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Learn about the key steps involved in closing a real estate transaction in Pennsylvania, including pre-closing procedures, title matters, prorations, face-to-face vs. escrow closings, and tax requirements. Understand the roles of various parties involved and the disclosure requirements under RESPA. Gain insight into the calculation of prorations and the allocation of expenses.
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Modern Real Estate Practice in Pennsylvania 12th Edition Chapter 22: Closing the Real Estate Transaction
22 Closing 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
22 Closing 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
22 Closing 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
22 Closing 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
22 Closing 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
22 Closing 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
22 Closing 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
22 Closing 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
22 Closing 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
22 Closing 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
22 Closing 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)