Chapter 13: Escrow and Closing

Question 1

While a real estate transaction is in escrow, the escrow agent:

Answer 1

Acts only on the express written instructions signed by the parties.
(The escrow agent may only act on the express written escrow instructions signed by the parties)

Question 2

Escrow agents must:

Answer 2

All of the above
(An escrow agent must treat information as confidential, strictly comply with escrow instructions, and remain neutral while representing the interests of all parties with an interest in the transaction)

Question 3

In most cases, the priority of a lien on real property is established by the:

Answer 3

Date of recording
(Generally, the date of recording a lien establishes its priority)

Question 4

A bill of sale is used to convey title to:

Answer 4

Personal property
(When personal property is sold, a bill of sale must be given which transfers title)

Question 5

On the HUD-1 Settlement Statement, the purchase price will be listed as:

Answer 5

A credit to the seller and a debit to the buyer
(The purchase price is a credit to the seller and a debit to the buyer)

Question 6

Escrow agents are required to determine whether the seller of property is a U.S. citizen and, if not, withhold 15% of the net proceeds under the provisions of:

Answer 6

FIRPTA
(Under the Foreign Investment in Real Property Tax Act (FIRPTA), the escrow agent must determine if the property seller is a U.S. citizen and, if not, must withhold 15% of the net proceeds of the sale, which must then be forwarded to the IRS within ten days after the closing of the transaction)

Question 7

Which of the following are duties performed by an escrow agent if so directed in the escrow instructions?
(check all that apply)

Answer 7

Disburse funds as authorized by the principals
Order the title insurance report and policies
(An escrow agent may disburse funds as directed by the parties and order the title insurance report and policies. An escrow agent may not draft legal documents, even if authorized to do so)

Question 8

A proper escrow, once established, is:

Answer 8

Not subject to the control of any one interested party
(A valid escrow is not subject to the control of any one interested party)

Question 9

If a seller has already paid the property taxes for the year, the prepaid taxes will appear on the settlement statement as:

Answer 9

A credit to the seller and a debit to the buyer
(Prepaid taxes are a credit to the seller and a debit to the buyer on the settlement statement)

Question 10

When a buyer assumes an existing mortgage, the mortgage balance will appear on the settlement statement as:

Answer 10

A credit to the buyer and a debit to the seller
(An assumed loan is a credit to the buyer and a debit to the seller)

Question 11

A debit on the buyer’s side of the settlement statement:

Answer 11

Is an item that must be paid by the buyer
(Not all debits appear on the settlement statement as a credit to the seller. Debits reflect items that must be paid by the buyer)

Question 12

Items (such as property tax) that have been proportionally allotted on a closing statement as to the financial responsibility of the parties are known as:

Answer 12

Prorations
(Prorations apply to any charge that one party to a transaction may have incurred prior to the sale, or to charges that cover a period after the sale)

Question 13

The premium for a title insurance policy purchased by the seller would appear on the settlement statement as:

Answer 13

A debit to the seller
(A title insurance policy purchased by the seller will appear only as a debit to the seller)

Question 14

To prorate means to:

Answer 14

Allocate the financial impact of a particular item on the parties as of a particular date
(Proration is the process of allocating a sum of money or expense proportionately according to time, interest, and benefit)

Question 15

When the executed escrow instructions differ from the purchase agreement, which of the following is correct?

Answer 15

The parties must resolve the conflict and confirm the new instructions via a written agreement

(Neither the seller’s nor the buyer’s instructions may contradict the terms of the real estate purchase and sale agreement and subsequent modifications to that agreement, unless both parties are in written agreement to do so. If there is any conflict in instructions between the seller and the buyer, the escrow officer cannot proceed without a resolution of the issue by both parties)

Question 16

Which of the following charges is generally a debit to the seller on the settlement statement?

Answer 16

Real estate agent sales commission
(The seller is generally responsible for real estate sales commission as agreed to in the listing agreement and again in the purchase and sale agreement)

Question 17

Escrow agents must report every sale of real property to the Internal Revenue Service. The form used to report the seller’s name and social security number is the:

Answer 17

1099-S
(All sales of real estate must be reported to the Internal Revenue Service by the escrow agent. The reporting is done on a IRS Form 1099-S, which sets forth the name and social security number of the seller, along with the gross proceeds of the sale)

Question 18

Escrow terminates:

Answer 18

All of the above
(All of the reasons specified will terminate an escrow)

Question 19

RESPA requires which of the following for federally related loan transactions?
A copy of a booklet about settlement procedures that explains RESPA, closing costs, and the settlement statement.
A Uniform Settlement Statement.

Answer 19

Both 1 and 2
Both are required under RESPA

Question 20

One of the essential requirements for a valid escrow is a binding contract. This may be:

Answer 20

Any of the above
(An option agreement, exchange agreement, and lease agreement are binding contracts that may be the reason for opening an escrow)

Question 21

The money and documents of a real estate transaction are held in trust until closing by:

Answer 21

A neutral third party known as the escrow agent
(The money and documents are held by an escrow agent)