unit 2 ch4

TRID gives the buyer the right to review the completed settlement statement how long before closing?

3 calendar days

How far in advance of the close, can the borrower review the Closing Disclosure form?

3 days

What does a settlement statement include?

A list of debits and credits for both the buyer and seller.

What disclosures are required after closing?

Annual Escrow StatementServicing Transfer Statement

Which step in the escrow process includes signing and transferring all documents and distributing the funds?

Escrow Closing

Which of the following information will the escrow agent NOT need?

The buyer's credit report

Most lenders require buyers to purchase

homeowner's insurance.

encumbrance

indicates that some other party has some rights or claim to the property. Examples of encumbrances could be: A utility right-of-way Neighbor's fence or garage encroaching Driveway easement through the property

What disclosures are required before closing?

Affiliated Business Arrangement DisclosureClosing Disclosure given to the buyer three days before actual settlement

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. 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.

Lender Fees

Application fee - What the lender charges to process the application. Underwriting fee - What the underwriter charges for reviewing the loan application and approving the loan. Loan processing fee - What the bank charges to process the loan. Origination fee - What the lender charges for finding the loan - is equal to 1% of the loan amount. Loan lock fees - What the lender charges to lock in a specific interest rate for a specific period of time. Tax service fee - What the lender charges to monitor the escrowed payments of property taxes.

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

Ordering the complete title search and title insurance

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

Coop or Condo Fees

As we said on a previous page, condominiums have special assessments due to the homeowner's association for maintenance of common areas. The buyer may owe the seller for services that were prepaid by the seller but will be used by the buyer.

Broker's Commission

As you know, the broker's commission could be a percentage of the selling price, a flat fee, or some other arrangement. In most cases, it is a percentage of the sale price. The commission is paid at the closing, usually by the seller.

Servicing Transfer Statement

At least 15 days prior to the transfer. The new loan servicer must also provide notice within 15 days after the transfer has occurred. No no payments for 60 days after transfer has occurred

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.

List three items that a seller usually pays at closing.

Broker commission Transfer taxes Satisfaction of existing liens

Seller's Debits

Broker's commission Delinquent taxes Document preparation fees Loan balance Pest inspection Soil test Survey Termite treatment Transfer tax Unpaid utility bills

Private Mortgage Insurance (PMI), if applicable

Buyers can sometimes get loans with a lower down payment if they agree to pay private mortgage insurance. The lender purchases the insurance from a private mortgage insurance company and then passes the cost to the borrower by charging a fee at closing plus an additional monthly fee while the insurance is in force. The lender will terminate the PMI payments once the loan has been repaid to a certain level. Federal law requires that any loans originated after July of 1999 must have the PMI terminated after the borrower has accumulated 22% of equity in the property and is current with all loan payments.

What disclosures are required at closing?

Closing DisclosureInitial Escrow Statement

Face-to-Face Versus Escrow Closings

Closings can occur face-to-face or through escrow. A face-to-face closing resolves two issues: The promises made in the sales contract are fulfilled. The buyer's loan is finalized, and the mortgage lender disburses the loan funds.

Computerized Loan Originations

Computerized Loan Originations A real estate firm may offer a computerized loan origination system (CLO) that: Provides a prospective borrower information about mortgage loan products Prequalifies a borrower Initiates a loan application process for a fee

Buyer's Debits

Contract sales price Credit report Recording of deed and mortgage documents Homeowner's insurance Other expenses, such as loan origination fee, closing fee, recording fee, attorney fees

Seller's Credits

Contract sales price Items paid for in advance, such as insurance premiums

List three items that a buyer usually pays at closing

Credit report feesInspectionsTitle insurance

After recording, the settlement agent:

Disburses funds as required by the contract, including funds due to the seller. Pays off any amounts due for an existing mortgage loan or other liens on the property. Arranges for a title insurance policy to be issued to the purchaser. 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

Buyer's Credits

Earnest money or deposit Loan amount

What is the difference between a face-to-face closing and an escrow closing?

Face-to-face - one meeting with all involved parties assures the promises made in the sales contract are fulfilled, the buyer's loan is finalized, and the lender disburses the funds. Escrow closing - parties never meet, but closing is handled by a disinterested third party who is authorized to act as an escrow agent and coordinate the closing activities on behalf of the buyer and seller.

TRID Rule

Federal regulations that combine the disclosure requirements of the Truth in Lending Act and the Real Estate Settlement Procedures Act. also requires lenders to use the Closing Disclosure to detail the costs that the buyer and seller will pay at closing. In addition to the costs payable to the lender, the form also itemizes any costs due to other parties, such as city or county tax assessments, recording fees and attorney's fees. The lender must deliver the Closing Disclosure 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.

Homeowners Insurance

Flood insurance is not included in a basic homeowner's policy.

List three activities that take place during the escrow period. (See Page #12 for other correct answers.)

Getting an appraisal. Ordering pest control and other inspection reports.Obtaining property insurance.

Which statement is true about accepting referral fees?

It could be a violation of state licensing laws.

Which of the following is TRUE regarding the recording of a deed?

It is not a legal requirement that a deed be recorded in the County Clerk's office.

Disclosures After Closing

Loan servicers must provide borrowers with an Annual Escrow Statement which summarizes all inflows and outflows in the prior 12-month period. The statement must also disclose shortfalls or overages in the account, and how the discrepancies will be resolved.

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. The statement must also disclose shortfalls or overages in the account, and how the discrepancies will be resolved.

Inspections

Most buyers condition the culmination of the sale on one or more inspections of the property by one or more experts. 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.

Broker's Role

NOTE: Brokers and real estate agents have many contacts in the world of lenders, property inspectors, surveys, insurance agents and the like. Often these people offer fees to the brokers and agents to get their referrals. Caution: Licensees must not recommend specific individuals or companies to their clients. Accepting referral fees could be a violation of state licensing laws and the Real Estate Settlement Procedures Act, which we will discuss shortly.

RESPA allows business relationships among real estate firms, mortgage brokers, title insurance firms, and other such companies involved in a transaction providing what?

Providing the relationships are disclosed in writing to the consumer, the consumer is free to go elsewhere for the relevant service, and the companies do not exchange fees for referrals

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.

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).

Co-op and Condo Fees

Some cooperatives have what is called a flip tax that is paid by the seller when the property transfers. Condominiums have special maintenance fees due to the homeowner's association. These fees are called assessments. If the seller owes of these fees, he or she will pay them at closing. If the seller has prepaid these fees, an adjustment will be made at closing.

Recording Documents to Clear Title

Sometime a seller may have to file a satisfaction of mortgage document or a document showing satisfaction of other judgments. If so, the seller's attorney will file the documents, which will be recorded in the county clerk's office.

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.

What does TRID Rule require lenders to give to borrowers?

The booklet "Your home loan toolkit," a Loan Estimate, a Mortgage Servicing Disclosure Statement, and a Closing Disclosure

What is the broker's role for a closing?

The broker may order inspections, surveys, or appraisals; can help buyer find a lender; can schedule needed repairs; check on progress of activities necessary for closing; conduct final walkthrough of property; may or may not be present at closing.

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.

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.

What does a title search reveal?

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

Lender's Role

The lender is primarily interested in protecting its interest in the property. In order to do that, lenders typically require at the very least a title insurance policy and a homeowner's insurance policy. Depending on the individual circumstances, a lender might also ask for a survey and inspections. 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.

What is escrow?

The process in which a disinterested third party holds all money and documents relating to a transaction until all of the terms and conditions of the escrow instructions have been satisfied.

Who is responsible for reporting the real estate sale to the IRS?

The responsibility for filling out and submitting the form generally falls to the person who conducted the closing.

What right does the TRID Rule give to buyers?

The right to review the completed settlement statement (Closing Disclosure) three business days prior to closing.

title search

The title search reveals: The legal description of the property The owners of record Any outstanding liens or encumbrances on the property

Satisfy Existing Liens

The title to a property cannot be transferred until any existing liens have been paid off. There is a fee associated with satisfying the liens which is calculated based on the amount of the lien.

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.

Both the buyer and the lender should have title insurance.

Title insurance guarantees the validity and accuracy of the title search. The title insurance company warrants to "make good" any loss arising from a defect in the title or from any liens or encumbrances on the property. Generally, the insurance policy that the title company issues will protect the policy holder against losses that arise from "hidden" defects.

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 an estimate of their closing costs using the Loan Estimate Form. 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.

escrow closing

a disinterested third party is authorized to act as an escrow agent and coordinate the closing activities on behalf of the buyer and seller. The difference between a face-to-face closing and an escrow closing is that in a face-to-face closing, the aforementioned issues are resolved during a single meeting involving all the parties and their attorneys, while in an escrow closing, the parties may never meet.

RESPA (Real Estate Settlement Procedures Act)

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. a law requiring full disclosure of closing costs to buyer and seller.

lien

is an indication of debt secured by the property. Examples of liens include: Outstanding property tax bills Mortgage loans Court-ordered judgments

escrow

is defined as the process in which a disinterested third party holds all money and documents relating to a transaction until all of the terms and conditions of the escrow instructions have been satisfied. In addition to holding and disbursing the items, the "disinterested third party" - also known as the escrow agent or closing agent - oversees the preparation and recording of all the legal documents, prorates the settlement costs, prepares the settlement statements and does various other tasks.

Affiliated Business Arrangement (AfBA) Disclosure

is required whenever a settlement service provider involved in a RESPA-covered transaction refers the consumer to a provider with whom the referring party has an ownership or other beneficial interest. The referring party must give this disclosure to the consumer at or prior to the time of referral. The disclosure must describe the business arrangement that exists between the two providers and give the borrower an estimate of the second provider's charges. Except in cases where a lender refers a borrower to an attorney, credit reporting agency, or real estate appraiser to represent the lender's interest in the transaction, the referring party may not require the consumer to use the particular provider being referred. The TRID Rule requires lenders to use the Closing Disclosure form to detail the costs that the buyer and seller will pay at closing. The Closing Disclosure includes a comparison chart to help borrowers compare the charges disclosed on the Loan Estimate and the actual charges listed on the Closing Disclosure. Remember, TRID requires the lender to give the borrower a copy of the Closing Disclosure at least three days before the actual settlement.

title closing

is the culmination of the real estate transaction. 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.

Initial Escrow Statement

itemizes the estimated taxes, insurance premiums, and other charges anticipated to be paid from the Escrow Account during the first twelve months of the loan. It lists the escrow payment amount and any required cushion. Although the statement is usually given at settlement, the lender has 45 days from settlement to deliver it.

Both the buyer and the

lender should have title insurance

The buyer's primary function at closing is to

pay the purchase price for the property.

Closing Disclosure

shows the actual settlement costs of the loan transaction. Separate forms may be prepared for the borrower and the seller. If the borrower and the seller will NOT both attend the settlement, the settlement agent should mail the Closing Disclosure document to the appropriate parties as soon as possible after settlement.

After the borrower and the property have been qualified to the lender's satisfaction and while the preliminary title report is being researched and prepared, what happens?

the escrow process is in full swing