to inspect the home and lock in loan terms to be sure they can still go through with the transaction. It does not extend until settlement time nor does the term refer to reviewing closing disclosures.
Who is responsible for telling the settlement attorney the amount of the brokers' compensation?
The brokers. The brokers are responsible for giving this information to the attorney and verifying it on the Closing Disclosure.
Sally attends a closing for the sale of a house. She brings a check to closing. At the closing, she signs many papers. The settlement agent takes Sally's check and cuts a number of checks to other parties. At the end of the closing, Sally is given a deed, in addition to copies of all the papers she signed. Who is Sally?
The buyer
At a minimum, who must be present at closing?
The buyer and the settlement agent. The settlement agent will most likely conduct the closing. The buyer must attend the closing to sign off on the closing documents and receive title.
After the due diligence period, the buyer's loan falls through. What are the options?
The buyer must either secure another loan or forfeit the due diligence fee and earnest money. The buyer is responsible during the due diligence period to ensure his loan will go through. If it falls through after that time, he must either obtain another loan or back out of the deal and forfeit both the due diligence and earnest money.
Who is responsible for telling the settlement attorney the name of the buyer's lender?
The buyer's broker.
Who is responsible for telling the settlement attorney the name of the buyer's lender?
The buyer's broker. While it is certainly OK for the buyer to communicate directly with the settlement attorney, the buyer's broker is required to provide the name of the lender to the settlement attorney. The settlement attorney will then contact the lender to discover what paperwork the lender will require at closing.
What typically happens if a lender requires repairs that can't be completed by the closing date?
The closing date must be moved until the repairs can be made.
What typically happens if a lender requires repairs that can't be completed by the closing date?
The closing date must be moved until the repairs can be made. Sometimes a seller offering a credit at closing in lieu of making repairs is a good option, but not when they are repairs the lender requires. While the buyer could back out of the transaction and forfeit his due diligence fee (and earnest money if the due diligence time has passed), this would not be typical. Likewise, finding another lender would not be typical. Moving the closing date is easier.
What documents must the seller sign?
The deed and the authorization for the lender to cancel the lien and close any home equity lines.
From the buyer's point of view, which is the most important document at the closing table?
The deed. The buyer will want to ensure they are receiving the deed to the property. Otherwise, the buyer will not technically own the property.
What is the primary piece of information the settlement agent must provide on a 1099-S?
The gross proceeds of the sale
If there is a dispute over title, the courts begin by presuming that the owner of real property can be determined from what?
The land records
In most real estate transactions, which party makes the closing financially feasible?
The lender
Who might need title insurance?
The lender and buyer.
The settlement conference occurs and the buyer signs many documents. Unfortunately, the attorney overlooks one document and it is not signed. What will likely happen?
The lender will not be satisfied with the documents and won't fund the loan until the buyer signs the required form. This mistake will typically result in the lender refusing to accept the documents the attorney sends because they are incomplete. The lender will not fund the loan until the buyer signs the document and the attorney forwards it to the lender. This mistake will delay the buyer owning the home for a few days, but is unlikely to require that the whole settlement be redone and will not cancel the entire sale.
At closing, which must close first: the loan or the property?
The loan
At closing, which must close first: the loan or the property?
The loan. Once the loan is closed, the money can be transferred to the seller. The seller, in return, grants the deed to the buyer.
From the lender's point of view, which are the most important documents at the closing table?
The mortgage and the promissory note. The mortgage and promissory note ensures the lender gets to place a mortgage lien on the property. This serves as security for the repayment of lender's loan.
Which of the following is an example of a deed restriction that could affect the title?
The original owner, three generations ago, restricted the land for agricultural use only.
Which of the following is an example of a deed restriction that could affect the title?
The original owner, three generations ago, restricted the land for agricultural use only. The seller's lender and broker cannot restrict a deed. Governments and original owners of the property can. Once one owner puts a restriction on the property, that restriction is passed through the generations to other owners.
Harriet is searching a title in connection with a closing scheduled to occur in four days. In her search, she discovers a deed in the chain of title is missing. Harriet calls around and discovers that the person who should have granted the missing deed recently died, and the family of the deceased is trying to open an estate. At a minimum, what is the most likely result of these facts?
The parties will delay closing
Harriet is searching a title in connection with a closing scheduled to occur in four days. In her search, she discovers a deed in the chain of title is missing. Harriet calls around and discovers that the person who should have granted the missing deed recently died, and the family of the deceased is trying to open an estate. At a minimum, what is the most likely result of these facts?
The parties will delay closing. The chain of title is broken, and there is a cloud on title. This creates an unmarketable title, which will delay the closing until the cloud on title is removed.
Which of the following is not part of the bundle of rights that title includes?
The right to discharge the mortgage
Which of the following is part of the bundle of rights that title includes?
The right to possess the property The right to use the property The right to sell the property
Bob attends a closing for the sale of a house. At the closing, on Bob's behalf, the settlement agent cuts checks to a real estate agent, a lender, and an attorney. After the settlement agent has paid all the parties that need to be paid, the settlement agent calculates what is left and cuts a check to Bob. Who is Bob?
The seller
If closing must be delayed, but both buyer and seller need to keep their original moving dates, what might they typically decide to do?
The seller moves out and the buyer could go ahead and move into the home before closing and pay rent to the seller until the settlement date.
Who generally prepares the deed?
The seller's attorney.
Wilbert attends a closing for the sale of a house. Wilbert brings a settlement statement outlining all the funds to be received from and received by the various parties. Wilbert makes sure all the documents are properly completed. Then he issues a series of checks to people in the room. Who is Wilbert?
The settlement agent
Wilbert attends a closing for the sale of a house. Wilbert brings a settlement statement outlining all the funds to be received from and received by the various parties. Wilbert makes sure all the documents are properly completed. Then he issues a series of checks to people in the room. Who is Wilbert?
The settlement agent.The settlement agent is an escrow agent, real estate attorney, or representative of a title company that conducts the closing or "settlement" of a home purchase transaction.
At a closing, who is responsible for providing protection against unrecorded conveyances that might challenge the buyer's position as new owner of the property?
The title insurer
What is the buyer's primary interest at closing?
To get a signed deed and marketable title. The buyer will want to ensure they are receiving the deed to the property. Otherwise, the buyer will not technically own the property.
What is the broker's role in settlement?
To provide information to the attorney and to review settlement statements with their clients before the meeting. The brokers must provide information to the closing attorney on those transactions they have knowledge about. They also are responsible for reviewing the settlement statement with their clients before the meeting to be sure the statements are accurate and that the client understands them. They are not required to attend the meeting.
What is the broker's role in settlement?
To provide information to the attorney and to review settlement statements with their clients before the meeting.The brokers must provide information to the closing attorney on those transactions they have knowledge about. They also are responsible for reviewing the settlement statement with their clients before the meeting to be sure the statements are accurate and that the client understands them. They are not required to attend the meeting.
Justin is buying a home with an FHA loan. He pays a $1,000 due diligence fee and $5,000 in earnest money. After the due diligence period, the home inspector notices that the roof needs to be replaced. The home is being offered as is, but the lender won't approve the loan until the roof is repaired. He lacks cash to repair it himself. Which of these are viable options for Justin?
Try to switch to an FHA 203K loan or back out of the property and lose $6,000 (Dollars). Justin may have to back out, but if he does, he will lose $6,000 or all of his earnest money and due diligence fee because the due diligence period has passed. To prevent that, though, Justin may be able to change his loan from a standard FHA loan to an FHA 203K loan which will fold the cost of the roof repairs into the loan.
When might homeowners' associations place a lien?
When an owner has not paid either dues or special assessments.
What is settlement?
When the buyer signs papers in the attorney's office. Settlement and closing are often used interchangeably but aren't exactly the same thing. Settlement is when the buyer signs the papers. Closing is when the deed is recorded. After that recording of the deed, the buyer receives the keys.
What does the title system help potential buyers, potential lenders, and the public find out?
Who has interests in a particular property
A buyer asks Polly to conduct a title search on a property. After searching the land records, she finds a warranty deed granting title to the seller, an existing undischarged mortgage deed from the seller, an easement granting a neighbor the permanent right to drive across the property, an easement from an electric company granting the company the right to erect and maintain a line of electric poles crossing the property, and a discharged tax default that the land records show the seller paid in full. Is this title likely to be marketable?
Yes. Although local law controls, a reasonable buyer would likely accept this title if the mortgage loan is paid at closing.
A buyer asks Polly to conduct a title search on a property. After searching the land records, she finds a warranty deed granting title to the seller, an existing undischarged mortgage deed from the seller, an easement granting a neighbor the permanent right to drive across the property, an easement from an electric company granting the company the right to erect and maintain a line of electric poles crossing the property, and a discharged tax default that the land records show the seller paid in full. Is this title likely to be marketable?
Yes. Although local law controls, a reasonable buyer would likely accept this title if the mortgage loan is paid at closing. Marketable title does not mean the title has to be perfectly clear. A mortgage lien is common with most properties and will be settled at the property closing. The tax lien has been settled. And, the easements listed are not a major encumbrance to the property.
Which form does the IRS require settlement agents to file after closing?
1099-S
How often are real estate settlement dates delayed?
25% (Percent) of the time.
What is the deed of trust?
A document that gives the lender a security interest in the property. A deed in trust is the document that gives the lender a security interest in the property and allows them to foreclose if the buyer fails to pay.
What is a promissory note?
A document where the buyer agrees to pay back the loan. A promissory note is a document the buyer signs promising to pay back the loan. A deed of trust is the document that gives the lender a security interest in the property. A deed shows ownership of the property.
Which of the following interests found in a title search is the most likely to affect the marketability of title for a property?
A federal tax lien. A tax lien is considered a major encumbrance on the property. The seller will have to settle the tax lien before title is transferred to the buyer.
What is a mechanic's lien?
A restriction tradespeople place on the home when they have not been paid to ensure they will be paid when ownership of the house transfers.
What is a mechanic's lien?
A restriction tradespeople place on the home when they have not been paid to ensure they will be paid when ownership of the house transfers. This is a claim against a property made by a contractor, material supplier, or architect for an unpaid debt of the property owner.
Which item in the land records is likely to render a title unmarketable?
A tax lien A mortgage A missing certificate of habitability
When is the deed recorded?
After the lender funds the loan. The attorney waits until the lender funds the loan to be sure that the transaction is complete and that money is available to pay the seller for the property.
When does the attorney disburse the funds for the brokers' commission?
After the loan has funded and the attorney has recorded the deed and deed of trust. The attorney must wait until the lender funds the loan before the closing. Once the loan funds, he or she first records the deed and deed of trust and then disburses all the funds due as a result of the transaction. This could occur within 24 hours of the settlement meeting, but may take a little longer.
What is an easement?
An agreement the owner has with another person to allow them access to part of the property.
What is an easement?
An agreement the owner has with another person to allow them access to part of the property. Easements are agreements to allow others access to the land. Encroachment is using the property without permission. Easements have nothing to do with what repairs the lender requires or the loan terms.
Eliot is buying a house. He asks Jenny to perform a title search. Jenny provides Eliot with a report that summarizes all the relevant events and documents she found in the land records. The report concludes, "Based on the evidence in the land records, the seller has and can convey marketable title." What kind of report did Eliot receive?
An attorney's opinion of title. Attorney's opinion of title is a written statement by an attorney regarding the identity of all current title owners, lien holders, and possible claimants of a particular land.
Which item in the land records is least likely to render a title unmarketable ?
An easement
Which item in the land records is least likely to render a title unmarketable?
An easement
Which item in the land records is least likely to render a title unmarketable?
An easement. Easements "run with the land". Most buyers will accept an existing easement and not allow it to derail the purchase.
How long before settlement must the broker transfer the buyer's earnest money to the attorney?
At least 10 days.
Which of the following is NOT an example of an encumbrance?
Attorney.
Brionna is buying the home with an FHA loan. Which of the following must be repaired before her loan will receive final approval?
Broken hot water heater, door from the garage to the home that doesn't close, broken electrical outlets. FHA requires that everything in the home work properly and be safe. FHA does not require cosmetic improvements. The hot water heater and electrical outlets are broken and the door is a safety hazard. The carpet is a cosmetic improvement and does not have to be repaired before the loan is approved.
Which of the following repairs must always be made before settlement for an FHA loan?
Broken lock on the patio door.
Janice and Shawn attend a closing. At the closing, Janice and Shawn are interested in making sure the seller's title is marketable, all the loan documents are executed properly, and the seller's loan is paid in full. If Janice and Shawn occupy two different roles, which two are they likely to occupy?
Buyer and lender
How can a buyer's broker prevent sticker shock when the buyer sees the amount of cash required to close?
By communicating with the buyer about the cost of all items throughout the transcation.
How do title searchers usually search a title?
By consulting an index of the land records to find relevant documents
By which category are land records least likely to be indexed?
By sales price, The sales price will not be accurately indexed. It's better to search by the property's block and lot number, or the names of the grantor and/or grantee.
You are the seller's broker. Three months after the settlement, she calls to tell you she has heard nothing from her loan company about canceling the loan. What do you do?
Call the attorney or suggest the seller contact the attorney to determine what is slowing this down. Generally, lenders require one or two months to cancel the loan after receiving the payoff. At three months, it is time to make an inquiry. Even though technically your work is done, a professional would still respond to this inquiry. However, the attorney is the best person to contact the lender because he or she knows exactly when the loan was paid off and the address. The lender would not talk to you if you made the contact.
The buyer is to bring $10,000 to closing. What are the options for paying this?
Cashier's check or certified check. The buyer must bring guaranteed funds to closing in the form of a cashier's or certified check. Although credit cards could be considerd guaranteed funds, lenders typically do not allow the buyer to borrow the down payment.
You are the buyer's broker. At the final walkthrough, you and the buyer notice that the seller has failed to make minor repairs he agreed to. What is your most likely action?
Contact the seller's broker and ask that the seller give concessions to the buyer for the amount required to make the repairs. If this is agreed to, write an addendum to the contract and notify the settlement attorney.
During the due diligence, a home inspection shows loose tiles in the bathroom and the presence of open, spliced wires in the garage. The buyer is financing with an FHA loan. What options does the buyer have regarding these repairs?
Either buyer or seller must repair the wiring so that the loan can close. The tiles do not have to be repaired. FHA requires that the property be safe and spliced wires are hazardous. While these must be repaired before the loan can close, FHA does not specify who is to make them. Brokers negotiate this on behalf of their clients. FHA doesn't require that the tiles be repaired, but this can also be negotiated.
In doing a title search, the attorney finds a lien. What options do the buyer and seller have?
Either the buyer or seller must pay the money owed that resulted in the lien or prove that the lien was placed in error. Either the buyer or seller can pay the lien, but it must be paid before closing. Since the lien was placed because the seller failed to pay a bill, the buyer's broker should negotiate either for the seller to pay the lien or for the buyer to pay it and receive a concession from the seller for that amount at closing.
A neighbor has built a shed that extends onto the property for sale. As far as you can tell, he never had permission to do this. What is this an example of?
Encroachment.
What types of inspections is the buyer responsible for during the due diligence period?
General inspection with professional, walk through with broker, survey, and pest.
Jane is buying a house. She asked her attorney Tamara to conduct a title search. Tamara issued an opinion of title concluding the seller has and can convey marketable title. Jane believes Tamara was thorough, but she is concerned about potential unrecorded transfers. What can she do to address her concerns?
Get an owner's title insurance policy
Which is usually NOT a seller's primary concern at closing?
Helping the buyer understand the loan, It is the buyer's responsibility to understand the terms of their loan. The seller will be concerned with the remaining answer choices.
Which is usually NOT a seller's primary concern at closing?
Helping the buyer understand the loan. It is the buyer's responsibility to understand the terms of their loan. The seller will be concerned with the remaining answer choices.
The buyer would like to operate a small hair salon in her new home. What would you check during the due diligence period to be sure this would be allowed?
Homeowners' covenants, zoning, and other local regulations. Homeowners' association, zoning, and local regulations would all have a say in whether the hair salon is allowed. There is no need to poll the neighbors.
Title searcher Harold works in Eastern County. A buyer in Western County asks Harold to search a title for a property located in Northern County. The seller lives in Southern County. Where is Harold most likely to find the land records for the property?
In Northern County, where the property is located.