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

Key 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

© 2014 OnCourse Learning Overview Closing Closing: transaction is completed and title is transferred to the purchaser Escrow Real estate company

© 2014 OnCourse Learning Escrow Closing Escrow Closing Escrow Closing: third party handles the closing procedure Attorneys Title insurance companies Escrow companies Escrow department of lending institutions Escrow agent represents both parties

© 2014 OnCourse Learning Settlement by the Real Estate Firm Settlement Closing: Settlement Closing: carried out by the real estate firm that listed the property Closing statement: debits credits Closing statement: itemizes debits (costs) and credits (assets)

© 2014 OnCourse Learning Settlement by the Real Estate Firm 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

© 2014 OnCourse Learning Settlement by the Real Estate Firm Credit report: 1. Credit report: record of paying debt 2. Appraisal 3. Employment record 4. Bank deposits 5. Survey 6. Underwriter reviews file, sets closing 7. Settlement statement

© 2014 OnCourse Learning Settlement by the Real Estate Firm 1. Payoff of existing loan 2. Seller signs deed 3. Lien waiver 4. Order inspections Wood infestation Structural Appliance and general Abstract or title insurance Closing statement

© 2014 OnCourse Learning Abstracts 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 title

© 2014 OnCourse Learning Title Insurance Guarantees good title title search Date title search was made, owner’s name, property address Outstanding liens, mortgages, easements of record

© 2014 OnCourse Learning Title Insurance Possible obstacles to clear title 1. 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

© 2014 OnCourse Learning Title Insurance Indemnifies against matters which have already occurred Unrecorded claims, liens, or defects Owners Policy Owners Policy One time fee Converge runs indefinitely Not transferable Forged deeds, illegal acts, or false claims

© 2014 OnCourse Learning Title Insurance Mortgagee’s policy Covers 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

© 2014 OnCourse Learning The 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

© 2014 OnCourse Learning Other Prerequisites to Closing May be required with offer to purchase Landmark California court decision Standardized disclosure Seller’s disclosure required in some states

© 2014 OnCourse Learning Other Prerequisites to Closing Insurance plans protect against mechanical defects Protects buyer against costly defects after the sale

© 2014 OnCourse Learning Other Prerequisites to Closing Lien waiver: Lien waiver: affidavit stating there are no unpaid liens against the property

© 2014 OnCourse Learning Closing Expenses 1. Transfer tax 2. Loan Fees Origination fee: Origination fee: fee for issuing the loan Assumption fee Discount points Prepayment penalty Mortgage insurance premiums

© 2014 OnCourse Learning Closing Expenses 3. Recording fees 4. Attorney fees 5. Broker’s commission 6. Appraisal fee 7. Survey fee 8. Title expense 9. Escrow account

© 2014 OnCourse Learning Proration 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

© 2014 OnCourse Learning Proration Items paid in advance 1. Insurance policy 2. Rent 3. Security deposits 4. Mortgage interest Items paid in arrears 1. Utilities 2. Mortgage interest

© 2014 OnCourse Learning Proration Property tax: $2160, paid Closing: September 1 $2160 ÷ 12 months = $180 per month 4 months X $180 = $720 Credit to the seller, debit to the buyer

© 2014 OnCourse Learning Proration Property tax payable twice per year on April 15 and September 15: $1860 Closing: July 15 July 1 used by seller but not paid for $1,860 ÷ 12 months = $155 per month Debit to the seller, credit to the buyer ½ of $155 = $77.50

© 2014 OnCourse Learning Purchaser’s Closing Statement

© 2014 OnCourse Learning The Seller’s Settlement Statement

© 2014 OnCourse Learning Trust Account Balance Sheet