CMA Closing and Settlement Procedures 2 — Questions and Answers
Question 1: What is an escrow impound account used for at closing?
- Holding the earnest money deposit
- Collecting funds for property taxes and insurance payments (Correct answer)
- Storing the original deed of trust
- Paying the real estate agent's commission
Correct answer: Collecting funds for property taxes and insurance payments
An escrow impound account collects monthly portions of property taxes and homeowner's insurance so the lender can pay these bills on the borrower's behalf.
Question 2: Which party typically orders the property appraisal in a mortgage transaction?
- The borrower directly from any appraiser
- The real estate agent
- The lender, through an Appraisal Management Company (AMC) (Correct answer)
- The title company
Correct answer: The lender, through an Appraisal Management Company (AMC)
Under HVCC and Dodd-Frank guidelines, lenders order appraisals through independent AMCs to prevent undue influence on valuation.
Question 3: What is a 'dry closing' in mortgage terminology?
- A closing where no documents are signed
- A closing where funds are not disbursed on the same day documents are signed (Correct answer)
- A closing conducted entirely online
- A closing with no title insurance
Correct answer: A closing where funds are not disbursed on the same day documents are signed
A dry closing occurs when loan documents are signed but funds are not disbursed until a later date, common in some states like California.
Question 4: What is the purpose of a settlement statement's 'cash to close' figure?
- The total amount financed by the lender
- The net amount the borrower must bring to closing after credits and down payment (Correct answer)
- The lender's total profit on the loan
- The real estate agent's commission total
Correct answer: The net amount the borrower must bring to closing after credits and down payment
Cash to close represents the total funds the borrower needs to bring to the closing table, including down payment minus any seller credits.
Question 5: Which document conveys ownership of a property from seller to buyer at closing?
- Mortgage note
- Deed of trust
- Warranty deed (Correct answer)
- Title commitment
Correct answer: Warranty deed
A warranty deed transfers ownership from the seller to the buyer and includes the seller's guarantee of clear title.
Question 6: What is a 'clear to close' (CTC) in the mortgage process?
- The title company's confirmation of property ownership
- The underwriter's final approval indicating all conditions have been satisfied (Correct answer)
- The borrower's confirmation of receipt of the Closing Disclosure
- The appraisal confirmation that value supports the purchase price
Correct answer: The underwriter's final approval indicating all conditions have been satisfied
A 'clear to close' is issued by the underwriter once all loan conditions and prior-to-close (PTC) conditions have been satisfied.
CMA Closing and Settlement Procedures 2
What is an escrow impound account used for at closing?