Section 12: Transaction Process and Closing in Texas
Seth is a licensee working for a buyer, Britney. Britney wants to make sure the seller accepts her offer on a charming Cape Cod, so she tells Seth she wants to make a full-price, non-contingent offer right away. How should Seth respond?
"I highly recommend a home inspection contingency with your offer to protect yourself in the event there are major defects with the house."
Seller's responsibility
-All negotiated repairs have been made -Request loan payoff statement -Provide affidavit of title
Face-to-Face Closings
-All parties are present. -Attendees agree to meet. -Known as a round table close.
Closing in Escrow
-Closed with a neutral third party. -The buyer and seller don't meet. -Part of the sales contract forms.
Read the Preparing the Buyer for Closing scenario again if you need to and think carefully about where Vince is in the process. He's almost to closing day! Which four items does Vince still need to complete before the closing?
-Complete a final walk through -Obtain a cashier's check or wire transfer for the amount of funds due -Contact and set up utilities -Obtain verification of the seller's loan payoff
Loan Estimate Form
-Discloses the mortgage loan specifics, such as its key features, costs, and risks -Includes an estimate of the amount of cash to bring to the closing -Displays the total interest the buyer will have paid off in five years -Must be given to buyers within three business days after submitting a loan application
After the deed has been recorded and existing loans have been paid off, what's left for the closing agent to do?
-Distribute closing proceeds -File form 1099-S
What's the purpose of the MDIA (Mortgage Disclosure Improvement Act)?
-Limits the amount of fees a lender can collect before the borrower receives a Loan Estimate. -Requires the lender to disclose that receipt of these statements does not obligate the borrower to consummate the loan. -Ensures that consumers are provided with specific disclosures when applying for a real estate loan. -Requires lenders involved in residential mortgage transactions to adhere to a specific schedule for certain disclosures to the borrower.
Which two of these forms are required for all federally related residential mortgage loan transactions?
-Loan Estimate -Closing Disclosure
Buyer's responsibility
-Meet insurance requirements -Complete loan application -Obtain an appraisal
Inspection Item
-Moisture intrusion -Evidence of pest intrusion -Safety or health hazards -Roof condition -Drainage issues
What options does the buyer have once an inspection report that notes needed repairs comes back?
-Negotiate a reduction in sales price -Agree to go forward anyway -Back out of the sale
Which four federally related lending transactions are covered by RESPA?
-New first mortgage loan -Refinance loan -Second mortgage -Home equity lines
Read the Preparing the Buyer for Closing scenario again if you need to and then decide which items Vince can check off of his list for the closing.
-Obtained an appraisal -Completed the loan application -Obtained a home inspection -Obtained clear and marketable title
Which three forms of title evidence are used in Texas?
-Owner's title insurance policy -Abstract of title -Attorney's opinion
So far, we've seen the buyer and seller as they prepare for closing, but what four things does the closing agent do to prepare?
-Perform a title search -Obtain the seller's loan payoff amount -Prorate property taxes -Prepare closing statements
Loan Approval Process
-Pre-qualification -Pre-approval -Mortgage commitment
Which of the following statements are true about RESPA?
-RESPA ensures that consumers are provided with specific disclosures when applying for a real estate loan. -RESPA ensures that all fees associated with the loan and its payment schedule are disclosed to the borrower before the borrower commits to the loan.
The closing meeting has occurred, but there are still several things that need to happen. Can you identify what's been completed, and what still needs to be done?
-Record deed and loan documents -Pay off existing loans -Distribute funds to seller and brokers
2010 Dodd-Frank Act.
-Requires the Loan Estimate and Closing Disclosure forms to be used for all federally-related residential closings
Required by the MDIA?
-Residential mortgage transactions are required to adhere to a 3-7-3 disclosure schedule. -The lender may only collect reasonable fees to cover costs before the borrower receives the Loan Estimate. -The lender must provide the borrower with new disclosures and wait three business days before funding the loan if the APR has changed more than 0.125% from the original or most recent Loan Estimate. -The lender must provide a statement to the borrower that receipt of the disclosures does not obligate the borrower to the loan.
Read the Preparing the Seller for Closing again if you need to, and then decide which items Karen can cross off her checklist.
-Reviewed the sales agreement -All requested repairs made -Verified buyer financing -Requested the loan payoff statement -Provided an affidavit of title -Reviewed closing statement
Purpose and Process of Closing
-Seller is paid the balance of the purchase price -Buyer and seller sign documents presented by the closing agent -Closing agent disburses funds
Closing Disclosure Form
-The Closing Disclosure supports not only FHA and VA loans, but also conventional insured and conventional uninsured loans, and other loans. -It contains a summary for both the borrower's and seller's transactions, and the gross amount due from both parties. -The Closing Disclosure can't be used for home equity lines of credit. Other disclosures do apply, however. -It's used to compare the actual charges against the Loan Estimate form's estimated charges. -It identifies the total settlement charges, which include, but are not limited to, real estate broker fees, reserves deposited with the lender, and title charges. -It must be given to buyers within a minimum of three business days before closing on the mortgage loan.
Closing Activities
-The funds that a buyer brings to closing must be provided in the form of a cashier's check, a certified check, or a wire transfer. -The parties may elect to have their attorneys present, but this doesn't always happen. -The funds must be paid by certified funds, which may include a cashier's check, certified check, or a wire transfer. -Prior to signing their documents, the parties should have already reviewed and confirmed that the conditions and contingencies of the purchase agreement have been met. -The buyer receives the binder for insurance coverage prior to closing.
Title Commitment II
-The title commitment is an agreement by a title insurer to issue the final title insurance policy on a specific piece of property once the final settlement on the property has occurred. -The seller has 20 days to deliver a commitment for title insurance to the buyer. -If the seller can't deliver the commitment for title insurance to the buyer within the allotted time frame, the delivery date is automatically extended up to 15 days. -The title commitment process begins as soon as the property goes under contract, when the real estate agent delivers a copy of the sales contract to a title company to begin the title search. -The title commitment is also called the title binder.
Title Insurance Policy
-Title insurance insures the policy owner against financial loss if the title to the real estate has defects. -Title insurance is required by the lender when financing is used to purchase real estate. -Even when buyers pay cash for a property, they're encouraged to purchase title insurance. -Title insurance only protects against title defects existing at the time of title transfer. -Title insurance is only issued if an attorney verifies that the abstract of title is acceptable and provides a written certificate of title opinion.
Mortgage Commitment Stage
-Underwriting doesn't happen until all loan documents have been collected. -The lender isn't required to issue the loan until the underwriter has approved the loan. -The underwriter determines if a loan is approved or rejected. -A loan commitment is good only for a short period of time. -Funds for reserves are collected at closing.
Steps in the Transaction Process
1. Deposit earnest money 2. Begin title work 3. Complete inspections 4. Perform appraisal 5. Obtain homeowners insurance 6. Obtain loan approval 7. Obtain the payoff amount of any existing mortgages 8. Obtain the funds to cover the closing costs 9. Perform the actual closing 10. Record the change of ownership
The Exchange
1. Existing loan payoff 2. Deed recorded in buyer's name 3. New deed of trust recorded in buyer's name
Under the MDIA, how many business days after a borrower applies for a loan does a lender have to provide the buyer with a Loan Estimate?
3
How many days must the borrower be given if the APR of a loan changes more than .125% from the prior Loan Estimate?
3 business days
According to the rules in the Mortgage Disclosure Improvement Act, how long does the borrower have, after receiving the Loan Estimate, to sign the loan documents and return them to the lender?
7 business days
Title search
A comb through public records that usually results in a title commitment or abstract of title
Which option best describes an abstract of title?
A document that provides a summary of the title history of a property
Marketable title
A title that's free and clear of liens and only subject to loan payoff and any taxes owed
Which option best describes marketable title?
A title to property that's free and clear of liens and only subject to loan payoff and any taxes owed
The _____ provides a summary of the title history.
Abstract of title
Which of the following provides a summary of the title history?
Abstract of title
At the closing of a sales transaction, which parties close on the compensation agreement?
Agent's brokerage firms
What is a proration?
An amount apportioned according to use
Which of the following is more likely to act as a closing agent?
An attorney or title company representative
Prior to signing the closing documents, the parties should have already ______.
Assured themselves that the conditions and contingencies of the purchase agreement have been met
Loan Application Stage
Beginning step: Find a home and obtain a pre-approval letter Next step: Complete a Uniform Residential Loan Application and obtain credit scores Final step: Receive clear title and obtain title insurance and homeowners insurance
At the time of closing, the buyer and the seller agents will close on which contract?
Brokerage agreement
Before closing, the ______ should get a home inspection.
Buyer
Before closing, the ______ should get an appraisal of the property if the transaction's being financed.
Buyer
At the closing of a sales transaction, which parties close on the brokerage agreement?
Buyer and seller agents
The _____ is used to establish the path and proof of ownership.
Chain of title
Agent's brokerage firms
Close on the compensation agreement
Agents for seller and buyer
Close on the cooperative brokerage agreement
The seller and seller's agent
Close on the listing agreement
Lender's rep and buyer
Close on the mortgage loan commitment
Seller and buyer
Close on the sale agreement
Buyer and title company rep
Close on the title insurance contract
What can a lender do before a borrower receives a Loan Estimate for a loan according the rules under the MDIA?
Collect reasonable fees to cover costs to access the borrower's credit history
At the time of closing, the agents' brokerage firms will close on which contract?
Compensation agreement
Identify the item that appears on the buyer's checklist as something that should be completed before closing.
Complete loan application
The _____ is used to transfer the title.
Deed
Mario lives in a state that requires an abstract of title for property conveyance. The chain of title is broken approximately 50 years prior to the current date. Which of these properly identifies the status of Mario's title?
Depending on his state's laws, Mario may have marketable title.
Which step of the transaction process involves the buyer writing a check to show good faith in making the offer?
Depositing the earnest money
Which task is NOT the responsibility of an escrow officer?
Determine how earnest money is to be distributed in case of a dispute.
Home inspector Murray is explaining to first-time buyers what he looks for during a home inspection. What is his primary goal?
Document health and safety issues that may affect both the cost and enjoyment of the home.
Donald and Martina decided to purchase a newly built home, and their agent, Ed, recommended that they get a professional home inspection done. The couple tell Ed that they thought inspections were only for older homes. How should Ed respond to that?
He should remind them that every dwelling, no matter the age or size, should have a home inspection.
Title Commitment
In most cases, as soon as the property goes under contract, the real estate agent will deliver a copy of the sales contract to a title company to begin the title search. The seller has 20 days from the date of the title company's receipt of the contract to deliver a commitment for title insurance to the buyer. Once the title examination has been completed, the title company issues a commitment to issue a title policy.
Why is a home inspection recommended?
It gives the buyer a snapshot in time of the home's condition.
Attorney's opinion of title
Lists the liens, encumbrances, easements, conditions, and restrictions in the public record for that property and that impact the title
3 business days
Maximum amount of time in which the lender has to provide the borrower with a Loan Estimate after loan application
7 business days
Minimum number of days the borrower must be given after receiving the Loan Estimate before signing the loan documents
3 business days: may waive
Number of days the borrower must be given to review a substantial change in the APR before the lender can fund the loan
Your buyer client, Jacob, is planning to obtain financing for a new home. What should his first step be?
Obtain a pre-qualification letter
Abstract of title
Obtained from a title insurance company to provide evidence of title
Right before the closing meeting happens, what should the closing agent do to prepare?
Order final loan documents
Title insurance
Protects the buyer from defects in the title
Evidence of title
Proves ownership of the property
At the closing of a sales transaction, which parties close on the listing agreement?
Seller and seller's agent
Elizabeth is financing a new home. She submitted her loan application on Monday, August 3. She's set to close on Thursday, September 21. By what date must her lender provide the Closing Disclosure?
September 18
Who has the right to waive the three-day disclosure waiting period when the APR for the loan changes on the Loan Estimate?
The borrower
Who's responsible for doing the final walk-through of a property?
The buyer and the buyer's agent
Once all of the inspections are complete, what happens next?
The buyers review the inspection report. The buyers discuss options for handling the items noted on the report.
In a real estate transaction for which financing has been obtained, what's recorded at the completion of a sales transaction?
The deed or mortgage
In Texas, who or which entity always requires title insurance?
The lender
At the time of closing, the seller and the seller's agent will close on which contract?
The listing agreement
If home repairs are agreed upon in the sales contract, who's responsible for making them?
The seller
Prior to closing, who should request a loan payoff statement?
The seller
Which of the following statements is true of the mortgage commitment stage of the loan approval process?
The underwriter determines if a loan meets the lender's underwriting standards.
What's the minimum number of business days prior to closing that lenders have to provide borrowers with the Closing Disclosure form?
Three
The _____ will be issued only if title is acceptable and a certificate of title opinion is provided by the attorney.
Title insurance policy
Which of the following will be issued only if title is acceptable and an attorney provides a certificate of title opinion?
Title insurance policy
What is a marketable title?
Title that's free and clear of liens and only subject to loan payoff and any taxes owed
What's the purpose of the title search?
To collect evidence that the title is a marketable title, meaning it's clear and free of encumbrances
Jennings has received a Closing Disclosure from his lender. What's the purpose of this form?
To detail all costs Jennings will owe at closing
What's the purpose of pre-qualification?
To determine in which price range the buyer should shop
What's the purpose of the pre-qualification stage of the loan approval process?
To determine the amount of money the buyer will qualify for based on initial information provided by the borrower
Why would a lender want to pull a credit report during the pre-approval state of the loan approval process?
To determine the borrower's credit risk
Why was the 3-7-3 schedule set up in the first place?
To provide consumers with defined time periods to review disclosures from their lender
What's the purpose of the loan commitment?
To provide notice from the lender that the loan has been approved
What is the purpose of a home inspection?
To provide the buyer with a true picture of a property's condition
Of the following, which is considered a typical accrued adjustment?
Unpaid real estate taxes
The Loan Approval Process
Your client, Selena, is interested in buying a new home. You tell Selena that she should start by getting pre-qualified for a loan so she has a general idea of how much money she will be able to borrow. Once she does this, you can begin showing her homes that interest her and are in her price range. Selena finds a home she wants to purchase and meets with her lender. After she completes the Uniform Residential Loan Application, she is pre-approved. Toward the end of the loan approval process, the underwriter reviews all of the necessary documents and approves the loan. At this point, the lender commits to issue the loan.