Real Estate Closing and Escrow Chapter 16

Preclosing Procedures and Closing the Real Estate Transaction

• Walk-through: final inspection of property before settlement occurs.
• Title Settlement/Closing completes real estate transactions with buyer paying for property and seller delivering the deed.
• Two methods of closing:
  • Meeting where all parties are present.
  • Escrow Settlement, facilitated by an escrow agent, mainly through mail.

Escrow Details

• Escrow agent: appointed to manage the escrow process.
• Escrow closing involves depositing documents and funds with a neutral third party, following specific instructions.
• In the eastern U.S., closings typically occur at a meeting, while elsewhere, escrow agents handle the process.

Seller and Buyer Responsibilities at Closing

• Seller responsibilities include providing the deed, tax verification, insurance documentation, proof of no liens, keys, and lease information.
• Buyer is responsible for bringing settlement funds.
• Lender may request various surveys, reports, and insurance information; real estate agents prepare necessary documentation.

Closing Process Overview

• Both parties or their attorneys inspect documents during the closing transaction.
• Seller signs affidavit confirming ownership and absence of liens.
• Settlement statement provides an accounting of all funds involved in the transaction.
• All financial exchanges must be detailed in the closing statement, with funds distributed by the lender shortly after.

Dry Closing and Escrow

• Dry closing occurs when the closing is delayed, leading to completion in escrow; documents are signed but disbursements occur later.
• Escrow agents manage the trust account for buyer funds and process required documentation from both parties.
• A final title check is conducted by the escrow agent the day before closing.

Delays and Cancellations

• Sales contracts include a closing date, typically set for 30 to 60 days from agreement.
• Mutual agreement can release a party from the sale, while one-sided cancellations may lead to legal disputes.
• Courts can influence the closing process if necessary.

Loan Escrows

• Escrows can also be applied to refinancing or loan payoff situations, involving both borrower and lender.

Reporting Requirements

• Seller proceeds reported to the IRS via Form 1099-S.
• Taxpayer Relief Act of 1997 exempts sales under $250,000 (single) or $500,000 (married) from filing the 1099-S.
• Sellers can declare qualifications in writing to the Secretary of State to avoid filing this form.

Prorating Expenses

• Ongoing expenses (insurance, loan interest, rents, property taxes, HOA dues) must be prorated between buyer and seller.
• Special assessments for local improvements are generally not prorated.
• Closing Disclosure Form lists information and costs related to closing.

Real Estate Settlement Procedures Act (RESPA)

• RESPA regulates procedures for specific real estate closings.
• It prohibits kickbacks and fees for unperformed services and restricts seller control over title company choices.
• Borrowers receive a RESPA information booklet and estimated closing costs from the lender.
• New regulations effective January 16, 2009, require itemized third-party charges that do not exceed the actual amounts paid to service providers.

Right to Cure

• Buyers have the right to address any discrepancies at settlement or within 30 calendar days post-closing.

This quiz focuses on Chapter 16 of Real Estate Closing and Escrow, covering preclosing procedures and the final settlement of real estate transactions. Test your knowledge on concepts like the walk-through inspection, title settlement, and different methods of closing, including escrow settlements.