Unit 23
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Accrued Item
An expense that has been incurred but not yet paid by the closing date. The seller typically owes this amount at closing (for example, unpaid property taxes).
Property taxes for the first half of the year have accrued but are not yet due. The seller credits the buyer for this accrued amount at closing.
Affiliated Business Arrangement (ABA)
A situation where a settlement service provider refers business to another company in which they have an ownership interest. Must be disclosed under RESPA.
A title company owned by the same parent company as the lender must disclose the affiliated business arrangement to the borrower.
Arrangement
The overall process and coordination of documents, funds, and parties involved in transferring title and completing a real estate closing.
The closing attorney coordinates the arrangement of all documents, payoffs, and disbursements for the transaction.
Closing
The final step in a real estate transaction where ownership is transferred, funds are disbursed, and all documents are signed and recorded.
At closing, the buyer signs the mortgage, the seller signs the deed, and title is transferred in exchange for the purchase price.
Closing Disclosure (CD)
A five-page form required under TRID that details all final loan terms, closing costs, and cash to close. Must be provided at least three business days before closing.
The lender issues the Closing Disclosure three days before closing so the buyer can review all final numbers.
Credit
An amount the buyer or seller receives at closing (for example, earnest money, prorated taxes, seller concessions). Appears on the Closing Disclosure.
The buyer receives a credit for the $5,000 earnest money deposit already paid and for the seller's portion of prepaid property taxes.
Debit
An amount the buyer or seller must pay at closing (for example, purchase price, loan fees, prorated expenses). Appears on the Closing Disclosure.
The buyer is debited for the full purchase price, loan origination fee, and prepaid homeowners insurance.
Escrow
A neutral third party that holds funds and documents until all conditions of the transaction are met. Also refers to the impound account for taxes and insurance.
The title company acts as escrow agent, holding the buyer's earnest money and the signed deed until closing conditions are satisfied.
Loan Estimate (LE)
A three-page form required under TRID that provides an estimate of loan terms and closing costs within three business days of application.
The lender provides the Loan Estimate shortly after the buyer applies for the mortgage so they can compare offers.
Prepaid Item
An expense paid in advance by the seller that benefits the buyer after closing (for example, prepaid property taxes, insurance). The buyer reimburses the seller at closing.
The seller prepaid the entire year's property taxes. At closing, the buyer reimburses the seller for the portion after the closing date.
Proration
The division of expenses (taxes, rent, HOA fees, etc.) between buyer and seller based on the number of days each owns the property.
Property taxes are prorated so the seller pays for the 180 days they owned the home and the buyer pays for the remaining 185 days.
RESPA
Real Estate Settlement Procedures Act — federal law that requires disclosure of closing costs and prohibits kickbacks in mortgage transactions.
RESPA requires lenders to provide clear closing cost disclosures and prohibits referral fees between settlement service providers.
TRID
TILA-RESPA Integrated Disclosure Rule — federal rule that combines Truth in Lending Act and RESPA disclosures into the Loan Estimate and Closing Disclosure forms.
TRID requires the lender to deliver the Loan Estimate within three business days and the Closing Disclosure at least three business days before closing.