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Preclosing Procedures - PowerPoint PPT Presentation
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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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Presentation Transcript
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
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
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
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
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
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
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
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
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
