realestate

Money received by a property manager must be deposited within __________ days and money received as earnest money in a real estate transaction must be deposited within __________ days after contracted has been accepted.

3, 1
3, 3
5, 3
5, 1

5, 3
Money received for property management and short-term rentals shall be deposited within five (5) business days after receipt unless the parties agree otherwise. All other types of money belonging to others shall be deposited not later than the third business day after receipt or as provided in the agreement with those concerned Rule E-1 (n)
What should you do if a buyer shows up at your office at 1:00 PM with a personal check for the closing funds for a closing scheduled at 2:0 PM?

Have the buyer sign a note to replace the check
Cancel the closing for breach of contract
Accept the check since it is on a local bank
Take the buyer to the bank to get a cashier’s check

Take the buyer to the bank to get a cashier’s check
A trust account must:

have the words “trust” or “escrow” after the type of account
be an FDIC account that is state or federally chartered
be reconciled monthly by the broker
all of the above

all of the above
these are rules required by RESPA and the CREC.
A note accepted by the seller as earnest money must be:

Must be made payable to buyer
Must be made payable to seller
Must be made payable to broker
Held by the title company or listing broker whichever is designated in Contract to Buy & Sell

Held by the title company or listing broker whichever is designated in Contract to Buy & Sell

The earnest money is held as designated in the contract.

The illegal act of a real estate broker who places his client’s or customer’s funds with his own funds is known as:

panic selling
redlining
commingling
blockbusting

Commingling, or mixing funds, is ILLEGAL and brokers who commingle funds can be prosecuted. Each of the other terms listed here fall under the realm of Fair Housing violations.
Which of the following forms of payment would be considered good funds?

savings and loan teller’s check
Electronic transfer of funds
Cashier’s check
All of the above

All of the above

From the Contract to Buy and Sell (Purchase Contract)

Good Funds. All amounts payable by the parties at Closing, including any loan proceeds, Cash at Closing and closing costs, shall be in funds that comply with all applicable Colorado laws, including electronic transfer funds, certified check, savings and loan teller’s check and cashier’s check (Good Funds).

This is also covered in Real Estate Commission Rule E-36:

E-36. Good funds at closing

Pursuant to 38-35-125, a real estate licensee who provides closing services shall not disburse funds or instruct an agent to disburse funds until those funds have been received and are either:

(1) available for immediate withdrawal as a matter of right from the financial institution in which the funds have been deposited or

(2) available for immediate withdrawal as a consequence of an agreement of a financial institution in which the funds are to be deposited or a financial institution upon which the funds are to be drawn. Such agreement with a financial institution must be for the benefit of the licensee providing the closing service. If the agreement contains contingencies or reservations no disbursements can be made until these are satisfied.

When must an employing broker keep a ledger?

When paying salaries to brokers
When putting money in an account to maintain it
When accepting money belonging to others
When receiving an earned commission

When accepting money belonging to others

What is a “Ledger”? A record collectively called a “ledger” or an equivalent component of an accounting system which records in chronological sequence all money which is received or disbursed by the broker on behalf of each particular beneficiary of a trust account. This record must show the monetary transactions affecting each individual beneficiary and must segregate such transactions from those pertaining to other beneficiaries of the trust account.

The Real Estate Commision does not require a ledger when an Employing Broker is only managing company money. However, if s/he accepts money belonging to others both an escrow account and a ledger for that account is required.

If an employing broker does not take physical possession of earnest money (buyers write checks directly to the title company), rents (written directly to owners), security deposits (written directly to owners) and such; then the emplying broker does not need an escrow account. If s/he does not need an escrow account; s/he does not need a ledger.

Bank reconciliation of a trust account:

Helps prevent bank errors
Must be done annually by a CPA
Must be done any month in which the account has had activity
Is a good safeguard but is not required

Must be done any month in which the account has had activity
To be done every month as required by law
Once a contract to purchase has been accepted by the seller, when does the earnest money tendered with the contract need to be deposited into the appropriate escrow account?

1 business day after notice of acceptance
2 business days after notice of acceptance
3 business days after notice of acceptance
4 business days after notice of acceptance

3 business days after notice of acceptance

A check for the earnest money should either accompany the offer until accepted or be delivered prior to expiration of the Alternative Earnest Money Deadline. Most often, a buyer’s agent holding the deposit forwards a copy of the earnest money check with the offer and then specifies a date in the Alternative Earnest Money Deadline when the actual check will be delivered after contract acceptance. If the deposit was tendered with the contract; it must be deposited no later than 3 business days after notice of acceptance of the contract.

If a broker has an interest-bearing trust account, the:

interest may accrue to a nonprofit affordable housing fund
interest earned belongs to the broker
broker must transfer the interest to the seller
interest earned may be applied to closing

interest may accrue to a nonprofit affordable housing fund
What must appear in the title of a trust account?

Company name
Employing broker’s name
Company name and employing broker’s name
Responsible broker’s name

Company name and employing broker’s name

How to Open Escrow Bank Accounts

1. Select a Colorado depository that offers FDIC insurance coverage or as authorized for the specific engagement.

2. Include the following “fiduciary elements” in the account title. These must identify the true owner of the account, specify the type or purpose of account being established (sales, management, homeowner association, etc.), include one of the fiduciary words “escrow” or “trust,” state the employing broker’s personal name, and show his or her fiduciary capacity as “broker.” The employing broker must be able to independently control and operate all escrow bank accounts, but others may be designated as signatories as well. These elements may be abbreviated to facilitate printing the broker’s monthly bank statement heading, checks, and deposit stock. The general account title format follows:
Licensed brokerage name and/or d.b.a. (brokerage TIN/SSN)
Type of escrow, broker’s name, broker
Statement mailing address

Money belonging to others is kept separate from other accounts:

to prevent commingling with your own funds
to make it easy for the IRS to audit your accounts
to make it easier to withdraw the funds at any time
so the money can be withdrawn by the buyer if they need the cash

to prevent commingling with your own funds

Commingling is illegal and occurs when other people’s money is mixed with the broker’s operating or personal account.

A broker managing how many properties must maintain a property management trust account?

Two
Four
Six
Seven

Seven

The law requires that a broker managing seven or more properties must have a property management trust account.

Reconciliation refers to:

getting back together with your significant other
looking over account balances to be sure you are still operating at a positive cash flow
monthly review and comparison of the bank statement with your records
what is turned over to the bookkeepers for safe keeping

monthly review and comparison of the bank statement with your records
Reconciliation is required monthly to balance the escrow account against individual accounts.
If there is a dispute regarding earnest money:

The broker has a choice to interplead the money or await written instructions from the parties
The broker must turn the money over to the court while awaiting resolution of the dispute
Seller and Buyer must sue the broker to resolve the impasse
The broker may move the money to an operating account

The broker has a choice to interplead the money or await written instructions from the parties

The broker has two options – to interplead the money or await written instructions from the parties. If the money is in dispute, the only thing an agent cannot do is make a decision as to who gets the money. An agent is not a judge or arbiter.

Interplead means the agent turns the money over to a court to determine the ownership rights of the rival claimants to the earnest money.

More on the process of returning Earnest Money:

The Colorado Contract to Buy and Sell Real Estate (AKA Purchase Contract) says the agent holding earnest money has 5 days to return earnest money to whomever is supposed to get it after receipt of written instructions to do do. This is covered in the Broker Acknowledgements sections of the purchase contact.

The actual language reads like this – “Broker agrees that if Brokerage Firm is the Earnest Money Holder and, except as provided in § .., if the Earnest Money has not already been returned following receipt of a Notice to Terminate or other written notice of termination, Earnest Money Holder will release the Earnest Money as directed by the written mutual instructions. Such release of Earnest Money will be made within five days of Earnest Money Holder’s receipt of the executed written mutual instructions, provided the Earnest Money check has cleared.”

BUT!!!!!! to make it even more fun for you, the Real Estate has issued Commission Position 6, whereby they say that if there is no controversy over who gets the earnest money, they want the money returned as quickly as possible and the agent does NOT have to get writen permission from all parties to do so.

Most companies as a prudent measure have both parties sign that they agree who gets the earnest money, before they release it. This just makes sense, woe to the agent who releases the earnest money and one of the parties throws a fit over it. Safer to get the parties to agree in writing first.

However, sometimes the party that is giving up the earnest money and their agent makes this a pretty low priority on their things-to-do-list. Keep in mind, they are grumpy the deal is dead and even if they know they need to release the earnest money, they are not happy about it. In the meantime, the other party wants their money. Buyers in particular are anxious as they are back on the market looking for a property and can’t make an offer until they get their earnest money returned. Therefore, the Commission has made is very clear, that they do not want slow paperwork to hold things up when there is no controversy.

Does this occasionally put us in an awkward position? Yup. Smart agents who do not like to even get within sniffing distance of having to write out a personal check to cover a perceived, if not actual screw up (that be me, except my wife would probably dispute the “smart” assertion) will move heaven and earth to get quickly signed releases by both parties before releasing earnest money.

If you find that one of your parties due to the stress of the failed deal ran instantly to consult with the yogi on the mountaintop and are not returning messages. You need to have a talk with your managing broker before doing something you may regret. It is always cooler to share the love and say “my managing broker said to do it and will make it good” then “how do I spell your name on my check”.

Which of the following is correct concerning a broker’s establishment of an account to hold money belonging to others?

An individual account is required for each transaction
All checks, deposit slips and bank statements must include the word “escrow” or “trust” as part of the account name
The names of all authorized signers must be on the checks
The account cannot be in the same bank as the broker’s personal checking account

All checks, deposit slips and bank statements must include the word “escrow” or “trust” as part of the account name
The escrow account must be identified as such and the checks, deposit slips, and statements must have the name of the account and the name of the brokerage entity.
Who holds the earnest money in a transaction with a listing broker and a buyer’s agent?

Buyer’s Broker
Listing Broker
Must be in a neutral escrow company
The brokers establish a joint escrow account

Listing Broker
The listing broker usually establishes the escrow account, but the parties can always agree on any other practice they specify
An employing broker is required to:

be a signer on all bank accounts opened in the company name
be a signer on all trust accounts opened in the company name
be a signer on all contracts negotiated in the company name
all of the above

be a signer on all trust accounts opened in the company name
An employing broker must be able to write checks drawn on his trust account with just his signature, and must be a signer on all trust accounts opened in the company name.
A broker writes checks from the trust account into his operating account.

broker is commingling and could have is license revoked
broker may be netting earned commission against earnest money deposits
broker is taking a negative ledger short cut, which is okay, but not advised
broker is commingling and will have his license revoked

broker is commingling and could have is license revoked

Commingling is mixing money from the trust account and the operating account; conversion is using some of the trust account money for your own use.

Earnest money is to be deposited:

in the seller’s trust account
within two days of contract acceptance
in an interest-bearing account
within 3 business days after acceptance of contract

within 3 business days after acceptance of contract
A brokerage firm holding 4 earnest money deposits, and 15 security deposits for managed single-family residences must have a minimum of how many trust accounts?

19
1
2
3

3
Rule E-1 (h) A broker who manages less than 7 single-family residences may deposit rental receipts and security deposits and disburse money collected for such purposes in the “sales escrow” account” Elsewise, you need one escrow account for earnest money, one for rental receipts and one for rental deposits.
Broker B received a buyer’s earnest money check for $5,000 and immediately cashed it. At closing, the broker handed the seller a personal check drawn on the broker’s own bank account for $5300, representing the original earnest money plus six percent interest. The broker

should have deposited the money in a special non-interest-bearing bank account.
properly cashed the check but should have kept the interest.
should have deposited the money in his personal bank account and would have been entitled to keep the interest as a service fee.
should have deposited the money in a bank escrow or trust account and should have discussed the interest with the parties.

should have deposited the money in a bank escrow or trust account and should have discussed the interest with the parties.

The broker is in violation of Colorado Real Estate Rules he should have deposited the money in a bank escrow or trust account and should have discussed the interest with the parties.

How long must transaction records be maintained by an independent broker?

minimum of four years
until the transaction is closed
Independent brokers who work alone are not required to retain records.
Independent brokers submit records to the real estate commission for safekeeping.

minimum of four years
Independent brokers and employing brokers must retain transaction records from their brokerage activities for four years.
If a broker establishes an account to hold money belonging to others, which of the following is correct?

All checks, deposit slips, and bank statements must include the word “escrow” or “trust” as part of the account name.
The names of all authorized signers must be on the checks.
The account cannot be in the same bank as the broker’s personal checking account.
An individual account is required for each transaction.

All checks, deposit slips, and bank statements must include the word “escrow” or “trust” as part of the account name.
All of the following are “good funds” except:

A wire transfer to the closing agent’s bank
A check on the broker’s escrow account
A cashier’s check from a commercial bank
A teller’s check from a savings and loan

A check on the broker’s escrow account

his would be considered third party funds which are not considered good funds.

From the Contract to Buy and Sell (Purchase Contract)

Good Funds. All amounts payable by the parties at Closing, including any loan proceeds, Cash at Closing and closing costs, shall be in funds that comply with all applicable Colorado laws, including electronic transfer funds, certified check, savings and loan teller’s check and cashier’s check (Good Funds).

This is also covered in Real Estate Commission Rule E-36:

E-36. Good funds at closing

Pursuant to 38-35-125, a real estate licensee who provides closing services shall not disburse funds or instruct an agent to disburse funds until those funds have been received and are either:

(1) available for immediate withdrawal as a matter of right from the financial institution in which the funds have been deposited or

(2) available for immediate withdrawal as a consequence of an agreement of a financial institution in which the funds are to be deposited or a financial institution upon which the funds are to be drawn. Such agreement with a financial institution must be for the benefit of the licensee providing the closing service. If the agreement contains contingencies or reservations no disbursements can be made until these are satisfied.

In the normal real estate transaction, which of the following is accurate regarding a broker’s holding of other people’s money?

licensee’s commission may be held in his escrow account
interest must be paid to the seller
earnest money deposits may be kept in his general operating account until just before closing
earnest money deposits must be place in a recognized depository not later than three business days following the day on which the broker receives notice of acceptance

earnest money deposits must be place in a recognized depository not later than three business days following the day on which the broker receives notice of acceptance

The earnest money must be deposited within three business days after acceptance of the contract to buy and sell.

A broker manages three properties for different owners. One property is in need of emergency repairs, but the owner does not have enough money in the management escrow account to cover the cost of the repairs. The broker uses excess funds from another owner’s account for the emergency then replaces the funds later with a check from the first owner. Which of the following is true?

The broker has acted properly by safeguarding the client’s interest.
Such action is proper when the management account balance is sufficient.
The broker is in violation of regulations for improperly handling escrow funds.
The broker must use personal funds for repair if there is not enough money in the management account.

The broker is in violation of regulations for improperly handling escrow funds.

The broker improperly commingled funds and is in violation of regulations. When the broker used funds from the other account, the broker actually used another client’s funds for the repair.

You receive an offer with an earnest money check. The seller counters the offer.
you send the earnest money check back to the buyer’s broker with the counter offer
Trust Account journal and ledger documentation of disbursements from trust accounts need NOT include:

Records verifying purpose of payment
Amount paid and the resulting balance
Date of payment and check number
Name of the person who wrote the check out of the account

Name of the person who wrote the check out of the account

Rule E-1 (p) Recordkeeping requirements A broker shall supervise and maintain, at the broker’s licensed place of business, a record keeping system, subject to subsection (7) of this rule, consisting of at least the following elements for each required escrow or trust account:

(1) A record called an “escrow or trust account journal” or an equivalent accounting system which records in chronological sequence all money belonging to others which is received or disbursed by the broker. For funds received, the records maintained in the system must include the date of receipt and deposit, the name of the person who is giving the money, the name of the person and property for which the money was received, the purpose of the receipt, the amount, and. a resulting cash balance for the account. For funds disbursed, the records maintained in the system must include the date of payment, the check number, the name of the payee, a reference to vendor documentation or other physical records verifying purpose for payment, the amount paid, and a resulting cash balance for the account.

Money belonging to others best describes:

money a broker would keep in a trust or escrow account
future commissions to be earned
buyer’s source of funds for down payment
the profits to come from a real estate transaction

money a broker would keep in a trust or escrow account
Once a contract to purchase has been accepted by the seller, when does the earnest money tendered with the contract need to be deposited into the appropriate escrow account?

1 business day after notice of acceptance
2 business days after notice of acceptance
3 business days after notice of acceptance
4 business days after notice of acceptance

3 business days after notice of acceptance

A check for the earnest money should either accompany the offer until accepted or be delivered prior to expiration of the Alternative Earnest Money Deadline. Most often, a buyer’s agent holding the deposit forwards a copy of the earnest money check with the offer and then specifies a date in the Alternative Earnest Money Deadline when the actual check will be delivered after contract acceptance. If the deposit was tendered with the contract; it must be deposited no later than 3 business days after notice of acceptance of the contract.

Unless otherwise agreed, earnest money deposits held by the specified broker must be deposited not later than the third business day after notice of acceptance of the contract. The broker should keep a copy of the validated escrow deposit slip and earnest money check in the office transaction file for later inspection.”

To account for money belonging to others, the broker must maintain:

“arms length” to all ledgers, journals, accounts, and bookkeeping
all personal records in the same filing cabinets as the transaction files
the escrow bank account, the cash journal, the transaction ledgers, the broker’s ledger card, monthly bank reconciliation, and proper transaction files
all accounts at the same FDIC-insured banking institution

the escrow bank account, the cash journal, the transaction ledgers, the broker’s ledger card, monthly bank reconciliation, and proper transaction files

Broker must maintain accurate accounts and reconcile them monthly.

In the absence of language to the contrary in the Property Managment Agreement a property manager must:

Deliver security deposits to owner
Deposit security deposit into escrow account
Deposit security deposit into operating account
Refuse to accept security deposit from tenant

Deposit security deposit into escrow account

Short version: put it into the escrow account first even if you are going to immediately transfer it to the owner. However, before the owner transfer you need to provide appropriate written notification to the tenant as to who is holding the deposit and the holder’s contact info.

CP-5 Commission Position on Advance Rentals and Security Deposits

Pursuant to C.R.S. 12-61-113 (l)(g.5) and Commission Rule E-l and E-16, all money belonging to others which is received by a broker must be placed in an escrow or trust account. This applies to tenant security deposits and advance rental deposits, including credit card receipts, held by a broker.

A broker may not deliver a security deposit to an owner unless notice is given to the tenant in the lease, rental agreement, or in a separate written notice that the security deposit will be held by the owner. Such notice must be given in a manner so that the tenant will know who is holding the security deposit, and shall include either the true’ name and current mailing address of the owner or the true name and current mailing address of a person authorized to receive legal notices on behalf of such owner, along with specific requirements for how the tenant is to request return of the deposit.

If, after receipt by the broker, the security deposit is to be transferred to the owner or used for the owner’s benefit, the broker, in addition to properly notifying the tenant, must secure the consent of the owner to assume full financial responsibility for the return of any deposit which may be refundable to the tenant. The broker shall not withhold the identity of the owner from the tenant if demand for the return of the deposit is properly

Who holds the earnest money in a transaction with a listing broker and a buyer’s agent?

Buyer’s Broker
Listing Broker
Must be in a neutral escrow company
The brokers establish a joint escrow account

Listing Broker

The listing broker usually establishes the escrow account, but the parties can always agree on any other practice they specify

The journal:

is a chronological record of all receipts and disbursements made by the broker from the escrow bank account
tracks the transaction to make sure all dates are met on a timely basis
cannot be kept in a computer, in case the computer crashes
is a chronological record of the transaction from contract to closing, making sure that all agents act according to their proper agency roles

is a chronological record of all receipts and disbursements made by the broker from the escrow bank account

The journal must be updated every time a withdrawal or deposit is made.

What shows all deposits and payments to and from a broker’s escrow account in chronological order?

Account Journal
Bank Statement
Ledger Cards
Bank Reconciliation

Account Journal
On what time basis must trust accounts be reconciled:

daily
weekly
monthly
annually

monthly

The purpose of reconciliation is to verify that the records for the account are in balance per the escrow accounting equation.

Rule E-1(p)(3) requires the ending bank statement cash balance to be reconciled with the office journal and ledger account cards during any month when there has been escrow account activity

A broker must keep:

an acknowledgment of the trust account status by the bank or other depository
all transaction files for four years
all business cards of the parties to a transaction
all warranty deeds and deeds of trust for four years

all transaction files for four years
A broker received an earnest money deposit from a buyer. Under Colorado law, the broker should

open a special, separate escrow account that will contain funds for this transaction only, separated from funds received in any other transaction
deposit the money in a existing, special non-interest-bearing escrow account in which all earnest money received from buyers may be held
immediately deposit the earnest money in the broker’s personal bearing-bearing checking or savings account.
hold the earnest money deposit in a secure place in the broker’s real estate brokerage office until the offer is accepted.

hold the earnest money deposit in a secure place in the broker’s real estate brokerage office until the offer is accepted.

The broker should hold the earnest money deposit in a secure place in the broker’s real estate brokerage office until the offer is accepted.

1) if the roof on a newly constructed home fails 3 months after purchasing, who is liable?
home inspector may be liable for not identifying a problem.
the builder was liable under a covenant
no one was liable or that the lender was liable, but neither of those seemed plausible to me.
This is a tough one to answer without knowing the exact choices. Three months after the construction of a new home I would suspect the builder is at fault as negligence is clearly an issue on a roof that failed so soon. I am unaware of this being called a covenant. It is usually in the area of a warranty. Here is a write-up I found:
“In addition to any express warranties that the homebuyer and contractor have articulated in the contract, there are some warranties that are implied into a construction contract by law. These are known as implied warranties of quality in new home sales. A majority of states have recognized an implied warranty of quality. States have identified two main types of implied warranties:
Implied Warranty of Habitability : This warranty guarantees that the house will not have any major defects that render the house uninhabitable when completed.
Implied Warranty of Skillful Construction : This warranty focuses on the manner in which the work is performed. Under such a warranty, the contractor has an obligation to fix the problem.”
You receive an offer with an earnest money check. The seller counters the offer.

you hold on to the earnest money to see if the buyer accepts the counter proposal
you give the earnest money check to your broker for deposit in the escrow account
you send the earnest money check back to the buyer’s broker with the counter offer
you deposit the money in the broker’s trust account to make sure it is safe

you send the earnest money check back to the buyer’s broker with the counter offer

This is a case of what you are supposed to do versus what really happens. It is not a statute item, but more of a best practice from the Real Estate Commission. Unfortunately, the Commission tests on what is official rather than what really happens. Officially – when a Seller counters an offer, the original offer is void and you as a listing broker have no legal right to retain the earnest money check therefore it should be returned with the counter. Practically – both agents consider this to be a period of negotiation and nobody wants to schlep a check back and forth, so the listing broker will not deposit or return the earnest money check until we have an accepted or dead deal, nor will the buyers agent expect anything else. Going even further into reality versus the Test – most deals these days are done electronically with contracts and copies of checks faxed, or signed electronically, or emailed back and forth. Few deals are being performed via physical paper copies. For the Test – assume everything is performed via paper.

Trust Account journal and ledger documentation of disbursements from trust accounts need NOT include:

Records verifying purpose of payment
Amount paid and the resulting balance
Date of payment and check number
Name of the person who wrote the check out of the account

Name of the person who wrote the check out of the account

Rule E-1 (p) Recordkeeping requirements A broker shall supervise and maintain, at the broker’s licensed place of business, a record keeping system, subject to subsection (7) of this rule, consisting of at least the following elements for each required escrow or trust account:

(1) A record called an “escrow or trust account journal” or an equivalent accounting system which records in chronological sequence all money belonging to others which is received or disbursed by the broker. For funds received, the records maintained in the system must include the date of receipt and deposit, the name of the person who is giving the money, the name of the person and property for which the money was received, the purpose of the receipt, the amount, and. a resulting cash balance for the account. For funds disbursed, the records maintained in the system must include the date of payment, the check number, the name of the payee, a reference to vendor documentation or other physical records verifying purpose for payment, the amount paid, and a resulting cash balance for the account.

What form may earnest money be?

Cash or cashiers check only
personal or cashiers check only
Cash or good funds only
Any form the seller will accept

Any form the seller will accept

The seller can accept any form the seller desires. The amount and form is specified in the listing agreement. Most often sellers accept personal checks as there is plenty of time before the closing for the check to clear.

A requirement of RESPA is that:

licensees be tipped for recommending a good title company
no seller may require the buyer to purchase title insurance from a particular title company
buyers are not required to purchase a mortgagee’s title policy
title insurance is always a requirement for all transactions

no seller may require the buyer to purchase title insurance from a particular title company

RESPA eliminates kickbacks, and prevents sellers from requiring the use of a specific title company.

When an out-of-state investor sells a property in Colorado, which of the following is required of the closing entity?

withhold up to 2 per cent of the selling price as a state transfer tax
withhold up to 2 per cent of the selling price as possible income tax liability
withhold up to 2 per cent of the net proceeds of the sale as sales tax
withhold up to 2 per cent of the net proceeds of the sale as possible income tax

withhold up to 2 per cent of the selling price as possible income tax liability
When the seller is out of state after closing, the Colorado Department of Revenue requires withholding of the lesser of 2 per cent of the selling price or the entire net proceeds due to the seller at closing.
The closing statement is prepared to:

determine the amount of money the seller will receive at the closing
compute the amount of money the purchaser must bring to the closing
serve as a receipt for all money that changes hands at the time of closing
all of the above

all of the above

The closing statement is a detailed accounting of every dollar that changes hands at a closing.

The following statements refer to RESPA regulations except which one?

A good faith estimate of finance costs must be given to a buyer.
Residential transactions financed by federally related mortgage loans.
Discrimination because of race is not allowed
An informational book regarding closing costs must be given to a mortgagor.

Discrimination because of race is not allowed

Discrimination is not a part of RESPA

In Colorado “good funds” include a

A check from the buyer that will clear the bank
A title insurance company check
A check drawn on the broker’s escrow account
A teller’s check from a savings and loan

A teller’s check from a savings and loan

From the Contract to Buy and Sell (Purchase Contract)

Good Funds. All amounts payable by the parties at Closing, including any loan proceeds, Cash at Closing and closing costs, shall be in funds that comply with all applicable Colorado laws, including electronic transfer funds, certified check, savings and loan teller’s check and cashier’s check (Good Funds).

This is also covered in Real Estate Commission Rule E-36:

E-36. Good funds at closing

Pursuant to 38-35-125, a real estate licensee who provides closing services shall not disburse funds or instruct an agent to disburse funds until those funds have been received and are either:

(1) available for immediate withdrawal as a matter of right from the financial institution in which the funds have been deposited or

(2) available for immediate withdrawal as a consequence of an agreement of a financial institution in which the funds are to be deposited or a financial institution upon which the funds are to be drawn. Such agreement with a financial institution must be for the benefit of the licensee providing the closing service. If the agreement contains contingencies or reservations no disbursements can be made until these are satisfied.

A standard title insurance policy offers protection to

the grantee
the grantor
the lender
heirs of the grantor

grantee

The correct answer is “Grantee”, better know as the “Buyer”. The Seller purchases the insurance to protect the beneficiary, the Buyer from lawsuits against the title. The Buyer is known as the “Grantee” because the Seller as the “Grantor” transfers ownership by granting the property using a deed to the “Grantee” who is the Buyer.

Which deed usually coveys residential property in Colorado?

General Warranty Deed
Special Warranty Deed
Bargain & Sale Deed
Quitclaim Deed

General Warranty Deed
How is the broker’s fee usually shown on the settlement statement?

Debit to the seller, credit to the broker
Debit to the seller, credit to the buyer
Debit ½ to seller, debit ½ to buyer, credit to the broker
Debit to the buyer, credit to the broker

Debit to the seller, credit to the broker
What is the amount charged to the seller for the current year’s taxes, if the previous year’s taxes were $852 and the closing is July 7?

442.57
438.84
436.5
428.29

436.5

$852 / 365 = $2.3342 X 187 = $436.50

The Real Estate Settlement Procedures Act provides:

a secondary market for mortgage loans
that real estate advertisements must include the annual percentage rate
that the mortgagor must be given an estimate of closing costs
that the mortgagee must be given an estimate of closing costs

that the mortgagor must be given an estimate of closing costs

RESPA requires the disclosure within three days of loan application, of the good faith estimate of closing costs.

In Colorado, one half of the property tax was paid at the end of February by what date must the balance be paid to avoid a penalty?

March 31
March 1
June 15
April 30

June 15

June 15 is the latest that the balance can be paid to avoid a penalty.

A broker is attending a closing. He notices a mistake on the settlement sheet, the purchaser rather than the seller, has been charged for the title insurance. He should:
insist on a new settlement statement
Based on the contract to buy and sell loan discount points:
May be paid by either party or a combination of both

Whatever is agreed upon in the contract, determines who will pay for the discount points.

Property taxes for the previous year have not been paid, this entry is shown on the settlement statement:
Debit seller, credit broker – The key phrase in this question is “Property taxes for the previous year have not been paid.” This means the Seller owes back taxes. We take the money from the Seller with a “Debit Seller”. But where does this money go? It gets deposited into the Escrow Account – which is “Credit Broker.” A constant source of confusion is why is the “Broker” getting the “Credit.” Legally, the listing broker is responsible for conducting the closing, but in practice, the Listing Broker delegates this to a Closing Clerk. Although the Closing Clerk is the one who will put the money into Escrow and write a check out of Escrow to the County to pay the taxes, since they are doing it in the name of the Broker – the worksheet says “Credit Broker.” It would be easier for everyone if instead it said “Credit Closing Clerk” or Credit Escrow Account” but the State uses the term “Credit Broker.”
The tax agreement signed by the buyer and the seller at closing stipulates that the:

buyer will give a refund to the seller if the taxes actually decrease for the year
seller will reimburse the buyer if the taxes actually increase for the year
seller will pay his share of the current year’s property tax bill when it comes
buyer and seller are reaching a final settlement at time of closing, and no further adjustments will be made in the future

buyer and seller are reaching a final settlement at time of closing, and no further adjustments will be made in the future

The tax agreement is a final settlement, no adjustments will be made.

When a property located in Colorado is sold, it may be subject to state income tax withholding. Which of the following situations would require state tax to be withheld?

When the last known address at the time of closing was outside of the state of Colorado
When the property is the principal residence of the seller
When the sales price is less than $100,000
When the seller is a bank foreclosing on a loan which is in default

When the last known address at the time of closing was outside of the state of Colorado

Only out of the state sellers selling property in excess of $100,000 are subject to Colorado tax withholding at the time of closing.

Title Companies are generally required to withhold the lesser of (1) two percent of the sales price, or (2) the entire net proceeds, to cover any POTENTIAL tax liability on the sale of Colorado property when the seller has moved or will move out of state.

In Simple-eze – the State is worried that they will not get their cut if someone lives out-of-state or is moving out-of-state as they may not file a Colorado Tax Return. Soooo, the State withholds some money from the closing to motivate the seller to file a Colorado Tax Return and settle a tax if any is owed.

The settlement statement must be delivered to the respective parties:

three days prior to the closing
at time of closing
at time of recording of the deed
at time of issuance of the title policy

t time of closing

Copies of the signed settlement sheets are to be dispersed at the time of closing.

As provided in an executed, valid sales contract, a real estate sale must be closed. This means that:

the seller must remove title objections so the condition of the title complies with the sales contract terms
the purchaser must pay the balance of the purchase price to the seller
the seller must deliver the deed to the buyer
all of the above

all of the above

In order for a closing to happen the seller must provide merchantable title, the buyer must bring “good funds” to the closing and the buyer and seller must execute all required paperwork.

A house is sold on June 15. The annual taxes of $850 for the current year have not been paid. What does the seller owe the buyer at closing?

315.21
381.92
384.25
475.18

384.25

$850 / 365 = $2.3288 tax per day x 165 days seller owned house = $384.25

On a real estate closing transaction involving an exclusive-right-to-sell listing, the commission would be a debit to the:

buyer and a credit to the seller
seller and a credit to the buyer
seller
buyer

seller
On a real estate closing the real estate commission is a debit to the seller.
If the individual who has personally established a brokerage relationship with a buyer or seller is unavailable to attend a closing, and selects another licensee to attend the closing, who is responsible for the accuracy of the closing and documents?

The employing broker
The individual who has personally established a relationship with the buyer or seller
The alternate who has attended the closing
The individual who has personally established a relationship with the buyer or seller and the alternate who attended the closing jointly

The individual who has personally established a relationship with the buyer or seller and the alternate who attended the closing jointly

The individual who establishes the brokerage relationship shares the responsibility with the individual who attends the closing.

A broker would be in violation of the rules of the Real Estate Commission if he/she:

failed to provide a signed copy of a listing agreement to the seller
failed to provide a signed copy of the settlement statement to the seller
failed to provide a signed copy of the settlement statement to the buyer
all of the above

all of the above

A broker must provide a copy of any documents signed, to all parties who have signed the documents.

Who has the final responsibility for the settlement statements at a closing if the Title Company prepares them?

The title company
The broker who attended the closing
The employing broker
The responsibility is shared by all of the above

The broker who attended the closing

The broker who attends the closing is responsible for the accuracy of the closing.

he individual responsible for the proper closing of the transaction and settlement statement is:

the employing broker
the individual who has personally established a relationship with the buyer or seller
the closing agent representing the title company
the representative of the lender

the individual who has personally established a relationship with the buyer or seller

The individual, who attends the closing, shares the responsibility for accuracy of documents with the individual who establishes a relationship with the client.

Escrow’s for sales transactions are opened for the protection of the:

broker
title company
buyer and seller
mortgagee

buyer and seller
Escrowing a transaction protects the buyer and the seller until the transaction is perfected.
The party responsible for the closing fee as paid to the Title Company is determined by:

agreement of the parties
law
broker
title officer

agreement of the parties
THe correct answer is by ageement of the parites. The purchase and sale contracts addresses who will pay the fee to the Title Company for the closing.
RESPA applies to the activities of:

real estate brokers selling commercial property
security salespeople when selling interests in limited partnerships
lender’s financing the purchase of a borrower’s residence
lender’s financing the purchase of a commercial property

lender’s financing the purchase of a borrower’s residence
RESPA applies to the purchase of land and a dwelling.
In a real estate transaction it is possible to represent as an agent, only one party to the transaction when:

the agent is the designated agent for either buyer or seller
there is more than one broker involved in the transaction
there is more than one company involved in the transaction
all of the above

all of the above
General property taxes must be paid

January 1 each year in advance
January 1 each year in arrears
Not later than June 15 in arrears
Monthly beginning the last day of February

Not later than June 15 in arrears
One discount point is equal to:

1% of the sales price
1% of the loan amount
1% of the down payment
1/8 of the loan amount

1% of the loan amount
The process by which taxes are handled at the settlement of a real estate transaction, so that both the buyer and the seller pay a portion of the annual tax burden, is called:

lien
proration
assessment
exemption

proration

Prorating is the process of dividing fees, taxes and other charges equitably between buyer and seller.

Property taxes for the previous year have not been paid, this entry is shown on the settlement statement:

Debit buyer, credit seller
Debit broker, credit seller
Debit seller, credit buyer
Debit seller, credit broker

Debit seller, credit broker

The key phrase in this question is “Property taxes for the previous year have not been paid.” This means the Seller owes back taxes. We take the money from the Seller with a “Debit Seller”. But where does this money go? It gets deposited into the Escrow Account – which is “Credit Broker.” A constant source of confusion is why is the “Broker” getting the “Credit.” Legally, the listing broker is responsible for conducting the closing, but in practice, the Listing Broker delegates this to a Closing Clerk. Although the Closing Clerk is the one who will put the money into Escrow and write a check out of Escrow to the County to pay the taxes, since they are doing it in the name of the Broker – the worksheet says “Credit Broker.” It would be easier for everyone if instead it said “Credit Closing Clerk” or Credit Escrow Account” but the State uses the term “Credit Broker.”

In closing a real estate transaction, the costs of standard title insurance will usually fall to:

the seller
the buyer
the broker
the seller and the buyer equally

the seller

The standard title insurance policy is paid for by the seller and names the buyer as a beneficiary. The mortgagee’s title policy is paid for by the buyer and names the lender as a beneficiary.

An escrow account is:

always under the jurisdiction of the broker
beyond the control of either party to the escrow
always under the control of the title company
under the control of the seller

beyond the control of either party to the escrow
The escrow account is established by written instructions in the purchase and sale contract. It is beyond the control of the buyer or the seller individually, but may be modified by mutual agreement.
To close in escrow means:

some of the parties to the transaction are out of state
title, all paperwork, and funds are held in an escrow account until all documents are received by the closing agents and reviewed by the brokers.
title, all paperwork, and funds are held in an escrow account for an indefinite time
the parties to the transaction are not available to close at the same time

title, all paperwork, and funds are held in an escrow account until all documents are received by the closing agents and reviewed by the brokers.

To close in escrow means that all parties provide the necessay documents to the closing agent. When the closing agent decides all is in order, he/she conducts the closing. The parties are not normally present. Escrow is for a definite period of time.

Fees that are due to a homeowner’s association must be disclosed:

In the Purchase and Sale Contract
It is the buyers responsibility to investigate
In a recorded document
all of the above

In the Purchase and Sale Contract

The homeowner’s association fees must be disclosed in the MLS, in the contract and to the lender.

Based on the contract to buy and sell loan discount points:

Are tax deductible only by the seller.
Are always paid by the seller because of Truth in Lending Laws
May be paid by either party or a combination of both
Are always paid by the buyer since he/she is obtaining the loan

May be paid by either party or a combination of both

Whatever is agreed upon in the contract, determines who will pay for the discount points.

A broker is attending a closing. He notices a mistake on the settlement sheet, the purchaser rather than the seller, has been charged for the title insurance. He should:

do nothing as he works for the buyer
suggest that changes be made on the settlement statement and initialed by both parties
insist on a new settlement statement
insist that the seller reimburse the buyer for the title insurance

insist on a new settlement statement
A requirement of RESPA is that:

licensees be tipped for recommending a good title company
no seller may require the buyer to purchase title insurance from a particular title company
buyers are not required to purchase a mortgagee’s title policy
title insurance is always a requirement for all transactions

no seller may require the buyer to purchase title insurance from a particular title company

RESPA eliminates kickbacks, and prevents sellers from requiring the use of a specific title company.

A real estate broker is legally responsible for:

searching the title records
preparation of the settlement statements
the wire transfer from the borrower’s lender
all of the above

preparation of the settlement statements

The Title Company searches the title records and handles the wire transfer; it is the broker who is responsible for the preparation of the legal documents; the Title Company acts only as a scrivener for the broker.

Once a contract to purchase has been accepted by the seller, when does the earnest money tendered with the contract need to be deposited into the appropriate escrow account?

1 business day after notice of acceptance
2 business days after notice of acceptance
3 business days after notice of acceptance
4 business days after notice of acceptance

3 business days after notice of acceptance

A check for the earnest money should either accompany the offer until accepted or be delivered prior to expiration of the Alternative Earnest Money Deadline. Most often, a buyer’s agent holding the deposit forwards a copy of the earnest money check with the offer and then specifies a date in the Alternative Earnest Money Deadline when the actual check will be delivered after contract acceptance. If the deposit was tendered with the contract; it must be deposited no later than 3 business days after notice of acceptance of the contract.

From the real estate manual:

“Unless otherwise agreed, earnest money deposits held by the specified broker must be deposited not later than the third business day after notice of acceptance of the contract. The broker should keep a copy of the validated escrow deposit slip and earnest money check in the office transaction file for later inspection.”

To account for money belonging to others, the broker must maintain:

“arms length” to all ledgers, journals, accounts, and bookkeeping
all personal records in the same filing cabinets as the transaction files
the escrow bank account, the cash journal, the transaction ledgers, the broker’s ledger card, monthly bank reconciliation, and proper transaction files
all accounts at the same FDIC-insured banking institution

the escrow bank account, the cash journal, the transaction ledgers, the broker’s ledger card, monthly bank reconciliation, and proper transaction files
Broker must maintain accurate accounts and reconcile them monthly.
Reconciliation refers to:

getting back together with your significant other
looking over account balances to be sure you are still operating at a positive cash flow
monthly review and comparison of the bank statement with your records
what is turned over to the bookkeepers for safe keeping

monthly review and comparison of the bank statement with your records
Reconciliation is required monthly to balance the escrow account against individual accounts.
What must appear in the title of a trust account?

Company name
Employing broker’s name
Company name and employing broker’s name
Responsible broker’s name

Company name and employing broker’s name

How to Open Escrow Bank Accounts

1. Select a Colorado depository that offers FDIC insurance coverage or as authorized for the specific engagement.

2. Include the following “fiduciary elements” in the account title. These must identify the true owner of the account, specify the type or purpose of account being established (sales, management, homeowner association, etc.), include one of the fiduciary words “escrow” or “trust,” state the employing broker’s personal name, and show his or her fiduciary capacity as “broker.” The employing broker must be able to independently control and operate all escrow bank accounts, but others may be designated as signatories as well. These elements may be abbreviated to facilitate printing the broker’s monthly bank statement heading, checks, and deposit stock. The general account title format follows:

Licensed brokerage name and/or d.b.a. (brokerage TIN/SSN)
Type of escrow, broker’s name, broker
Statement mailing address

In the absence of language to the contrary in the Property Managment Agreement a property manager must:

Deliver security deposits to owner
Deposit security deposit into escrow account
Deposit security deposit into operating account
Refuse to accept security deposit from tenant

Deposit security deposit into escrow account

Short version: put it into the escrow account first even if you are going to immediately transfer it to the owner. However, before the owner transfer you need to provide appropriate written notification to the tenant as to who is holding the deposit and the holder’s contact info.

CP-5 Commission Position on Advance Rentals and Security Deposits

Pursuant to C.R.S. 12-61-113 (l)(g.5) and Commission Rule E-l and E-16, all money belonging to others which is received by a broker must be placed in an escrow or trust account. This applies to tenant security deposits and advance rental deposits, including credit card receipts, held by a broker.

A broker may not deliver a security deposit to an owner unless notice is given to the tenant in the lease, rental agreement, or in a separate written notice that the security deposit will be held by the owner. Such notice must be given in a manner so that the tenant will know who is holding the security deposit, and shall include either the true’ name and current mailing address of the owner or the true name and current mailing address of a person authorized to receive legal notices on behalf of such owner, along with specific requirements for how the tenant is to request return of the deposit.

If, after receipt by the broker, the security deposit is to be transferred to the owner or used for the owner’s benefit, the broker, in addition to properly notifying the tenant, must secure the consent of the owner to assume full financial responsibility for the return of any deposit which may be refundable to the tenant. The broker shall not withhold the identity of the owner from the tenant if demand for the return of the deposit is properly

Who holds the earnest money in a transaction with a listing broker and a buyer’s agent?

Buyer’s Broker
Listing Broker
Must be in a neutral escrow company
The brokers establish a joint escrow account

Listing Broker

The listing broker usually establishes the escrow account, but the parties can always agree on any other practice they specify

A broker manages three properties for different owners. One property is in need of emergency repairs, but the owner does not have enough money in the management escrow account to cover the cost of the repairs. The broker uses excess funds from another owner’s account for the emergency then replaces the funds later with a check from the first owner. Which of the following is true?

The broker has acted properly by safeguarding the client’s interest.
Such action is proper when the management account balance is sufficient.
The broker is in violation of regulations for improperly handling escrow funds.
The broker must use personal funds for repair if there is not enough money in the management account.

The broker is in violation of regulations for improperly handling escrow funds.
The broker improperly commingled funds and is in violation of regulations. When the broker used funds from the other account, the broker actually used another client’s funds for the repair.
A broker managing how many properties must maintain a property management trust account?

Two
Four
Six
Seven

Seven

The law requires that a broker managing seven or more properties must have a property management trust account.

If a broker establishes an account to hold money belonging to others, which of the following is correct?

All checks, deposit slips, and bank statements must include the word “escrow” or “trust” as part of the account name.
The names of all authorized signers must be on the checks.
The account cannot be in the same bank as the broker’s personal checking account.
An individual account is required for each transaction.

All checks, deposit slips, and bank statements must include the word “escrow” or “trust” as part of the account name.

All checks, deposit slips, and bank statements must include the word “escrow” or “trust” as part of the account name.

Broker B received a buyer’s earnest money check for $5,000 and immediately cashed it. At closing, the broker handed the seller a personal check drawn on the broker’s own bank account for $5300, representing the original earnest money plus six percent interest. The broker

should have deposited the money in a special non-interest-bearing bank account.
properly cashed the check but should have kept the interest.
should have deposited the money in his personal bank account and would have been entitled to keep the interest as a service fee.
should have deposited the money in a bank escrow or trust account and should have discussed the interest with the parties.

should have deposited the money in a bank escrow or trust account and should have discussed the interest with the parties.

The broker is in violation of Colorado Real Estate Rules he should have deposited the money in a bank escrow or trust account and should have discussed the interest with the parties.

Earnest money is to be deposited:

in the seller’s trust account
within two days of contract acceptance
in an interest-bearing account
within 3 business days after acceptance of contract

within 3 business days after acceptance of contract
Money received by a property manager must be deposited within __________ days and money received as earnest money in a real estate transaction must be deposited within __________ days after contracted has been accepted.

3, 1
3, 3
5, 3
5, 1

5, 3

Money received for property management and short-term rentals shall be

deposited within five (5) business days after receipt unless the parties agree

otherwise. All other types of money belonging to others shall be deposited

not later than the third business day after receipt or as provided in the

agreement with those concerned Rule E-1 (n)

The journal:

is a chronological record of all receipts and disbursements made by the broker from the escrow bank account
tracks the transaction to make sure all dates are met on a timely basis
cannot be kept in a computer, in case the computer crashes
is a chronological record of the transaction from contract to closing, making sure that all agents act according to their proper agency roles

is a chronological record of all receipts and disbursements made by the broker from the escrow bank account

The journal must be updated every time a withdrawal or deposit is made.

In the normal real estate transaction, which of the following is accurate regarding a broker’s holding of other people’s money?

licensee’s commission may be held in his escrow account
interest must be paid to the seller
earnest money deposits may be kept in his general operating account until just before closing
earnest money deposits must be place in a recognized depository not later than three business days following the day on which the broker receives notice of acceptance

earnest money deposits must be place in a recognized depository not later than three business days following the day on which the broker receives notice of acceptance

The earnest money must be deposited within three business days after acceptance of the contract to buy and sell.

When brokers receive earnest money, the money must be:

Hold the money in the safe until the property closes
Deposited into the broker’s operating account
Deposited into the broker’s trust account
All of the above

Earnest money must be deposited into a trust account or turned over to a title company who will deposit it in there trust account
brokerage firm holding 4 earnest money deposits, and 15 security deposits for managed single-family residences must have a minimum of how many trust accounts?

19
1
2
3

3
Rule E-1 (h) A broker who manages less than 7 single-family residences may deposit rental receipts and security deposits and disburse money collected for such purposes in the “sales escrow” account” Elsewise, you need one escrow account for earnest money, one for rental receipts and one for rental deposits.
What shows all deposits and payments to and from a broker’s escrow account in chronological order?

Account Journal
Bank Statement
Ledger Cards
Bank Reconciliation

Account Journal

The account journal lists the movement of all funs in and out of the escrow fund in chronological order

good funds would be:

what the seller receives as net proceeds
the buyer’s loan amount for the closing
cashier’s checks, certified checks, or wire transfers
money in an offshore account which is untraceable

cashier’s checks, certified checks, or wire transfers

From the Contract to Buy and Sell (Purchase Contract)

Good Funds. All amounts payable by the parties at Closing, including any loan proceeds, Cash at Closing and closing costs, shall be in funds that comply with all applicable Colorado laws, including electronic transfer funds, certified check, savings and loan teller’s check and cashier’s check (Good Funds).

This is also covered in Real Estate Commission Rule E-36:

E-36. Good funds at closing

Pursuant to 38-35-125, a real estate licensee who provides closing services shall not disburse funds or instruct an agent to disburse funds until those funds have been received and are either:

(1) available for immediate withdrawal as a matter of right from the financial institution in which the funds have been deposited or

(2) available for immediate withdrawal as a consequence of an agreement of a financial institution in which the funds are to be deposited or a financial institution upon which the funds are to be drawn. Such agreement with a financial institution must be for the benefit of the licensee providing the closing service. If the agreement contains contingencies or reservations no disbursements can be made until these are satisfied.

All of the following are “good funds” except:

A wire transfer to the closing agent’s bank
A check on the broker’s escrow account
A cashier’s check from a commercial bank
A teller’s check from a savings and loan

A check on the broker’s escrow account

This would be considered third party funds which are not considered good funds.

On what time basis must trust accounts be reconciled:

daily
weekly
monthly
annually

monthly

At least Monthly.

From the real estate manual:

The purpose of reconciliation is to verify that the records for the account are in balance per the escrow accounting equation.

Rule E-1(p)(3) requires the ending bank statement cash balance to be reconciled with the office journal and ledger account cards during any month when there has been escrow account activity

A broker must keep:

an acknowledgment of the trust account status by the bank or other depository
all transaction files for four years
all business cards of the parties to a transaction
all warranty deeds and deeds of trust for four years

all transaction files for four years

Colorado Real Estate Commission rules require an office policy manual, reasonable supervision, and all records maintained for four years.

A broker received an earnest money deposit from a buyer. Under Colorado law, the broker should

open a special, separate escrow account that will contain funds for this transaction only, separated from funds received in any other transaction
deposit the money in a existing, special non-interest-bearing escrow account in which all earnest money received from buyers may be held
immediately deposit the earnest money in the broker’s personal bearing-bearing checking or savings account.
hold the earnest money deposit in a secure place in the broker’s real estate brokerage office until the offer is accepted.

hold the earnest money deposit in a secure place in the broker’s real estate brokerage office until the offer is accepted.

The broker should hold the earnest money deposit in a secure place in the broker’s real estate brokerage office until the offer is accepted.

If a friend asks you to help manage a property for a fee, would you put the deposits into your escrow account or your employing brokers escrow account?

Deposit them into your escrow account
Deposit them into your employing brokers escrow account

Deposit them into your employing brokers escrow account

Only employing broker or independat brokers can have escrow accounts. Licenses working for a brokerage cannot have one. .

You receive an offer with an earnest money check. The seller counters the offer.

you hold on to the earnest money to see if the buyer accepts the counter proposal
you give the earnest money check to your broker for deposit in the escrow account
you send the earnest money check back to the buyer’s broker with the counter offer
you deposit the money in the broker’s trust account to make sure it is safe

you send the earnest money check back to the buyer’s broker with the counter offer

This is a case of what you are supposed to do versus what really happens. It is not a statute item, but more of a best practice from the Real Estate Commission. Unfortunately, the Commission tests on what is official rather than what really happens. Officially – when a Seller counters an offer, the original offer is void and you as a listing broker have no legal right to retain the earnest money check therefore it should be returned with the counter. Practically – both agents consider this to be a period of negotiation and nobody wants to schlep a check back and forth, so the listing broker will not deposit or return the earnest money check until we have an accepted or dead deal, nor will the buyers agent expect anything else. Going even further into reality versus the Test – most deals these days are done electronically with contracts and copies of checks faxed, or signed electronically, or emailed back and forth. Few deals are being performed via physical paper copies. For the Test – assume everything is performed via paper.

Trust Account journal and ledger documentation of disbursements from trust accounts need NOT include:

Records verifying purpose of payment
Amount paid and the resulting balance
Date of payment and check number
Name of the person who wrote the check out of the account

Name of the person who wrote the check out of the account

Rule E-1 (p) Recordkeeping requirements A broker shall supervise and maintain, at the broker’s licensed place of business, a record keeping system, subject to subsection (7) of this rule, consisting of at least the following elements for each required escrow or trust account:

(1) A record called an “escrow or trust account journal” or an equivalent accounting system which records in chronological sequence all money belonging to others which is received or disbursed by the broker. For funds received, the records maintained in the system must include the date of receipt and deposit, the name of the person who is giving the money, the name of the person and property for which the money was received, the purpose of the receipt, the amount, and. a resulting cash balance for the account. For funds disbursed, the records maintained in the system must include the date of payment, the check number, the name of the payee, a reference to vendor documentation or other physical records verifying purpose for payment, the amount paid, and a resulting cash balance for the account.

When must a broker deposit earnest money funds to the trust account?

Immediately upon receiving them
Prior to closing
Within 10 days
Within 3 days of acceptance of the contract

Within 3 days of acceptance of the contract

A check for the earnest money should either accompany the offer until accepted or be delivered prior to expiration of the Alternative Earnest Money Deadline. Most often, a buyer’s agent holding the deposit forwards a copy of the earnest money check with the offer to prove s/he has it, and then specifies a date in the Alternative Earnest Money Deadline when the actual check will be delivered after contract acceptance. If the deposit was tendered with the contract; it must be deposited no later than 3 business days after notice of acceptance of the contract.

From the real estate manual:

Except as provided in Rule E-l (o), all money belonging to others which is received by a broker as a property manager shall be deposited in such broker’s escrow or trust account not later than five business days following receipt. All other money belonging to others which is received by a broker shall be deposited in such broker’s escrow or trust account not later than the third business day following receipt.

If a broker has an interest-bearing trust account, the:

interest may accrue to a nonprofit affordable housing fund
interest earned belongs to the broker
broker must transfer the interest to the seller
interest earned may be applied to closing

interest may accrue to a nonprofit affordable housing fund

Interest may go to the benefit of a charity or one of the principals.

If there is a dispute regarding earnest money:

The broker has a choice to interplead the money or await written instructions from the parties
The broker must turn the money over to the court while awaiting resolution of the dispute
Seller and Buyer must sue the broker to resolve the impasse
The broker may move the money to an operating account

The broker has a choice to interplead the money or await written instructions from the parties

The broker has two options – to interplead the money or await written instructions from the parties. If the money is in dispute, the only thing an agent cannot do is make a decision as to who gets the money. An agent is not a judge or arbiter.

Interplead means the agent turns the money over to a court to determine the ownership rights of the rival claimants to the earnest money.

More on the process of returning Earnest Money:

The Colorado Contract to Buy and Sell Real Estate (AKA Purchase Contract) says the agent holding earnest money has 5 days to return earnest money to whomever is supposed to get it after receipt of written instructions to do do. This is covered in the Broker Acknowledgements sections of the purchase contact.

The actual language reads like this – “Broker agrees that if Brokerage Firm is the Earnest Money Holder and, except as provided in § .., if the Earnest Money has not already been returned following receipt of a Notice to Terminate or other written notice of termination, Earnest Money Holder will release the Earnest Money as directed by the written mutual instructions. Such release of Earnest Money will be made within five days of Earnest Money Holder’s receipt of the executed written mutual instructions, provided the Earnest Money check has cleared.”

BUT!!!!!! to make it even more fun for you, the Real Estate has issued Commission Position 6, whereby they say that if there is no controversy over who gets the earnest money, they want the money returned as quickly as possible and the agent does NOT have to get writen permission from all parties to do so.

Most companies as a prudent measure have both parties sign that they agree who gets the earnest money, before they release it. This just makes sense, woe to the agent who releases the earnest money and one of the parties throws a fit over it. Safer to get the parties to agree in writing first.

However, sometimes the party that is giving up the earnest money and their agent makes this a pretty low priority on their things-to-do-list. Keep in mind, they are grumpy the deal is dead and even if they know they need to release the earnest money, they are not happy about it. In the meantime, the other party wants their money. Buyers in particular are anxious as they are back on the market looking for a property and can’t make an offer until they get their earnest money returned. Therefore, the Commission has made is very clear, that they do not want slow paperwork to hold things up when there is no controversy.

Does this occasionally put us in an awkward position? Yup. Smart agents who do not like to even get within sniffing distance of having to write out a personal check to cover a perceived, if not actual screw up (that be me, except my wife would probably dispute the “smart” assertion) will move heaven and earth to get quickly signed releases by both parties before releasing earnest money.

If you find that one of your parties due to the stress of the failed deal ran instantly to consult with the yogi on the mountaintop and are not returning messages. You need to have a talk with your managing broker before doing something you may regret. It is always cooler to share the love and say “my managing broker said to do it and will make it good” then “how do I spell your name on my check”.

A broker writes checks from the trust account into his operating account.

broker is commingling and could have is license revoked
broker may be netting earned commission against earnest money deposits
broker is taking a negative ledger short cut, which is okay, but not advised
broker is commingling and will have his license revoked

broker is commingling and could have is license revoked

Commingling is mixing money from the trust account and the operating account; conversion is using some of the trust account money for your own use.

The owner of a house has paid the advance water charge for three months beginning October 1. The owner sold the house, and it closed November 27. How much credit will the owner receive at closing? The total water bill is $95.

35.10
35.89
36.14
36.94

36.14

$95 / 92 days = $1.0326 X 35 days = $36.14

On the settlement statement, the broker’s commission appears as a:

credit to the seller
debit to the seller
credit to the buyer
debit to the buyer

debit to the seller

Typically the real estate commission is a charge to the seller.

Lender required addons (called endorsements) to the Title insurance endorsements appear on a closing statement as a:

Debit to the buyer
Credit to the buyer
Debit to the seller
Credit to the seller

Debit to the buyer

Buyers pay for the extended policy (sometimes-called mortgagee policy or title insurance endorsements) naming the lender as beneficiary. On the 6 column worksheet this is shown as Debit Buyer and Credit Broker (so that the closer gets a check written to the title company for providing the insurance)

More info:

For more inquiring minds: This answer to this question refers to the 6 column worksheet which pre-personal computer days was used to calculate the numbers for a closing. The broker engages the title company to act as scrivener and conduct the closing which includes deposits and withdraws into and out of the closing escrow account. Although the escrow account used for closings is managed by the title company closer, legally the listing broker is still responsible for it. Therefore, on the 6 column settlement worksheet the columns pertaining to the closing escrow account are labeled “Broker Credit” and “Broker Debit.” Deposits into the closing escrow account are placed into the Broker Debit Column and withdrawals are listed in the Broker Credit column.

Wait a minute! How can a deposit be a debit? Unfortunately that is how it works. The 6 column settlement worksheet twists slightly the traditional rules of accounting so that the person responsible for the closing escrow account knows what checks to write and deposits to make. S/he does this by dedicating the “Broker Debit” column to deposits and the “Broker Credit” column to withdrawals. This way, for example, if the seller owes the County Treasurer for back taxes, the closer can take the money from the Seller by indicating Debit Seller and have a reminder to write a check to the County Treasurer by placing the corresponding credit into the Broker Credit column. When all is said and done accounting gods are happy as all debits and credits are in balance.

Which of the following items are signed by the buyer or seller, or lender and not sent to the county for recording?

The deed of trust
The warranty deed
The satisfaction of the seller’s mortgage
The promissory note

The promissory note

The buyer signs the deed of trust; the lender signs the satisfaction of mortgage; the seller signs the warranty deed; they are all recorded.

Closing is February 10 and taxes for the prior year were not paid for $1,854, this is shown on the settlement sheet as:

$1,854 debit to the seller, credit to the broker
$1,854 debit to the seller, credit to the buyer
$152.38 debit to the seller, credit to the buyer
$152.38 debit to the seller, credit to the broker

$1,854 debit to the seller, credit to the broker

Taxes for the prior year would be a debit to the seller and a credit to the broker. The previous years taxes are the seller’s problem. Debit the seller for $1854. The broker receives the funds as a Credit. (remember – the “broker” is a proxy for the title company closing agent who controls the escrow account). The broker (closing agent) will then write a check from the escrow account and send it to the governement to pay the past due tax bill.

The Certificate of Taxes Due is used to calculate:

the proration of taxes for the final tax agreement
the amount of taxes due pursuant to the Real Property Transfer Declaration
the amount of the transfer tax to be collected at closing
whether or not the sale will be subject to Colorado income tax withholding

the proration of taxes for the final tax agreement

The tax certificate is a breakdown of the current property tax liability for the property.

A house is closed on April 15. The property taxes are $960 for the year. They have not been paid. How much does the buyer receive from the seller at closing?

360
274
280
680

274

$960 / 365 days = $2.6301 per day the seller owned the property and owes the Buyer for 104 days. $2.6301 x 104 = $273.53

Interest on a new loan appears on a closing statement as a:

Credit to the buyer
Debit to the buyer
Credit to the seller
Debit to the seller

Debit to the buyer

The broker (Title Company) is charged interest (loan balance times the interest rate divided by 365 days to find daily rate) from the day of closing until the last day of the month.C6600

If the closing is March 15, and last years taxes of $1127 were not paid; how is this shown on the settlement sheet?

$1127 debit to the seller, credit to the broker
$1127 debit to the seller, credit to the buyer
$225 debit to the seller, credit to the broker
$225 debit to the seller, credit to the buyer

$1127 debit to the seller, credit to the broker

It will be shown on the settlement sheet as a debit to the seller and a credit to the broker. Remember, the broker represents the escrow account. The credit goes to the escrow account as the person in charge of it, represented by the broker, needs to write a check to the County to pay the seller’s delinquent tax bill.

Earnest money appears on a settlement statement as a:

Debit to the buyer
Credit to the buyer
Debit to the seller
Credit to the seller

Credit to the buyer
Earnest money is applied to the buyer’s purchase price.

Short answer for those with A.D.D. – Buyer gets credit for earnest money and broker has to depoist it into the escrow account. Credit Buyer Debit Broker

For more inquiring minds: This question refers to two different escrow accounts. One account is maintained by the brokerage firm and is used to hold earnest money pending the closing. The other escrow account is used at the closing. This answer to this question refers to the 6 column worksheet which pre-personal computer days was used to calculate the numbers for a closing. The broker engages the title company to act as scrivener and conduct the closing which includes deposits and withdraws into and out of the closing escrow account. Although the escrow account used for closings is managed by the title company closer, legally the listing broker is still responsible for it. Therefore, on the 6 column settlement worksheet the columns pertaining to the closing escrow account are labeled “Broker Credit” and “Broker Debit.” Deposits into the closing escrow account are placed into the Broker Debit Column and withdrawals are listed in the Broker Credit column.

Wait a minute! How can a deposit be a debit? Unfortunately that is how it works. The 6 column settlement worksheet twists slightly the traditional rules of accounting so that the person responsible for the closing escrow account knows what checks to write and deposits to make. S/he does this by dedicating the “Broker Debit” column to deposits and the “Broker Credit” column to withdrawals. This way, for example, if the seller owes the County Treasurer for back taxes, the closer can take the money from the Seller by indicating Debit Seller and have a reminder to write a check to the County Treasurer by placing the corresponding credit into the Broker Credit column. When all is said and done the accounting gods are happy as all debits and credits are in balance.

Standard title insurance charges appear on a closing statement as a:

Credit to the buyer
Credit to the seller
Credit to the broker
Debit to the broker

Credit to the broker

Title Company’s collect the title insurance premium at closing – a check is later sent to the title insurance premium company. It is usually a debit to the seller and a credit to the broker at time of closing.

Interest on the loan assumed is shown as:

debit to the buyer
credit to the buyer
credit to the broker
credit to the seller

Credit to the buyer a debit to the seller.
A house is closed on July 16. The taxes of $546 for the current year have been paid, what is the prorated portion that the buyer owes the seller

251.31
252.81
293.19
294.69

252.81
Divide the total taxes $546 by 365 (number of days in the year = $1.4959 per day time the number of days from July 16 through Dec 31 remember that the day of closing goes to the buyer, therefore times 169 = $252.81
Recording fees may appear on a closing statement as a:

Debit to the buyer
Debit to the seller
Credit to the broker

Buyer for the protection of the lender

Standard Title insurance is paid for by the seller. Title insurance endorsements by the buyer, in favor of the lender. This is usually called mortgagee insurance, or the mortgagees policy.

Title insurance endorsements appear on a closing statement as a
Credit to the broker
Title insurance endorsements are provided by the:

Seller for the protection of the lender
Buyer for the protection of the lender
Seller for the protection of the buyer
Buyer for the protection of the seller

Buyer for the protection of the lender
Settlement charges that are typically POC (Paid Outside of Closing) are:

Hazard insurance premiums
Appraisal fees
Credit report fees
Appraisal and credit report fees

Appraisal and credit report fees
Appraisal fees and credit reports are typically paid outside of the closing and are not calculated in the closing statement.
A house is closed on October 15. The annual insurance payment is $578 for the fiscal year of July 1 to June 30. The buyers will assume the seller’s policy. Since the policy has been paid, how much does the buyer owe the seller

167.86
410.14
408.56
169.44

410.14
$578 / 365 = $1.5836 per day. Seller paid for 259 days; he didn’t own the policy (Oct. 15 through June 30) 259 x $1.5836 = $410.14
n Colorado, each county requires the “Real Property Transfer Declaration” to be completed at closing and mailed to the county. Which of the following statements are true regarding this document

It is usually executed by the seller
It discloses the inclusion of personal property in the transfer
It discloses any relationship the buyer may have to the broker
It discloses certain terms of the financing that was secured by the seller

It discloses the inclusion of personal property in the transfer

The buyer customarily executes the real property transfer declaration; the seller could fill it out if the buyer was unable to.

On a purchase contract, which of the following are considered to be parties to the transaction?

Buyer, seller, broker, title company, lender
Buyer, seller, broker, title company
Buyer, seller, broker
Buyer, seller

Buyer, seller

Buyers and sellers are parties to a purchase and sale contract. Sellers and brokers are parties to a listing contract. Buyers and brokers are parties to an exclusive right to buy contract.

What is the debit/credit entry when a buyer assumes a loan from the seller?

debit broker, credit buyer
debit seller, credit buyer
debit buyer, credit seller
debit seller, credit broker

debit seller, credit buyer

The seller still owes the amount that is assumed (debit seller). On an assumption, that the buyer will be making payments against the loan does not relieve the seller of the obligation that it be paid in full. The buyer will not be required to bring this amount to the closing (credit buyer)

The purpose of a closing of a sale is to:

give the buyer the deed
give the seller his/her money
pay the broker his/her commission
all of the above

all of the above

The closing is the finalization of the contract (and payday for the broker).

An FHA loan for $80,000 at 10.5% requires discount points paid at closing in the amount of 3%. Find the cash value of the discount points.
2520
2400
3000
3150
2400
80,000 x 3 % = 2,400

Definition of ‘Discount Points’

Discount Points are a form of prepaid interest. A borrower buys a point and in return gets a lower interest rate on the loan. Each discount point generally costs 1% of the total loan amount and depending on the borrower, each point lowers your interest rate by one-eighth to one one-quarter of your interest rate. As the IRS considers discount points to be prepaid interest they are tax deductible in the year in which they were paid.

For example, on a $300,000 loan, each point would cost $3,000. Assuming the interest rate on the mortgage is 5% and each point lowers the interest rate by 0.25%. Buying 2 points will cost $6,000 and will result in an interest rate of 4.50%.

Both lenders and borrowers gain benefits from discount points. Borrowers gain the benefit of lowered interest payments down the road, but the benefit applies only if the borrower plans on holding onto the mortgage long enough to save money from the decreased interest payments. Lenders benefit by receiving cash upfront instead of waiting for money in the form of interest payments over time, which enhances the lenders liquidity situation.

On a practical basis; discount points are most often purchased by sellers as an incentive to prospective buyers. For most sellers, discount points are a cost of selling and thus tax-deductible. Buyers usually do not see enough benefit to purchase discount points. In the earlier example; spending $6,000 to reduce the interest rate to 4.5%, would have reduced the monthly payment by about $90. It would have taken a buyer 67 months to cover the cost of the points.

The sales price of a property appears on a closing statement as a:

Credit to the buyer
Credit to the seller
Credit to the broker
Debit to the broker

Credit to the seller
When reconciling a 6 column worksheet for a closing – after totaling up the debits and credits, the closing agent needed to add a $30,000 Debit to the Seller Debit column to make it equal to the Seller Credit column. What does this Seller Debit represent?

A $30,000 check the Seller must bring to the closing
A $30,000 check the Seller will receive from this closing

A $30,000 check the Seller will receive from this closing

This DEBIT represents the Seller’s proceeds from the sale (what they are getting).

More info:

This is a common spot of confusion, so do not let it break your head. The situation occurs at the bottom of the 6 column worksheet when you are reconciling the columns. Let’s assume for a moment you are looking at a Buyer’s columns. You have applied all the debits and credits and all you have to do is reconcile the columns which have $100,000 in the Credit column (money the buyer has proven they have) and $125,000 in the Debit column (what the Buyer owes). Looks like this Buyer is a little short, but by how much? To determine this amount, you have to make both columns equal. This enables the Closing Agent to determine how much the Buyer is short; which is also how much of a check the Buyer needs to bring and be deposited into the escrow account. So you add $25,000 to the Buyer’s Credit column to make both columns equal. Therefore this $25,000 CREDIT represents how much the Buyer is short, meaning this CREDIT does not represent how much they have, it represents how much they still OWE. This is how a CREDIT becomes something you OWE. We are not done reconciling yet. We have a $25,000 Credit, to balance it out we need a $25,000 Debit. That debit goes to the Broker account which represents the Escrow Account. Back to practical language – the Buyers needs to bring a $25,000 check to the closing so that they can make their Credit column (what they got) equal to the Debit column (what they owe) and the Broker (Closing Agent) needs to deposit it into the Escrow Account ($25,000 Debit). For extra points – the reverse is most common with the Seller. When a Sellers Debit column (what they owe) is lower than their Credit column (what they sold their property for), the amount added to the DEBIT column to make both columns equal represents money the Seller is receiving. The balancing CREDIT in the Broker column, reminds the Closing Agent to cut a check to the Seller out of the escrow account.

Title insurance endorsements appear on a closing statement as a:

Credit to the seller
Debit to the seller
Debit to the broker
Credit to the broker

Credit to the broker

The Title Company or broker, whoever is doing the closing, collects money for title insurance endorsements most typically from the buyer (Debit Buyer) and then places the coresponding amount into the Credit Broker column to ensure a check gets written to the title company for providing the endorsement. Endorsements are generally requirements by the lender for additional converage to be added to the title insurance policy.

More info:

This answer to this question refers to the 6 column worksheet which pre-personal computer days was used to calculate the numbers for a closing. The broker engages the title company to act as scrivener and conduct the closing which includes deposits and withdraws into and out of the closing escrow account. Although the escrow account used for closings is managed by the title company closer, legally the listing broker is still responsible for it. Therefore, on the 6 column settlement worksheet the columns pertaining to the closing escrow account are labeled “Broker Credit” and “Broker Debit.” Deposits into the closing escrow account are placed into the Broker Debit Column and withdrawals are listed in the Broker Credit column.

Wait a minute! How can a deposit be a debit? Unfortunately that is how it works. The 6 column settlement worksheet twists slightly the traditional rules of accounting so that the person responsible for the closing escrow account knows what checks to write and deposits to make. S/he does this by dedicating the “Broker Debit” column to deposits and the “Broker Credit” column to withdrawals. This way, for example, if the seller owes the County Treasurer for back taxes, the closer can take the money from the Seller by indicating Debit Seller and have a reminder to write a check to the County Treasurer by placing the corresponding credit into the Broker Credit column. When all is said and done accounting gods are happy as all debits and credits are in balance.

A purchaser is required to fill out a W-9 form at closing so that:

the federal government will always know your current address
the borrower’s lender can report interest payments to the IRS
the KGB taught the CIA that it is the “intelligent” thing to do
your income tax forms will automatically be mailed to your new address

the borrower’s lender can report interest payments to the IRS

A W-9 is prepared at closing so the borrowers lender can report interest payment to the IRS, and the borrower can claim the interest as a tax deduction.

Real estate closing fees customarily appear on a settlement statement as a:

Charge that is shared equally by the buyer and seller in the case of a conventional loan
Charge to the seller in the case of a VA loan
Charge that may be shared equally by the buyer and seller in the case of an FHA loan
All of the foregoing is true

All of the foregoing is true

By custom in Colorado buyers and sellers share the cost of closing a transaction where the buyer is getting a conventional loan. VA requires the seller to pay the cost of closing. FHA allows the buyer to pay 1/2 of the closing fee. This is shown as a debit to whomever is paying it and a credit to the broker so that a check is written to the title company for providing the service.

This debit and credit explained above refers to the 6 column worksheet which pre-personal computer days was used to calculate the numbers for a closing. The broker engages the title company to act as scrivener and conduct the closing which includes deposits and withdraws into and out of the closing escrow account. Although the escrow account used for closings is managed by the title company closer, legally the listing broker is still responsible for it. Therefore, on the 6 column settlement worksheet the columns pertaining to the closing escrow account are labeled “Broker Credit” and “Broker Debit.” Deposits into the closing escrow account are placed into the Broker Debit Column and withdrawals are listed in the Broker Credit column.

Wait a minute! How can a deposit be a debit? Unfortunately that is how it works. The 6 column settlement worksheet twists slightly the traditional rules of accounting so that the person responsible for the closing escrow account knows what checks to write and deposits to make. S/he does this by dedicating the “Broker Debit” column to deposits and the “Broker Credit” column to withdrawals. This way, for example, if the seller owes the County Treasurer for back taxes, the closer can take the money from the Seller by indicating Debit Seller and have a reminder to write a check to the County Treasurer by placing the corresponding credit into the Broker Credit column. When all is said and done accounting gods are happy as all debits and credits are in balance.

A house is sold on June 15. The annual taxes in the amount of $850 for the year have not been paid. What does the seller owe the buyer at closing?

384.25
465.75
468.08
381.92

384.25

Jan. 1 – June 14 = 165 days. $850 / 365 = $2.3288 per day tax liability.165 days x $2.3288 = $384.25

The Seller holds security deposits in the amount of $1,000 from each of six tenants. On the settlement sheet:

Credit Seller & Debit Broker $6,000
Debit Seller & Credit Buyer $6,000
Credit Seller & Debit Buyer $6,000.
Prorate the deposits between the Buyer and Seller based on the closing date

Debit Seller & Credit Buyer $6,000

Security deposits are a surity against damage to a property. It belongs to the tenants and not the owner. When the property is sold – they must be transferred in whole to the new owner. Debit Seller Credit Buyer.

Taxes for the current year are charged to the seller:

From day of closing until the last day of the year
From the first day of the year until the day prior to closing
Only if the buyer is not obtaining a new loan
As agreed upon in the contract to buy and sell

From the first day of the year until the day prior to closing

The seller pays the daily tax rate times the number of days from Jan. 1st until the day before closing at the time of closing because the current years taxes aren’t paid until next year.

Closing March 15, next payment due April 1. How many months of escrow can lender take for taxes?

1
2
3
4

3
The private lender will collect its loan in monthly

installments, along with one month’s taxes to be held in reserve so that sufficient funds are on hand to pay the yearly taxes when due. This reserve is based lender’s own loan requirement and state law, C.R.S. 39-1-119. This law provides that any amount held on May 20 in excess of 3/12 of the taxes paid that year must be refunded to the borrower on or before May 30. Payments to a reserve escrow account must be adjusted annually upon reasonable

belief of substantial improvements to the property or upon official notification of an increase in the actual amount of taxes levied. Failure to make a refund is subject to interest and penalty.

A lender requires the use of a Name Affidavit to identify:

the legal names of all borrowers
all of the alias’ used by the borrowers
the beneficiary in the event of the death of the borrower
the birth name of all female borrowers

all of the alias’ used by the borrowers

A name affidavit identifies all of the names, nicknames, middle initials, etc., that a buyer may have used.

Broker Bill has several agents in his employ. Agent Smith, an “S-Corporation” himself, has his commission checks written out to his “S-Corporation.” Because of this, Broker Bill is:

relieved of his duties to supervise Agent Smith
required to file tax withholding for Agent Smith
managing broker over Agent Smith
licensed under a corporation and no longer the employing broker

managing broker over Agent Smith

The employing broker must pay the licensee. The commission checks are not made to the licensee.

Interest in arrears is charged to the:

Buyer
Seller
Broker
Lender

Seller

The seller pays interest from the first day of the month until the day of closing (sellers loan balance times the interest rate divided by 365 to get the daily rate) on the loan the seller’s paying off.

Commissions earned by a broker in a real estate sales transaction

are determined by agreement of the broker and his or her principal.
may be shared with an unlicensed person, provided that such person aided the broker in bringing the buyer and seller together.
may be deducted from the earnest money deposit and claimed by the broker as soon as the buyer and seller execute the purchase and sales agreement.
are based on a schedule of commission rates set by the real estate commission.

are determined by agreement of the broker and his or her principal.

Commissions are determined by agreement of the broker and his or her principal.

An inaccurate county tax certificate failed to indicate the correct taxes due. Additional tax money due would be the responsibility of the:

Title Company
Buyer”s Agent
Seller
County Treasurer

County Treasurer
Reserve’s are charged to the borrower at closing for:

property taxes
hazard insurance
mortgage insurance
all of the above

all of the above

Frequently two months reserves of taxes and insurance are collected at closing since it is often as much as 59 days until the buyer makes their first payment.

The closing entity must withhold from the sellers proceeds up to 2% of:

The net proceeds as a luxury tax if the seller is from out-of-state
The net proceeds as a sales tax if the seller is from out-of-state
The selling price as a possible property tax liability if the seller is from out-of-state
The selling price as a possible income tax liability if the seller is from out-of-state

2% of the selling price as an INCOME tax liability.