Chapter 22 Closing the Real Estate Transaction Some closings are face-to-face, and some are conducted through escrow. But in all cases, once again, it’s a people-related business.

2 ©2013 Kaplan, Inc. 22 Closing the Real Estate Transaction Learning objectives –Identify the issues of particular interest to the buyer and the seller as a real estate transaction closes –Describe the steps involved in preparing a closing statement –Explain the general rules for prorating –Distinguish the procedures involved in face-to-face closings from those in escrow closings

3 ©2013 Kaplan, Inc. Preclosing Procedures Buyer’s Issues Title evidence Seller’s deed Removal of liens and encumbrances Survey Inspection results Leases Final Property Inspection Seller’s Issues Receive Payment Buyer financing Compliance with buyer’s requirements Inspect closing statement 22 Closing the Real Estate Transaction

4 ©2013 Kaplan, Inc. 22 Closing the Real Estate Transaction Title Items and Procedures –Abstract of title and attorney’s opinion –Payoff statement –Mortgage reduction certificate –Affidavit of title

5 ©2013 Kaplan, Inc. 22 Closing the Real Estate Transaction The closing –Face-to-face closing Closing agent or officer – must be an attorney in Georgia The exchange and recording process –Closing in escrow Buyer and seller deposit all pertinent documents Buyer deposits … Seller deposits …

6 ©2013 Kaplan, Inc. 22 Closing the Real Estate Transaction IRS reporting requirements –Form 1099-S for sales or exchanges of Land, including air space Permanent structure Condominium unit Stock in a cooperative housing corporation

7 ©2013 Kaplan, Inc. 22 Closing the Real Estate Transaction Lender’ Interest in the Closing Property as security Title insurance Property casualty, hazard and liability insurance Escrow account for property tax and insurance

8 ©2013 Kaplan, Inc. 22 Closing the Real Estate Transaction Mortgage Disclosure Improvement Act 3 days to provide Truth in Lending statement (TIF) and Good Faith Estimate (GFE) 7 days before closing borrower gets final TIF and GFE 3 days to wait for closing if APR has changed by more than percent Rationale for MDIA

9 ©2013 Kaplan, Inc. 22 Closing the Real Estate Transaction RESPA Law requirements Requires disclosure of security deeds an settlement Applies to first lien residential loans of 1 to 4 unit structures for residency or investment Applies to second loans for home equity loans by federal mortgages Prohibits kickbacks and fee-splitting – Section 8 Prohibits seller requiring the buyer to buy title insurance from a specific company – Section 9 Prohibits excessive escrow deposits

10 ©2013 Kaplan, Inc. 22 Closing the Real Estate Transaction RESPA Law requirements –Controlled business arrangements –Disclosure requirements Information Booklet Good-faith estimate of settlement costs Settlement Statement (HUD-1) –Prohibition on kickbacks and referral fees

11 ©2013 Kaplan, Inc. 22 Closing the Real Estate Transaction Debits and credits Broker’s commission Attorney’s fees Recording expenses Transfer tax Title expenses Loan fees Tax and insurance reserves Appraisal fees Survey fees Other fees Closing Statement

12 ©2013 Kaplan, Inc. 22 Closing the Real Estate Transaction Prorations –Accrued items –Prepaid items –Rules for prorating Ownership on closing day Calendar for calculating prorations Real Property Taxes Assessments Interest Rents Security deposits