Chapter 32: Closing the Transaction

Quitclaim Covenant

"I may or may not own, and I won't defend."

Special Warranty Covenant

"I own and will defend against my acts only."

Bargain and Sale Covenant

"I own, but won't defend."

3 Common Deed Frauds:

1. A false signer might pose as the rightful property owner and sign the deed over in front of a notary. Others may use a completely made-up name or identify themselves as the owner's personal representative. 2. A forger first executes and files a deed wherein he or she signs as the actual property owner and conveys the title to himself or herself. Once the records are changed, the fraudulent grantor sells the property to an innocent third party. These transactions often involve quitclaim deeds, which offer no warranties of title. 3. A criminal might gain access to a property owner's actual deed, often by intimidation, misinformation, or outright theft. It then might be possible to change some non-material details on the original deed and re-record it with the fraudulent information.

Loan Estimate Form- Other Costs- Page 2

1. Taxes and Other Government Fees- Items such as recording fees and transfer taxes. 2. Prepaids- These are items paid for in advance, such as homeowner's insurance and property taxes. 3. 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. 4. Other Costs- Costs not covered elsewhere on the disclosure. Items such as HOA fees, home warranty fees, home inspection fees, and real estate commission. 5. Total- The total of the costs of 1-4 above. 6. Total Closing Costs- The total closing costs to the borrower (total loan cost + total other costs). This total is the same as what appears at the bottom of page 1 under the heading "Estimated Closing Costs."

Closing Disclosure

A five-page document. Depending on the type of loan the borrower is receiving, pages 1, 4, and 5 of the disclosure could look different. Pages 2 and 3 will always look the same, regardless of the loan type. This particular sample is a statement of the final loan terms and closing costs for a 30-year fixed rate loan. Let's look at the information for these borrowers and this loan.

Deed

A legal instrument used by an owner to transfer title to real estate voluntarily to another party.

Computerized Loan Originations

A real estate firm may offer a computerized loan origination system (CLO) that: 1. Provides a prospective borrower information about mortgage loan products 2. Prequalifies a borrower 3. Initiates a loan application process for a fee However, RESPA allows only the borrower to pay the fee for such a service. In addition, the broker must disclose the fact that there are competing mortgage products that are not part of the system.

Clearing the Title

Any problem found with either the physical layout of the property or in the title search results creates a cloud on the title that must be resolved prior to closing on the loan. Examples of a cloud on a title include: 1. Mechanic's lien 2. Income tax lien 3. Property tax lien 4. Encroachment 5. Zoning violation 6. Deed problems, such as a name that is not legally correct or the lack of the appropriate signatures The seller is usually given some period of time to clear the title of any discovered problems. In some instances, the borrowers might have to file a suit to quiet title, whereby a judge will remove the fault in the title so that the loan process can move forward.

Non-Regulated Financing

As a general rule, almost all home loan types and applications are regulated under the National Consumer Credit Protection (NCCP) Act. However, there are exceptions that aren't regulated by the NCCP Act. Home loans that are unregulated include: 1. Loans in the name of a company (i.e. not to a "natural person") 2. Loans used predominantly to invest in commercial property, shares or a business

Dodd-Frank Wall Street Reform and Consumer Protection Act

Created the Consumer Financial Protection Bureau ("CFPB"), as a result of the mortgage meltdown of 2008. Along with other laws, The Dodd-Frank Act expanded previous regulations concerning the licensing, training, screening, and compensation practices of loan originators, mortgage brokers, bank officers, and lenders in general, in consumer loan transactions. Further, the act changed the Truth in Lending and RESPA requirements for loans to require a more stringent criteria for notifying borrowers of their loan information and identifying loan costs in a more detailed manner.

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.

Rent Proration

If a closing involves an income property, it will be common to prorate the rent for the month of the closing if the tenants pay by the month. In some cases, if the tenant pays annually or quarterly, you will apply the same rule: derive the daily rent amount by counting the number of days between the beginning of the billing period and the closing date. To do a monthly proration, remember that rents are paid in advance. Therefore, the seller will owe the buyer a portion of the month's rent since the seller collected the rent in advance and the buyer received nothing.

Prorating the Seller's Loan Interest

If the sellers close during the month, they will similarly have a partial-month interest obligation on their mortgage being paid off. In most cases, the lenders will simply provide a payoff number, and that will appear as a debit to the seller at closing. However, the actual interest payable for the period of time between the last full payment and date of closing is a prorated item impacting the seller. To calculate this prorated amount, remember first that interest is payable in arrears. Thus, the sellers will owe a daily amount for each of the days between their last full payment and the date of closing. This amount will be added to the ending principal balance to derive the total payoff number.

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: 1. Notifies the borrower of the appropriate mailing address to send the payment. 2. Restates the terms and conditions of the loan. 3. 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.

Consummation

Is defined under Regulation Z as the time that a consumer becomes contractually obligated on a credit transaction.

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.

Business Day

Means all calendar days except Sundays and legal public holidays specified in 5 U.S.C. 6103, or the observed legal holiday. For example, if Fourth of July falls on Sunday, the observed holiday is Monday.

Debit

Money that the buyer or seller needs to pay at closing.

Credit

Money that the buyer or seller receives at closing, either because it was already paid, it's being reimbursed or there is a promise to pay.

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.

Recording

Not necessary to make a deed valid. However, it's in the grantee's best interests to do so. Recording the deed gives the public constructive notice of the grantee's ownership.

Special Purpose Deeds

One that is tailored to the requirements of specific parties, properties, and purposes.

RESPA and Kickbacks

Specifically prohibits any payment or receiving of fees or kickbacks when a service hasn't been rendered. Referral fees are strictly forbidden for these services: 1. Title search 2. Title insurance 3. Inspection 4. Survey 5. Appraisal 6. Loan 7. Credit report 8. Attorney Permits sharing commissions and the payment of referral fees among cooperating brokers or multiple-listing services.

Buyers and Sellers

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.

Full Covenant and Warrant Deed

The deed most used in real estate transfers and offers the greatest protection of any deed. With this type of deed, the grantor gives certain covenants or warranties that promise the grantee will have ownership of the property that is unchallenged. A warranty deed warrants the title, not the construction of the real property. A full covenant and warranty deed usually has five covenants. These covenants do not apply only to the period of time the grantor owned the property; they also extend back to previous owners. The overall general warranty covenant is, "I own and I will defend."

Bargain and Sale Deed Without Covenants

The grantor covenants that the title is valid but does not warrant against encumbrances or promise to defend against claims by other parties. This form of deed implies that the grantor has title to the property, but the grantee doesn't have much recourse if the title comes up with defects down the road. This form of deed is common in foreclosures and tax sales.

Grantee

The person who receives the property from the grantor. Must be a living person who is capable of taking title. If the grantee is dead at the time the deed is delivered, the deed would be void.

Grantor

The person who transfer the title to real property. Must be competent to make the transfer. Someone who is mentally handicapped cannot convey title to real estate. Cannot be a minor. Must be clearly identified in the deed and he or she should convey title using the same name under which he or she acquired the title. Must be alive at the time of transfer. If the title is vested in two or more persons, each owner must convey his or her separate interest. They usually do so in one deed, although conveying title using separate deeds would be valid.

Where It's Held

The sale contract usually specifies where the closing will be held. It can be at any one of a number of office locations: 1. Title Company 2. Lender 3. Attorney 4. Closing agent 5. County recorder

Loan Estimate Form - Page 1

The top of the first page has the identifying information: 1. Date issued 2. Applicants 3. Property address 4. Sale price of the property 5. Loan term 6. Purpose 7. Product Loan type 8. Loan ID # 9. Rate lock

Utilities Proration

Utilities expenses can be prorated at closing like any other expense where both parties share a portion of the expense item. Utilities are paid in arrears and most often by the month. Therefore, the buyer will end up paying a portion of the seller's bill since the buyer will get the entire bill and month end. As such, you will credit the buyer and debit the seller the proportionate shares.

Transfer of Title

When a buyer purchases a parcel of property, he or she is acquiring an interest in that property along with all the rights attached to that property. When an owner sells a parcel of property, the owner is choosing to transfer his or her ownership rights (the title) to the new owner. This transfer of title to real estate, also called alienation, occurs voluntarily and involuntarily. When the transfer uses a written instrument, the transfer is called a conveyance.

Dedication by Deed

When a subdivision developer turns the subdivision road or the common ground in the subdivision over to the local government, he or she does so by what's known as dedication or dedication by deed. The quitclaim deed is the form typically used for this process.

Prorating the Buyer's Loan Interest

f the buyer receives a new loan - which will be a credit on his settlement statement - but does not have to make a complete payment until a future period, the buyer may be required to prepay interest on the loan for the period of time between closing and the end of the month of closing. Note that interest is always paid in arrears. Thus, if a loan is disbursed on the 10th of a month, and the borrower has prepaid for that portion of the month, the borrower will not owe interest until the beginning of the month following the month after closing.

Special Warranty Deed

he grantor warrants only against title defects or encumbrances not noted on the deed that may have occurred during the grantor's period of ownership or trusteeship. The deed does not protect the grantee against claims that predate the owner's period of ownership. Also known as bargain and sale deeds with covenants, these deeds are often used by trustees and grantors who acquired the property through a tax sale.

Loan Estimate Form- Other Considerations- Page 3

1. Appraisal- Informs the borrower that the lender may order an appraisal and charge the borrower. 2. Assumption- Indicates whether or not the lender will allow a loan assumption on a future sale or transfer. 3. Homeowner's Insurance- Indicates that the lender requires property insurance that the borrower may obtain through a company of their choice that the lender finds acceptable. 4. Late Payment- States what late fee the lender will charge. 5. Refinance- Indicates that refinancing depends on future considerations and that borrower may not be able to refinance. 6. Servicing- Indicates whether the lender intends to service the loan or transfer servicing to another entity.

Closing Disclosure- Page 4

1. Assumption- Indicates whether or not the lender will allow a loan assumption on a future sale or transfer. 2. Demand Feature- Indicates whether or not the loan has a demand feature, which would allow the lender to require early repayment. 3. Late Payment- States what late fee the lender will charge. 4. 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. 5. Partial Payments- Indicates whether or not the lender would accept partial payments on the loan. 6. Security Interest- Lists the address of the property securing the loan. 7. Escrow Account- Breaks down what is and what is not included in the escrow account.

Unless custom (or the sales agreement) dictates otherwise, seller expenses usually include:

1. Broker's commission 2. Title fees, such as for clearing the title 3. Fees for preparing the deed 4. Attorney fees

Closing Disclosure- Page 1

1. Closing Information- Includes date issued, closing date, disbursement date, settlement agent, file number, property address, and sale price. 2. Transaction Information- Includes names and addresses for both the borrowers and sellers and the lender's name. 3. Loan Information- Includes the loan term, purpose of the loan, product type, loan type and loan ID number. 4. Loan Terms- 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. 5. Projected Payments- 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. These calculations are given for years 1-7 and then for years 8-30 of the loan term. Gives an estimated monthly amount for taxes, insurance, and assessments and specifies whether or not the money for these payments will be in escrow. Shows the borrower's total costs as closing costs and the total amount the buyers need to bring to closing.

Closing Disclosure- Page 2

1. Column 1- Description of the costs 2. Column 2- Costs paid by the borrower- designated as being paid either "at closing" or "before closing" 3. Column 3- Costs paid by the seller- designated as being paid either "at closing" or "before closing" 4. Column 4- Costs paid by others Loan Costs: 1. Origination charges- items such as points, application fee, and underwriting fee 2. Services the borrower didn't shop for- these are items the lender requires for the loan, such as appraisals and credit reports 3. 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 4. Total- the total of 1-3 above Other Costs: 1. Taxes and other government fees- items such as recording fees and transfer taxes 2. Prepaids- these are items paid for in advance, such as homeowner's insurance and property taxes 3. 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. 4. Other costs- costs not covered elsewhere on the disclosure. Items such as HOA fees, home warranty fees, home inspection fees, and real estate commission. 5. Total- the total costs of 1-4 above 6. Total closing costs- the total closing costs to the borrower (total loan costs + total other costs). This total will be moved to the bottom of page 1 under the heading "Costs at Closing - Closing Costs."

Seller's Credits

1. Contract sales price 2. Items paid for in advance

Buyer's Debits

1. Contract sales price 2. Other expenses, such as loan origination fee, closing fee, recording fee, attorney fees

Five Basic Covenants:

1. Covenant of Seisin- Assures that the grantor owns the estate to be conveyed and has the right to do so. 2. Covenant Against Encumbrances- Assures that there are no encumbrances on the property except those specifically named in the deed. 3. Covenant of Quiet Enjoyment- Assures that the grantee will not be disturbed by third party title disputes. 4. Covenant of Further Assurance- Assures that the grantor will assist in clearing any title problems discovered later by obtaining and delivering any instrument needed to make the title good. 5. Covenant of Warranty Forever- Assures that the grantee will receive good title, and that grantor will assist in defending any claims to the contrary.

Buyer's Credits

1. Earnest money or deposit 2. Loan amount

According to the TRID Rule:

1. Lenders must give a copy of the booklet, "Your home loan toolkit" to every person at the time of application for a loan. 2. Lenders must provide a Loan Estimate of settlement costs at the time of loan application or within three business days of application. 3. 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 5

1. 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). 2. 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. 3. Contact Information- Gives firm names, addresses, license numbers, contact names, email addresses, and phone numbers for persons involved in the transaction. 4. Confirm Receipt- A place for the borrowers to sign confirming receipt of the Closing Disclosure Signing the document does notindicate acceptance of the loan.

Seller's Debits

1. Loan balance 2. Unpaid items due from seller 3. Other expenses, such as closing fees and document preparation

Unless custom (or the sales agreement) dictates otherwise, buyer expenses usually include:

1. Mortgage recording fees 2. Title insurance 3. Appraisal fees 4. Credit fees 5. Survey 6. Loan origination 7. Attorney fees 8. Homeowner's insurance 9. Reserves deposited with the lender, such as insurance, taxes, assessments 10. Private Mortgage Insurance (PMI)

Loan Estimate Form- Loan Costs- Page 2

1. Origination Charges- items such as points, application fee, and underwriting fee. 2. Services the Borrower Didn't Shop For- These are items the lender requires for the loan, such as appraisals and credit reports. 3. 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. 4. Total-The total of the costs of 1, 2, and 3 above.

Title Procedures

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. Before a lender will agree to lend money on a property, the lender will order a title search to be sure there are no liens on the property. The buyer is responsible for paying the fee for the title search. When the search is completed, the buyer will receive either an abstract of title from an attorney or a title commitment from a title insurance company. Either of these documents will give information about any liens, easements, encumbrances, conditions or restrictions that may be attached to the title. It's critical that both the buyer and the seller review the abstract before the closing so that they have an opportunity to resolve any problems. If the buyer is purchasing title insurance, the title company will not issue a policy until the buyer has taken care of any and all problems that would affect the insurability of the title.

Foreign Investment in Real Property Tax Act of 1980 (FIRPTA)

A tax law that imposes income tax on foreign persons disposing of US real property interests. The US tax law requires all people, whether foreign or domestic, to pay income tax on dispositions of interests in U.S. real estate. Domestic persons are subject to this tax as part of their regular income tax. Foreign persons, however, are not taxed on most capital gains. The Internal Revenue Code treats the gain on a disposition of an interest in US real property as effectively connected income subject to regular federal income tax. To ensure tax collection from foreign taxpayers, FIRPTA requires U.S. real property interest buyers to withhold 15% of the sales price. For transactions occurring on or after Feb. 17, 2016, the FIRPTA withholding rules apply: 1. If the amount realized doesn't exceed $300,000 and the buyer intends to use the property as personal residence, no withholding is required. 2. If the amount realized is between $300,000 and $1 million and the buyer intends to use the property as a personal residence, the withholding rate is 10 percent. 3. If the amount realized exceeds $1 million, the withholding rate is 15 percent, regardless of whether or not the buyer intends to use the property as a personal residence.

Disbursement of Funds

After all the closing documents have been signed, the settlement agent arranges for the recording of the grant deed and security instrument. After recording, the settlement agent: 1. Disburses funds as required b the contract, including funds due to the seller 2. Pays off any amounts due for an existing mortgage loan or other liens on the property 3. 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.

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. 1. Closing officer 2. Lender 3. Selling/Listing Broker 4. Buyer's broker The form could also be filed by a US Treasury designee. There is no charge to the buyer for submitting this form to the IRS.

Title Closing

Also referred to as settlement, is the culmination of the real estate transaction. At the title closing: 1. The buyer completes his/her financing arrangements (referred to as closing the loan). The buyers deposit the down payment and closing costs into escrow. 2. The seller transfers the title. The sellers pay off any mortgage or other outstanding liens on the property. 3. Both the buyer and seller pay the necessary taxes, fees and other charges.

Voluntary Alienation

An unforced of title by sale or gift from an owner to another party. If the transferor is a government entity and the recipient is a private property, the conveyance is a public grant. If the transferor is a private party, the conveyance is a private grant. A living owner makes a private grant by means of a deed of conveyance, or deed. A private grant that occurs when the owner dies is a transfer by will. Voluntary alienation is important to real estate transactions.

Other RESPA Rules

Business relationships and affiliations among real estate firms, mortgage brokers, title insurance firms and other such companies that are involved in a transaction are permitted, provided 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.

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. Summaries of Transactions 1. 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. 2. 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. 3. Due to seller at closing- this includes the sale price of the property and any adjustments for items paid by the seller in advance. 4. Due from seller at closing- includes closing costs the seller will pay, payoff of any first or second mortgages, seller credit, and adjustments for items unpaid by the seller.

Loan Estimate Form- Calculating Cash to Close- Page 2

Closing costs are only part of the cash a borrower needs to bring to closing. The third section on the second half of column 2 deals with calculating the costs to close. This calculation includes the total costs from section J above, closing costs paid from the loan account, down payment, deposits, funds for borrower, seller credits, adjustments, and other credits.

TRID Rule Compliance

Closings that must comply with TRID include: 1. Any closed end-loan secured by real property, including unimproved property. Closings that do not require compliance include: 1. Reverse mortgages 2. Home equity loans 3. Loans secured by mobile homes or other dwellings that are not real property, if the dwelling is not attached to real estate. 4. Loans made by persons who are not considered "creditors" because they make five or fewer mortgages per year. 5. Certain no-interest loans secured by subordinate liens made for the purpose of down payment, or similar home buyer assistance, property rehabilitation, energy efficiency, or foreclosure avoidance or prevention.

Real Estate Settlement Procedures Act of 1974 (RESPA)

Created to ensure that the buyer and seller in a residential real estate transaction involving a new first mortgage loan have knowledge of all settlement costs. RESPA requires that the parties receive the correct figures pertaining to their closing costs. The Act is administered by the Consumer Financial Protection Bureau (CFPB). Previously, RESPA required lenders to provide a HUD "Guide to Settlement" booklet and a Good Faith Estimate (GFE) of all costs related to settlement to borrowers within 3 days of loan application. RESPA also required the use of the HUD-1 settlement statement at closing plus a final good faith estimate and Truth-in-Lending Statement. The HUD-1 settlement statement is still used in certain closings. However, effective October 1, 2015, the TILA/RESPA Integrated Disclosure (TRID) Rule imposed new requirements on the industry, where any Federally related loan requires a lender to present an Integrated Disclosure at least 3 business days before closing. Due to privacy considerations for the borrower, the closing provider will often NOT provide the TRID to a real estate broker, the American Land Title Association (ALTA) provides an alternative settlement statement for real estate brokers and licensees to close and place in their settled files as documentation of the costs of closing.

Delivery and Acceptance

Execution of a valid deed in itself does not convey title. It is necessary for the deed to be delivered to and accepted by the grantee for title to pass. Once accepted, title passes to the grantee. The deed has fulfilled its legal purpose and it cannot be used again to transfer the property. If the grantee loses the deed, there is no effect on the grantee's title to the estate. The grantor, for example, cannot reclaim the estate on the grounds that the grantee has lost the deed after it was delivered and accepted. Nor can the grantee return the property by returning the deed. To do so, the grantee would need to execute a new deed.

Loan Estimate Form

For closed-end credit transactions secured by real property (other than reverse mortgages), the creditor is required to provide the consumer with good-faith estimates of credit costs and transaction terms on the Loan Estimate form. This form integrates and replaces the RESPA GFE and the initial TIL for these transactions. The creditor is generally required to provide the Loan Estimate within three-business daysof the receipt of the consumer's loan application. 1. The Loan Estimate must contain a good faith estimate of credit costs and transaction terms. 2. The Loan Estimate must be in writing and contain the information prescribed by the TRID rule. 3. Delivery must satisfy the timing and method of delivery requirements. 4. Creditors may only use revised or corrected Loan Estimates when specific requirements are met. 5. In certain situations, mortgage brokers may provide a Loan Estimate.

Closing Disclosure

For loans that require a Loan Estimate and that proceed to closing, creditors must provide a final disclosure reflecting the actual terms of the transaction called the Closing Disclosure. The form integrates and replaces the HUD-1 and the final TIL disclosure for these transactions. The creditor is generally required to ensure that the consumer receives the Closing Disclosure no later than three business days before consummation of the loan. 1. The Closing Disclosure generally must contain the actual terms and costs of the transaction. 2. The Closing Disclosure must be in writing and contain the information prescribed in the TRID Rule. 3. If the actual terms or costs of the transaction change prior to consummation, the creditor must provide a corrected disclosure that contains the actual terms of the transaction and complies with the other requirements of the TRID Rule. 4. If the creditor provides a corrected disclosure, it may also be required to provide the consumer with an additional three-business-day waiting period prior to consummation.

Quiet Title Suit

If a party responsible for encumbering a title refuses to quitclaim the interest. This requires the lienor to prove the validity of an interest. If the defendant is unable to do so, the court removes the cloud by decree.

Loan Payoffs or Assumptions

In the event a property is sold, the loan servicer must provide the borrower with the following information: 1. The exact amount owed owed for principal and interest. 2. Any late payments that are outstanding. 3. 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."

Broker's Role

Much of what the broker and the agents do to facilitate a closing happens during the period between the signing of the agreement of sale and the actual closing date. Just prior to the actual closing, the broker or agent should conduct a walkthrough or final inspection of the property with the buyer to ensure that no damage has been done and no fixtures have been removed since the contract was signed. On the date of closing, the broker may be present to collect the commission check or may not be present at all. The commission for the transaction is usually paid in one check. After closing, the broker will deposit the check into an escrow account and disburse the money to the appropriate cooperating agents. After the closing, the broker, or whoever acted as the closing agent, has the task of reporting the transaction to the IRS.

Lender's Role

Much of what the lender does relating to the closing happens long before the closing date comes. As you know, 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.

Loan Estimate Form- Page 3

Page 3 has additional information about the loan. At the top of the page is information about the lender, including the name of the loan officer with his or her contact information.

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 ensures that the payment is made on time and is generally beneficial to the borrower.

Cash Transactions

Real estate transfers are complicated procedures. It is always a good idea for an attorney or an escrow company to handle a closing, even when the transaction is an all cash transaction. A lender may not need to be in the picture, but all of the following still apply to a cash transaction. 1. Need for a title search 2. Contingencies that must be monitored 3. Need for inspections for help in negotiating the price 4. Disclosures- especially those that are state mandated such as the property disclosure 5. Computation and handling of taxes and transfer fees 6. Need for homeowner's insurance 7. Closing costs 8. Generation of a closing statement

Closing Disclosure Delivery Requirements

Required delivery time frame for the Closing Disclosure is based on the method of delivery. It must be delivered at least three days prior to closing. Having their final loan terms and costs available three days prior to closing enables consumers to review their final loan costs and terms and ask questions prior to coming to the closing table. It provides time for the consumer to get answers to any questions and possibly negotiate any changes that occurred. The creditor is generally responsible for ensuring that the Closing Disclosure is delivered to the buyer no later than three business days before consummation. The creditor may contract with a settlement agent to provide the Closing Disclosure on behalf of the creditor.

Prorated Settlement Charges

Some expenses paid at closing must be prorated or divided proportionately between the buyer and the seller. The most common items that fall into this category include: 1. Taxes 2. Insurance 3. Mortgage interest 4. Utilities Any item that is prorated is shown on the settlement statement as a debit to one party and a credit to the other party for the same amount. Some items are those that were paid for in advance, so the buyer will owe the seller part of the payment. Rents and insurance are examples of items that are paid in advance. For items paid in advance, the buyer will receive a debit and the seller will receive a credit. Other items are those expenses that the seller incurred but have not yet been billed for at the time of closing. These items are paid in arrears. Taxes and interest are examples of items that are paid in arrears.

Possession

Sometimes buyers will ask to take possession before closing, especially if their apartment lease has ended or their previous home has sold and they need a place to live before the actual closing date. Of course, it's up to the sellers to make the final decision as to whether an early possession makes sense for their transaction. But listing agents would be wise to discourage such situations because too many things can go wrong. For example: 1. The sale might fall through due to a mortgage underwriting problem. 2. The buyers might start making lists of extra repairs they want to see completed before closing. 3. The buyers might make changes to the house that the sellers would be stuck with if the home doesn't close. 4. The buyers could trash the house. (Not likely, but possible.) On the other hand, the sellers could ask to stay in the house for a few days after closing, especially if they have an issue with a later closing date for their next house or if they have run into issues with scheduling a moving company. In this case, the buyers could get the short end of the stick. 1. Something could happen to damage the home before the sellers move out. 2. The sellers could remove things from the home that were supposed to stay, such as ceiling fans or window treatments. Having the buyers move in early or the sellers stay after closing is not a good idea for either party. If the parties insist and are in agreement, the best advice an agent can give is to recommend that the parties consult an attorney to draw up a written, temporary rental agreement that specifies what will happen if any of the above situations manifest.

12-Month/ 30 Day Calculation Method

The 12-month/30-day method calculates the amounts due based on a 360-day year and a 30-day month. The steps of this method are as follows: 1. Identify an item and the amount needing to be prorated. 2. Divide by 12 to get the monthly rate. 3. Divide by 30 to get a daily rate. (Day of closing is seller's responsibility.) 4. Multiply the monthly rate by the number of months the seller owned the property before closing to get the months-amount due. 5. Multiply the daily rate by the number of days the seller owned the property in the closing month to get the amount due for the closing month. In Pennsylvania, the seller owns the property until the closing date, so the calculation to obtain the prorated amounts will include the closing date for the seller. 6. Add the two amounts to get the prorated amount for the seller. 7. Subtract the seller's prorated amount from the starting amount to get the buyer's prorated amount.

365 Day Calculation Method

The 365-day method calculates the amounts on the basis of a 365-day year: 1. Identify an item and the amount needing to be prorated. 2. Divide by 365 to get the daily rate (divide by 366 in a leap year). 3. Multiply the daily rate by the number of days the seller owned the property before closing to get the seller's share. 4. Subtract the seller's prorated amount from the starting amount to get the buyer's prorated amount.

Loan Estimate Delivery Requirements

The Loan Estimate must be delivered within three business days of loan application. Signature of the applicant(s) is permitted but not required. If a mortgage broker receives a consumer's application, either the creditor or the mortgage broker may provide a consumer with the Loan Estimate. If the Loan Estimate is not provided to the consumer in person, the consumer is considered to have received the Loan Estimate three business days after it is delivered or placed in the mail. For purposes of this rule, a loan application exists once the consumer has submitted 6 items (3 pertaining to customer and 3 pertaining to property) to the lender. Those items are: 1. Name 2. Borrower's Income 3. Borrower's Social Security Number 4. Property address 5. Estimated value of property 6. Amount of mortgage loan sought by the consumer Also, a business day is a day on which the creditor's offices are open to the public for carrying out substantially all of its business functions. This definition of "business day" applies only to the Loan Estimate or revision of the Loan Estimate. It does not apply to the Closing Disclosure.

Functions of Those Who Attend:

The primary attendees at the closing each have certain responsibilities: 1. Buyer pays for the property and receives clear title. 2. Seller conveys the property and receives payment. 3. Closing/escrow agent prepares all the documents that need to be signed at the closing, including the actual settlement statements that show all the debits and credits assigned to the buyer and seller in the transaction. There are others who may attend the closing, but are not required: 1. Attorneys for the parties (if not the escrow agent) examine the documents to ensure that the best interests of the clients are being met. 2. Lender representative examines documents and makes sure the property getting the loan has clear title. 3. Real estate agent collects commission. 4. Title company representative (if not the escrow agent) reviews documents and answers questions about the title.

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.

Loan Estimate and Closing Disclosure

These forms provide a means for borrowers to comparison shop more effectively for competing loan offers. The new forms clearly break down the costs of the loan, such as the interest rate, mortgage insurance costs, and closing costs. By comparing forms from different potential lenders, new homebuyers and consumers who are refinancing their existing mortgage can make better, more informed decisions about the loan offer that is best for them. The consumer will also receive information regarding which closing services are required and the services for which they can shop around. The CFPB forms state in bold the monthly principal and interest payments. Forms provided for adjustable-rate loans must state the projected minimum and maximum payments over the life of the loan. In short, the forms are not only easier for the consumer to understand, but they are easier for industry professionals to explain to the consumer.

Loan Estimate Form- Confirm Receipt- Page 3

This section has a place for the borrowers to sign. However, signing means only that the borrower has received a copy of the form. It does not mean that the borrower has accepted the loan.

Loan Estimate Form- Comparisons- Page 3

This section has measures the borrower can use to compare the loan with other loan products. It shows: 1. Total of principal, interest, mortgage insurance, and loan costs the borrower will have paid and the principal that will have been paid off in 5 years 2. Annual percentage rate (APR) 3. Total interest percentage (TIP)

Loan Estimate Form- Loan Terms- Page 1

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.

Loan Estimate Form- 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. These calculations are given for years 1-7 and then for years 8-30 of the loan term. 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' estimated closing costs and the estimate of the total amount of cash the buyers need to bring to closing.

Quitclaim Deed

Transfers real and potential interests in a property, whether an interest is known to exist or not. The grantor makes no claim to any interest in the property being conveyed and offers no warrants to protect the grantee. This form of deed is commonly used for transfers within a family and in divorce settlements. The quitclaim is also used to clear title rather than convey it. Where there is a possibility that prior errors in deeds or other recorded documents might cloud (encumber) the title, the relevant parties execute a quitclaim deed to convey "any and all" interest to the grantee. This type of deed provides the least protection for the grantee.

Source of Funds Issues

Unlike banks and hospitals, there are no federal laws requiring real estate businesses to implement information security programs to protect information and systems. That has led to real estate businesses having vulnerable systems and being the focus of potential attacks. Criminals are using a wide variety of attacks that threaten real estate businesses. Hackers can misdirect wire transfers and hold computer systems hostage. According to a recent study, 50 percent of surveyed businesses in the real estate industry believed that they were not adequately prepared to prevent or mitigate a cyber-attack. A Business Email Compromise (BEC) is an attack that deceptively convinces businesses to wire funds to criminal bank accounts by pretending to be business counterparties, such as vendors or real estate sellers. Often, the criminals will send an email from a spoofed account that appears to be from someone within the business, such as the CEO or a trusted party, like an attorney or escrow agent. The FBI has concluded there have been over $3 billion of losses attributable to BEC.

Guardian's Deed

Used by a court-appointed guardian to transfer property of minors or mentally incompetent persons.

Personal Representative's Deed

Used by an executor to convey a decedent's estate; also called an executor's deed.

Referee's Deed

Used in bankruptcies and foreclosures.

Partition Deed

Used to convey co-owned property in compliance with a court order resulting from a partition suit. Terminates an estate when one or more co-owners want to dissolve their relationship and are unable to do so without the assistance of a court.

Sheriff's Deed

Used to convey foreclosed property sold at public auction.

Master Deed

Used to convey land to a condominium developer; it's accompanied by the condominium declaration when recorded.

Tax Deed

Used to convey property sold at a tax sale.

Deed of Trust

Used to convey property to a 3rd-party trustee as collateral for a loan; on satisfaction of the loan terms, the trustee uses a reconveyance deed to convey the property back to the borrower.

Deed in Trust

Used to convey property to the trustee of a land trust - not to be confused with deed of trust.

Land Patent Deed

Used to transfer government property to private parties. This transfer is called a public grant.

Possession and Transfer of the Property

When the buyer pays the purchase price at Closing the seller delivers the title and ownership of the property transfers to the buyer. However, ownership and possession of the property are two separate things. Typically, possession of the property also transfers at closing when the buyers receive the keys to the property, which the sellers have already vacated or will vacate the same day of closing. But this is not always the case.