Real Estate Unit 14-Closing the Real Estate Transaction

RESPA does not apply to the following: -Loans on large properties- more than 25 acres -Loans for business or agricultural purposes -Construction loans or other temporary financing -Vacant land, unless a dwelling will be placed on the property within two years ns -A transaction financed solely by a purchase-money mortgage, which means owner financed, taken back by the seller

-An installment contract , or contract for deed -A buyer's assumption of a seller's existing loan—but if the terms of the assumed loan are modified, or if the lender charges more than $50 for the assumption, the transaction is subject to RESPA regulations

In a face-to-face closing, who may be present?

-Representative for the title insurance company -Buyer and seller -Buyer's and seller's attorneys -Buyer's and seller's agents -Representative for the lending institution

Certain real estate closings must be reported to the Internal Revenue Service (IRS) on Form 1099-S. The affected properties include a sale or exchange of

-land, including air space -an inherently permanent structure, including any residential, commercial, or industrial building -a condominium unit and its appurtenant fixtures and common elements, including land -shares in a cooperative housing corporation.

Real Estate Settlement Procedures Act (RESPA) regulations apply to first-lien mortgage loans made to finance the purchase of

-one- to four-family homes -cooperatives -condominiums

The exact amount required to pay the existing loan is provided in a current payoff statement from the lender, effective the date of closing. The payoff statement notes: -the unpaid amount of principal -the interest due through the date of the proposed payment

-the fee for issuing the certificate of satisfaction or release deed -credits to the seller (if any) for tax and insurance reserves -the amount of any prepayment penalty

Information to be reported to the IRS on Form 1099-S includes

-the seller's Social Security number -the amount of property tax reimbursement credited to the seller -the final sales price

face to face closing

All parties to the transaction gather together to settle

Amounts buyer typically pays for at closing: -buyers attorney fees -insurance reserves -loan fees -private mortgage insurance -tax reserves -recording of deed to convey title -survey

Amounts seller typically pays for at closing: -sellers attorney fees -sellers broker commission -recording of quitclaim deed -recording of release deed

The closing agent will deduct the balance due on the seller's loan at closing plus any accrued interest. The unpaid balance is $115,400 with a rate of 4%. Based on a closing date of June 15, how much will the agent deduct?

Based on a closing date of June 15, the amount deducted will be $115,592.33. $115,400 × 4% = $4,616; $4,616 ÷ 360 = $12.82 daily interest; $12.82 × 15 days to closing = $192.33 accrued interest. $115,400 + $192.33 = $115,592.33.

MOST closings involve the division of financial responsibility between the buyer and the seller for which of the following items?

Condominium fees

To determine the amount a buyer must bring to closing, any buyer expenses and prorated amounts for items prepaid by the seller are added to the purchase price. Then the buyer's credits are totaled. Credits to the buyer include the earnest money, already paid, the balance of the loan the buyer obtains or assumes, and the seller's share of any prorated items the buyer will pay in the future.

Finally, the total of the buyer's credits is subtracted from the total of the buyer's debits to arrive at the actual amount of cash the buyer must bring to closing. The buyer usually brings a cashier's or certified check.

As part of the later title search, the bring down, the seller may be required to execute an affidavit of title, a sworn statement in which the seller assures the title insurance company and the buyer that no other defects in the title have occurred since the date of the title examination.

For example, judgments, bankruptcies, divorce, unrecorded deeds or contracts, unpaid repairs or improvements that might lead to mechanics' liens. The affidavit gives the title insurance company a basis on which to sue the seller should the statements in the affidavit be incorrect.

RESPA is adminstered by

HUD

RESPA prohibits: -unearned fees for services -fee-splitting -kickbacks

RESPA permits: -reasonable escrow deposits

Section 9 of RESPA prohibits a seller from

Requiring the buyer to purchase title insurance from a particular company

The document that provides the borrower with general information about settlement costs, RESPA provisions, and what happens at settlement is Your Home Loan Toolkit.

The Closing Disclosure form itemizes all charges that are normally paid by the borrower and seller

Title evidence-Although practices vary from state to state, most require that the seller produce a current abstract of title or title commitment from a title insurance company.

The attorney's opinion of title is a statement of the quality of the seller's title, and it lists all liens, encumbrances, easements, conditions, and restrictions that appear in the record and to which the seller's title is subject

The Closing Disclosure form itemizes all charges that are normally paid by a borrower and a seller in connection with settlement, whether required by the lender or another party, or paid by the lender or any other person.

The borrower must receive a completed Closing Disclosure at least three business days before the closing.

The Loan Estimate (LE) form replaces the initial Truth in Lending Statement (TIL) and the Good Faith Estimate (GFE). This form highlights the information that historically has been the most important to consumers. Interest rate, monthly payment, and total closing costs are clearly presented on the first page. The Loan Estimate form must be provided to the consumer three business days after a loan application is submitted to the lender.

The only fee that the lender may collect before the loan applicant receives the Loan Estimate is the fee for a credit report.

If a seller collected rent of $900 from the buyer, payable in advance, on August 1, which statement is TRUE at the closing on August 15, if the closing date is an expense to the seller? (Use a 30-day month)

The seller owes the buyer $450.

A survey provides information about the exact location and size of the property. Typically, the survey indicates the location of all buildings, driveways, fences, and other improvements located on the premises.

The survey should also indicate any existing easements and encroachments. The cost of the survey is negotiated in the sales contract. The survey is important in verifying the legal description of the property.

RESPA regulations apply to a first-lien residential mortgage loan made to finance the purchase of a one- to four-family home, cooperative, or condominium, for either investment or occupancy, as well as second or subordinate liens for home equity loans when a purchase is financed by a federally related mortgage loan.

They do not apply to a refinance of an existing mortgage

Both the buyer and the buyer's lender must be sure that the seller can deliver the title that was promised in the purchase agreement and that the property is now in essentially the same condition it was in when the buyer and the seller agreed to the sale.

This involves examination of -the results of any inspections, such as termite, radon, water and septic systems, structural inspections, or required repairs -the survey -the title evidence, including the seller's deed and any documents demonstrating the removal of undesired liens and encumbrances -any lease, if a tenant resides on the premises.

At closing, the principal amount of a purchaser's new mortgage loan is

a credit to the buyer

Accrued interest on an assumed mortgage loan is entered on the closing statement as

a credit to the buyer and a debit to the seller

To verify property boundaries and location of improvements before real estate is sold,

a current survey should be made to confirm that no encroachments have arisen since the last transfer of title.

The principal balance on an assumed mortgage loan is entered on the closing statement as

a debit to the seller and a credit to the buyer.

affidavit of title

a sworn statement in which the seller assures the title company and buyer that no other defects in the title have occurred since the date of the the title examination

affidavit of title

a sworn statement in which the seller assures the title insurance company and the buyer that no other defects in the title have occurred since the date of the title examination. Gives the title insurance company a basis on which to sue the seller should the statements in the affidavit be incorrect.

Expenses to be prorated (such as water bills and unpaid property taxes) that are owed by the seller but will be paid late by the buyer are called

accrued items.

mortgage reduction certificate

certifies: -the amount owed on the loan, the interest rate and date and amount of last interest payment

Real estate professionals often assist in preclosing arrangements as part of their service to customers. In some states, real estate professionals are required to advise the parties of the approximate expenses involved in closing when a real estate sales contract is signed. In other states, real estate professionals have a statutory duty to coordinate and supervise

closing activities. Aside from state laws on this issue, a real estate professional without a specific role in the closing may still be the person with the greatest knowledge of the details of the transaction. Because of this, many real estate professionals feel it is part of their fiduciary duty to be present at a face-to-face closing.

Violations under the Real Estate Settlement Procedures Act (RESPA) for kickbacks or fee-splitting are subject to

criminal and civil penalties, including a fine up to $10,000 and/or imprisonment up to one year.

Fees charged by participants in an affiliated business arrangement (ABA) to meet RESPA requirements must be reasonably related to the value of the services provided and

may not be fees exchanged among the affiliated companies simply for referring business to one another.

Lender charges for taking and underwriting the loan

on the Closing Disclosure must be the same or less than the charge noted on the Loan Estimate form

It is customary for the cost of a survey to be

paid by the buyer

accrued items-expenses to be prorated that are owed by the seller but will be paid after the sale by the buyer (ACCRUED=BUYERS CREDITS) (A/B)

prepaid items-expenses to be prorated that have been prepaid by the seller but not fully used up, so they become credits to the seller (PREPAID=SELLERS CREDITS)

accrued items=buyer credits/owed by the seller

prepaid items-seller credits/owed by the buyer (a before p. b before s)

The Real Estate Settlement Procedures Act (RESPA) is a federal law that requires certain disclosures about the mortgage and settlement process and prohibits certain practices that increase the cost of settlement services, such as kickbacks and referral fees. The Mortgage Disclosure Improvement Act (MDIA) has changed how buyers, sellers, lenders, mortgage brokers, title agents, and real estate

professionals prepare for a closing. The Consumer Financial Protection Bureau (CFPB) issued the TILA-RESPA Integrated Disclosure rule (TRID) to implement provisions of the Dodd-Frank Act intended to combine and clarify financing disclosures to consumers. This rule applies to transactions originating on or after October 3, 2015.

real estate taxes may be either accrued or prepaid

rent is typically prepaid

abstract of title

requires an attorney's opinion of the quality of the seller's title. Abstract=Attorney

The Closing Disclosure must be used to illustrate all settlement charges for

residential transactions financed by federally related mortgage loans.

bring down

search of the public record made after closing

The closing statement used for MOST residential closings is

the Closing Disclosure

Security deposits should be listed on a closing statement as a credit to

the buyer.

if the seller paid-items paid in advance, or before. if the buyer paid-items paid in arrears, or after

the party that paid the expense will receive a credit at closing

The Real Estate Settlement Procedures Act (RESPA) applies in a loan assumption if

the terms of the assumed loan are modified by the lender

The details of a closing are ALWAYS governed by

the terms of the properly executed purchase contract.

A security deposit made by a tenant to cover the last month's rent of the lease or the cost of repairing damage caused by the tenant is generally

transferred by the seller to the buyer

TRID requires that an informational booklet prepared by the CFPB be given to the borrower at the time of application or provided

within three days of loan application.