real estate principles and practices chapter 12 closing statements © 2010 by south-western, cengage...
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Real EstateReal Estate Principles and Practices Principles and Practices
Chapter 12Chapter 12
Closing StatementsClosing Statements
© 2010 by South-Western, Cengage Learning
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© 2010 by South-Western, Cengage Learning
Key TermsKey Terms
Abstract
Closing
Closing statement
Credit
Credit report
Debit
Escrow closing
Lien waiver
Origination fee
Prepaids
Proration
Reserves
Settlement closing
Title insurance
Title search
Torrens System
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© 2010 by South-Western, Cengage Learning
OverviewOverview
ClosingClosing: transaction is completed and title is transferred to the purchaser
Escrow
Real estate company
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© 2010 by South-Western, Cengage Learning
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
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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)
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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
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Settlement by the Real Estate Settlement by the Real Estate FirmFirm
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
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Settlement by the Real Estate Settlement by the Real Estate FirmFirm
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
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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
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Title InsuranceTitle Insurance
Guarantees good title
Date title search title search was made, owner’s name, property address
Outstanding liens, mortgages, easements of record
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Title InsuranceTitle Insurance
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
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Title InsuranceTitle Insurance
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
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Title InsuranceTitle Insurance
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
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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
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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
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Other Prerequisites to ClosingOther Prerequisites to Closing
Insurance plans protect against mechanical defects
Protects buyer against costly defects after the sale
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Other Prerequisites to ClosingOther Prerequisites to Closing
Lien waiver: Lien waiver: affidavit stating there are no unpaid liens against the property
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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
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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
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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
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ProrationProration
Items paid in advance1. Insurance policy
2. Rent
3. Security deposits
4. Mortgage interest
Items paid in arrears1. Utilities
2. Mortgage interest
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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
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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
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Purchaser’s Closing Purchaser’s Closing StatementStatement
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The Seller’s Settlement The Seller’s Settlement StatementStatement
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Trust Account Balance SheetTrust Account Balance Sheet