Chapter 21- Book Quiz (plus)

Which of the following is TRUE of real estate closings in Pennsylvania?

• Closings are generally conducted by real estate salespersons.

• The seller pays the brokers’ fee.

• The buyer usually receives the rents for the day of closing.

• The buyer pays for title evidence.

Answer explanation

The answer is the buyer pays for title evidence. Both the buyer and the buyer's lender want assurance that title to the property being conveyed complies with terms of the transfer. Buyers are responsible for determining that they are receiving good title to the property. Title evidence, such as an abstract of title our title insurance, is normally a charge paid by the buyer. (p. 416-417)

Real estate firms are often affiliated with title insurance companies or mortgage brokers. These business arrangements are permitted by RESPA as long as

• the companies make a written disclosure of their relationship with one another.

• consumers are unaware of these arrangements.

• consumers are required to use the services of the affiliated companies.

• the companies pay referral fees between them.

Answer explanation

The answer is the companies make a written disclosure of their relationship with one another. RESPA permits an affiliated business arrangement (AfBA) as long as a consumer is clearly informed of the relationship among the service providers, that participation is not required, that other providers are available, and that the only thing of value received by one business entity from others, in addition to permitted payments for services provided, is a return on ownership interest or franchise relationship. Umm(p. 421-422)

Which property does Consumer Financial Protection Bureau require that the closing disclosure be used?

• loan for agricultural purposes

• construction loans

• installment contract

• federally related loan for a single family-home

Answer explanation

The answer is federally related loan for a single family-home. RESP a regulations apply to first-lien residential mortgage loans made to finance the purchases of one- to four-family homes, cooperatives, and condominiums, for either investment or occupancy, as well as second or subordinate liens for home equity loans when a purchase is financed by a federally related mortgage loan. (p. 420)

Which of the following would a lender generally require to be produced at the closing?

• market value appraisal

• credit report

• application

• title insurance policy

Answer explanation

The answer is title insurance policy. The application, credit report, and appraisal are required by a lender before committing funds for the loan. The lender will require a title insurance policy at closing in order to protect their interest in the property. (p. 419)

The earnest money on deposit with the broker is a

• debit to the buyer.

• credit to the seller.

• credit to the buyer.

• balancing factor.

Answer explanation

The answer is credit to the buyer. The earnest money belongs to the buyer; at closing, it is a credit to the buyer. (p. 433)

The loan estimate and closing disclosure must be used to illustrate all settlement charges for

• transactions financed by VA and FHA loans only.

• all transactions involving commercial property.

• every real estate transaction.

• residential transactions financed by federally related mortgage loans.

Answer explanation

The answer is residential transactions financed by federally related mortgage loans. RESPA requirements apply when a purchase is financed by a federally related mortgage loan. The regulations apply to 1st lien residential mortgage loans made to finance the purchase of one- to four-family homes, cooperatives, and condominiums for either investment or occupancy. (p. 420)

The process by which expenses are handled at the settlement of a real estate transaction so that both the buyer and the seller pay their respective portions of the debits is called

• proration.

• assessment.

• reconciliation.

• balancing.

Answer explanation

The answer is proration. Prorations are a division of financial responsibility between the buyer and the seller for such items as loan interest, taxes, rents, fuel, and utility bills and are necessary to ensure that expenses are divided fairly between the seller and the buyer. (p. 435)

The annual real estate taxes amount to $1800 and have been paid in advance for the calendar year. If closing is set for June 15th with taxes prorated as of the date of settlement, which of the following is TRUE?

• credit seller $1800; debit buyer $825

• credit seller $975; debit buyer $975

• credit seller $825; debit buyer $975

• credit buyer $975; debit seller $975

Answer explanation

The answer is credit seller $975; debit buyer $975. If real estate taxes amount to $1800 per year ($150.00 per month) and have been paid in advance for the year, the seller is entitled to be reimbursed for the period from June 15th to the end of the year. The buyer is responsible for this period. Therefore, the seller receives a credit for $975 ($150.00 per month x 6.5 months). This amount is debited to the buyer. (p. 437)

A building was bought for $185,000, with 10% down and a loan for the balance. If the lender charged the buyer 2 discount points, how much cash did the buyer need at closing to pay the down payment and the loan fees?

• $8700

• $21,830

• $18,500

• $22,950

Answer explanation

The answer is $21,830. The borrower needs to bring the 10% down payment and another $3,330 for points for a total of $21,830. $185,000 x 0.90 x 0.02 + $18,500 = $21,830 (p. 432-433)

An item prepaid by the seller is

• credited to the seller.

• evenly divided between the buyer and the seller.

• debited to the seller.

• credited to the buyer.

Answer explanation

The answer is credited to the seller. Because the seller has already paid for the item, but not used the item, the amount is shown as a credit to the seller and a debit to the buyer, who will use the item. (p. 436)