REE Ch. 11 - Title Closing and Costs
Money that the buyer or seller needs to pay at closing is called what?
Debit
Sally and Sam have sold their home to Tina and Max. The closing is set for August 23. The insurance policy of $1,700 was prepaid. Using the 12-month/30-day method, what will be Tina and Max's share of the insurance expense and how will it be handled on the settlement statement?
$1,700 ÷ 12 = $141.67 $141.67 ÷ 30 = $4.72 Seller - $141.67 x 7 = $991.69 $4.72 x 23 = $108.56 $991.69 + $108.56 = $1,100.25 Buyer - $1,700 - $1,100.25 = $599.75 will be credited to the seller and debited to the buyer.
How much is the transfer tax on a property with a sale price of $492,000.
$1,968
Seller Paul will get the second quarter water bill at the end of June. The bill is $39.00 per quarter. If closing is on May 7, what will be the Buyer's share of the bill?
$39 ÷ 91 days = $.43 per day $.43 x 54 days (the Buyer's share of the 91 days) = $23.22
Jan Cook purchases a property for $625,000 in upstate New York. What will be the amount of her real estate transfer tax?
$625,000/$1,000 = $625 ; $625 x $4 = $2,500
When a single family home is sold for $500,000 in a MCTD, how much of the MCTD tax would the lender pay?
25%
What is "chain of title?"
A chronology of successive owners of record of a parcel of real estate.
Define the term "marketable title."
A marketable title is one that is so free of defects that the buyer is certain he or she will not have to defend the title.
actual notice
A person who has received actual notice has actual knowledge of something.
What is an abstract of title?
A written, chronological summary of the property's title records and other public records affecting rights and interests in the property. It includes the property's chain of title and all current recorded liens and encumbrances, by date of filing.
What does the Foreign Investment in Real Property Tax Act (FIRPTA) require a seller and a buyer to do?
Any seller who is not a US citizen must deliver a FIRPTA Certificate to the buyer. The buyer must withhold estimated taxes equal to 10% of the sale price in any sale or exchange of property owned by a foreigner.
List three items that the buyer usually pays for at closing.
Appraisal and credit report fees Inspections Mortgage recording fees
title search
Before agreeing to lend money, the lender will order a title search to be sure there are no liens on the property.
Who needs title insurance and why?
Both the buyer and the lender need title insurance. Insurance for the buyer ensures a clear title and protects his or her investment. Insurance for the lender protects the lender's interest in the property.
What property is exempt from FIRPTA requirements?
Buyer's personal residence with a sale price under $300,000
What form does RESPA require to be used for itemizing closing costs?
Closing Disclosure
Who reports the property transfer transaction to the IRS?
Closing agent
Title Insurance
Combines the abstracting process with an insurance program. The policy holder is protected against losses that arise from "hidden" defects.
Money that the buyer or seller receives at closing is called what?
Credit
The title insurance company:
Examines all records pertaining to the property's recorded history. Reviews risks that might not appear in the public record. Interprets the legality of the records. Helps the property owner correct any defects. Insures the property against economic loss. Both the buyer and the lender should have title insurance.
Constructive notice is also known as
Legal notice.
TRID (TILA-RESPA Integrated Disclosure) Rule provides specific requirements for lenders:
Lenders must give a copy of the booklet, "Your home loan toolkit" to every person at the time of application for a loan. Lenders must provide a Loan Estimate of settlement costs at the time of loan application or within three business days of application.
What role does the broker play before and during closing?
Many times the broker is involved in ordering inspections, surveys or appraisals. The broker can also help the buyer find a mortgage lender or help schedule needed repairs to the property. Just prior to closing, the broker or agent should conduct a walk through or final inspection of the property with the buyer. On the date of closing, the broker may be the closing agent, may be present to collect the commission check, or may not be present at all.
Accrued Expenses
Other items are those expenses that the seller incurred but have not yet been billed for at the time of closing - paid in arrears; the buyer will get a credit and the seller will get a debit.
What is the real estate transfer tax based on?
Sale price of the property
RESPA does not apply to what kinds of loans?
Seller-financed loans or loan assumptions (unless the lender has changed the terms of the assumed loan or charges more than $50 for the assumption).
New York City Real Property Transfer Tax (RPTT).
Sellers who sell residential property in New York City will have to pay an additional tax
Proration
Some expenses paid at closing must be prorated: Real estate taxes, Insurance, Fuel, Water and sewer charges, Rent or Security deposits. Any item that is prorated is shown on the settlement statement as a debit to one party and a credit to the other party for the same amount.
Prepaid Expenses
Some items are those that were paid for in advance; the buyer will receive a debit and the seller will receive a credit.
Where in New York State is the Torrens system used?
Suffolk County
used to transmit the transfer tax
The Combined Real Estate Transfer Tax Return, Credit Line Mortgage Certificate, and Certification of Exemption from the Payment of Estimated Personal Income Tax (Form TP 584)
Who should have title insurance?
The buyer and the lender
What happens at the title closing?
The buyer completes his or her financing arrangements (referred to as closing the loan). The seller transfers the title. Both the buyer and seller pay the necessary taxes, fees and other charges.
At the title closing:
The buyer completes his or her financing. The seller transfers the title. Both the buyer and seller pay the necessary charges.
If an item is paid for in advance by the seller, how will it be handled on the settlement statement?
The buyer will receive a debit and the seller will receive a credit.
What is the definition of a closing statement?
The closing statement is a detailed accounting of the transaction that is prepared before closing by the closing agent. The statement shows all cash received, all charges and credits made and all cash paid out.
What does TRID require lenders to give to borrowers?
The correct figures pertaining to their closing costs.
What is the most important document at closing and why?
The deed is the most important document because it transfers the property to the purchaser.
How does the buyer know how much money to bring to closing?
The escrow agent will subtract the total of the buyer's credits from the total debits and the result is what the buyer needs to bring.
The buyer and seller must verify that each of them has fulfilled the contract terms as stated.
The mortgage loan, if any, is closed. Any existing liens on the property are satisfied. The buyer pays the purchase price for the property. Each party pays all the appropriate fees associated. The seller delivers the title.
Taxes on the property Buyer Alan is purchasing are $3,200 due on December 31. If the closing is set for October 15, using the 365-day method, how much of the taxes will be credited to the buyer? (Assume it is not a leap year and the day of closing belongs to the seller.)
The seller's share of $2,525.76
What do you call those items that the seller has incurred but have not been paid and how will they be handled on the settlement statement?
These items are paid in arrears. The buyer will get a credit and the seller will get a debit.
Which form of evidence has the most assurance the title is marketable?
Title insurance
What is the seller's primary function at closing?
To deliver the title
closing statement
a detailed accounting of the transaction that is prepared before closing by the closing agent.
real estate transfer tax
a tax imposed on any deed or instrument which conveys interest in real property in New York State.
Expenses that the seller incurred but have not yet been billed for at the time of closing are
accrued expenses.
RESPA specifically prohibits
any payment or receiving of fees or kickbacks when a service has not been rendered.
Torrens System
differs from other title recording systems in that title passes only when the conveyance has been duly registered on the title certificate itself.
abstract of title
is a written, chronological summary of the property's title records and other public records affecting rights and interests in the property.
Constructive notice, or legal notice
knowledge of a fact that a person could have or should have obtained.
Disclosures After Settlement
loan servicers must provide borrowers with an annual escrow statement which summarizes all inflows and outflows in the prior 12-month period.
debit
money that the buyer or seller needs to pay at closing.
credit
money that the buyer or seller receives at closing.
Closing Disclosure
must be delivered to the borrower at least three days before closing.
The buyer's primary function at closing is to
pay the purchase price for the property.
Chain of title
refers to the succession of property owners of record dating back to the original grant of title from the state to a private party. To remove a clouded title, an owner may need to initiate a suit to quiet title.
The Closing Disclosure
required by TRID for all federally-related mortgage loans. This form is also used for cash transactions by many settlement to show how the closing costs were calculated.
FIRPTA Certificate
requires a buyer to withhold estimated taxes equal to 10% of the sale price in any sale or exchange of property owned by a foreigner (not a US citizen).
RESPA (Real Estate Settlement Procedures Act)
requires that the parties to certain transactions receive the correct figures pertaining to their closing costs. It applies to purchases of residential property; involving first or second mortgages; financed by a federally-related loan.
deed
the most important document at closing, since it transfers the property to the purchaser. The purchaser may require a survey to verify the location and size of the property.
Buyer expenses
usually include appraisal and credit report fees, inspections, mortgage recording fees, title insurance, attorney fees, etc.
Seller expenses
usually include transfer taxes, broker commission, attorney fees, etc.
Prepaid expenses are those that
were paid in advance.