CTC Financial Transactions and Escrow Flashcards

What does RESPA stand for and how does it affect real estate closing transactions?

Answer: Real Estate Settlement Procedures Act; it regulates settlement services and prohibits kickbacks

RESPA (Real Estate Settlement Procedures Act) regulates mortgage settlement services and prohibits illegal kickbacks and unearned referral fees between settlement service providers.

What is a Closing Disclosure (CD) and when must it be delivered to the buyer?

Answer: A detailed settlement statement delivered to the buyer at least 3 business days before closing

The Closing Disclosure is a federally required form that details all final closing costs and loan terms and must be delivered to the buyer at least 3 business days before consummation.

What is 'proration' in the context of a real estate closing?

Answer: The proportional division of ongoing property expenses between buyer and seller based on the closing date

Proration divides ongoing costs like property taxes and HOA dues proportionally between buyer and seller, each paying their share based on the closing date.

What is title insurance and why is it important in a real estate transaction?

Answer: It protects buyers and lenders from financial losses due to title defects or ownership disputes

Title insurance protects against financial losses from defects in the property's title, such as undisclosed liens, forged deeds, or competing ownership claims.

What is a 'lien' and how can it affect a real estate closing?

Answer: A legal claim against a property for unpaid debts that must be resolved before title can transfer

A lien is a legal claim on a property securing an unpaid debt, and all outstanding liens must generally be paid off and released before ownership can legally transfer at closing.

What does 'net proceeds' refer to in a real estate sale?

Answer: The amount the seller receives after all costs, liens, and fees are deducted from the sale price

Net proceeds are the actual amount the seller walks away with after subtracting the outstanding mortgage balance, agent commissions, closing costs, and other fees from the gross sale price.