Closing the Real Estate Transaction

Unit 17

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Chapter 17: Closing the Real Estate Transaction

The conclusion of the real estate transaction is the closing, when title to the real estate is transferred in exchange for payment of the purchase price. Until closing preparations begin, a real estate

professional’s relationship is primarily with the buyer or the seller. During the closing period, new players come on the scene. A

thorough knowledge of the closing process is the best defense against the risk of a transaction failing.

Chapter Objectives❏ Describe the specific steps and processes involved in order to

achieve conveyance of clear and marketable title, including compliance with all applicable laws.

❏ Describe the closing procedures and the respective roles of all parties.

❏ Explain the provisions of the Real Estate Settlement Procedures Act (RESPA) and the Mortgage Disclosure Improvement Act (MDIA). TILA RESPA.

❏ Describe and explain all buyer and seller charges and credits contained in the closing statement.

❏ Explain the financial entries and mathematical calculations contained in the closing statement.

❏ Review and confirm the accuracy of a closing statement.

Key Terms to Record

accrued itemsaffiliated business arrangement (ABA)

closingclosing statementcreditdebitescrow accounts

escrow closingGood Faith Estimate (GFE)

impound accountsMortgage Disclosure Improvement Act (MDIA)

mortgage servicing transfer statement

prepaid itemsprorationsReal Estate Settlement Procedures Act (RESPA)

Settlement Statement (HUD1)

surveyTILA RESPA

Define the Following Key Terms

❏ accrued items❏ closing❏ closing statement❏ credit❏ debit❏ escrow accounts❏ escrow closing❏ impound accounts

❏ Mortgage Disclosure Improvement Act (MDIA)

❏ mortgage servicing transfer statement

❏ prepaid items❏ prorations❏ Real Estate Settlement

Procedures Act (RESPA)❏ survey

Stricken Vocabulary...on the test still?❏ CFPB- Consumer Finance Protection Bureau❏ RESPAS Consumer Protections❏ CLO Regulation❏ CBA Disclosure❏ Settlement Cost booklet❏ Good Faith Estimate (GFE)❏ Settlement Statement (HUD1)❏ Prohibition of holdbacks and uncarried fees❏ Prorations debits/credits

Affiliated Business Arrangement (ABA)

New TermsTILA RESPA

Pre-closing Procedures

Buyer’s Issues:● Final property inspection● Survey● Title evidence

Seller’s Issues:● Receiving payment● Payoff statement

Roles at Closing

Real Estate Professional’s Role at Closing:● Varies by state● Involved on behalf of client

Lender’s Interest in Closing:● Protect its security interest● Mortgage lien priority

IRS Reporting Requirements:● Form 1099-S

Conducting the Closing

● Face-to-face● In escrow

Conducting the Closing

● Legislation Related to Closing○ Real Estate Settlement Procedures Act (RESPA)○ Mortgage Disclosure Improvement Act (MDIA)

● Disclosure Requirements● CFPB Settlement cost booklet

Preparation of Closing Statements(Changed with TILA-RESPA)

A debit is an amount to be paid by the buyer or the seller.

A credit is an amount payable to the buyer or the seller.

Prorations:Accrued items = Buyer credits

Prepaid items = Seller credits

TILA-RESPA Integrated Disclosure Rule

The new TILA-RESPA Integrated Disclosure rule (also called the Know Before you Owe mortgage disclosure rule) will replace the four current disclosure forms with two new forms. The Loan Estimate form will replace the initial Truth in Lending statement (TIL) and the Good Faith Estimate (GFE). The Closing Disclosure form will replace the HUD-1 Settlement Statement and the final TIL. The new forms are required for transactions originating on or after October 3, 2015.

Loan Estimate Form

The new Loan Estimate form highlights the information that has been the most important to consumers historically. Interest rate, monthly payment, and total closing costs are clearly presented on the first page. The Loan Estimate form must be provided to the consumer

three business days after a loan application is submitted to the lender. Blank copies of several alternate versions of the form can be found

here. A completed sample form can be found here.

Closing Disclosure Form

The new Closing Disclosure form provides more information about the costs of taxes and insurance and how the interest rate and payments

may change in the future. It will also warn consumers about things they may want to avoid such as prepayment penalties. The Closing Disclosure form must be provided to the consumer three business

days before the loan closes. A completed sample form can be found here.

For more information and updates from the Consumer Financial Protection Bureau (CFPB) regarding this rule, visit the CFPB Website

After the Unit...

● Read the Key Point Review in the Unit.● Read the quizzes and answers. Are you right or wrong? Why?● Go to QBank and customize a quiz on this Unit, selecting the

boxes on the bottom to show progress as you go, and to show explanations.

● Take the quiz- recording your thoughts and how you did.● Send us the recording for you to use as accountability.● Text us or email us any questions.

Unit 17 QuizLegal title ALWAYS passes from the seller

to the buyer

a. on the date of execution of the deedb. when the closing statement has been signedc. when the deed is placed in escrowd. when the deed is delivered and accepted

D. When the deed is placed in escrow

A mortgage reduction certificate is executed by a(n)

a. abstract companyb. attorneyc. lending instituted. grantor

C. lending institution

On a settlement statement, the principal amount of a purchaser’s new mortgage loan is a

a. credit to the sellerb. credit to the buyerc. debit to the sellerd. debit to the buyer

B. credit to the buyer

At closing, the listing agent’s commission is usually shown as a

a. credit to the seller b. credit to the buyerc. debit to the sellerd. debit to the buyer

C. Debit to the seller

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

a. buyer b. sellerc. lenderd. real estate professional

A. Buyer

At closing, the listing agent’s commission is usually shown as a

a. credit to the sellerb. credit to the buyerc. debit to the sellerd. debit to the buyer

C. debit to the seller

Which item would the lender generally require at the closing?

a. Title insurance commitmentb. Market value appraisalc. Applicationd. Credit report

A. Title insurance commitment

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