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Preclosing Procedures

Preclosing Procedures. Buyer’s Issues Title evidence Seller’s deed Removal of liens and encumbrances Survey Inspection results Leases. Seller’s Issues Payment Buyer financing Compliance. Seller Deposits Deed Title Evidence Hazard Insurance Policies Estoppel Certificate

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Preclosing Procedures

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  1. Preclosing Procedures Buyer’s Issues • Title evidence • Seller’s deed • Removal of liens and encumbrances • Survey • Inspection results • Leases Seller’s Issues • Payment • Buyer financing • Compliance © De Vee E. Dykstra, J.D. 2006

  2. Seller Deposits Deed Title Evidence Hazard Insurance Policies Estoppel Certificate Reduction certificate Other documents Buyer Deposits Balance of cash needed Mortgage documents Hazard insurance Other documents Escrow Closing © De Vee E. Dykstra, J.D. 2006

  3. RESPA • Timely disclosure of closing costs • Prohibits kickbacks and referral fees where no service provided • Applies to • Lenders financing purchase of borrower’s residence • Second/subordinate liens for home equity loans • Loan assumptions if terms are modified or > $50 charged • Disclosure requirements • HUD information booklet • Good faith estimate of closing costs given to buyer • Uniform Settlement Statement © De Vee E. Dykstra, J.D. 2006

  4. Closing Terminology • Arrears = expense incurred now, but paid later (accrued items) • Prepaid items = those items already paid, but benefits not yet received • Debit = charge, amount a party owes and pays at closing • Credit = amount that’s already been paid and is to be reimbursed to a party • Proration = dividing items between the seller & buyer E.g., real estate taxes, rents, utilities, assumed mortgage interest, etc. © De Vee E. Dykstra, J.D. 2006

  5. Settlement Process • Identify Selling Terms and Closing Costs • Determine Non-Prorated Items • Determine Prorated Items and Calculate • Items paid in advance • Items paid in arrears • Complete Settlement Statement • Disburse Funds • Record Documents © De Vee E. Dykstra, J.D. 2006

  6. Prorated Items • Items paid/received in advance • E.g., hazard and flood insurance, rent deposits, fuel oil • Seller paid, then buyer gets debit and seller gets credit • Seller received in advance, then Buyer gets credit and seller gets debit • Items paid in arrears • E.g., RE taxes, utility bills, interest on assumed mortgage • Buyer gets credit and seller gets debit © De Vee E. Dykstra, J.D. 2006

  7. Math Problem At what price must a house sell if Seller is to receive $30,000 after paying $1,500 in settlement and the broker’s commission is 6%? © De Vee E. Dykstra, J.D. 2006

  8. Proration Problem A home sold on July 18. The next mortgage payment date is August 1. The buyer is assuming seller’s 6% loan which has a $36,800 balance as of July 1. Prorate the interest. © De Vee E. Dykstra, J.D. 2006

  9. Another Problem The tax year is Jan. 1 – Dec. 31. Taxes are $1,440 and haven’t been paid for the year. Closing is Dec. 10. Who owes what to whom in S.D.? © De Vee E. Dykstra, J.D. 2006

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