Chapter 12 Quiz

1. To help finance the purchase, the buyer is going to obtain a new 80% conventional loan. Where is the buyer's loan reflected on the settlement statement? A. Only as a debit for the buyer B. Only as a credit for the buyer C. As a credit for the buyer and a debit for the seller D. As a debit for the buyer and a credit for the seller

1. B The buyer's loan is listed only as a credit for the buyer. The buyer's loan is part of the purchase price already credited to the seller, so it does not appear on the seller's side of the statement.

10. If the annual property taxes are $2,156, what would the per diem rate be for proration purposes if the calculations are based on a 360-day year? A. $5.91 B. $5.99 C. $6.01 D. $6.10

10. B Divide $2,156 by 360 days to calculate the per diem rate of $5.99 ($2,156 ÷ 360 = $5.99).

11. A property is sold on a land contract. On the settlement statement, the amount of credit extended would be: A. only a debit for the buyer B. only a debit for the seller C. a credit for the buyer and a debit for the seller D. a debit for the buyer and a credit for the seller

11. C For a land contract, the amount of credit extended would be listed as a debit for the seller and as a credit for the buyer.

12. RESPA applies to all of the following except a: A. purchase money first loan made by a bank B. senior mortgage loan made by a mortgage banker to finance a condominium unit C. loan used to finance 50 acres for residential development D. VA loan used to finance a fourplex

12. C RESPA doesn't apply to loans used to purchase 25 acres or more.

13. Which of the following is true about a settlement statement? A. The sum of one party's debits must equal the sum of the other party's credits B. The buyer's total debits and credits must match the seller's total debits and credits C. The buyer's total debits must equal the buyer's total credits D. The balance due to the seller is listed in the seller's credit column

13. C On a settlement statement, the sum of the buyer's debits must equal the sum of his credits.

14. When the buyer is assuming the seller's existing loan, how would the loan balance appear on the settlement statement? A. As a credit for the buyer only B. As a debit for the buyer only C. As a credit for the buyer and a debit for the seller D. As a debit for the buyer and a credit for the seller

14. C If a buyer assumes a seller's loan, the assumed balance is a credit for the buyer and a debit for the seller.

15. A refund for prepaid fire insurance would be listed on the settlement statement as a: A. debit for the buyer B. debit for the seller C. credit for the buyer D. credit for the seller

15. D Because the seller has already paid for the insurance, she would be credited for the prorated cost of the unused portion of the insurance policy.

16. Under the Real Estate Settlement Procedures Act, how much can an escrow agent charge for preparation of the uniform settlement statement? A. Nothing B. $25 C. 1/2 of 1% of the loan amount D. 1% of the loan amount

16. A An escrow agent may not charge a separate fee for the preparation of the uniform settlement statement.

17. Where is prepaid interest noted on the settlement statement? A. Only as a credit for the seller B. Only as a credit for the buyer C. Only as a debit for the seller D. Only as a debit for the buyer

17. D Prepaid interest (also known as interim interest) is listed as a debit for the buyer on the settlement statement.

18. All of the following are exempt from the licensing requirements of California's Escrow Law except a: A. title company B. real estate broker handling escrow for another broker's transaction C. savings and loan D. real estate broker handling escrow for his own transaction

18. B A real estate broker who is not also licensed as an escrow agent may not act as an escrow agent for a transaction in which he has no other involvement.

19. Which of the following is designed to determine under what conditions and at what time the escrow agent will distribute the money and documents involved in a real estate transaction to the proper parties? A. Escrow instructions B. Uniform settlement statement C. Purchase agreement D. Listing agreement

19. A The escrow instructions dictate the terms and conditions under which the escrow agent will act.

2. The seller's annual hazard insurance policy is paid through December 31, in the amount of $296. The transaction closes on October 20. The seller is not responsible for the day of closing. If prorations are calculated on a 360-day basis, the hazard insurance will appear on the settlement statement as a: A. $58.38 credit to the seller B. $58.38 debit to the seller C. $237.62 credit to the seller D. $237.62 debit to the seller

2. A The per diem rate is $0.8222 ($296 ÷ 360 = $0.82). This is multiplied by 71 days for a total of $58.38 ($0.8222 x 71 = $58.38). Since the seller has already paid for insurance through the end of the year, this amount is credited to the seller.

20. A rental property is sold. The tenant paid the $900 monthly rent on the first of the month, and the transaction closed on the tenth of the month. Which of the following statements is true? A. Seller owes buyer $600 B. Buyer owes seller $600 C. Seller owes buyer $300 D. Buyer owes seller $300

20. A Because rent is paid in advance, the seller owes the buyer the rent for the two-thirds of the month after the transaction closed. Therefore, the seller owes the buyer two-thirds of $900, which is $600.

3. Which of the following events would terminate an escrow? A. Death or incapacity of a party B. Revocation of the escrow instructions by the broker C. Mutual agreement of the parties D. Withdrawal from escrow by either party

3. C The only ways an escrow may terminate are when the transaction closes, when the termination date is reached (or a reasonable amount of time passes, if there is no specified termination date), or by mutual agreement of the parties.

4. Under the Real Estate Settlement Procedures Act, a closing agent must provide the borrower with: A. a uniform settlement statement B. a property disclosure statement C. the loan's annual percentage rate D. certified copies of buyer and seller closing statements

4. A RESPA requires the lender to give the borrower a uniform settlement statement.

5. Which of the following would not be prorated at closing in the sale of a rental property? A. Prepaid property taxes B. Interest on seller's existing loan C. Security deposit D. Interest on buyer's new loan

5. C A security deposit would not be prorated at closing, since it must continue to be held in trust. It would simply be transferred from the seller to the buyer.

6. The buyer's good faith deposit appears on the settlement statement as a: A. debit for the buyer and a credit for the seller B. credit for the buyer and a debit for the seller C. credit for the buyer only D. debit for the buyer only

6. C The good faith deposit appears on the settlement statement as a credit for the buyer only. Since the full purchase price has already been credited to the seller, there is no mention of the good faith deposit on the seller's side.

7. What is the primary purpose of the settlement statement? A. To provide a detailed accounting of each party's expenses and credits, and the amount each will receive or be required to pay at closing B. To disclose the true costs of financing to both buyer and seller C. To provide documentary evidence of closing costs for state and federal authorities D. To provide the necessary documentation for a proper conveyance of title

7. A The primary purpose of the settlement statement is to set forth all of the financial details of closing, showing each party's costs and credits.

8. The property appraisal cost $250. In a typical real estate transaction, the expense would be listed as a: A. $125 debit for the buyer and $125 debit for the seller B. $250 debit for the buyer C. $250 debit for the seller D. $250 debit for the buyer and a $250 credit for the seller

8. B The appraisal is typically required by the buyer's lender, so the fee is ordinarily listed as a debit for the buyer.

9. Which of the following would normally be a debit for the buyer? A. Commission B. Unpaid property taxes C. Standard policy of title insurance D. Loan origination fee

9. D Like most charges connected with a new loan, the origination fee is usually a debit for the buyer.