Real Estate Principles and Practices Chapter 12 Closing Statements © 2014 OnCourse Learning

Real EstateReal Estate Principles and Practices Principles and Practices

Chapter 12Chapter 12

Closing StatementsClosing Statements

© 2014 OnCourse Learning


Key TermsKey Terms

Abstract

Closing

Closing statement

Credit

Credit report

Debit

Escrow closing

Lien waiver

Origination fee

Prepaids

Proration

Settlement closing

Title insurance

Title search

Torrens System


OverviewOverview

ClosingClosing: transaction is completed and title is transferred to the purchaser

Escrow

Real estate company


Escrow ClosingEscrow Closing

Escrow ClosingEscrow Closing: third party handles the closing procedure

Attorneys

Title insurance companies

Escrow companies

Escrow department of lending institutions

Escrow agent represents both parties


Settlement by the Real Settlement by the Real Estate FirmEstate FirmSettlement Closing: Settlement Closing: carried out by the real estate firm that listed the property

Closing statement: Closing statement: itemizes debitsdebits (costs) and creditscredits (assets)


Settlement by the Real Estate Settlement by the Real Estate FirmFirm

Buyer applies for a loan – copy of purchase agreement is given to the lender

Credit report and appraisal

RESPA: HUD information booklet and good faith estimate



1. Credit reportCredit report: : record of paying debt

2. Appraisal

3. Employment record

4. Bank deposits

5. Survey

6. Underwriter reviews file, sets closing

7. Settlement statement



1. Payoff of existing loan

2. Seller signs deed

3. Lien waiver

4. Order inspectionsWood infestation

Structural

Appliance and general

Abstract or title insurance

Closing statement


AbstractsAbstracts

Abstract:Abstract: history of title

“Chain of title” lists all previous owners and instruments affecting title

Does not guarantee good title

Attorney’s opinion as to condition of title

Certificate of titleCertificate of title


Title InsuranceTitle Insurance

Guarantees good title

Date title search title search was made, owner’s name, property address

Outstanding liens, mortgages, easements of record



Possible obstacles to clear title1. Unpaid taxes or assessments

2. Unrecorded liens and mortgages

3. Unpaid repair work

4. Exact location of boundary lines

5. Interests or claims not of public record and not visible

6. Verify zoning



Indemnifies against matters which have already occurred

Unrecorded claims, liens, or defects

Owners PolicyOwners Policy One time fee

Converge runs indefinitely

Not transferable

Forged deeds, illegal acts, or false claims



Mortgagee’s policyMortgagee’s policyCovers loan amount only

Reassigned upon sale of loan

Leasehold policy: Leasehold policy: protects lessee interest

Easement Policy: Easement Policy: insures easement interests

American Land Title Association


The Torrens SystemThe Torrens System

Application for title is made by the landowner

Notice of hearing of quiet title suit Copies sent to those with a

known interest

Good title is mandated by the court

Negates need for title search when property is sold

Limited acceptance


Other Prerequisites to ClosingOther Prerequisites to Closing

May be required with offer to purchase

Landmark California court decision

Standardized disclosure

Seller’s disclosure required in some states



Insurance plans protect against mechanical defects

Protects buyer against costly defects after the sale



Lien waiver: Lien waiver: affidavit stating there are no unpaid liens against the property


Closing ExpensesClosing Expenses

1. Transfer tax1. Transfer tax

2. Loan Fees2. Loan Fees

Origination fee: Origination fee: fee for issuing the loan

Assumption feeAssumption fee

Discount pointsDiscount points

Prepayment penaltyPrepayment penalty

Mortgage insurance Mortgage insurance premiumspremiums


Closing ExpensesClosing Expenses

3. Recording fees3. Recording fees

4. Attorney fees4. Attorney fees

5. Broker’s commission5. Broker’s commission

6. Appraisal fee6. Appraisal fee

7. Survey fee7. Survey fee

8. Title expense8. Title expense

9. Escrow account9. Escrow account


ProrationProration

Division of expenses between the buyer and the seller

“User” pays

State determines who is responsible for the day of closing

360-day or 365-day year

Items paid in arrears are debits to the seller and credits to the buyer


ProrationProration

Items paid in advance1. Insurance policy

2. Rent

3. Security deposits

4. Mortgage interest

Items paid in arrears1. Utilities

2. Mortgage interest


ProrationProration

Property tax: Property tax: $2160, paid$2160, paid

Closing: Closing: September 1September 1

$2160 ÷ 12 months = $180 per month$2160 ÷ 12 months = $180 per month

4 months X $180 = $7204 months X $180 = $720

Credit to the seller, debit to the buyerCredit to the seller, debit to the buyer


ProrationProration

Property tax payable twice per year on April Property tax payable twice per year on April 15 and September 15:15 and September 15: $1860 $1860

Closing: Closing: July 15July 15

July 1 used by seller but not paid forJuly 1 used by seller but not paid for

$1,860 ÷ 12 months = $155 per month$1,860 ÷ 12 months = $155 per month

Debit to the seller, credit to the buyerDebit to the seller, credit to the buyer

½ of $155 = $77.50½ of $155 = $77.50


Purchaser’s Closing Purchaser’s Closing StatementStatement


The Seller’s Settlement The Seller’s Settlement StatementStatement


Trust Account Balance SheetTrust Account Balance Sheet

Documents

Real Estate Principles and Practices Chapter 12 Closing Statements © 2014 OnCourse Learning