CHCP Real Estate Transactions & Documentation 4 — Questions and Answers
Question 1: Which type of title insurance policy protects the lender's interest in the mortgaged property?
- Owner's policy
- Lender's (mortgagee's) policy (Correct answer)
- Extended coverage policy
- Gap policy
Correct answer: Lender's (mortgagee's) policy
A lender's (mortgagee's) title insurance policy protects the lender up to the loan amount against title defects.
Question 2: What is 'earnest money,' and what happens to it if the buyer defaults without a valid contingency?
- A fee paid to the lender; it is refunded at closing
- A good-faith deposit; the seller may be entitled to keep it as liquidated damages (Correct answer)
- A tax escrow deposit; it is returned by the IRS
- An appraisal fee; it is credited at settlement
Correct answer: A good-faith deposit; the seller may be entitled to keep it as liquidated damages
Earnest money is a good-faith deposit that the seller may retain as liquidated damages if the buyer defaults without a contractual excuse.
Question 3: What does a 'survey' provide in a real estate transaction?
- An opinion of the property's market value
- A legal description and physical boundaries, showing encroachments or easements (Correct answer)
- A report on the property's structural condition
- An environmental assessment of the land
Correct answer: A legal description and physical boundaries, showing encroachments or easements
A survey maps the property's legal boundaries and identifies encroachments, easements, and improvements that affect the parcel.
Question 4: A 'mechanic's lien' can cloud title to a property because:
- It represents unpaid property taxes owed to the county
- It secures payment owed to contractors or suppliers who improved the property (Correct answer)
- It reflects an outstanding HOA fine
- It is a government claim for eminent domain
Correct answer: It secures payment owed to contractors or suppliers who improved the property
A mechanic's lien gives unpaid contractors, subcontractors, or material suppliers a legal claim against the property for work or materials provided.
Question 5: In a 1031 exchange, the replacement property must be identified within how many calendar days of the relinquished property's closing?
- 30 days
- 45 days (Correct answer)
- 60 days
- 90 days
Correct answer: 45 days
IRS rules require the exchanger to identify potential replacement properties within 45 calendar days of selling the relinquished property.
Question 6: What is the role of an 'escrow officer' or 'closing agent' in a real estate transaction?
- To appraise the property's fair market value
- To represent the buyer in negotiating the purchase price
- To act as a neutral party who collects funds, processes documents, and disburses proceeds at closing (Correct answer)
- To underwrite and approve the mortgage loan
Correct answer: To act as a neutral party who collects funds, processes documents, and disburses proceeds at closing
The escrow or closing officer serves as a neutral intermediary who manages the flow of funds and documents between all parties through closing.
Question 7: Which disclosure form is required under RESPA for federally related mortgage loans to inform borrowers about affiliated business arrangements?
- Affiliated Business Arrangement (AfBA) Disclosure (Correct answer)
- Loan Estimate
- Good Faith Estimate
- HUD-92900-A
Correct answer: Affiliated Business Arrangement (AfBA) Disclosure
RESPA's Section 8(c)(4) requires an Affiliated Business Arrangement disclosure when a settlement service provider refers business to an affiliate.
CHCP Real Estate Transactions & Documentation 4
Which type of title insurance policy protects the lender's interest in the mortgaged property?