Real Estate Principles Chapter 14 Quiz

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1 Real Estate Principles Chapter 14 Quiz 1. A broker helps a buyer apply for financing and explains the loan processing costs involved at closing. A copy of the HUD booklet "Special Information Booklet" containing information about settlement costs must be provided to the applicant: A. by the broker at the time of the loan application B. by the lender within one week of the loan application C. by the lender within three days of the loan application D. only if the loan procedures and costs have not been adequately explained by the broker 2. RESPA prohibits sellers from: A. asking to use a particular escrow company B. insisting on a particular title insurance company C. Both of the above D. None of the above 3. Which of the following would be considered "federally-related" for RESPA purposes? A. A private lender B. A seller taking back a mortgage C. A lender whose deposits are insured by a federal agency D. All of the above 4. A prospective buyer applies for a loan and is approved. He waives, in writing, his RESPA right to a Uniform Settlement Statement. Escrow closes twelve days later. The Uniform Settlement Statement must be provided by the lender: A. at closing B. within ten days of closing C. as soon as practicable after closing D. to the seller only 5. Of the following items, which would be least likely to appear on a closing statement as a debit to the buyer? A. Interest on an assumed loan B. Prorated taxes C. Prorated insurance premiums D. FHA discount points 6. Which of the following may not be prorated on a closing statement? A. Delinquent interest on a non-secured loan B. Property taxes C. Insurance premiums D. Mortgage interest 2006 Rockwell Publishing Company 1

2 7. A deed, note, bond, or money held by a third party until certain conditions are satisfied is known as: A. escrow B. surety C. security D. bailment 8. RESPA requires lenders to give which of the following to loan applicants? A. A good faith estimate of closing costs B. A uniform disclosure statement C. A mortgage insurance application D. A bill of sale 9. RESPA's disclosure requirements apply to which of the following? A. An office complex B. A new room added to a duplex C. Undeveloped land D. An initial lien on a 4-unit apartment building 10. Which of the following items is typically prorated in escrow? A. Documentary transfer tax B. Rent C. Structural pest control report and corrective work D. Escrow fees 11. A house with an apartment above the garage is sold on March 5, with the closing scheduled for March 20. The apartment rents for $600 a month, due on the first of the month. At the time of closing the rent is current. The escrow agent is using a 360-day year, and the parties agree that the seller receives rent for the day of closing. Which of the following statements about the prorated rent is correct? A. Buyer owes seller $200 B. Buyer owes seller $400 C. Seller owes buyer $200 D. Seller owes buyer $ The buyer has deposited the purchase price in escrow. The escrow agent will release this money: A. to the buyer, if he asks for it back B. to the seller when all conditions in the escrow instructions have been fulfilled C. to the real estate agent, if the seller directs her to do so D. to the seller, if the real estate agent directs her to do so 13. When an escrow agent is handling an escrow for both parties in a transaction, she is acting as an: A. advocate B. independent contractor C. employee D. agent 2006 Rockwell Publishing Company 2

3 14. A fourplex sold recently. Two of the units rented for $850 a month, and the remaining two units rented for $950 a month. The rents were paid at the first of the month. The transaction closed on the 20th of the month. How much would the seller owe the buyer in prorated rents at the time of closing? Base your calculations on a 30-day month. A. $800 B. $1,100 C. $1,320 D. $2, In a sale of real property, the primary reason for using an escrow is to: A. ensure that the sale's conditions and terms are met before the transaction is closed B. provide a witness to the transaction C. keep proper records of the transaction D. settle any disputes that might arise between the parties 2006 Rockwell Publishing Company 3

4 Answer Key with Explanations 1. C Explanation: Under RESPA, lenders are required to provide the HUD booklet, along with a good faith estimate of closing costs, within three days of a loan application's submission. The lender, not the broker, is responsible for these disclosures. 2. B Explanation: Sellers are not permitted to designate the title insurer used. A seller may ask to use a particular escrow company, but the choice must be a mutual decision of the buyer and seller. 3. C Explanation: RESPA applies only to "federally-related" loans, which includes those made by a lender whose deposits are insured by a federal agency. This also includes FHA, VA and other government assisted loans. 4. A Explanation: A borrower has the right to receive the Uniform Settlement Statement at closing. If the buyer waives this right, the statement must be provided by the lender as soon as practicable after closing. 5. A Explanation: Because loan interest is paid in arrears, any interest due on an assumed loan is the seller's responsibility. Interest would therefore be listed as a credit to the buyer. 6. A Explanation: Taxes, insurance, and mortgage interest payments are typically prorated on a closing statement. But interest on a loan that is not secured by the property is entirely the seller's obligation and would not be included on the closing statement. Additionally, delinquent payments on any loan, secured or not, would be the seller's responsibility only. 7. A Explanation: Escrow is an arrangement where the parties to a transaction have a neutral third party hold funds and documents until certain conditions in the transaction are satisfied. 8. A Explanation: RESPA requires lenders to provide loan applicants both a good faith estimate of closing costs and a copy of the HUD "Special Information Booklet." These two items must be given to the applicant at the time of application, or mailed to the applicant within three days. 9. D Explanation: RESPA applies only to federally-related mortgage loans secured by 1-4 unit residential properties Rockwell Publishing Company 4

5 10. B Explanation: Rent is prorated, meaning that rent paid up until closing goes to the seller and rent paid after closing goes to the buyer. 11. C Explanation: The seller owned the property for two-thirds of the month and is entitled to two-thirds of the rent. The balance of $200 is prorated to the buyer. 12. B Explanation: An escrow agent will release something that one party placed in escrow to the other party when all the conditions in the escrow instructions have been fulfilled. An item can't be returned to the party who placed it in escrow (in this case, the buyer) without the consent of the other party (the seller), or unless the escrow instructions direct the agent to do so. 13. D Explanation: The escrow officer is a dual agent and owes duties to both the buyer and the seller. 14. C Explanation: $850 2 = $1,700. $950 2 = $1,900. $1,700 + $1,900 = $3,600 (total monthly rents). $3, (days) = $120 (rent per day). The seller is entitled to keep 19 days' rent: $ = $2,280. She owes the buyer 11 days' rent: $ = $1, A Explanation: The purpose of escrow is to ensure that all the details and conditions of the sale agreement are met before the transaction closes Rockwell Publishing Company 5

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