Chapter 12: The Closing Process

Seller's Expenses

Broker commission Title fees, such as for clearing the title Title insurance for the buyers (owners) Fees for preparing the deed Attorney fees Excise tax

Buyers and Sellers

As the primary parties, the buyer and seller have critical roles at the closing. They must verify that each of them has fulfilled the contract terms as stated. Once this is verified, the mortgage loan is closed and then each party pays all the appropriate fees associated with his or her side of the transaction. The buyer pays the purchase price for the property and the seller delivers the title. Then the parties sign the myriad of documents required to finalize the transaction. Finally, the closing agent will do whatever the local laws require to arrange for the recording of the transaction.

Closing Disclosure - Page 3

Calculating Cash to Close Closing costs are only part of the cash a borrower needs to bring to closing. The top of page 3 shows how the final costs of the loan compare to the Loan Estimate the lender originally provided to the borrower and then calculates the amount of cash the borrower will need at closing. This calculation includes such items as costs paid before closing, down payment, deposits, seller credits, adjustments, and other credits.

Building Relationships That Last: Competency

Clearly, you expect your doctor or dentist to be competent. If a medical professional misdiagnoses you or treats you roughly, you are going to lose trust in them and go elsewhere. As a real estate professional, you must engender trust in your clients. You do this by solid preparation. Do your homework. Know your market and advise the clients accordingly.

Whether providing a lot of assistance or a little, your role is to check on the progress of activities along the way so that the actual closing will go as smoothly as possible. This includes the following:

Communicate with your client. Make sure your client knows what is happening every step of the way. Communicate with the other party's agent. You need to promote your client's interests, but everyone wants the sale to close. So it's important to work with the other agent to see that the transaction closes successfully.

Seller's Credits

Contract sales price Items paid for in advance

Buyer's Debits

Contract sales price Other expenses, such as loan origination fee, closing fee, recording fee, attorney fees

Items NOT included in a standard policy include:

Defects known to the insured but not disclosed to the title insurer. Easements, encumbrances and liens not shown in the public record. Rights or claims of persons in physical possession of the property. Unrecorded claims that could be discovered by physical inspection or correct survey. Taxes or assessments that are not yet liens. Mining claims. Reservations in patents. Water rights. Zoning ordinances.

Repairs

Depending on the contingency terms, the buyers may have the option to disapprove the report and terminate the transaction. However, in most cases the contingency terms state that the buyers will identify the unsatisfactory parts of the report and ask the sellers to make the repairs. If the lender ordered the inspection, the repairs may be a condition of loan approval. Hopefully, the buyers and sellers previously agreed on who would pay for the repairs, but if not, more negotiation may be in order for the sale to go forward. In most cases, the repairs have to be made and the property re-inspected before the sale can close.

The following steps may be useful guidelines to use when faced with making an ethical decision:

Determine the exact nature of the problem and the parties involved. Concentrate on the pertinent facts of the case. Check for laws or regulations that may affect the decision. Specify who stands to gain, and who to lose by the decision. Explore various solutions to the problem. Make a decision that can be supported comfortably.

The Broker as Escrow Agent: E-1. Trust Accounts

Earnest money must be deposited in a separate trust account and not in the broker's operating account. The broker must identify the account as a trust account when entering into the deposit agreement with the bank and must name the account according to the type of transaction. The broker must keep a copy of the deposit agreement in the transaction file. A broker cannot use a credit union for a trust account. Escrow funds cannot be invested in any account that has a fixed term for maturity or imposed a fee or penalty for withdrawal. A broker's personal funds shall not be commingled with escrow funds other than the funds necessary to maintain the account. Commissions, fees and other charges collected by a broker for performing any service on behalf of another are considered earned only after all contracted services have been performed and there is no remaining right of recall by others for such money.

Buyer's Credits

Earnest money or deposit Loan amount

Activities During Escrow:Deliver the Purchase Contract

Either the buyers' lender or the real estate agent will deliver a copy of the purchase contract to the escrow agent.

Broker Responsibilities

If the broker is not the escrow agent responsible for the closing, the broker still has duties. He/she should ensure that the party who the broker represents is fulfilling the terms of the contract and should deliver the required instruments and funds to the closing agent. If there are problems, the broker is responsible for notifying the parties and working out the problems.

Lender Obligations for Servicing the Loan

In some cases, the original lender services the loan. In other cases, the loan is sold and a different financial institution may become responsible for the servicing. In either case, the servicing entity: Notifies the borrower of the appropriate mailing address to send the payment. Restates the terms and conditions of the loan. Verifies the amount of the payment to include principal, interest, taxes, insurance and any mortgage insurance required. Mortgage loan notes are fully negotiable and may be sold many times over the life of the loan, although the servicing often remains with the original lender.

Seller's Debits

Loan balance Unpaid items due from seller Other expenses, such as closing fees and document preparation

buyer expenses usually include:

Mortgage recording fees Title insurance for the lender Appraisal fees Credit fees Survey Loan origination Attorney fees Homeowner's insurance Reserves deposited with the lender, such as insurance, taxes, assessments Private Mortgage Insurance (PMI), if applicable

Inspections

Often lenders will make some type of inspection a condition of approving the buyers' loan. So inspections and their results are an important aspect of the closing process. For every kind of inspection ordered, the reports must be approved or rejected by the buyers or the lender, any repairs must be done and then re-inspected, and the buyers and lender must get notification of the final results. For this reason, it's critical that the inspections be ordered very early in the process, so the completion of any required repairs doesn't interfere with the closing.

Closing Disclosure - Page 1

Projected Payments This section of page 1 shows the actual payments the borrower will make for principal & interest and mortgage insurance, an estimated amount for the escrow payment, and the total estimated monthly mortgage payment. This section also gives an estimated monthly amount for taxes, insurance, and assessments and specifies whether or not the money for these payments will be in escrow. The last section of page 1 shows the borrowers' total costs as closing costs (which are detailed on page 2) and the total amount the buyers need to bring to closing (which includes the closing costs and other amounts that are detailed on page 3).

Real Estate Settlement Procedures Act (RESPA)

RESPA is of great benefit to consumers during the settlement process. RESPA requires that the parties to certain transactions receive the correct figures pertaining to their closing costs.

Beneficiary Statement

Shows any unpaid balance. Even if the buyer is assuming the seller's mortgage loan, the buyer will want to know the exact amount of the unpaid balance as of the closing date.

Prorations

Taxes Insurance Mortgage interest Utilities

Open the Escrow

The escrow agent will open an escrow in the names of the parties involved. Along with the purchase agreement, the escrow agent will need information about such items as: The length of escrow. Terms of loans. Commissions. Instructions about inspections, such as termite reports. Personal property included in the sale. Legal description of the property. Earnest money deposit.

Once the lender has qualified the property that will be used as collateral for the loan the lender is preparing to issue to the borrower, the loan officer will request and review a title search on that property. The title search reveals:

The legal description of the property. The owners of record. Any outstanding liens or encumbrances on the property.

Delivery of the Deed

The title to the property has transferred when the deed is delivered and accepted by the buyer. Delivery and acceptance must occur during the lifetime of the seller. The seller must sign the deed, which must have the names of the seller and buyer, the words of conveyance and the correct legal description. It is not a legal requirement that a deed be recorded in the County Clerk's office. However, recording the deed could offset any future problems.

Referral fees are strictly forbidden for these services:

Title search Title insurance Inspection Survey Appraisal Loan Credit report Attorney

Escrow Agent

acts as a neutral depository who collects all the documents necessary for closing, disburses the funds, accounts for the funds, and records the documents to complete the transaction.

A standard policy

may be issued to a lender only, a buyer only or jointly to lender and buyer (called a joint-protection standard coverage policy).

Recordkeeping Requirements: A broker shall supervise and maintain, at the broker's licensed place of business, a record keeping system, subject to subsection (7) of this rule, consisting of at least the following elements for each required escrow or trust account:

1. A record called an "escrow or trust account journal" or an equivalent accounting system which records in chronological sequence all money belonging to others which is received or disbursed by the broker. For funds received, the records maintained in the system must include the date of receipt and deposit, the name of the person who is giving the money, the name of the person and property for which the money was received, the purpose of the receipt, the amount, and a resulting cash balance for the account. For funds disbursed, the records maintained in the system must include the date of payment, the check number, the name of the payee, a reference to vendor documentation or other physical records verifying purpose for payment, the amount paid, and a resulting cash balance for the account.

Recordkeeping Requirements: A broker shall supervise and maintain, at the broker's licensed place of business, a record keeping system, subject to subsection (7) of this rule, consisting of at least the following elements for each required escrow or trust account:

2. A record collectively called a "ledger" or an equivalent component of an accounting system which records in chronological sequence all money which is received or disbursed by the broker on behalf of each particular beneficiary of a trust account. This record must show the monetary transactions affecting each individual beneficiary and must segregate such transactions from those pertaining to other beneficiaries of the trust account. The ledger record for each beneficiary must contain the same transactional information as is prescribed in subsection (1). No ledger may ever be allowed to have a negative cash balance and the sum of all ledger balances must at all times agree with the corresponding cash balance in the journal after each transaction has been posted.

Recordkeeping Requirements: A broker shall supervise and maintain, at the broker's licensed place of business, a record keeping system, subject to subsection (7) of this rule, consisting of at least the following elements for each required escrow or trust account:

3.A written monthly record called the "bank reconciliation worksheet" which proves agreement, on the date of reconciliation, between (1) the cash balance shown in the account journal; (2) the sum of the cash balances for all ledgers; and (3) the corresponding bank account balance. This worksheet must be maintained in hard copy form for later inspection and list each beneficiary's ledger balance on the date of reconciliation. The broker is not required to reconcile any trust account when no money belonging to others has been received or no banking activity has occurred.

IRS Reporting Requirements

All real estate sales must be reported to the Internal Revenue Service after closing. The sale must be reported on a Form-1099. The responsibility for filling out and submitting the form generally falls to the person who conducted the closing, which could be any one of the following persons: Closing officer Lender Selling/Listing broker Buyer's broker The form could also be filed by a U.S. Treasury designee. There is no charge to the buyer for submitting this form to the IRS.

Close the Escrow

Also referred to as closing or settlement, this is the process of signing and transferring all documents and distributing the funds.

Interest Payment Notification

Each January, the servicing lender must provide a Form 1098 to the borrower to include in his or her federal income tax return. The 1098 notifies the borrower of the total amount of interest and property taxes paid in the previous year. Interest and property taxes are both tax deductible.

Generally, the insurance policy that the title company issues will protect the policy holder against losses that arise from such "hidden" defects as:

Forged documents, such as deeds or mortgages. Undisclosed heirs. Mistaken legal interpretation of a will. Misfiled documents. Confusion arising from similarity of names. Incorrectly stated marital status. Mental incompetence.

The standard policy covers items of record as well as some risks that are not of record, such as:

Forgeries. Acts of minors and incompetents. Failure of delivery of a prior deed. Federal estate tax liens. Acts of an agent whose authority has terminated.

Steps to Closing

Here is what happens immediately prior to closing, the day of closing, and immediately after closing: The closing agent requests a payoff amount of any existing loan. The payoff is calculated as of the date of closing. The closing agent collects all the documents, funds, and instructions for closing and checks them off the closing checklist. The closing agent makes all the necessary adjustments and prorations on the closing statement. The deed and loan documents are signed. The instruments to be recorded are prepared and signed. A title search is run to update the title search through the date of closing. The closing agent disburses the funds to the parties, including the payoff to the current lender, the commissions to the brokers, any lien payoffs, any tax payments, proceeds to the sellers, and any checks to any service providers. The documents that are to be recorded are sent to the courthouse for recording. The closing agent delivers copies of the documents and closing statements to the pertinent parties. The loan documents are sent to the lender. The title company issues a policy and sends it to the buyer and the lender.

Ethics: Article 9- Get it in writing

If a survey was made of brokers from offices all over the country asking the question, "What do you see as the biggest mistake that agents make that leads to a problem case ending up on your desk for resolution?", the answer would probably be, "Not having everything clearly in writing!" Thanks to the easy accessibility to fax machines today, there really is no excuse for an agent to miss having everything agreed upon signed or initialed where necessary. Regardless, somehow the old whiny excuse of "but they said they would" still prevails! Although Articles 1 and 2 are the most often cited, Article 9 is one of those most often found to have actually been violated.

More Lender Responsibilities: Loan Payoffs or Assumptions

In the event a property is sold, the loan servicer must provide the borrower with following information: The exact amount owed for principal and interest. Any late payments that are outstanding. Any penalty fees for prior late payments. The servicer must also calculate to the date of settlement the amount of money currently held in escrow for taxes and insurance. Any extra amount must be returned to the party selling the property. When a borrower purchases a property by "assuming" the seller's original mortgage loan, the borrower takes over the loan on the existing terms of payment. In most cases, the lender must grant approval of the person assuming the loan. When another lender buys a mortgage loan, it is called an "assignment."

After-Closing Activities

Issuance of the Title Policy Several weeks after the closing, the purchaser should receive the original deed and title insurance policy. Note: If problems arise from the walk-through inspection of the property prior to closing, monies from the seller's proceeds may be left in escrow until the purchaser is satisfied that required repairs or replacements have been made. After the purchaser signs off that the work has been completed, any remaining funds are disbursed to the seller.

Ethics: Article 2

It is the one second-most-frequently cited: Roughly one-third of cases containing a complaint are based on this article. According to most state license laws and to the Code of Ethics, a licensee is obligated to disclose adverse material facts about a property. The agent is not responsible for disclosure of latent defects (those which are unknown to the seller and/or the agent) or for information that is not directly concerned with the property itself. This is occasionally referred to as the "four corners law," which says that disclosure is only required about adverse material defects that occur within the four corners of the property. Although the law varies from state to state, in most cases there is no requirement for disclosure of non-material facts, such as the fact that there has been a death (natural causes, murder, or suicide) on the property, or that some other felonious action has occurred.

Ethics: Article 16: Respecting Another Agency Relationship

It says that one REALTOR® must never interfere with the agency relationship another REALTOR® has with a client. There are 20 separate Standards of Practice following Article 16. Considering that there are only 68 Standards of Practice in the entire REALTOR® Code, this shows a rather disproportionate number in this one area. Many of the amendments, interpretations, and examples have been due to the rising popularity of the buyer agency relationship. Since either a buyer or a seller can now be a client as long as they have a brokerage relationship with the agent, this defines the lines much more clearly than when both agents, at least technically - and ethically - worked on behalf of the seller.

reserves

Lenders can also require the borrower to maintain an escrow account for property taxes and insurance, so that the lender is sure money will be available for the payments. These are referred to as reserves. Depending on the type of loan being issued, the lender may also require private mortgage insurance.

According to the TRID rule:

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. A Closing Disclosure, a form designed to detail all financial particulars of a transaction, must be delivered to the borrower at least three days before closing. The actual time frame is based on the method of delivery. The settlement agent must also provide the seller with the Closing Disclosure, which may be done at consummation.

Closing Disclosure - Page 2

Loan Costs The first section deals with the loan costs: A. Origination charges - Items such as points, application fee, and underwriting fee B. Services the borrower did not shop for - These are items the lender requires for the loan, such as appraisals and credit reports. C. Services the borrower did shop for - These are items the borrower can get on his own, such as pest inspections, survey fees, and title insurance. D. The total of the costs of A, B, and C above

Closing Disclosure - Page 1

Loan Terms This section of page 1 gives the exact figures for the loan amount, interest rate, and monthly principal and interest payment, and indicates with a "yes" or "no" whether any of those amounts can increase after closing. It also indicates whether or not there is a prepayment penalty or balloon payment with the loan, and if so, gives the specifics that apply to that feature.

Broker's Responsibility for Closing

Make sure that the escrow instructions prepared by the escrow agent accurately reflect all of the terms of the purchase and sale agreement. If you have the responsibility to order inspections, do so in a timely manner. If the responsibility belongs to someone else, check on their completion and the delivery of the reports to the proper parties. Help your client through the process of approving or disproving the reports, asking for repairs and seeing that those repairs are completed and re-inspected. Check with the lender to see how loan approval is coming along. Check the appraisal results and help your client decide how to proceed if it comes in low. Keep track of any special provisions included in the sale, such as items of personal property. When the title report comes in, find out if there are any problems that need to be addressed. Make sure the buyers have obtained homeowner's insurance and see to it that a copy has been delivered to the escrow agent or lender. Check to be sure the sellers have everything in order for moving out, such as arrangements for trash hauling or scheduling of a cleaning crew to come in and clean before the buyers move in. If buyers are moving in before closing, make sure the rental agreement is ready and signed.

Escrow Analysis

Most lenders today require the borrower to include 1/12th of the annual taxes and insurance as part of the monthly mortgage payment in addition to that portion dedicated to principal, interest and mortgage insurance. These escrow or impound funds (also called reserves) must be analyzed periodically to be sure that adequate funds will be available at the time they are due. If there is either a shortage or a surplus of funds, the lender adjusts the monthly payment.

RESPA applies to purchases:

Of residential property - that is, one-to-four family homes, cooperatives and condominiums Involving first or second mortgages Financed by a federally-related loan - that is, loans that are insured by a federal agency, those that are insured or guaranteed by VA or FHA, HUD-administered loans, or those that will be sold to Fannie Mae, Freddie Mac or Ginnie Mae. RESPA does not apply to seller-financed loans. It also does not apply to a loan assumption, unless the lender has changed the terms of the assumed loan or charges more than $50 for the assumption.

Inspection Reports

Once the inspection is complete, the inspector will prepare a report of the findings. It will state the areas of concern and which problems the inspector believes should be repaired. The report will include information about poor workmanship and deterioration. The report should also include information about projected repairs and identify problems that would occur if the property were remodeled. For example, if the existing septic system is adequate for the current three-bedroom home, the report may state that the system will need to be upgraded if a fourth bedroom is added.

Marketable Title Requirement

One of the most time-consuming of the closing agent's duties is to make sure that the property title is "clean" and "marketable" prior to transfer. Both the buyer and the lender have a vested interest in good title. A seller is required to deliver a marketable title at closing. 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. In order to deliver a marketable title, the seller must have proof of ownership of the property, also known as evidence of title.

Building Relationships That Last (cont.): Organization

Organization is key to building client confidence in you. Keep your papers organized in a binder or folder. Keep your car clean and free of debris. Let your clients see your checklists. Periodically review the checklist with the client.

Closing Disclosure - Page 4

Page 4 details the Loan Disclosures. It covers: Assumption - Indicates whether or not the lender will allow a loan assumption on a future sale or transfer Demand feature - Indicates whether or not the loan has a demand feature, which would allow the lender to require early repayment Late payment - States what late fee the lender will charge Negative amortization - Indicates whether or not the loan has a negative amortization feature, which could result in the loan amount becoming larger than the original loan amount, resulting in a decrease of the equity the borrower has in the property Partial payments - Indicates whether or not the lender would accept partial payments on the loan Security interest - Lists the address of the property securing the loan Escrow account - Breaks down what is and what is not included in the escrow account

Closing Disclosure - Page 5

Page 5 includes the following sections: Loan Calculations - Details the total amount of all payments on the loan, the dollar amount of the finance charges over the life of the loan, the amount financed, the annual percentage rate (APR), and the total interest percentage (TIP) Other Disclosures - States other important information for the borrower to know including whether or not the borrower would have any protection from liability for the unpaid balance in the event of a foreclosure Contact Information - Gives firm names, addresses, license numbers, contact names, email addresses, and phone numbers for persons involved in the transaction. Confirm Receipt - A place for the borrowers to sign confirming receipt of the Closing Disclosure Signing the document does not indicate acceptance of the loan.

Customer Service

Part of the loan servicer's responsibility is to provide service to the borrower, usually through a toll-free number. The borrower can call for present loan balance, interest paid to date, escrow balances and other information. Lenders today are pleased to set up automatic withdrawal from the borrower's checking account for the mortgage payment. This insures that the payment is made on time and is generally beneficial to the borrower.

Escrow Procedures The closing agent is a busy person. The duties of the closing agent are summarized in the following list. The list is in somewhat of a chronological order, but many of these activities occur simultaneously:

Prepare Closing Instructions. Obtain signatures. Order title report. Prepare list of required loan documents and send to lender. Receive and review title report. Contact lender to be sure lender has all documents necessary for loan application. Request name search and investigate tax or other liens. Follow up with lender on loan approval and verify terms. Follow up to see that all conditions to the contract have been fulfilled. Prepare deed, deed of trust, promissory note and other documents necessary for closing. Prepare closing statements, settlement statement. Handle closing: obtain signatures on all documents, verify availability of good funds, and disburse funds. Forward documents to the title company. Return loan documents to the lender. Send documents for recording. Withhold funds as required and transmit to IRS or State. Close file and do accounting. Forward final documents to all parties.

Payoff/ Offset Statement

Provided by the Lender, specifying the amount of unpaid principal and any interest due as of the closing date, plus fees that will be due the lender and any credits or penalties that may apply.

Ordering pest control and other inspection reports

Reports will be sent to the buyers through their agent, who may provide a copy to the lender. If repairs are needed, the buyers and sellers may have to negotiate - as we discussed when we talked about contingencies in an earlier chapter. If the lender required any repairs, the sellers will have to prove to the lender they were made.

Closing Disclosure - Page 3 (cont.)

Summaries of Transactions (cont.) The right column of page 3 summarizes the seller's transaction and includes: M. Due to seller at closing - This includes the sale price of the property and any adjustments for items paid by the seller in advance. N. Due from seller at closing - This section includes closing costs the seller will pay, payoff of any first or second mortgages, seller credit, and adjustments for items unpaid by the seller. The calculation at the bottom of the right column subtracts the total due from the seller from the total due to the seller and results in the Cash to Seller, which is the amount the seller will receive from the borrower at closing. Note: This last line on page 3 is important because it shows how much cash the borrower needs to bring to closing and how much cash the seller will receive at closing.

Completing the Task List: Getting an Appraisal

The appraisal report will be sent to the lender. If the buyers or sellers want to know the results, their agents must contact the lender.

Ethics: Article 1: Protecting the Best Interests of the Client

The basic premise of Article 1 is that a REALTOR® pledges to promote and protect the best interests of the client while treating all parties honestly. Almost 2/3 of all complaints filed throughout the country cite Article 1. It may be in combination with several other articles, but it is consistently the one most often cited. Generally, the complainant is either a client or a customer who feels he or she has suffered from unethical conduct on the part of the agent.

Parties to Escrow

The buyers are entitled to receive good title and a deed to the property in return for paying the purchase price. Their earnest money is held by the escrow agent until the deed is delivered. The sellers are entitled to the proceeds of the sale of the property. They deliver a deed into escrow, and the escrow agent holds the deed until good funds for the purchase are available. Lenders place their funds into escrow to fund the purchase of the property. The funds will not be disbursed until the lender is assured of good title and the lender has satisfied itself that the buyers can pay the loan. Unless the broker is the escrow agent, the brokers are not parties to the escrow agreement. However, the brokers should monitor the progress of the closing and understand the escrow procedures. Once escrow has commenced, the brokers cannot modify the closing instructions unless their clients authorize it in writing. The Closing Instruction form does allow the broker to retain the closing company to prepare certain instruments on behalf of the broker. The broker will pay a fee for this document preparation, but the broker will be responsible for the accuracy of the documents. The broker does sign the Closing Instruction form if the broker engages the closing company to perform this task.

At the property closing:

The buyers complete their financing arrangements (referred to as closing the loan). The buyers deposit the down payment and closing costs into escrow. The sellers transfer the title. The sellers pay off any mortgage or other outstanding liens on the property. Both the buyers and sellers pay the necessary taxes, fees and other charges

Building Relationships That Last (cont.): Empathy

The client wants to know the broker really cares about them and about the property. You can demonstrate this in a number of ways. Find out the names of the children and pets and ask about them when you call. Keep a card catalogue of personal information about the client to refresh your memory.

Getting all paperwork in order

The escrow agent will prepare the final settlement statements for the closing meeting.

Obtaining property insurance

The escrow agent will verify that the property is insured up to its replacement value.

Escrow Requirements

The moment the seller accepts the buyer's offer by signing the contract, a binding contract is formed. This is the first step in the escrow process. The contract and the earnest money are delivered to the closing company, who is the escrow agent holding the documents and money in trust until all the conditions to closing have been satisfied. The closing is the process of "checking off" all the conditions to closing and releasing the funds and instruments in accordance with the closing instructions. The closing agent is responsible for ensuring that good funds are available prior to disbursement, for disbursing funds properly, and for seeing that the instruments are recorded and distributed properly.

Closing Disclosure - Page 2Other Costs

The next section deals with other costs: E. Taxes and other government fees - Items such as recording fees and transfer taxes F. Prepaids - These are items paid for in advance, such as homeowner's insurance and property taxes. G. Initial escrow payment at closing - An escrow account is an account where money is held for certain payments until they are paid out - typically for insurance and taxes. The lender gives the borrower a statement that tells how much money it requires the borrower to put into the account each month. H. Other costs not covered elsewhere on the disclosure - Items such as HOA fees, home warranty fees, home inspection fees, and real estate commission I. The total of the costs of E, F, G, and H above Section J gives the total closing costs to the borrower (D + I from above).This total will be moved to the bottom of page 1 under the heading "Costs at Closing - Closing Costs."

Buyers must acknowledge receipt of the preliminary report which contains:

The owner's name and property description. A list of any outstanding assessments, such as taxes or bonds. Any covenants, conditions or restrictions. Recorded liens or encumbrances that must be removed before a loan can go through. Note: A preliminary title report does not provide insurance. It shows those items that the title company would choose to exclude from coverage if a policy is issued at a later time.

Escrow

The word "escrow" is derived from the French word "escroue," meaning "scroll." The Colorado Real Estate Manual defines "escrow" as "the state or condition of money or a deed held conditionally by a third party, called the escrow agent, pending the performance or fulfillment of some act or condition." The escrow is defined by a written escrow agreement whereby, according to the definition in the Manual, "a grantor, promissory or obligor delivers certain instruments or property to an escrow agent, to be held until the happening of a contingency or performance of a condition, and then to be delivered to the grantee, promisee or obligee.

Building Relationships That Last (cont.): Availability

There is nothing worse than have a doctor or dentist with whom it is impossible to get an appointment. Nothing makes a client feel more unimportant and frustrated than not being able to get in touch with a service provider. Keep you cell phone with you and be available. If a client calls while you have the phone turned off, call the client back immediately.

Environmental inspection

This inspection looks at environmental issues such as radon, asbestos, lead-based paint, underground storage tanks or contaminated water.

Closing Disclosure - Page 3

This section is divided into two columns. The left column summarizes the borrower's transaction and includes: K. Due from the borrower at closing - This includes the sale price of the property and any adjustments for items paid by the seller in advance. L. Paid already by or on behalf of borrower at closing - This includes deposit, loan amount, loan assumptions, seller credits, other credits, and adjustments for items unpaid by the seller. The calculation at the bottom of the left column subtracts the totals already paid by the borrower from the total due from the borrower and results in the Cash to Close due from the borrower at closing. This total is the same figure that appears on the bottom of page 1 under the heading "Costs at Closing - Cash to Close."

This extended coverage policy includes:

Unrecorded liens. Off-record easements. Mining claims. Water rights. Rights or claims of persons in physical possession of the property. Unrecorded claims that could be discovered by physical inspection or correct survey.

Building Relationships That Last (cont.): Attitude and demeanor

We all know the adage, "never let them see you sweat." In real estate, we need to add, "never let them see you frown." Maintain a positive attitude without being glib. If the house isn't selling as quickly as the sellers anticipated, expect them to become impatient and concerned. Have a strategy for dealing with the situation. Sit down with the seller and discuss the pricing or whatever you perceive the problem to be. The client is counting on you to maintain the positive attitude. It keeps the client calm and focused to have the real estate professional also calm and focused.

Arranging and approving financing

When the lender approves the buyers' loan, the lender will outline the exact terms of the loan and set an expiration date for the loan commitment. The lender will also give the buyers a good faith estimate of their closing costs. The lender will send all of the documents to the escrow agent who will set up a time with the buyers to review and sign the documents, which will then go back to the lender to arrange the funding.

Building Relationships That Last: Communication

You probably are not going to continue seeing a doctor who does not communicate well with you. You want to know what the diagnosis is. You want the doctor to give you advice. A doctor who does not communicate is going to have trouble keeping patients. Similarly, a real estate professional must communicate with the clients. They want to know what is happening with the listing. If showings slow down, you need to discuss why. If you are getting negative feedback about the house, you need to share it with the client and make suggestions for improvement.

Standard home inspection

covers a home's major mechanical systems - electrical, plumbing, heating, and cooling - and its construction from roof to foundation, exterior to interior.

An extended coverage policy

insures against many of the items excluded in the standard policy. Lenders require their mortgagee polices to be extended coverage policies.

Pest inspection

is a check for damage caused by wood-eating insects like termites, carpenter ants or beetles.

Structural inspection

is a visual inspection of the foundation elements, bearing walls, beams and columns, floor slabs, framing, crawlspace areas, and drainage. The inspector observes these components for signs of movement, distress, damage, and/or the ability to adversely affect the rest of the structure.

Soil Inspection

is the examination of the soil conditions on the property to determine if there is any settling or drainage problems.

Form CL8-9-12

is the mandatory form to be prepared by the broker during the negotiations for the purchase of property. The Closing Instructions are the escrow agreement between the closing company, the buyer and the seller. The broker's company can be the closing company or the parties may select a title company or attorney to handle the closing. The selection of the closing company occurs at the time the Contract is negotiated and executed by the parties.

Ethics: Article 12: Truth in Advertising

states that REALTORS® must always present a true picture in advertising to the public. But, what if... REALTOR® Kevin advertises that his buyer agency services will be free of charge. We will consider this as ethical behavior as long as Kevin makes it clear that he will be receiving compensation from a third party (unless Kevin plans to work for nothing, which is highly unlikely). Under Buyer Agency, the buyer often pays his or her agent as part of the transaction, actually receiving a portion of the commission paid by the seller to the listing broker. The listing broker then pays the shared portion of the commission to the selling broker who pays the agent. REALTOR® Susan offers a discount to all her buyer clients. At a time when all agents worked on behalf of the seller, this would obviously have been inappropriate behavior. However, agents are free to offer a discount to their own clients if they so choose. They should never offer any incentive to buy or sell to the client of another agent's client.

Ordering the complete title search and title insurance

the escrow agent will order a preliminary report, which will be sent to the lender and the buyers for approval.