NC Real Estate Chapter 12 Part 5
Paid Outside of Closing (P.O.C.)
Any expenses associated with a real estate transaction that are paid outside of closing or before closing. Such payments may be noted on a settlement statement as such but are not reconciled as credits.
Proration
The allocation of expenses between buyer and seller in proportion to their actual usage of the item or service.
Cash to Close
The amount of money a buyer must bring to settlement to close the transaction after all credits and debits have been reconciled.
Which of these settlement costs would LEAST LIKELY be considered an expense required by the lender?
home inspection; A lender would not usually require a home inspection; it's an optional expense to a buyer. To get a mortgage loan, however, the lender will most likely require an appraisal, a credit report, and a pest inspection.
Of these, which expense would be a debit to the seller and a credit to a buyer?
homeowners association fees not yet paid; If the buyer has to pay HOA fees for the month of closing, the buyer is credited and the seller is debited. These other prorated expenses would be a debit to the buyer and a credit to the seller.
The sale of a property closes on May 24. Taxes are estimated to be $4,654 per year and have NOT been paid. How will the taxes appear on the Closing Disclosure based on a 360-day year, assuming the seller owns the closing day?
$1,861.60 Debit Seller / $1,861.60 Credit Buyer; This has not been paid, so will be a debit to the seller. First, determine the number of days the seller owned the property: Jan=30 + Feb=30 + Mar=30 + Apr=30 + May=24: 144 days. $4,654 / 360 days = $12.9277 / day. 144 days x $12.9277 = $1,861.60. This is a double-entry item, a debit to the seller and a credit to the buyer.
The sale of a property closes on July 29. The unpaid tax bill is $4,626. Buyer and seller will pay their share of the taxes at closing. How will the taxes be paid at closing using a statutory year, assuming the seller owns the closing day?
$1,940.35 Debit Buyer / $2,685.65 Debit Seller; First, determine the number of days the seller owned the property: Jan=30 + Feb=30 + Mar=30 + Apr=30 + May=30 + Jun=30 + Jul=29 = 209. To find the seller's share: $4,626 / 360 days = $12.85 / day. 209 days x $12.85 = $2,685.65 debit to the seller. Next, determine the number of days the buyer owned the property: July=1 + Aug=30 + Sep=30 + Oct=30 + Nov=30 + Dec=30 = 151 days. To find the buyer's share: $4,626 / 360 days = $12.85 / day. 151 days x $12.85 = $1,940.35 debit to the buyer. This represents two separate single-entry items on the settlement statement.
Which statement about the Closing Disclosure is TRUE?
A seller-only Closing Disclosure may be prepared that excludes the buyer's loan details; The lender or closing agent could decide to prepare a seller version of the CD. The Closing Disclosure must be given to a borrower at least three business days prior to close. It shows the actual closing costs and loan costs. Only a few changes would require an additional waiting period; most changes do not.
Closing Disclosure (CD)
A standardized document that presents a final, detailed accounting for a real estate transaction, listing each party's debits and credits and the amount each will receive or be required to pay at closing; required for all RESPA-related transactions.
The sale of a property closes on May 10. Taxes are $3,600 per year and have not been paid. What is the seller's share of taxes, based on a 365-day year (assume it's not a leap year and the seller owns the day of closing)?
$1,281.80; Find the daily rate: $3,600 / 365 = $9.86. Determine the number of days the seller lived in the house: January=31 + February=28 + March=31 + April=30 + May=10: 130 days. Find the prorated amount: $9.86 x 130 = $1,281.80. This is a debit to the seller and a credit to the buyer.
Sara is responsible for the following expenses: Closing attorney fee of $650, courier fee of $30 to return the loan documents to the lender, home inspection fee of $325, lender's title insurance policy of $505.40, owner's title insurance policy of $64.60, pest inspection fee of $65, survey fee of $400, recording fee for the deed of $56, and recording fee for the deed of trust of $26. If Sara paid the inspection fees before closing, what are her debits for these settlement expenses?
$1,732
Sara's lender requires her to make an upfront purchase of an annual homeowner's insurance policy for $684 and private mortgage insurance for $840. Both of these expenses require monthly payments going forward, so the lender is also requiring Sara to pay two months of homeowner's insurance and mortgage insurance into the escrow account as reserves. What is the total of these upfront and escrow expenses?
$1,778; If the annual homeowner's insurance policy is $684, it would be $57 per month ($684 / 12). So two months of that in reserve would be $114. The mortgage insurance policy is $840, or $70 per month. Two months of that in reserve would be $140. Together, these expenses total $1,778 at settlement ($684 + $114 +$840 + $140). Make sure to include these DEBITS to buyer Sara on your Settlement Costs Worksheet.
The sale of a property closes on August 25. The unpaid property tax bill is $5,238. Buyer and seller will pay their share of the taxes at closing. How will the taxes be paid at closing using a statutory year, assuming the seller owns the closing day?
$1,818.75 Debit Buyer / $3,419.25 Debit Seller; First, determine the number of days the seller owned the property: Jan=30 + Feb=30 + Mar=30 + Apr=30 + May=30 + Jun=30 + Jul=30 + Aug=25 = 235. To find the seller's share: $5,238 / 360 days = $14.55 / day. 235 days x $14.55 = $3,419.25 debit to the seller. Next, determine the number of days the buyer will own the property: Aug=5 + Sep=30 + Oct=30 + Nov=30 + Dec=30 = 125 days. To find the buyer's share: $5,238 / 360 days = $14.55 / day. 125 days x $14.55 = $1,818.75 debit to the buyer. This represents two separate single-entry items on the Closing Disclosure.
An owner pays condominium fees of $275.50 on the first of every month to cover that month. The transaction closes on July 17. Using a 365-day year, with the buyer responsible for the day of closing, what is the appropriate proration on the settlement statement.
$133.35 Credit Seller / $133.35 Debit Buyer; When condo fees are paid in advance, the buyer owes. Using a 365-day year, $275.50 / 31 days in July = $8.89 per day. If the buyer owns the days of closing, the buyer owes the seller for 15 days. 15 x $8.89 = $133.35 credit seller/debit buyer.
Paul is selling his house for $267,500. He's paying 5.75% commission. In addition to the required excise tax, he has other closing costs of $270. He owes $112,800 on his existing mortgage. He's already paid the property taxes, which are prorated for settlement at $765.62. The buyer paid a due diligence fee of $1,200. What is Paul's net cash to seller for this transaction, rounded to the nearest dollar?
$138,079; First, add up Paul's debits: Commission of $15,381.25 ($267,500 x 0.0575) + excise tax of $535 ($267,500 / $500 = $535) + $270 closing costs + $112,800 existing loan + $1,200 due diligence fee = $130,186.25 total debits. Subtract that from the sales price: $267,500 - $130,186.25 = $137,313.75. To that, add his credit for the property taxes he paid: $137,313.75 + $765.62 = $138,079.37 net cash to seller Paul.
Seller Jack has agreed to sell his property to Sara for $249,650. He is paying 6% commission, split between the listing broker and the selling broker. What is the total brokerage commission Jack will owe at closing?
$14,979; Commission is based on the sale price of $249,650. If total commission is 6%, Jack will owe $14,979 in commission ($249,650 x 0.06 = $14,979). Make note of this DEBIT for seller Jack.
Seller Jack has agreed to sell his property to Sara for $249,650. Jack owes $85 for deed preparation and $30 in courier fees to return the payoff of his existing mortgage loan to his lender. Considering the commission and excise tax you've already calculated, what are Jack's total costs so far?
$15,594
The sale of a property closes on May 10. HOA fees are $360 per year and paid in advance. What is the buyer's share of the fee, based on a calendar year (assume it's not a leap year and the seller owns the day of closing)?
$232.65; To find the daily rate: $360 annual HOA fee / 365 days in a year= $0.99 (rounded). The buyer owns the property for 235 days (May=21 + Jun=30 + Jul=31 + Aug=31 + Sep=30 + Oct=31 + Nov=30 + Dec=31 = 235). To find the buyer's share: 235 x $.99 daily rate = $232.65 buyer debit/seller credit.
The property tax bill on this property in the amount of $2,471 was paid by seller Jack on September 1. If closing is held on November 23, how will the property taxes be prorated between seller Jack and buyer Sara? Assume a statutory year and that the seller owns the day of closing.
$253.96 Debit Buyer / $253.96 Credit Seller; Since the taxes have already been paid by the seller, buyer Sara will owe seller Jack for the days that she owned the property. First, determine the number of days the buyer owned the property: Nov=7 days (November 24, 25, 26, 27, 28, 29, 30) + Dec=30 days = 37 days. Next, determine the daily rate of the property tax: $2,471 / 360 days = $6.8638 / day. 37 days x $6.8638 = $253.96. This is a double-entry item, a CREDIT to seller Jack and a DEBIT to buyer Sara. Make sure you update the Settlement Costs Worksheet with this information.
Maggie bought a house in a subdivision, with settlement scheduled for August 31. Seller Sam paid the annual association fee of $780 at the beginning of the year. On the settlement statement, how will this fee be handled (assuming a 365-day year with the seller owning the day of closing)?
$260.70 Credit Seller / $260.70 Debit Buyer; Since Sam already paid this fee, it will be a credit to Sam and a debit to Maggie. First, determine how many days Maggie owned the property: Sep=30 days + Oct=31 days + Nov=30 days + Dec=31 days = 122 days. Next, calculate the daily fee: $780 / 365 = $2.1369 per day. Finally, calculate the prorated amount: 122 x $2.1369 = $260.70. This is a debit to buyer Maggie and a credit to seller Sam.
Buyer Sara is getting a loan for $212,000. Sara's loan is a 30-year fixed rate mortgage with an interest rate of 6.5% for which she's paying the following financing-related expenses: A .75% loan origination fee, one discount point, and an application fee of $280. The appraisal fee is $450. The credit report fee is $55. What are Sara's total financing-related debits?
$3,990
Sara is getting a loan of $212,000 to purchase Jack's property for $249,650. It is a 30-year, fixed rate loan with an interest rate of 6.5%. Closing is November 23. How much will the lender require Sara to pay as interim mortgage interest? Assume a statutory year, and when calculating interim mortgage interest, let's say the buyer owns the day of closing.
$306.22; First, find the annual interest rate by multiplying the loan amount by the interest rate ($212,000 x 0.065 = $13,780.). Divide that by 360 to find the daily interest rate ($13,780 / 360 = $38.2778). Since the lender requires the buyer to own the day of closing in this example, and we're using a statutory year, there are 8 affected days (November 23, 24, 25, 26, 27, 28, 29, 30) for which interest from the buyer is due. Multiply the daily interest rate by 8 days ($38.2778 x 8 = $306.2224, rounded to $306.22). On your Settlement Costs Worksheet, make sure you indicate this as a DEBIT for buyer Sara. Since this is a single-entry expense, it does NOT affect seller Jack.
Buyer Belva is purchasing a property for $187,000, with settlement scheduled for May 7. She has been approved for an 80% loan-to-value conventional loan. Her lender is charging a total of 2.5 points for all mortgage-related fees. She has to purchase an annual homeowner's insurance policy for $852, and the lender requires her to deposit two months of the insurance premiums into an escrow account for reserve. Annual property taxes for the property are expected to be $2,652, and they have not been paid. The lender requires Belva to deposit four months of property taxes into the escrow account for reserve. Her other closing costs total $1,740. Belva paid a $3,000 earnest money deposit and a $1,800 due diligence fee. For these prorations, use a 360-day statutory year and assume that the seller owns the day of closing. What is Belva's necessary cash to close this transaction, rounded to the nearest dollar?
$39,022; Let's start with the secondary calculations necessary to total the buyer's debits. Belva's getting a loan for $149,600 ($187,000 x 0.80). The loan fees are $3,740 ($149,600 x 0.025). The escrow reserves for homeowner's insurance is $142 ($852 / 12 x 2). The escrow reserves for property tax is $884 ($2,652 / 12 x 4). Total the debits: $3,740 + $852 + $142 + $884 + $1,740 = $7,358. Add the debits to the sale price: $187,000 + $7,358 = $194,358. Now let's do the secondary calculation necessary to total Belva's credits. Since the property tax has not been paid, she will have to pay that when it's due, and the seller owes her for the time the seller owned the property. First, determine the daily rate of the taxes: $2,652 / 360 = $7.3667. Next, determine how many days the seller owned the property if settlement is May 7: Jan=30 days + Feb=30 days + Mar=30 days + Apr=30 days + May=7 days = 127 days. Multiply that by the daily rate: 127 x $7.3667 = $935.57. Now add up Belva's credits: $149,600 (loan amount) + $3,000 (earnest money) + $1,800 (due diligence fee) + $935.57 (prorated taxes) = $155,335.57. Subtract that from the total due: $194,358 - $155,335.57 = $39,022.43, rounded to $39,022 cash from buyer Belva.
James sells his property to Moira for $235,600. She gets a loan for $187,500. How much is the excise tax on this transaction and who pays it?
$472 paid by James; Excise tax is based on the sale price, the transaction value, not the loan amount. In North Carolina, it is $1 for every $500 or fraction thereof. $235,600 / $500 = $471.20, rounded up to $472 that seller James must pay at settlement.
Seller Jack has agreed to sell his property to Sara for $249,650. She is getting a loan for $212,000. How much will seller Jack owe in North Carolina excise tax?
$500.00; Excise or transfer tax is based on the transaction value, not the loan amount. The tax is $1 per $500 of transaction value or fraction thereof. $249,650 / $500 = $499.3. To account for the "fraction thereof," you need to round up to the nearest dollar, or $500. Make note of this DEBIT for seller Jack.
Seller Jack owes $138,425 on his existing mortgage. That loan has an interest rate of 5.75%. At closing on November 23, Jack must pay off his existing loan as well as the accrued interest. How much does Jack owe in accrued interest? Assume a statutory year and when calculating this accrued mortgage interest, the seller owns the day of closing.
$508.52
Tori is selling her property for $468,400. She has an outstanding mortgage balance of $376,950. Closing is set for August 27. Tori and buyer Bob will pay their share of the annual $6,336 property tax bill at closing. Tori has agreed to pay 3.5% commission to the listing broker and 3% commission to the seller's subagent. She also owes the required excise tax. Tori agreed to purchase a home warranty for the buyer at a cost of $365. The buyer paid an earnest money deposit of $12,000 and a due diligence fee of $2,400. Tori's other closing costs total $490. Assume a statutory year and that the seller owns the day of closing. What is the net cash to seller Tori on this transaction?
$52,641; Let's find Tori's debits. She owes total commission of 6.5% on a sale price of $468,400, which is $30,446. Excise tax is $937 ($468,400 / $500 = $936.80, rounded up). She'll pay the property tax for the period in which she owned the property, which is 237 days (Jan=30 + Feb=30 + Mar=30 + Apr=30 + May=30 + Jun=30 + July=30 + Aug=27), at a daily rate of $17.60 ($6,336 / 360), which comes to $4,171.20. The due diligence fee is also a debit (but not the earnest money), as is the home warranty. So all debits total $415,759.20 ($376,950 outstanding loan + $30,446 commission + $937 excise tax + $4,171.20 property tax + $2,400 due diligence fee + $490 closing costs + $365 home warranty). Subtract that from the sale price: $468,400 - $415,759.20 = $52,640.80. Tori has no credits on this transaction, so her net cash received is $52,641 (rounded).
A house is rented for $980 a month, paid on the first day of each month. The house sells and closes escrow April 15. Using a statutory year and buyer owning the day of closing, what is the proration?
$522.72 Debit Seller / $522.72 Credit Buyer; When rents are paid in advance, the seller owes. Using a statutory year, $980 / 30 days = $32.67 per day. If the buyer owns the days of closing, the seller owes the buyer for 16 days. 16 x $32.67 = $522.72 debit seller/credit buyer.
Each unit in a duplex rents for $1,025 a month. Both tenants paid the rent on September 1. The owner sells the property, with settlement scheduled for September 22. If the day of closing belongs to the seller, what is the amount of the rent proration and how is it shown on the settlement statement, assuming a statutory year?
$546.64 Debit Seller / $546.64 Credit Buyer; First, determine the number of days that apply to the buyer's ownership: September 23 to September 30 = 8 days (since closing day belongs to the seller in this example). Then calculate the rent per day: $2,050 / 30 = $68.33 per day. Finally, determine the amount of rent due to the buyer: 8 days x $68.33 = $546.64. This is a credit to the buyer and a debit to the seller.
Paul is taking out a $158,000 loan to purchase a house for $195,000. He's paying a 5% interest for a 30-year loan. Settlement is June 27. How will the prorated interim mortgage interest show up on the settlement statement? For this example, assume a statutory year and that the seller owns the day of closing?
$65.83 Debit Buyer; To find the annual interest rate, multiply the loan amount by the interest rate ($158,000 x 0.05 = $7,900.). Divide that by 360 to find the daily interest rate ($7,900 / 360 = $21.9444). Since the seller owns the day of closing in this example, and we're using a statutory year, there are three affected days (June 28, 29, 30) for which interest from the buyer is due, so multiply the daily interest rate by 3 days ($21.9444 x 3 = $65.8332, rounded to $65.83). This appears only as a debit to the buyer.
Mark agrees to buy Sharon's duplex for $246,000. Closing day is June 14. Both tenants paid rent of $975 on June 1. Mark is getting a loan for $170,000. He's paying 2 points in fees. The annual property taxes on the property are $3,456 and have not been paid. Mark paid the seller a $1,600 due diligence fee and gave the broker a $3,000 earnest money deposit check. Closing costs are $2,680. The lender requires 4 months of property taxes to be deposited in the escrow account, in addition to 2 months of property insurance in escrow. The annual property insurance premium is $810. For the prorations, use a 360-day statutory year and assume that the seller owns the day of closing. What is Mark's necessary cash to close this transaction, rounded to the nearest dollar?
$76,963; Let's start with the debit calculations. Mark's loan fees are $3,400 ($170,000 x 0.02). The escrow for taxes is $1,152 ($3,456 / 12 x 4). The escrow for property insurance is $135 ($810 / 12 x 2). So all debits total $8,177: $3,400 (loan fees) + $1,152 (tax escrow) + $810 (annual insurance) + $135 (insurance escrow) + $2,680 (closing costs) = $8,177. Total owed is $254,177. Next, let's do the credit proration calculations. The rent paid is $1,950, or $65 per day, and Mark should get a credit for 16 days, so $1,040. The property tax is $9.60 per day ($3,456 / 360), and Mark should get a credit for 164 days (Jan=30 + Feb=30 + Mar=30 + Apr=30 + May=30 + Jun=14), so $1,574. Total credits are $177,214: $170,000 (loan) + $1,040 (rent proration) + $1,574 (tax proration) + $1,600 (due diligence fee) + $3,000 (earnest money deposit) = $177,214. Subtract that from the total owed to find cash to close: $254,177 - $177,214 = $76,963.
The annual property taxes on the property Sara is purchasing are $2,471 and have been paid by the seller. At closing on November 23, the lender requires Sara to deposit four months of property taxes into the escrow account as reserve. How would you track this settlement expense?
$823.66 debit Sara; This is not a prorated expense. If the annual property tax is $2,471, that makes it $205.9167 a month. Four months of reserves would be $823.66 that Sara needs to pay at settlement. Make sure you note this as a DEBIT to Sara on your Settlement Costs Worksheet.
David bought a condominium, with settlement set for July 18. Seller Grace paid the annual condo association fee of $1,965 at the beginning of the year. On the settlement statement, how will this fee be handled (assume a 360-day year; seller owns the day of closing)?
$884.24 Credit Seller / $884.24 Debit Buyer; This was paid in advance, so will be a credit to seller Grace and a debit to buyer David. First, determine how many days buyer David will live in the condo: Jul=12 days + Aug=30 + Sep=30 + Oct=30 + Nov=30 + Dec=30 = 162 days. Next, determine the daily rate: $1,965 / 360 = $5.4583. Finally, multiply the daily rate by the number of days: $5.4583 x 162 = $884.24.
What is the total amount for settlement expenses that buyer Sara paid outside of closing?
$895; If you look in "J. TOTAL CLOSING COSTS (Borrower-Paid)" in the right-hand column, you can see the total expenses that Sara paid "Before Closing." The $895.00 includes loan costs and other costs that Sara paid prior to settlement. Sometimes, people refer to these as P.O.C. or Paid Outside of Closing. In the previous unit, you learned expenses paid before closing are not the same as credits. These expenses are included on the Closing Disclosure so that it can provide a comprehensive accounting for everything the buyer paid, however.
Larry sells his property with closing set for March 29. The property taxes for the year are estimated to be $3,756 and have NOT been paid. How will the taxes appear on the Closing Disclosure, assuming a statutory year and that seller owns the closing day?
$928.56 Credit Buyer / $928.56 Debit Seller; The taxes have not been paid, so this will be a debit to the seller. First, determine the number of days the seller owns the property: Jan=30 + Feb=30 + Mar=29 = 89 days. $3,756 / 360 days = $10.4333 / day. 89 days x $10.4333 = $928.56. This is a double-entry item, a debit to the seller and a credit to the buyer.
Let's start with a few questions. The Closing Disclosure must be given to the borrower in the transaction at least _________ prior to closing.
3 business days
Transfer Tax
A tax levied on the transfer of a piece of real property from one person to another; it could be levied by the state, the county, or the municipality; in North Carolina, called Excise Tax.
Double-Entry
A transaction item that affects both parties, always a debit to one party and a credit to the other party that appears on both sides of a ledger or settlement statement.
Single-Entry
A transaction item that affects only one party and so appears only on one side of a ledger or settlement statement.
Statutory Year
A year based on a monthly rate that considers each month to be 30 days. There are 360 days in a statutory year. Also called Banker's Year.
Escrow Reserves
An account maintained by a lender for the deposit of borrowers' extra 1/12 monthly deposits to cover next year's insurance and tax payments.
Prepaid Expenses
Expense items on a settlement statement the seller has already paid in advance, usually at the beginning of a month for the rest of the month, or at the beginning of the year for the rest of the year or longer.
Buyer Sara was required to pay a due diligence fee to seller Jack at the time the purchase contract was executed.
False
Prior to closing, Sara paid an earnest money deposit of $3,500. This is a credit to buyer Sara and a debit to seller Jack.
False
Seller Jack would MOST LIKELY be required to pay for the home inspection and the survey?
False
Look on Page 1 of Sara's Closing Disclosure. Sara's total monthly payment for this loan is $1,339.00.
False; The $1,339.00 amount reflects only the principal and interest on this $212,000 loan. Sara is also required to pay $332.92 every month to cover the required mortgage insurance, property taxes, and homeowner's insurance.
The payoff of Jack's existing mortgage is counted as a credit to him on the Closing Disclosure.
False; The amount Jack receives at closing is reduced by the amount of his mortgage payoff. This is a debit. Now let's review.
Accrued Expense
Item on a settlement statement for which the cost has been incurred, but the expense has not yet been paid. Such expenses are considered to be paid in arrears.
The expenses on the Closing Disclosure should be compared to which lender-supplied document?
Loan Estimate
Look on Page 2 of Sara's Closing Disclosure. Did buyer Sara pay any commission on this transaction?
No
Who paid more in settlement costs for this transaction?
Seller Jack; Although buyer Sara has a lot of financing-related fees to pay at settlement, the commission that seller Jack is paying means that his closing costs are almost $7,000 more than Sara's.
Of these expenses, which is LEAST LIKELY to be an expense that buyer Sara would owe in order to close the transaction?
existing loan payoff; It's seller Jack who would need to pay off his existing loan amount at settlement. Buyer Sara would pay these other expenses.
Seller Jack must receive the Seller Closing Disclosure at least three business days prior to closing.
false; No law or rule requires a lender to deliver a Closing Disclosure to the seller in a real estate transaction prior to loan consummation.
Closing
The completion of the legal steps necessary to transfer title to property from the seller to the buyer, and includes settlement and recordation of the deed.
The lender miscalculated the final Cash to Close on a buyer's Closing Disclosure although all of the listed expenses were correct. Which statement is TRUE?
The lender must issue an updated Closing Disclosure; no additional waiting period is required; While a corrected CD is required, it would not trigger an additional waiting period.
Cash to Seller
The net amount of money a seller receives from a real estate transaction at settlement after all costs and expenses have been paid.
Match the Page of the Closing Disclosure with the data it contains.
Transaction Details, Loan Terms, Projected Payments=Page 1; Closing Cost Details=Page 2; Cash to Close, Summaries of Transactions=Page 3; Additional Information about the Loan=Page 4; Loan Calculations, Other Disclosures, Contact Information=Page 5
Look on Page 4 of Sara's Closing Disclosure. If she were to sell this property to someone else, the buyer could NOT assume her loan.
True
Look on Page 5 of Sara's Closing Disclosure. Unless she pays off her loan early, at the end of 30 years, she will have paid more in interest than in principal.
True
The loan amount of $212,000 is a credit to buyer Sara.
True
The property taxes for the property at 123 Oak Street were paid prior to settlement and so are a credit to the seller.
True
There is an error on page 1 of the Seller Closing Disclosure. Find this error and answer true or false. This mistake requires an updated Closing Disclosure but does NOT trigger an additional three business-day waiting period.
True
Seller Jack has no way of knowing how much Sara is borrowing to purchase his property.
True; The Seller Closing Disclosure does not contain details about the loan they buyer obtains to purchase the property.
Which expense found on the settlement statement would LEAST LIKELY be prorated between buyer and seller?
a title insurance policy; In North Carolina, a buyer is normally responsible for getting title insurance as evidence of marketable title. This is not a prorated expense.
Buyer Sara is getting a loan for $212,000. Sara's loan is a 30-year fixed rate mortgage with an interest rate of 6.5% for which she's paying the following financing-related expenses: Origination fee, discount points, application fee, appraisal fee, credit report fee. Which of Sara's financing costs were MOST LIKELY paid in advance prior to settlement?
appraisal fee and credit report fee
The seller must receive the Closing Disclosure
at settlement; Although the seller generally receives the Closing Disclosure prior to settlement, there is no requirement for that. A seller simply has to be given a Closing Disclosure at settlement.
When calculating prorations on a settlement statement (if settlement occurs before July 1), unpaid real estate taxes are entered as a ______ to the seller and a _____ to the buyer.
debit / credit; Since property taxes are paid in arrears, the buyer will pay for the time during which the seller occupied the property. Therefore, property taxes are usually prorated as debits to the seller and credits to the buyer.
The sales price of the property being sold is a ______ to the buyer and a ______ to the seller.
debit / credit; Since the buyer owes the sales price, it is a debit. Since the seller receives the sales price, it is a credit.
Lenny would have received $120,000 from the sale of his house, however, he agreed to pay the buyer an allowance of $700 to have the house painted. How will that $700 show up on a settlement statement?
debit to Lenny and credit to the buyer; This is an example of a double-entry on a settlement statement. Lenny is paying out $700. It is debited from his side of the statement and credited to the buyer's side, but it is NOT a proration.
There is an error on page 1 of the Seller Closing Disclosure. Find the error and answer this question. Did the error involve any math calculations?
no
Which of buyer Sara's expenses is LEAST LIKELY owed to her lender?
pest inspection
If it can be transferred to the new owner, a homeowner's insurance policy premium would be an example of a(n)
prepaid item on a settlement statement; Homeowner's insurance is usually paid at the beginning of the year for the whole year, thus it's a good example of a prepaid item IF the insurance company would allow the seller to transfer the policy to the buyer.
On the seller's settlement statement, a debit ______ the amount received. On the buyer's settlement statement, a debit ______ the amount owed.
reduces / increases; On the seller's settlement statement, a debit reduces the amount received; on the buyer's settlement statement, it increases the amount the buyer owes.
In the absence of any agreement, the day of closing traditionally belongs to the
seller; The day of closing is normally allocated to the seller unless the parties have agreed otherwise in the purchase and sale contract.
To find the buyer's cash to close,
subtract credits from the sales price and add debits; Start with the sales price, add the debits and subtract the credits to find the buyer's cash to close.
To find the net cash to seller,
subtract debits from the sales price and add credits.; Start with the sales price, subtract the debits and add the credits to find the net cash to the seller.
The purpose of the Closing Disclosure is to
summarize the financial aspects of a real estate transaction.
Of these, who is responsible for ensuring that the buyer receives the Closing Disclosure?
the lender; The lender is ultimately responsible for ensuring the accuracy and delivery of the Closing Disclosure, although it might be the closing agent, also called a title agent or closing attorney, who will prepare it.
Seller Jack has agreed to sell his property to Sara for $249,650. Of these expenses, which is LEAST LIKELY to be an expense that seller Jack would pay?
title insurance
Of the following, which is LEAST LIKELY to be an expense that buyer Sara's lender will require to her pay at closing as a reserve for the escrow/impound account?
title insurance premiums; Title insurance is a one-time fee paid at settlement. The lender does not collect it over the life of the loan nor keep any of the premium in an escrow account. The other expenses, however, may be required to be kept in reserve.
Which of these settlement costs would NOT be prorated between buyer and seller?
transfer tax; Transfer tax, also called excise tax, is owed by the seller and would not be prorated at settlement.
Look on Page 3 of Sara's Closing Disclosure. Do you think that First Bank, the lender, completed the Loan Estimate in good faith?
yes
