Closing a Sales Transaction
The borrower's right to reestablish ownership after default is known as
Explanation The answer is redemption. In North Carolina, during the statutory redemption period, a borrower can try to raise the necessary funds to redeem the property. In the 10 days after the foreclosure sale, the borrower, or others, can submit an upset bid to purchase the property for an amount that exceeds the foreclosure sale price by a specific margin. Equitable redemption occurs during the course of foreclosure but before the foreclosure sale. If the borrower pays the total amount past due, plus costs, the debt is reinstated, and the borrower will be required to repay the accelerated loan in full.
The North Carolina Good Funds Settlement Act refers to which of the following?
The answer is the seller's proceeds are not disbursed, nor are any bills or fees in connection with the transaction paid, until the lender funds the buyer's loan and all documents have been recorded. The North Carolina Good Funds Settlement Act prevents the closing attorney from disbursing any funds until the lender has agreed to fund the buyer's loan after a final title search and all the documents have been properly recorded.
The buyer's due diligence period is used to
The answer is verify the property will meet the buyer's needs. Depending on the contract terms, the buyer may be using the due diligence period to remove contingencies and determine if the zoning is correct; all of which are incorporated in verifying the property meets the buyer's needs. The seller's property disclosure should be given to the buyer at time of acceptance of the offer.
A woman bought an $80,000 home. She is assuming the seller's 10% interest rate loan of $62,000. All taxes have been paid by the seller. Real property taxes were $1,380, and personal property taxes were $85. The mortgage loan payments are due on the first of each month. The woman has a $2,000 earnest money deposit, and her closing costs are $500. Using the 360-day bankers calendar, how much cash will she need at the October 20 closing?
The answer is $16,424. $80,000 (cost) - $62,000 (loan) - $2,000 (earnest money deposit) + $500 (closing cost) + $268.33 (real estate tax - $1,380/360 × 70 days) - $344.44 (interest - $62,000 × 10%/360 × 20 days owed by seller) = $16,423.89, or $16,424 rounded off.
A family is selling their house for $105,000. They owe the real estate broker 7% commission and have a loan payoff of $56,000. The buyers are giving the family a $25,000 purchase money mortgage (PMM). Real property taxes ($1,800) and personal property taxes ($120) have been paid. The family will pay deed prep of $50 and excise tax. Using the 360-day bankers calendar, how much will the family net at closing on November 30?
The answer is $16,540. The sale price of $105,000 and tax proration of $150 are both credits to the seller. The broker's commission, loan payoff, purchase money mortgage, deed preparation, and excise tax are all debits to the seller.
A woman is selling her home on June 15 for $175,000 and is allowing the buyer to assume her $101,000, 8% mortgage loan. She will owe her broker 6%. Real property taxes are $1,440; personal property taxes are $120; these taxes have not been paid. The woman has agreed to pay the one-point assumption fee. The next mortgage payment is due on July 1, and the woman is responsible for paying accrued interest at closing. Closing costs include revenue stamps and a $45 deed prep. Using the 360-day bankers calendar, what will the woman net at closing?
The answer is $60,978. The sales price of $175,000 is a credit to the seller. In this case, everything else is a debit to the seller (165 days of real property taxes and 15 days of accrued interest).
A family bought a $90,000 house, received a loan at 8% interest, and planned to put 10% down. At closing they will pay a one-point origination fee and two discount points on their loan. Their first payment will be due August 1. Interim interest will be paid at closing. The attorney fee is $300; title insurance is $125; and recording fees for the deed are $37. The family made a $2,500 earnest money deposit. Real property taxes for the year are $1,200 and have not been paid, but the seller plans to pay the personal property taxes of $120 to the tax collector at closing. Using the 360-day bankers calendar, how much cash will the buyer need at closing on June 10?
The answer is $9,237. The loan amount of $81,000, earnest money deposit of $2,500, and prorated taxes of $533.30 (5 months + 10 days) are all credited to the buyer. The sales price of $90,000 origination fee of $810, discount points of $1,620, attorney fee, title insurance, recordation fee and interim interest ($81,000 × 0.08 = $6,480 ÷ 360 = $18 × 21 days) are all debits to the buyer.
In a RESPA/TILA-related transaction, the form the buyer will receive from the lender, showing the cost of borrowing and the settlement costs to expect at closing is called
The answer is Closing Disclosure (BCD). While is it possible for a borrower to see any of these, the Closing Disclosure comes from the lender, not the settlement agent. The HUD-1 or the ALTA Disbursement form may be used by the settlement agent.
There is a buyer's agent on a land transaction. The buyer is paying cash. Which form(s) will the buyer NOT see at closing?
The answer is Closing Disclosure. The Closing Disclosure is for a borrower from a lender. Chances are the HUD-1 will be used, but the settlement agent can use any number of forms like the ALTA form.
The government-related agency that oversees the process for full disclosure of borrowing and closing costs most residential buyers will experience is called
The answer is Consumer Finance Protection Bureau (CFPB). The newly formed Consumer Finance Protection Bureau has been charged with creating disclosure documents for borrowers so the borrower will "know before they owe" the cost of credit. This does not apply to every transaction.
Who is responsible for the accuracy and delivery of the closing statement?
The answer is all of these. However, the North Carolina Real Estate Commission requires the broker to insure that the parties are receiving a copy of the closing statement, and the broker is responsible for checking the entries the broker has knowledge of.
Who may perform a closing in North Carolina?
The answer is an attorney. However, a title company may also conduct closing.
There is a listing agent on a home. At closing, which form(s) should the listing agent request for her review and files?
The answer is any of these used in the closing. The listing agent needs to ask for any of the disclosure and disbursement documents used in the settlement. While there have been some issues getting the Closing Disclosures, it is expected that over time these will be available to agents to check for accuracy and to keep in their transaction files. In all cases, the listing agent needs to ask for them and, if denied any, make a note to file.
When should the buyer receive keys to the property, absent any special agreement?
The answer is at closing. The buyer should receive the keys at closing, not the settlement meeting, absent agreement to the contrary.
A buyer is getting a residential mortgage loan from a bank, which is subject to the CFPB closing disclosures. When should the buyer see the closing disclosures so the buyer can plan for closing?
The answer is at least three business days before closing. In a TILA/RESPA-related loan, subject to the CFPB's requirements, the borrower must receive the closing disclosures at least three business days before closing.
To help the buyer purchase the home, the seller is giving the buyer a $25,000 purchase money mortgage loan. What is(are) the entries for this loan?
The answer is both of these. The seller is giving the buyer $25,000 (think of the seller as a lender). The buyer is giving the seller a mortgage in return for the cash.
The buyers owe $4,234 at closing. How should they pay at closing?
The answer is cashier's check. The Good Funds Settlement Act will not allow the closing attorney to disburse funds until all funds have cleared their account. Therefore, the Standard Offer to Purchase and Contract Form 2-T requires that funds brought to closing be either a bank or cashier's check.
The sales price is $85,000. The buyer made an earnest money deposit of $2,500. What will the earnest money deposit entry be on the closing statement?
The answer is credit buyer $2,500. The earnest money deposit is money the buyer has already produced and will be applied to the buyer's account.
The sales price is $150,000. What is(are) the entries?
The answer is credit seller $150,000; debit buyer $150,000. The sales price is money coming to the seller from the buyer.
Annual real property taxes are $1,800 and have been paid by the seller. Closing is November 15. Using a 360-day calendar, what are the closing statement entries?
The answer is credit seller $225; debit buyer $225. The calculation is: $1,800 ÷ 12 months = $150 per month. $150 ÷ 30 days = $5 per day (or $1,800 ÷ 360 days = $5 per day). The seller's share = 10 months + 15 days = 315 days. 315 days × $5 per day = $1,575 = seller's share. The seller paid $1,800. $1,800 - $1,575 = $225 owed to seller by buyer.
Rent is $1,200 and has not been collected by the seller. Closing is October 7. Using the 360-day bankers calendar, the entries would be
The answer is credit seller $280 and debit buyer $280. The calculation is: $1,200 ÷ 30 days = $40 per day. The seller's share = $40 × 7 days (October 1-7) = $280. The buyer will collect the entire $1,200 from the tenant after closing.
The seller's annual homeowner dues (covering the 12-month period of January through December) of $600 are paid in advance by the seller in January. What are the closing statement entries for an April 30 closing?
The answer is credit seller $400; debit buyer $400. The calculation is: $600 ÷ 12 months = $50 per month × 4 months = $200 months = the seller's share. The seller paid $600. The buyer owes $600 - $200 = $400.
The buyer has a new mortgage loan of $105,000 at 7.75%. Closing is June 26. Payments will begin on August 1. Using the 360-day bankers calendar, the interim interest entry would be
The answer is debit buyer $113. The calculation is: $105,000 × 7.75% ÷ 360 days = $22.60 per day interest. The buyer owes for five days in June (June 26- 30). 5 days × $22.60 = $113. Remember to include the day of closing for the buyer when calculating interim interest.
What is the customary closing statement entry for the $450 closing attorney fee?
The answer is debit buyer $450. A debit is a charge. The closing attorney is typically paid by the buyer, but it is negotiable in the contract, and each party could have an attorney that they would be responsible for paying.
Annual real estate taxes are $2,220, and the seller has agreed to pay his share through the month of closing. Taxes have not been paid but buyer will pay them later in the year. Closing is June 30. Using a 360-day calendar, closing statement entries would be
The answer is debit seller $1,110 and credit buyer $1,110. The seller has agreed to pay through June (6 months, or half the year). The calculation is: $2,220 ÷ 2 = $1,110 (or $2,220 ÷ 12 months = $185 per month × 6 months = $1,110). The buyer will pay the entire $2,220 when due.
The buyer is assuming the seller's existing mortgage loan of $65,000 at 8%. Payments are due on the first of each month. Closing is August 10. Using a 360-day bankers calendar, entries for the interest on this assumed loan to the nearest dollar are
The answer is debit seller $144 and credit buyer $144. The calculation is: $65,000 × 8% ÷ 360 days = $14.44 per day interest. The seller's share is August 1-10 = 10 days × $14.44 = $144.40. Remember that the buyer will pay August interest on September 1.
Rent is $570 per month and has been collected by the seller. Closing is February 10. Using the 360-day bankers calendar, the entries would be
The answer is debit seller $380 and credit buyer $380. The calculation is: $570 ÷ 30 days = $19 per day rent. The seller's share = 10 days × $19 = $190, but the seller collected $570. The seller owes the buyer $570 - $190 = $380.
The sales price is $125,000. The mortgage loan being assumed is $67,215. What are the entries for the loan assumption amount?
The answer is debit seller $67,215; credit buyer $67,215. The seller is giving the buyer the use of the buyer's loan. The assumption is treated as a credit to the buyer because it is money paid on the buyer's behalf and a debit to the seller because it is money the seller owes as part of the seller's loan obligation.
The following expenses were incurred at closing on a $150,000 sale. Assume customary practices. Loan amount was 80% LTV; deed prep, $150; appraisal, $375; title insurance, $145; origination fee, 1%; two discount points; excise tax; recording deed, $15; brokerage fee, 5%; survey, $150. What are the total debits and credits for the buyer and the seller for these expenses only?
The answer is debit seller $7,950, debit buyer $4,285. $150,000 × 0.80 = $120,000 loan amount. Appraisal, title insurance, origination fee, discount points, recording of the deed, and survey costs are paid by the buyer. Deed prep, excise tax, and brokerage fee costs are paid by the seller.
Annual real property taxes are $1,200 and have not been paid by the seller. The buyer will pay them later in the year. Closing is July 30. Using a 360-day bankers calendar, what are the closing statement entries?
The answer is debit seller $700; credit buyer $700. The calculation is: $1,200 ÷ 12 months = $100 per month. The seller owes 7 months (January-July) = $100 × 7 = $700. The buyer will pay the entire $1,200 at the end of the year.
The payoff on the seller's existing loan is $79,315. What is(are) the entries on the closing statement or closing disclosure?
The answer is debit seller $79,315. The seller is paying the balance ($79,315) to the lender.
During an inspection, the inspector finds structural issues, recommends a roof certification, and states that the buyer should have a radon test. The salesperson representing the buyer should do what next?
The answer is give the buyer a list of recommended professionals if the buyer asks. Real estate professionals limit their liability by offering buyers and sellers professional assistance and also making sure there is more than one name per category.
Which of these transactions would MOST likely be subject to the CFPB's regulations?
The answer is home in a subdivision used as primary residence and being financed. CFPB regulations deal with TILA/RESPA-related loans. These will be residential loans.
The sales price is $95,000. The buyer secured a new loan of 80%. The entry or entries
The answer is is credit buyer $76,000. The new loan of $76,000 ($95,000 × 80%) is money coming in to the buyer. The seller has nothing to do with this entry.
How is the due diligence fee reflected at the settlement meeting?
The answer is it is a credit to the buyer and a debit to the seller. The due diligence fee is paid directly to the seller at contract formation and is credited toward the purchase price if the buyer proceeds with the transaction; thus, it is a credit to the buyer and a debit to the seller at settlement.
How is the earnest money deposit handled at settlement?
The answer is it is a credit to the buyer only. The earnest money deposit is not paid to the seller, but to the escrow agent to be held for the buyer until closing. If the buyer completes the purchase, the earnest money is credited to the buyer and becomes part of the sales price.
The MOST typical sequence of events for a residential transaction would be which of the following?
The answer is offer, contract, appraisal and inspections, insurances issued, settlement, closing, disbursement of funds. The progression of events that begin with the offer and end with disbursement of funds follows the logical progression of offer then contract. A buyer would be ill-advised to spend funds on a house without a commitment from the seller. The settlement meeting is a prerequisite to closing.
A broker can take part of the commission out of the client's trust account after contract and before closing,
The answer is only on written consent of the buyer and the seller. The broker cannot touch the monies in the client trust account for a transaction unless both buyer and seller consent in writing to such a draw on the commission earned. This rule is designed to protect the parties in the event the transaction does not close or there is another dispute concerning monies held in trust.
When would a buyer typically visit the property to make sure it is in essentially the same or better condition that it was the day of the offer?
The answer is per the Offer to Purchase and Contract, before the settlement meeting, the buyer is allowed to do a final walk-through to determine whether the property is in the same or better condition as it was on the date of the offer. The sellers are typically expected to have the house emptied and in at least broom-swept condition early enough before the settlement meeting that the buyers may inspect the property for damages.
The main reason why real estate brokers should not conduct real estate closings is that
The answer is real estate brokers can't give needed legal advice. Only an attorney can do that, and often arising during a closing are issues requiring legal advice or contract interpretation.
At the closing, the responsibilities of the closing agent can include
The answer is reviewing the survey. One of the responsibilities of the closing agent at the closing is to review the documents in escrow. One of the documents that can be included in the closing is the survey. The survey is typically ordered by the seller's attorney.
An attorney in North Carolina is typically responsible for which of the following as they relate to a residential real estate transaction?
The answer is searching the public records to ensure that the title is clear and insurable for the buyer, issuing an ''opinion of title,'' obtaining title insurance, and explaining the loan documents. An attorney is not typically involved in a contract of sale until retained by the buyer to explain the lender documents, the closing disclosure, and the title status. The attorney then completes the necessary steps to closing and recording the deed.
All of these are typically prorated at closing EXCEPT
The answer is security deposits. Security deposits are transferred in full from the seller to the buyer to hold for the tenants.
If the trustee has the property sold at a foreclosure sale and it brings an amount inadequate to pay off the loan, what can the trustee do?
The answer is sue the trustor for the deficiency. In North Carolina, if the foreclosure sale does not produce a sufficient sales price to pay off the loan, the lender is entitled to a deficiency judgment.
The North Carolina law requiring that the closing agent not disburse funds until assured that all funds are good is called
The answer is the Good Funds Settlement Act. The other acts don't exist.
There is an error on the closing statement or closing disclosure. You are a provisional broker in North Carolina, and this is your closing. Whose responsibility is the accuracy of the closing document?
The answer is the broker-in-charge. The broker is responsible for the accuracy and delivery of the closing documents. If the settlement agent handles the delivery, then the broker is responsible for only the accuracy of the documents.
A buyer, during the due diligence period of contract, has just been advised that the home is uninsurable as a result of past claims. What are the buyer's options?
The answer is the buyer may terminate the contract. No lender will fund a loan on an uninsurable home. Because the buyer is still in due diligence, the contract may be terminated for any reason.
A typical North Carolina settlement meeting would be attended by which of the following parties?
The answer is the buyer, the seller, the listing agent, the selling agent, and the settlement agent/attorney. Typically, the principals, their agents, and the attorney are present at the settlement meeting, although there is no requirement for the principals to attend, as long as the documentation is obtained by the settlement agent/attorney. A representative from the lender or the title company may attend.
If the buyer or the seller in a transaction is required to bring money to the settlement meeting, per the Closing Disclosure, which of the following applies?
The answer is the funds must be in the form of a bank check, certified check, money order, or wire transfer. The North Carolina Bar Association will not allow an attorney to accept anything other than immediately available funds from a consumer at closing.
The majority of the terms for closing are established by
The answer is the purchase contract. The purchase contract establishes the terms of closing with additional items being added by the escrow or settlement company. A deed of trust creates a lien when money is loaned on the property.
Who bears primary responsibility to ensure that the Closing Disclosure accurately reflects the Offer to Purchase and Contract (NCAR/NCBA)?
The answer is the real estate brokers, no matter whom they represent. The real estate brokers are responsible for verifying any information they should know from the contract. Certain lender costs would not be known to the brokers.