CRS Transaction Management and Closing Process 1 — Questions and Answers
Question 1: What is the primary role of an escrow company in a US residential real estate transaction?
- To represent the buyer's interests exclusively
- To act as a neutral third party holding funds and documents until all conditions are met (Correct answer)
- To appraise the property for the lender
- To conduct the title search and issue title insurance
Correct answer: To act as a neutral third party holding funds and documents until all conditions are met
Escrow serves as a neutral custodian, ensuring that funds and documents are transferred only when all contractual conditions have been satisfied.
Question 2: Under TRID regulations, how many business days before closing must a buyer receive the Closing Disclosure?
- 1 business day
- 3 business days (Correct answer)
- 5 business days
- 7 business days
Correct answer: 3 business days
TRID requires lenders to deliver the Closing Disclosure at least three business days before consummation, giving buyers time to review final costs.
Question 3: What does 'prorating' mean in the context of a real estate closing?
- The lender's adjustment to the interest rate
- Dividing ongoing expenses like property taxes or HOA fees proportionately between buyer and seller based on the closing date (Correct answer)
- The title company's fee for issuing title insurance
- A reduction in the purchase price for deferred maintenance
Correct answer: Dividing ongoing expenses like property taxes or HOA fees proportionately between buyer and seller based on the closing date
Proration ensures each party pays only for the portion of recurring costs (taxes, HOA, etc.) that falls within their period of ownership.
Question 4: Which contingency allows the buyer to exit the contract if the property appraises below the purchase price?
- Inspection contingency
- Financing contingency
- Appraisal contingency (Correct answer)
- Title contingency
Correct answer: Appraisal contingency
An appraisal contingency protects the buyer if the lender's appraised value is less than the agreed purchase price, preventing the buyer from overpaying.
Question 5: What does 'time is of the essence' mean when included in a purchase contract?
- The seller must close within 24 hours of signing
- All contractual deadlines are strictly binding and failure to meet them can constitute default (Correct answer)
- The buyer's closing costs will increase after a certain date
- The listing agent must respond to offers within one business day
Correct answer: All contractual deadlines are strictly binding and failure to meet them can constitute default
This clause makes all specified dates and deadlines in the contract legally enforceable; missing them can be treated as a breach of contract.
Question 6: What is the purpose of title insurance in a residential purchase?
- To insure the physical structure of the home against damage
- To protect against losses from defects or claims against the title discovered after closing (Correct answer)
- To guarantee the property's market value
- To provide mortgage payment coverage if the buyer becomes unemployed
Correct answer: To protect against losses from defects or claims against the title discovered after closing
Title insurance protects the owner and/or lender from financial loss due to title defects, liens, or ownership disputes that arise from events prior to purchase.
CRS Transaction Management and Closing Process 1
What is the primary role of an escrow company in a US residential real estate transaction?