Loan Closing Procedures Overview

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Questions and Answers

What is the purpose of the Closing Disclosure (CD)?

To provide an estimate of fees and charges

To reflect the actual terms of the transaction (correct)

To inform about the loan approval status

To outline the preliminary matters before closing

How many business days before loan consummation must the borrower receive the CD?

3 business days (correct)

5 business days

1 business day

2 business days

When can the Closing Disclosure (CD) be issued in relation to a revised Loan Estimate (LE)?

At least 1 day between the last LE and the CD (correct)

On the same day as a revised LE

After 2 days following a revised LE

Anytime after loan approval

What constitutes a 'business day' regarding the receipt of the Closing Disclosure?

All days except weekends and public holidays Signup and view all the answers

Under what condition is a new 3-day waiting period required after issuing the CD?

If the APR has increased by.125% or more Signup and view all the answers

What role does the settlement agent typically have in the loan closing process?

To collect the settlement fee at closing Signup and view all the answers

What happens if the Closing Disclosure is incorrect and changes are warranted?

A revised CD must be provided before loan closing Signup and view all the answers

What typically occurs once final loan approval is issued?

The closing phase of processing begins Signup and view all the answers

What is the primary responsibility of a settlement agent during closing?

To gather necessary documents and calculate adjustments and fees. Signup and view all the answers

Which expenses are commonly prorated at closing?

Property taxes and homeowners association fees. Signup and view all the answers

What does the Title Insurance Commitment indicate?

Liens and encumbrances not covered by title insurance. Signup and view all the answers

Which of the following encumbrances typically does not interfere with title transfer?

Easements granted to utility companies. Signup and view all the answers

What must be done to clear a paid deed of trust in a deed of trust state?

Obtain a recorded reconveyance document. Signup and view all the answers

What is a situation that would likely prevent a transaction from closing?

There are unresolved potential claims of previous owners. Signup and view all the answers

What type of title insurance only insures the lender?

Lender's Title Insurance. Signup and view all the answers

In a 'round-table' closing, what do borrowers typically need to bring?

A certified check for closing funds. Signup and view all the answers

What is typically the first action a settlement agent takes after consummation?

Arrange for public recording of necessary documents. Signup and view all the answers

What type of mortgages need to be subordinated?

Purchase-money second mortgages remaining post-transaction. Signup and view all the answers

What is a common reason for the lender to refuse exceptions in a title policy?

The title is deemed unmarketable until resolved. Signup and view all the answers

Which of these describes an encroachment?

A neighbor's structure intruding on the property line. Signup and view all the answers

Which term describes claims against the title by entities other than the seller?

Encumbrances. Signup and view all the answers

What is the role of title agents in the closing process?

To resolve issues that hinder title transfer. Signup and view all the answers

Study Notes

Loan Closing Procedures

Loan closing begins after final loan approval. Some companies handle the process entirely differently, some companies have the same employees work on files before and after approval. Brokers may be handed over to a lender. Regardless of structure, consistent actions take place during closing.
The Closing Disclosure (CD) is issued promptly after approval. It's a final disclosure of the transaction terms, including all fees and charges, final loan terms, and all previously estimated information from the Loan Estimate (LE).
The borrower must receive the CD at least 3 business days before consummation. A business day excludes weekends and legal holidays. A revised LE cannot be issued after a CD is issued. There must be at least 1 day between the last LE and the CD being issued.
The settlement agent issues the CD to the seller. A revised CD may be issued, but only if there are changes requiring revision and it's provided before or at loan closing.
A new 3-day waiting period is required if the APR increases by 0.125% (or 0.25% on an ARM), the loan product changes (e.g., fixed-rate to ARM), or a prepayment penalty is added.

Settlement Agent Responsibilities

The lender contacts the settlement agent (often a title insurance agency or attorney) about title reports, fees, and other preliminary matters. After final approval, the lender issues closing instructions.
The settlement agent's role includes gathering documents, calculating prorations and fees, and searching public records for the property title.
Prorations involve expenses like taxes already paid or accrued by the buyer or seller (e.g., property taxes, homeowners association fees). These should be resolved before the CD is issued.
The title commitment for insurance needs to be provided to the lender. The commitment shows the acceptable title insurance limits, the exceptions that the insurance won't cover.
Title issues or exceptions may need resolution: Liens, easements, leases, mortgages, restrictive covenants, mineral rights, easements for utilities, encroachments, homeowner association covenants, and conditions are all possibilities. Some exceptions will stop the transaction unless cleared.
The Title Insurance Commitment will show liens and encumbrances, except for ones paid using funds from the loan.
Title insurance can be issued before closing, or sometimes after. It must be free of exceptions resolved during closing.

Closing Process

Lender's title insurance protects the lender. Owner's title insurance is an option to protect the borrower.
Closings can be either "round-table" or "escrow". A round-table closing means all parties meet at one time, and an "escrow" closing allows parties to meet multiple times to finalize obligations and obtain funds.
"Round-table" closing means borrowers bring a certified check, and "escrow" closing has the borrower deposit funds into an escrow account.
Funds are disbursed according to the CD and closing instructions.
Public record documents like deeds, mortgages, liens, or deed of trust reconveyances are recorded. The settlement agent ensures that the first mortgage is properly secured.
Existing second mortgages, including purchase-money (piggyback) second mortgages, must be handled with awareness of recording order.

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Description

This quiz explores the essential steps involved in loan closing procedures, highlighting the roles of companies and brokers in the process. Key terms and timelines, such as the issuance of the Closing Disclosure and the importance of business days, are covered to ensure a comprehensive understanding. Test your knowledge on the critical aspects of final loan approvals and disclosures.