Apply Escrow And Title Rules - Nationwide Multistate Licensing System NMLS

1. What three AfBA conditions must be met to comply with RESPA?

   Disclosure, no required use, only return on ownership interest. These AfBA conditions under RESPA ensure consumer awareness, freedom of choice, and prevention of disguised referral fees.

2. Which RESPA concept allows an affiliated business arrangement if conditions are met?

   Affiliated Business Arrangement (AfBA). AfBAs under RESPA permit business affiliations in settlement services provided they meet disclosure and compensation rules to protect consumers.

3. Which title insurance policy protects the buyer's equity and ownership rights?

   Owner's title insurance policy. The owner's policy covers the purchaser against title defects to preserve their investment and legal right to the property.

4. What is an unearned fee under RESPA Section 8(b)?

   A fee charged when no or nominal services are performed. RESPA Section 8(b) targets unearned fees to maintain integrity in settlement services by ensuring charges reflect actual value provided.

5. What is the RESPA rule for splitting a settlement fee between two providers?

   Permitted only if each performs actual, necessary services. RESPA allows fee splitting to promote fair compensation but requires that divided fees correspond to substantive work performed by each party.

6. Find the monthly escrow amount if annual taxes are $2{,}400$ and insurance is $1{,}200$.

   $300$. Summing annual taxes and insurance then dividing by 12 yields the monthly escrow amount to build reserves for timely payments.

7. What is a referral fee under RESPA Section 8(a)?

   Anything of value given for referring settlement service business. Under RESPA Section 8(a), referral fees are prohibited to eliminate conflicts of interest and ensure services are chosen based on merit, not incentives.

8. What is the Closing Disclosure (CD) primarily used for at settlement?

   To disclose final loan terms and itemized closing costs. The Closing Disclosure provides transparency by finalizing costs and terms, allowing consumers to verify accuracy before consummation.

9. What federal law governs disclosures and limits on settlement services and kickbacks?

   RESPA (Real Estate Settlement Procedures Act). RESPA mandates transparency in settlement costs, prohibits abusive practices, and requires specific disclosures to protect consumers.

10. What is a title commitment (preliminary title report) used for?

    To state conditions to insure and list exceptions to coverage. The title commitment outlines the insurer's terms, risks covered, and exclusions to inform parties of potential issues prior to closing.

11. What is an escrow account in a mortgage transaction?

    A third-party account holding funds until specified conditions are met. Escrow accounts ensure neutral handling of funds and documents in mortgage transactions until all contractual obligations are fulfilled.

12. Identify the TRID timing rule: how long before consummation must the CD be received?

    At least $3$ business days before consummation. TRID requires the 3-day period to give consumers time to review and question the final terms, promoting informed decisions.

13. What is the primary purpose of a settlement agent at closing?

    To coordinate closing and disburse funds per the settlement instructions. Settlement agents facilitate the closing process by ensuring all parties adhere to agreed terms and properly distribute funds as outlined.

14. Which changes typically require a new $3$-business-day CD waiting period?

    APR increase beyond tolerance, prepayment penalty added, loan product change. These specific changes under TRID trigger a reset to protect consumers from significant alterations without adequate review time.

15. Which RESPA section prohibits kickbacks and unearned fees for settlement services?

    RESPA Section 8. Section 8 of RESPA aims to prevent anti-competitive practices by banning referral fees and unearned compensation in real estate settlements.

16. What is title insurance designed to protect against?

    Loss from title defects, liens, or ownership claims. Title insurance indemnifies policyholders against financial losses arising from undiscovered title issues that could affect property rights.

17. Identify the correct formula for a monthly escrow payment for annual items totaling $T$.

    $\frac{T}{12}$. The formula divides annual escrow totals by 12 to determine the monthly contribution required for taxes and insurance reserves.

18. What is a title defect (cloud on title)?

    Any issue that can impair marketability or ownership rights. Title defects must be resolved before closing to ensure the buyer receives marketable title free from disputes or encumbrances.

19. What is a lien and why does it matter at closing?

    A legal claim on property; it must be paid off or addressed to close. Liens represent secured interests that must be satisfied at closing to transfer clear title and avoid future claims against the property.

20. What is a title search in the context of settlement services?

    A review of public records to identify ownership and recorded liens. A title search examines historical records to verify clear title and disclose any encumbrances before issuing insurance or closing.

21. What is an escrow disbursement at settlement?

    Payment from closing funds to parties per the Closing Disclosure. Escrow disbursements ensure accurate allocation of settlement funds to satisfy obligations and comply with disclosed terms.

22. What is "escrow holdback" in a purchase or refinance transaction?

    Funds withheld at closing to complete a required future item. Escrow holdbacks secure funds for post-closing obligations, ensuring completion of items like repairs to protect all parties.

23. What does "required use" mean under RESPA in settlement services?

    A consumer must use a provider to access a product or service. Required use violates RESPA by limiting consumer choice and potentially inflating costs through mandatory affiliations in settlement services.

24. What is an impound (escrow) waiver in mortgage lending?

    Borrower elects to pay taxes and insurance directly, not via escrow. An impound waiver allows borrowers to manage payments independently, provided they meet lender criteria for financial responsibility.

25. Which title insurance policy protects the lender's interest in the property?

    Lender's (loan) title insurance policy. The lender's policy safeguards the mortgagee's security interest up to the loan amount against title risks that could subordinate their lien.

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