1. Modern Real Estate Practice in Pennsylvania 12th Edition Chapter 22: Closing the Real Estate Transaction

2. 2 ©2012 Kaplan, Inc. 22Closing the Real Estate Transaction Learning objectives –Identify the issues of particular interest to the buyer and the seller as a real estate transaction closes –Describe the steps involved in preparing a closing statement –Explain the general rules for prorating –Distinguish the procedures involved in face-to- face closings from those in escrow closings –Define key terms

3. 22Closing the Real Estate Transaction 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 with buyer requirements 3 ©2012 Kaplan, Inc.

4. 22Closing the Real Estate Transaction In Pennsylvania –Buyer responsible for determining whether title is good Abstract of title Title commitment from title insurance company Sellers may execute affidavit of title –Real estate licensees can be of assistance 4 ©2012 Kaplan, Inc.

5. 22Closing the Real Estate Transaction The closing –Face-to-face closing Passing papers Settlement and transfer –Closing in escrow Attending may include –Buyer and seller and their attorneys –Licensees and lender representatives –Title insurance representative –Closing agent 5 ©2012 Kaplan, Inc.

6. 22Closing the Real Estate Transaction IRS requirements –1099 –Sale or exchange –Exemptions for certain residential transactions –Closing agent and/or mortgage lender responsible –Licensees role Continue to be involved Should avoid recommending any specific sources 6 ©2012 Kaplan, Inc.

7. 22Closing the Real Estate Transaction Mortgage Disclosure Improvement Act –Lender may require only reasonable fee prior to providing disclosures –3 business days from application Good-faith estimate (GFE) of settlement costs Truth-in-lending (TIL) statement –7 business days before signing (final disclosures) –3 business days for closing If annual percentage rate (APR) has changed more than 0.125 percent GFE and TIL changes 7 ©2012 Kaplan, Inc.

8. 22Closing the Real Estate Transaction RESPA requirements –One- to four-family residential unit –Disclosure requirements –Prohibition Kickbacks and referral fees Prohibits requiring title insurance from one company Prohibits excessive escrow account deposits 8 ©2012 Kaplan, Inc.

9. 22Closing the Real Estate Transaction Affiliated business arrangements (AfBA) –Package of services to consumers –Disclosure requirements Participation not required Fees must be reasonably related to competition Fees must be disclosed on HUD-1 –Computerized loan originators Fees must be reasonable Disclosure on HUD-1 –Availability of other providers 9 ©2012 Kaplan, Inc.

10. 22Closing the Real Estate Transaction Disclosure requirements –Special information booklet –Good-faith estimate No tolerance Up to 10 percent change Unlimited tolerance –Mortgage servicing disclosure statement –Uniform Settlement Statement (HUD-1) –Borrowers can review one business day before 10 ©2012 Kaplan, Inc.

11. 22Closing the Real Estate Transaction Closing statement –Debits and credits –Broker’s commission –Attorney’s fees –Recording expenses –Transfer tax –Title expenses In PA: rates set by Title Insurance Rating Bureau Reduced rate for previous issue –Loan fees –Tax and insurance reserves –Appraisal fees –Survey fees –Other fees –Accounting for expenses 11 ©2012 Kaplan, Inc.

12. 22Closing the Real Estate Transaction Prorations –Accrued items –Prepaid items –Rules for prorating Ownership on closing day Calendar for calculating prorations Assessments Interest In PA –Seller owns property closing day –Special assessments often assumed –Rents adjusted by actual days –Security deposits to buyer (tenant permission) 12 ©2012 Kaplan, Inc.