CTC CTC Financial Transactions and Escrow 2 — Questions and Answers
Question 1: What does RESPA stand for and how does it affect real estate closing transactions?
- Real Estate Settlement Procedures Act; it regulates settlement services and prohibits kickbacks (Correct answer)
- Real Estate Sales and Purchase Agreement; it governs buyer-seller negotiations
- Residential Escrow Settlement Processing Act; it manages escrow account timelines
- Real Estate Standard Practice Act; it sets licensing standards for transaction coordinators
Correct 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.
Question 2: What is a Closing Disclosure (CD) and when must it be delivered to the buyer?
- A detailed settlement statement delivered to the buyer at least 3 business days before closing (Correct answer)
- A summary of the home inspection findings presented at the walkthrough
- A document signed by the seller at the time the property is listed for sale
- A form submitted to the MLS to change the listing status upon closing
Correct 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.
Question 3: What is 'proration' in the context of a real estate closing?
- The proportional division of ongoing property expenses between buyer and seller based on the closing date (Correct answer)
- The process for calculating the total agent commission at closing
- A reduction negotiated in the purchase price due to inspection findings
- The lender's method of calculating the buyer's monthly mortgage payment
Correct 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.
Question 4: What is title insurance and why is it important in a real estate transaction?
- It protects buyers and lenders from financial losses due to title defects or ownership disputes (Correct answer)
- It covers the cost of physical damage or repairs to the property
- It insures the buyer's down payment against loss if the deal falls through
- It protects the property against damage from natural disasters
Correct 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.
Question 5: What is a 'lien' and how can it affect a real estate closing?
- A legal claim against a property for unpaid debts that must be resolved before title can transfer (Correct answer)
- A type of FHA mortgage product designed for first-time homebuyers
- A property boundary agreement formalized between neighboring landowners
- A temporary utility easement granted to service providers
Correct 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.
Question 6: What does 'net proceeds' refer to in a real estate sale?
- The amount the seller receives after all costs, liens, and fees are deducted from the sale price (Correct answer)
- The total combined commission paid to both the buyer's and listing agents
- The buyer's required down payment amount as approved by the lender
- The escrow processing fee charged by the title company at closing
Correct 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.
CTC CTC Financial Transactions and Escrow 2
What does RESPA stand for and how does it affect real estate closing transactions?