closing real estate transactions
What are the steps to calculating prorations
1. determine if the expense is accrued or prepaid 2. divide the expense by the appropriate period to find a monthly/daily rate 3. determine how many months/days are affected by the expense 4. multiply the monthly/daily rate by the number of affected months/days 5. determine which party is credited and which is debited
Donna, a licensed real estate broker, receives a fee for every client she refers to a mortgage company that results in loan. is this permitted? A. no, this would be considered an illegal kickback under RESPA B. yes, its permitted if she discloses the fee arrangement to the client when she makes the referral C. yes, its permitted if she discloses the fee arrangement to the client before the sale is finalized D. yes, its permitted as long as she does not require the client to use that mortgage company
A
If the HOA fee chris paid was $360, how will this be prorated between the seller chris and the buyer sue at settlement for those 159 days? A. $318 credit seller/ $318 debit buyer B. 318 credit seller/ 42 debit buyer C. 42 credit seller/ 318 debit buyer D. 42 credit seller/ 42 debit buyer
A
What is the document that transfers title of personal property from one person to the other at closing? A. bill of sale B. deed C. purchase agreement D. settlement statement
A
of these, which is NOT a cost that a seller typically pays? A. home inspection fee B. title search charges C. transfer tax D. water certification
A
on a closing statement, a new mortgage loan is usually a A. credit to the buyer B. credit to the seller C. debit to the buyer D. debit to the seller
A
Jason, a real estate broker, also owns the mortgage company his buyer chooses. Which of the following is TRUE under RESPA? A. Jason must advise his buyer to select a different mortgage company B. jason may refer the buyer to his mortgage company as long as he discloses his interest in the company to the buyer C. Jason may not refer buyers to his mortgage company, but if the buyer chooses the company independently, this is permitted, as long as Jason discloses his interest in the company D. Jason may not refer buyers to his mortgage company, but if the buyer chooses the company independently, Jason has no obligation to disclose his interest in the company
B
Sue put $10,000 down as an earnest money deposit. How will that $10,000 be handled at settlement? A. debit to sue B. credit to sue
B
Which cost of settlement is generally the responsibility of both the seller and the buyer? A. appraisal B. recording fee C. survey D. title insurance
B
Sue is buying a house from Chris. She's going to pay $200,000 for the house. What is that $200,000 considered at settlement? select all that apply A. debit to chris B. debit to Sue C. credit to chris D. credit to Sue
B and C
Chris paid semi-annual homeowners association fees of $360 on July 1 to cover the rest of the year. For how many days must he get credit when the transaction closes on July 21, using a statutory year? A. 151 days B. 159 days C. 160 days D. 163 days
B.
Maggie bought a house in a subdivision, closing on August 31. Seller sam paid the annual association fee of $780 at the beginning of the year. On the settlement statement, how will this fee be handled (assuming a statutory year) A. 259.99 credit buyer/ 519.98 debit seller B. 259.99 credit seller/ 259.99 debit buyer C. 519.98 credit seller/ 519.98 debit buyer D. 259.99 debit seller/ 519.98 credit buyer
B.
Carlos is closing on a house he is purchasing for $150,000. The sellers agree to reimburse him $500 for termite inspection and $500 for a damaged door. Carlos also negotiates to pay the sellers $500 more if they leave the draperies and blinds. With these credits and debits considered, how much does Carlos owe on the property? A. 149,000 B. 149,500 C. 150,000 D. 150,500
B. carlos owes 150,000 for the house plus 500 for the blinds and draperies. add those figures, then subtract 1,000 for the credits from the sellers to find the amount owed of 149,500
When expenses are paid in advance, they show up as a _____ on the seller's side of the settlement statement A. debit B. credit
B. items that are paid in advance would be a credit to the seller and a debit to the buyer.
The sale of a property closes on May 10. Taxes are $3,600 per year and paid in arrears. what is the seller's share of taxes, based on a calendar year (assuming it's not a leap year) A. $1,200.00 B. $1,282.19 C. $1,300.00 D. $1,374.16
B. to find the daily rate: $3,600 annual taxes/ 365 days in a year = 9.8630. there are 130 days between january 1 and may 10. to find the seller's share: 130 x 9.8630 daily rate = $1,282.19 seller's share
A settlement statement A. is required for all property transfers B. is simply an updated Loan Estimate with final loan terms C. provides a financial accounting of a buyers and sellers closing costs D. removes any cloud on the title
C
Each of these costs is typically paid by the buyer EXCEPT A. discount points B. escrow reserves C. existing lien payoff D. mortgage insurance premiums
C
Suellen is buying Frank's house for $215,500. In their state, the transfer tax is 55 cents for each $1,000 of transaction value or fraction thereof. How much must Frank pay to the state at settlement when he sells his house to Suellen? A. 0, the buyer pays transfer tax B. $118.53 C. $118.80 D. $215.50
C
The fuel oil cost is $780. At the time of closing, the tank is 3/4 full. How will this cost be handled on a settlement statement? A. $195 debit seller/ 195 credit buyer B. 195 credit seller/ 585 debit buyer C. 585 credit seller/ 585 debit buyer D. 585 credit seller/ 195 credit buyer
C
When closing a real estate transaction, who would be the LEAST LIKELY settlement officer? A. an attorney B. the lender C. the listing broker D. a representative of the title company
C
condominium owner association fees might be an example of a A. accrued item on a settlement statement B. good faith estimate C. prepaid item on a settlement statement D. unnecessary expense that may be slipped into closing paperwork
C
who must sign the deed at settlement? select all that apply A. buyer B. lender C. seller D. settlement officer
C
RESPA applies to _________ financed by a federally regulated loan A. any commercial or residential property B. any residential property C. one to four family residences D. single family dwellings only
C.
A buyer contracts to purchase a $75,000 home. The commission is 5%, paid by seller. The buyer gets a $260 credit for property taxes paid in arrears. The buyer obtains an 80% conventional loan and pays 3% of the loan amount in loan origination fees. Assuming no other credits or debits, what amount should the buyer bring to closing? A. $15,040 B. $15,800 C. $16,540 D. $19,913
C. an 80% loan of $75,000 is a loan for $60,000 (75,000 x .80) which means he needs a down payment of 15,000 (75,000- 60,000). origination fees of 3% on 60,000 is a debit of 1,800 (60,000 x .03). he gets a credit for 260 for taxes. 15,000 + 1,800 - 260 = 16,540 that he should bring to the closing . the seller not the buyer pays the real estate commission
Jim bought a house for $100,000. In his state, the transfer tax is 60 cents for each $1,000 of transaction value or fraction thereof. The county transfer tax is 15 cents for each $1,000 of transaction value or fraction thereof. How much real estate transfer tax will he owe? A. $60 B. $75 C. none, the seller pays the transfer tax
C. in most states it is the seller not the buyer who pays transfer tax on the sale of real property
if the annual taxes are $3,420, what is daily tax rate, using a statutory year (calculate to 4 decimal places) A. $9.3442 per day B. $9.3689 per day C. $9.5000 per day D. $17.0149 per day
C. statutory is a bankers year. 360 days, 30 days for each month. $3,420/360= $9.5000
Lois is buying a condo. Settlement is march 31. The seller pays condo fees on the first of every month. How will these fees appear on the settlement statement? A. a three month credit to the buyer B. a three month debit to the buyer C. a nine month debit to the buyer D. they will not appear on the settlement statement
C. the fee is paid every month. so there is no reason to prorate that fee when closing is on the last day of the month. It wont appear on the settlement statement
Broker Dan talks with his friend Jane, a financial analyst and Jane suggests that she will refer her clients who need real estate related services to Dan, Dan is glad to have the extra business. In appreciation, Dan may A. direct a fee is paid out of closing to jane B. give jane a flat screen tv C. pay a referral fee to jane D. tell jane, thank you
D
In the closing statement required by RESPA, the sales commission is generally shown as a A. credit to the buyer B. credit to the seller C. debit to the buyer D. debit to the seller
D
Seller Stu refused to sing a sales contract unless buyer Beth agreed to use Stu & Associates Title Company. Beth really wanted that house and so agreed. The fee for the title insurance was $400. If she later chooses to sue Stu for violating RESPA, how much can she ask A. she cannot sue under RESPA since she agreed to the terms B. she can only sue for the amount she paid $400 C. she can sue for up to two times what she paid $800 D. she can sue for up to three times what she paid $1,200
D
Which document is the most critical to settlement, basically laying the foundation for the closing? A. abstract of title B. bill of sale C. mortgage D. purchase agreement
D
in addition to commission, which of the following costs at settlement are typically paid by a seller? select all that apply A. appraisal B. survey C. title insurance D. transfer tax E. water bill
D, E
What settlement cost is NOT typically paid by the buyer A. appraisal B. home inspection C. title insurance D. title search
D.
a house sells for $289,400. The transfer tax in the state is 35 cents for every $500 or fraction thereof. what is the transfer tax on this transaction? A. 101.15 B. 105.00 C. 202.58 D. 202.65
D. 289,400/500=578.8 units. round up to account for the fraction to get 579 units. if state transfer tax is 35 cents for every $500 unit: 579 units x $0.35 tax rate = $202.65
Let's say that Chris still owes $45,000 on his house. That amount will show up as a credit to Sue at settlement true or false
False
home warranty
a contract between a property owner and home warranty company that provides coverage for the repaid or replacement of named components in the home for a specified period of time, such as one year
bill of sale
a document used to transfer title to personal property from one person to another
foreign investment in real property tax act of 1980 (FIRPTA)
a federal law that imposes income tax on foreign persons selling or otherwise disposing of their interest in real property
Affiliated Business Arrangement (AfBA)
a person in a position to refer settlement services or an associate has either an affiliate relationship with or a direct or beneficial ownership interest of more than 1% in a provider of settlement services and who then refers business to the provider or in some way influences the selection of that provider
IRS form 1099-s
a report indicating the seller's proceeds from the sale or transfer of real estate that a settlement officer submits to the internal revenue service
title report
a report issued by a title company disclosing the condition of the title to a specific piece of property; evidence of marketable title
escrow closing
a settlement procedure conducted by a disinterested third party, often an escrow agent, where the buyer and seller are not present
roundtable closing
a settlement procedure conducted with all parties present
closing disclosure
a standardized document that presents a final detailed accounting for a real estate transaction, listing each party's debits and credits and the amount of each will receive or be required to pay at closing; required for all RESPA related transactions. also called settlement statement
debit
a sum of money that is owed
Credit
a sum of money that is to be received
transfer tax
a tax levied on the transfer of a piece of real property from one person to another; it could be levied by the state, the county, or the municipality
deed
a written instrument transferring the grantor's ownership of, or interest in, real property
statutory year
a year based on a monthly rate that considers each month to be 30 days. there are 360 days in a statutory year. also called a banker's year
escrow reserves
an account maintained by a lender for the deposit of borrower's extra 1/12 monthly deposits to cover next year's insurance and tax payments
P.O.C
any expenses associated with a real estate transaction that are paid outside of closing. Such payments should be noted on a settlement statement, but would not be considered debits or credits to the buyer or seller
settlement services
any service provided in connection with the closing of a real estate transaction, including, but not limited to, those provided by lenders, title companies, real estate brokers, property inspectors, attorneys, appraisers, etc
accrued expenses is also considered to be paid in .....
arrears
typical seller costs with settlement
attorney fees, broker's commission, water certification, condo co op HOA fees, title search charges, existing lien payments if applicable, recording fees, transfer tax, home warranty fee if offered
settlement statement is also called
closing disclosure
what are some of the other names of a settlement officer
closing officer, closing agent, escrow agent, or title agent
does a mortgage show as a credit or debit to the borrower
credit
release of lien or satisfaction of mortgage is also called
discharge of mortgage
evidence of title
evidence of title to real estate is provided through a title report or issuance of title insurance
prepaid expenses
expense items on a settlement statement the seller has already paid in advance, usually at the beginning of a month for the rest of the month, or at the beginning of the year for the rest of the year or longer.
RESPA applies to any commercial and residential transaction that is secured by a federally regulated loan true or false
false
Terry, an agent at TSS Realty, listed Jerry's house for sale. Agent Marge, also from TSS, found the buyer. The settlement officer will cut commission checks for Terry and Marge as indicated in the sales contract and distribute them at closing true or false
false
an escrow closing is one in which all parties to the transaction are present true or false
false
it is usually the responsibility of the seller to pay home inspection fees true or false
false
the closing disclosures must be given to a borrower at least three calendar days prior to close true or false
false
when calculating prorations using a banker's year, one must account for all 365 days (or 366 days if it is a leap year) true or false
false. a bankers year is 360 days a year
RESPA prohibits a brokerage from paying a referral fee to a cooperating brokerage. true or false
false. respa prohibits payment of unearned fees or for services not actually performed, legitimate payments to a cooperating brokerage are permitted
on the settlement statement, the mortgage amount appears as a debit to the buyer. true or false
false. the mortgage amount shows up as a credit to the buyer, since it is the lender who brings the money to closing
transfer tax stamps are affixed to the settlement statement as evidence that the required taxes were paid true or false
false. these revenue stamps are generally affixed to the deed or other document conveying title before the deed can be recorded
real estate settlement procedures act (RESPA)
federal law, implemented as regulation X, dealing with real estate closings that provides specific procedures and guidelines for the disclosure of settlement costs
kickback
fee or other compensation given for services not performed, but as a means of undisclosed commission for business referrals. kickbacks are prohibited by RESPA
recording fees
fees charged for filing documents at the county recorder's office so that they become part of the public record
referral
for the purposes of RESPA, any oral or written action directed to a person that has the effect of affirmatively influencing the selection of a provider of a settlement service or business
discharge of mortgage
happens once the seller's mortgage on the property is paid off. The lender issues the discharge of contract, and the seller should record this document. also called release of lien or satisfaction of mortgage
title insurance
insurance policy that protects lenders and homeowners against losses resulting from undiscovered title defects and encumbrances
Accrued Expense
item on a settlement statement for which the cost has been incurred, but the expense has not yet been paid. Such expenses are considered to be paid in arrears
What are some typical buyer costs with settlement
loan application and bank fees, escrow reserves, home inspection fees, mortgage insurance, title insurance, condo or co ops fees, attorney's fees, recording fees
closing is also called.........
loan consummation or settlement
TRID Rule
the TILA-RESPA integrated disclosure rule, issued by the consumer financial protection bureau to create standardized, consumer friendly disclosure documents, including the loan estimate ( which integrates the initial truth in lending statement and the good faith estimate) and the closing disclosure (which integrates the final truth in lending statement and the HUD-1 settlement statement)
proration
the allocation of expenses between buyer and seller in proportion to their actual usage
settlement officer
the person charged with coordinating the activities and documentation necessary for completing a real estate transaction; usually the one who prepares the settlement statement and conducts the closing. Also called closing officer, closing agent, escrow agent, or title agent
closing
the transfer of real property ownership from seller to buyer, according to terms and conditions in a sales contract or escrow agreement; the final state in a real estate transaction. Also called loan consummation or settlement
Sue is taking out an 85% loan to value mortgage on the $200,000 purchase. That $170,000 loan will be considered a credit to Sue at settlement. true or false
true
The activities that a real estate licensee performs to ensure that everything is in order prior to closing on the sale of a house would be considered "settlement services" true or false
true
a real estate licensee may NOT accept a referral fee in exchange for referring a consumer to a home inspector. true or false
true
another name for settlement officer is escrow agent true or false
true
it is usually the responsibility of the buyers to pay the appraisal fee true or false
true
on a settlement statement, expenses that are paid in arrears will show as a debit to the seller and a credit to the buyer. true or false
true