CHCP Real Estate Transactions & Documentation 5 — Questions and Answers
Question 1: What is 'title seasoning,' and why do lenders and title underwriters care about it?
- The process of curing a title defect over time through adverse possession
- The length of time a seller has held title, used to detect property flipping fraud (Correct answer)
- An endorsement added to a title policy after closing
- The period during which a buyer can rescind the purchase agreement
Correct answer: The length of time a seller has held title, used to detect property flipping fraud
Title seasoning refers to how long the current owner has held title; short seasoning periods can signal property flipping fraud that inflates prices.
Question 2: Under RESPA, which of the following is prohibited when providing settlement services?
- Charging a reasonable fee for title search services
- Paying or receiving a kickback or unearned fee for referring business (Correct answer)
- Requiring the buyer to use a specific licensed appraiser
- Collecting escrow impounds for taxes and insurance
Correct answer: Paying or receiving a kickback or unearned fee for referring business
RESPA Section 8 prohibits kickbacks and unearned fee splits among settlement service providers as they harm consumers by inflating costs.
Question 3: A 'right-of-way' easement discovered during title search gives a neighboring party the right to:
- Purchase the property at a discounted price
- Cross or use a portion of the property for access or utilities (Correct answer)
- Force the owner to sell the land
- Occupy and improve the land permanently
Correct answer: Cross or use a portion of the property for access or utilities
A right-of-way easement grants someone the legal right to travel across or use a defined portion of another's property.
Question 4: Which closing document specifically describes the amortization schedule and all financial terms agreed to in the mortgage loan?
- Deed of trust
- Promissory note
- Closing Disclosure (Correct answer)
- Title commitment
Correct answer: Closing Disclosure
The Closing Disclosure (CD) includes the full loan terms, projected payments, and the complete amortization breakdown at consummation.
Question 5: What is the purpose of a 'gap endorsement' in title insurance?
- To cover losses arising between the effective date of the title commitment and the date the deed is recorded (Correct answer)
- To extend the policy to cover the neighboring property
- To insure against future zoning changes
- To cover structural defects not found in the title search
Correct answer: To cover losses arising between the effective date of the title commitment and the date the deed is recorded
A gap endorsement protects against title issues (e.g., liens filed by creditors) that arise after the title search but before the deed is officially recorded.
Question 6: In a residential closing, the term 'consummation' under TRID specifically refers to:
- The date the purchase agreement is signed by both parties
- The date the buyer becomes legally obligated on the credit transaction (typically loan signing) (Correct answer)
- The date the deed is recorded with the county recorder
- The date funds are disbursed to the seller
Correct answer: The date the buyer becomes legally obligated on the credit transaction (typically loan signing)
Under TRID, consummation is the moment the consumer becomes contractually obligated on the credit transaction, usually the loan signing date.
Question 7: Which of the following best describes a 'short sale' in real estate?
- A sale that closes in fewer than 30 days
- A sale in which the net proceeds are less than the outstanding mortgage balance and the lender agrees to accept the shortfall (Correct answer)
- A sale of a distressed property through a court-supervised auction
- A sale negotiated without a real estate agent
Correct answer: A sale in which the net proceeds are less than the outstanding mortgage balance and the lender agrees to accept the shortfall
A short sale occurs when a lender agrees to accept less than the full mortgage balance owed in order to facilitate a property sale.
CHCP Real Estate Transactions & Documentation 5
What is 'title seasoning,' and why do lenders and title underwriters care about it?