CRS Transaction Management and Closing Process 2 — Questions and Answers
Question 1: What is a HUD-1 Settlement Statement (or its TRID replacement, the Closing Disclosure) designed to show?
- The buyer's credit score and debt-to-income ratio
- An itemized accounting of all funds received and disbursed in the transaction (Correct answer)
- The property's fair market value
- The lender's profit from originating the mortgage
Correct answer: An itemized accounting of all funds received and disbursed in the transaction
The Closing Disclosure provides a complete line-by-line breakdown of every cost, credit, and payment in the transaction for both buyer and seller.
Question 2: When a transaction falls out of escrow, what are the potential consequences for the earnest money deposit?
- It is always returned to the buyer automatically
- Its disposition depends on who is at fault and the terms of the purchase contract (Correct answer)
- It is always forfeited to the seller
- It is returned to the escrow company as a processing fee
Correct answer: Its disposition depends on who is at fault and the terms of the purchase contract
Contract terms and applicable state law govern earnest money disputes; if the buyer defaults without a valid contingency, the seller may keep it, but valid contingencies protect the buyer's deposit.
Question 3: What is a 'cloud on title' and why is it important in a real estate transaction?
- A digital record of the property's ownership history
- Any claim, encumbrance, or defect that affects the marketability of the title (Correct answer)
- A lender's electronic lien release process
- The escrow company's fee for handling multiple offers
Correct answer: Any claim, encumbrance, or defect that affects the marketability of the title
A cloud on title—such as an unresolved lien or disputed ownership—must be cleared before the property can be transferred with a clean, marketable title.
Question 4: What is the difference between a general warranty deed and a quitclaim deed in the US?
- A quitclaim deed provides the strongest ownership guarantees
- A general warranty deed provides full guarantees of title going back to the property's origin; a quitclaim deed transfers only whatever interest the grantor currently holds (Correct answer)
- Both deeds provide the same legal protections
- A quitclaim deed is used only in commercial transactions
Correct answer: A general warranty deed provides full guarantees of title going back to the property's origin; a quitclaim deed transfers only whatever interest the grantor currently holds
A general warranty deed is the strongest form of conveyance, warranting title against any claims; a quitclaim deed transfers interest with no warranties whatsoever.
Question 5: What is a 'contingency removal' in California-style contracts and what does it signify?
- The seller waiving the right to retain earnest money
- The buyer actively releasing their right to exit the contract under a specific contingency (Correct answer)
- A court order removing a lien from the title
- The lender's approval of the final loan amount
Correct answer: The buyer actively releasing their right to exit the contract under a specific contingency
When a buyer removes a contingency, they waive their right to exit the deal under that contingency's protection, increasing their exposure if they later want to cancel.
Question 6: What is the purpose of a property survey in a residential transaction?
- To determine the home's structural integrity
- To confirm the exact boundaries, encroachments, and easements of the property (Correct answer)
- To assess the value of the property for tax purposes
- To identify environmental hazards on the property
Correct answer: To confirm the exact boundaries, encroachments, and easements of the property
A survey establishes precise legal boundaries and reveals encroachments or easements that could affect the buyer's use and ownership of the property.
CRS Transaction Management and Closing Process 2
What is a HUD-1 Settlement Statement (or its TRID replacement, the Closing Disclosure) designed to show?