CHCP Regulatory Compliance & Legal Issues 5 — Questions and Answers
Question 1: Under the Servicemembers Civil Relief Act (SCRA), active-duty military personnel are entitled to which protection regarding mortgages?
- Complete forgiveness of mortgage debt during service
- An interest rate cap of 6% on pre-service mortgage obligations (Correct answer)
- Exemption from all closing costs on refinances
- Priority processing of VA loan applications
Correct answer: An interest rate cap of 6% on pre-service mortgage obligations
The SCRA caps the interest rate at 6% on mortgage obligations incurred before active military service, providing financial relief to servicemembers.
Question 2: A closing agent in a state with an attorney-closing requirement allows a non-attorney to conduct the closing. This may result in:
- A minor procedural violation with no legal consequences
- Unauthorized practice of law and potential title insurance invalidity (Correct answer)
- A RESPA disclosure violation only
- A simple fine payable to the state licensing board
Correct answer: Unauthorized practice of law and potential title insurance invalidity
In attorney-closing states, allowing a non-attorney to conduct a closing constitutes unauthorized practice of law and can jeopardize the validity of title insurance.
Question 3: Which environmental law requires disclosure of known lead-based paint hazards in homes built before 1978?
- CERCLA (Superfund)
- TSCA Title X (Residential Lead-Based Paint Hazard Reduction Act) (Correct answer)
- Clean Water Act
- Resource Conservation and Recovery Act
Correct answer: TSCA Title X (Residential Lead-Based Paint Hazard Reduction Act)
TSCA Title X, implemented through HUD and EPA regulations, requires sellers and lessors of pre-1978 housing to disclose known lead-based paint hazards.
Question 4: What is the purpose of a 'hold harmless' clause sometimes included in closing documents?
- To prevent the buyer from suing the seller for any undisclosed defects
- To indemnify one party against claims or losses arising from another party's actions (Correct answer)
- To guarantee the seller receives full asking price
- To waive the buyer's right to a final walkthrough
Correct answer: To indemnify one party against claims or losses arising from another party's actions
A hold harmless clause allocates risk by requiring one party to indemnify and protect the other from claims or losses arising from specified actions or conditions.
Question 5: Under state usury laws, what do lenders risk if they charge interest rates exceeding the legal maximum?
- Only a fine payable to the state treasurer
- The loan may be voided and the lender may forfeit interest collected (Correct answer)
- The borrower must refinance within 90 days
- The title insurance policy is automatically cancelled
Correct answer: The loan may be voided and the lender may forfeit interest collected
Usury violations can result in severe penalties including voiding the loan contract, forfeiture of all interest, and in some states, additional damages to the borrower.
Question 6: A buyer discovers after closing that the seller failed to disclose a known defect in the foundation. The buyer's BEST legal remedy is typically:
- Filing a complaint with the state real estate commission only
- Suing the seller for fraudulent misrepresentation or breach of disclosure duties (Correct answer)
- Demanding the title company cover repairs under the title policy
- Requesting a RESPA violation investigation through the CFPB
Correct answer: Suing the seller for fraudulent misrepresentation or breach of disclosure duties
Non-disclosure of known material defects gives the buyer a cause of action for fraudulent misrepresentation or breach of statutory disclosure requirements against the seller.
Question 7: Which IRS form must be filed by the closing agent or title company to report the proceeds from a real estate sale?
- Form W-9
- Form 1099-S (Correct answer)
- Form 8300
- Form 4506-T
Correct answer: Form 1099-S
IRS Form 1099-S must be filed by the person responsible for closing the transaction to report proceeds from the sale or exchange of real estate.
CHCP Regulatory Compliance & Legal Issues 5
Under the Servicemembers Civil Relief Act (SCRA), active-duty military personnel are entitled to which protection regarding mortgages?