Chapter 14 - Review Questions

Which of the following statements regarding abstract continuation and title insurance in a real estate closing is correct? (a) Providing clear title is generally the responsibility of the buyer. (b) The seller normally pays for title insurance. (c) The seller can require that the buyer use a specific title company even if the buyer is paying for title insurance. (d) The seller can provide either an abstract of title or title insurance as evidence of merchantable or marketable title.

(d) The seller can provide either an abstract of title or title insurance as evidence of merchantable or marketable title

If the day of closing belongs to the buyer and the closing is on January 12, how many days in January Belong to each party?

11 seller days 20 buyers days

A buyer assumes a mortgage. interest for the 30-day month of closing is $300. If there are 12 seller days in the month of closing, what will show on the closing statement for the prorated interest on the assumed mortgage?

$120 Debit Seller; $120 credit buyer

A borrower received two new loans; a first mortgage loan of $55,000 and a second mortgage for $15,000. how much is the state intangible tax?

$140

A new loan in the amount of $73,550 is being originated. What is the amount of the state intangible tax on the mortgage?

$147.10

A property in Palm Beach County recently sold for $220,000. The purchaser arranged an 80% loan to finance the property. Calculate the documentary stamp tax on the deed.

$1540

If annual property taxes are $1000, and the closing is on March 5th with the day day of closing allocated to the buyer, what is the amount of the tax proration using the 365-day method.

$172.60 debit seller; $172.60 Credit buyer

The Listing Price for a property is $320,000 and the property sells for $305,000. What is the amount of the brokerage fee at a 6% commission rate?

$18,300

The buyer is assuming the loan with Interest for April is $240. Closing is April 14, with the day of closing allocated to the buyer. What is the amount of the interest proration using the 365-day method? how will it be shown on the closing statement?

$240 April interest ÷ 30 Days in the month = $8 Daily interest $8 x 13 (seller's day) = $104 Interest the seller owes the buyer Closing Statement Entries: $104 debit seller; $104 credit buyer

A vacant parcel of land is located in the NW ¼ of the SE ¼ of the SE ¼ of the SE ¼ of Section #13, T4N, R11E. The land is selling for $35.00 per square foot. Calculate the documentary stamp tax on the deed.

$26,680.50

A buyer purchases a property for $85,000, gives a $10,000 downpayment, and assumes a $75,000 mortgage. How much is the state documentary stamp tax on the promissory note?

$262.50

A mortgage in the amount of $83,255 is being assumed. what is the amount of documentary tax on the note that must be paid?

$291.55

A palm beach county property is being sold for $98,350 and the buyer is taking title subject to an existing mortgage in the amount of $61,220. What is the total amount of taxes due in the transaction?

$688.80

A property closes on August 12th. The annual property taxes are $9,750.00. The day of closing belongs to the buyer. How will the proration appear on the closing statement? (a) Debit the Seller and Credit the Buyer $5,956.85. (b) Debit the Buyer and Credit the Seller $5,956.85. (c) Debit the Seller and Credit the Buyer $3,793.15. (d) Debit the Buyer and Credit the Buyer $3,793.15.

(a) Debit the Seller and Credit the Buyer $5,956.85.

All of the following items would be prorated on a closing statement, EXCEPT: (a) Property insurance (b) Title insurance (c) Rental income (d) Property taxes

(b) Title insurance

An investor is selling a single family home which is currently occupied by a tenant. The closing is scheduled to take place on May 13th, and the parties have agreed that all prorations will be calculated as of midnight the day of closing. The tenant paid $1,800 rent to the seller on May 1st. How would this proration appear on the closing statement? (a) $754.84, debit buyer, credit seller (b) $754.84 debit seller, credit buyer (c) $1,045.16, debit buyer, credit seller (d) $1,045.16, debit seller, credit buyer

(d) $1,045.16, debit seller, credit buyer

If a Broward County property sold for $102,750, what must be paid for the documentary stamp tax on the deed? (a) $616.20 (b) $616.80 (c) $718.90 (d) $719.60

(d) $719.60

Which of the following correctly lists the taxes that the buyer must typically pay when purchasing a home with a new mortgage? (a) Note tax only (b) Intangible tax only (c) Documentary stamp tax on the deed only (d) Both the intangible tax and the note tax

(d) Both the intangible tax and the note tax

Which tax will not be required in a transaction where the purchaser assumes an existing mortgage? (a) Stamp tax on the deed (b) Note tax (c) Stamp tax on the deed and on the note (d) Intangible tax

(d) Intangible tax

How is the total purchase price entered on the closing statement?

As a double-entry; debit to the buyer and credit to the seller

How are expenses shown on the closing statement?

As a single-entry debit to either the buyer or the seller

The sale of a property recently closed where the doc stamp tax on the deed was $4,375.00, and the intangible tax on the new mortgage was $937.50. What was the loan-to-value ratio? (a) 21% (b) 75% (c) 80% (d) 90%

75%

A buyer obtains a new loan (first mortgage) from a lender. How will the loan amount be shown on the closing statement?

Credit to the buyer

How is an earnest money deposit held in escrow reflected on the closing statement?

Credit to the buyer

How is the amount of a new mortgage obtained by the buyer entered on the closing statement?

Credit to the buyer

How is the amount of a mortgage loan assumed at closing by the buyer entered on the closing statement?

Credit to the buyer - Debit to the seller Double-Entry

The day of closing is April 14th, which belongs to the buyer. The buyer receives a new loan (first mortgage) with a monthly interest amount of $240. The daily interest is $8 ($240 ÷ 30 days). The buyer will have an expense of $136 for prepaid interest on the first mortgage ($8 per day x 17 buyer days). The seller has agreed to take back a second mortgage for $10,000 at closing. The prepaid interest is $62 for the second mortgage, which the buyer has agreed to prepay. How would the entries for the first and second mortgages appear on the closing statement?

Calculate the prepaid interest for the new loan Daily Interest = $240 ÷ 30 days = $8 per day Prepaid interest = $8 x 17 buyer days = $136 Closing statement entry: $136 Debit buyer (under buyer's expenses) The second mortgage is between the buyer and the seller, so it shows as a double-entry item. The first mortgage does not involve the seller, so it shows as a single-item expense for the buyer. Closing statement: 1st mortgage prepaid interest: $136 debit buyer (under buyer's expenses) 2nd mortgage prepaid interest: $62 credit seller; $62 Debit buyer (prorations & Prepayment)

Real estate taxes in a transaction are $1,034. If a closing is to take place on April 16, with the day of closing belonging to the seller and the 365-day method is used, what is the amount of the proration and how is it handled?

Debit the seller and credit the buyer $300.28

A buyer has agreed to assume an existing mortgage loan having a balance of $86,346. Interest for the month of closing is $697. Closing is scheduled for July 14, with the day of closing belonging to the seller. How is the interest proration entered on the closing statement?

Debit the seller and credit the buyer $314.77

A residence is rented for $900 per month, with the rent due on the first of the month. If the property is sold on March 6, with the day of closing belonging to the buyer, what is the amount of the proration and how is it shown on the closing statement?

Debit the seller and credit the buyer $754.84

In a residential transaction, how is the brokerage fee reflected on the closing statement?

Debit to the seller

How are expenses that are paid to a third party entered on a closing statement?

Debits

if the seller agrees to finance a portion of the purchase price, how will the second mortgage amount reflect on the closing statement?

Double-entry; credit to the buyer, debit to the seller

The borrower obtained new first and second mortgages totaling $35,000. The state intangible tax on the mortgages would be computed as follows:

Multiply the new mortgage amount by the intangible tax rate: $35,000 Total amount of new mortgage x .002 State intangible tax rate ---------- $70 State intangible tax on the new mortgages $70.00 debit buyer. This amount is a portion of the buyer's expenses listed on the Broker's Statement under Disbursements

Rent for the month of July is $550. if the day of closing is July 9 and is allocated to the buyer, what is the amount of the proration using the 365-day method?

Seller - $141.94 Buyer - $408.06

If annual property taxes for a property are $720, and the closing is april 14th with the day of closing allocated to the buyer, what is the amount of the tax proration using the 365-day method? how will it be shown on the closing statement?

Step 1: Calculate the number of days the seller has owned the property 31 - days January 28 - days February 31- Days in March + 13 - days in april -------------- 103 days of seller ownership Step 2: Multiply the daily tax amount by the number of seller days (Daily tax amount is the annual tax divided by 365 days) $720 Annual Tax ÷ 365 days) x 103 sellers day = $203.18 tax owed by the seller Closing statement Entries: $203.18 debit seller; $203.18 credit buyer (Under prorations & Repayments)

The purchaser obtained a new first mortgage in the amount of $25,000 and a second mortgage of $10,000. What is the amount of the state documentary stamp taxes on the promissory notes?

Step 1: $10,000 New 2nd loan mortgage note ÷ $100 = 100 Tax Units $25,000 New 1st loan mortgage note ÷ $100 = 250 Tax Units 100 + 250 = 350 Tax Units Step 2: 350 Tax Units x $0.35 Tax Rate = $122.50 State Documentary tax on both notes Solution: $122.50 Debit to buyer This amount is a portion of the buyer's expenses listed on the Broker's Statement under Disbursements

if the sales price on a home in Palm Beach County is $60,710, how much is the state documentary stamp tax on the deed.

Step 1: Calculate the tax units. if the results contain a decimal, round up to the next higher whole number: $60,710 ÷ $100= 607.1 (Round Up to 608 tax units) Step 2: Multiply the tax rate by the number of tax units: 608 x $0.70 = $425.60 Solution: $425.60 Debit Seller

A rental property in broward county sold for $80,000. How much is the state documentary stamp tax on the deed? how will it be shown on the closing statement?

Step 1: Calculate the tax units. if the results contain a decimal, round up to the next higher whole number: $80,000 Purchase Price ÷ $100 = 800 Tax Units Step 2: Multiply the tax rate by the number of tax units: 800 Tax units x $0.70 Tax rate = $560 State documentary tax on deed Answer: $560 Debit to seller this amount will be included in the seller's expenses later under disbursements in the broker's Statement section of the closing statement.

Who pays the balance due to the seller?

The closing agent

All of the following statements are true regarding prorations and prepayments, EXCEPT: a. A prepayment is a double entry on the closing statement between the buyer and the seller b. A proration must be proportionately divided between the buyer and seller based on the amount of time each owns the property c. a proration is a double entry on the closing statement d. A prepayment is money paid in advance for a new obligation.

a. A prepayment is a double entry on the closing statement between the buyer and the seller

The Broker's Statement accounts for all money received and paid by the closing agent, resulting in grand total amounts for receipts and for disbursements. Which statement is correct: a. The grand totals for receipts and disbursements must be equal b. The grand total for disbursements is the balance due from the buyer at closing c. The grand total for receipts is the balance due to the seller at closing d. The grand totals for receipts must be higher than for disbursements.

a. The grand totals for receipts and disbursements must be equal

Which statement best summarizes the purpose of the closing statement? a. the closing statement summarizes the charges and credits against money received in order to conclude the transaction b. the closing statement is required to provide a statement of the true cost of credit c. the closing statement is used to negotiate the payment of charges between the buyer and the seller d. the closing statement is used to ensure that the brokers' commission costs are identified and paid.

a. the closing statement summarizes the charges and credits against money received in order to conclude the transaction

What does an entry in the seller's debit column of the closing statement indicates?

an amount that reduces what the seller will receive at closing.

Which entry would normally appear as a debit on the buyer's statement? A. First mortgage balance being assumed b. intangible tax on a new mortgage c. Documentary stamps on the deed d. Impound account balance when a loan is being assumed

b. intangible tax on a new mortgage

Which of the following statements is correct regarding a double-entry item on a closing statement? A. it must be accounted for in the broker's statement b. it does not appear in the broker's statement c. it is entered in the statement as a credit d. it is entered on the statement as a debit.

b. it does not appear in the broker's statement

an entry on the closing statement that appears only on one party's statement, either the buyer or the seller, as a debit or a credit is what kind of entry?

single-entry

What is the purpose of the Closing Statement?

summarize the financial aspects of a real estate transaction.

Which information is provided by subtracting the seller's total debits from the seller's total credits?

the amount the seller will receive at closing.

Who is paid the balance due from the buyer that is shown on the closing statement?

the closing agent

Complete the statement: When determiing prorations on a closing statement, the day of closing:

is determined by agreement

All of the following statements about the broker's statement section of the closing statement are correct, EXCEPT: a. receipts include earnest money held, proceeds any of the new third-party loans, and the balance due from the buyer. b. The grand totals for receipts and disbursement must be equal c. Double entry are listed to reflect prorations between the buyer and seller d. Disbursements include brokerage fee, balance due to the seller at closing, seller's expenses and buyer's expenses.

c. Double entry are listed to reflect prorations between the buyer and seller

Which entry would appear as a credit on the seller's closing statement? a. Documentary Stamp tax on the deed b. Recording the mortgage c. Purchase price d. Abstract Continuation

c. Purchase price

Which statement about the broker's portion of the closing statement is true? a. All double-entry items must appear there b. total receipts, minus the binder deposit, equal the grand total. c. Receipts and disbursements must be equal d. total expenses, less the brokerage fee, equal the grand total.

c. Receipts and disbursements must be equal

Which of the following statements best describes a single-entry item? a. it appears on both the buyer's and seller's statement b. it is not paid at closing c. it must be accounted for in the broker's statement. d. it is always a credit

c. it must be accounted for in the broker's statement.

All of the following details should be handled prior to the day of closing, EXCEPT: a. clear any contingencies, such as appraisal or loan approval b. perform property inspections, such as roof or termite inspections c. transfer the deed to the buyer d. clear any title problems and provide evidence of merchantable title.

c. transfer the deed to the buyer

A single-family home sold in Palm Beach County for $120,000. the buyer took a $100,000 New loan. How much is the state documentary stamp tax on the deed?

$840

A rental property sold for $86,590. The buyer took a new loan for $69,250. How many tax units will be used to calculate the state documentary stamp tax on the deed?

866 tax units

Rent for April is $300. if the day of closing is April 14 and is allocated to the buyer, what is the amount of the proration using the 365-Day Method?

April 1 - 13 days seller April 14 - Closing Date April 30 - 17 days buyer There are 13 days belonging to the seller $300 (rent per month) ÷ 30 (days in the month of April) = $10 (daily rent) $10 x 13 (seller's day) = $130 (Seller's portion to retain) $300 - $130 = $170 (Portion of rent seller owes buyer) closing statement entries: $170 debit seller $170 credit buyer (believe this is the other way around)

What document stipulates which party pays which expense in a closing?

Purchase and sale contract

a buyer pays an earnest money deposit, which the broker holds in escrow until the day of closing. how is this deposit entered on the closing statement?

Single entry- credit to the buyer

If a property is sold for $80,000, and the seller agrees to pay the brokerage commission, what is the amount of the brokerage fee at a 5% commission rate?

Solution: $80,000 Sales Price x .05 (5%) Commission rate = $4,000 Brokerage fee Entry: $4,000 Debit Seller

Which tax is only applicable to new loans?

State intangible tax

How is the total amount the buyer must bring to closing calculated?

Subtracting the buyer's total credits from the buyer's total debits

What is the purpose of the closing statement?

To summarize and simplify the financial transaction on the day of closing.

In the absence of any agreement between the parties, who pays for the state documentary stamp tax on the deed?

the seller