Free Post 302 – Contracts and Closing End-of-Course Examination Practice Questions

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These topics describe the available practice for Post 302 – Contracts and Closing End-of-Course Examination. Review the examination outline and its sources for scope and allocation details.

• Basic Selected Contract Law Concepts

  • I. Basic Contract Terms [Digital REM search for: basic contract law]
  • A. Definition of Contract: A deliberate agreement between two or more competent parties supported by legal consideration to perform or abstain from performing some act
  • B. Express and Implied Contracts: words vs. conduct
  • C. Unilateral and Bilateral Contracts: promises by one party vs. both parties
  • D. Executed and Executory Contracts: fully performed vs. in the process of performing
  • E. Valid Contracts: satisfy all legal requirements; fully enforceable in court
  • F. Voidable Contracts: one party can avoid performance based on a legal principle
  • G. Void Contracts: does not satisfy all legal requirements; unenforceable in court
  • H. Addenda: adds something to the original contract; becomes part of the contract
  • I. Amendments: changes some term(s) of the original contract through later mutual written agreement
  • II. Essential Elements of a Contract (Manual, Chapter 10, Contract Law, pp. 295-303)
  • A. Mutual Assent / Offer and Acceptance / Meeting of the Minds (Manual, Chapter 11, Sales Contract Procedures, pp. 357-364)
  • 1. Communication of offer & acceptance
  • a. Oral communication
  • b. Personal delivery
  • c. Mail (traditional or special mail, such as USPS, FedEx, UPS, etc.)
  • d. Electronic methods of communication
  • 2. Offer
  • a. Definition: a promise (that is definite in terms) by an offeror asking for a promise or an action by an offeree
  • b. Typically, the buyer is the initial offeror and the seller is the initial offeree; but sellers can initiate offers
  • c. Brokers must present all offers to offeree (or their agent) immediately but in no case later than 3 days from receipt by broker [NCGS 93A-6(a)(13); Rule 58A .0106(a)]
  • i. Even if property is already under contract
  • ii. Broker cannot “hold” offer while negotiating compensation agreement
  • iii. Use of Back-up Contract Addendum (NC REALTORS® Standard Form 2A1-T will be covered in Section 2 with other standard addenda)
  • 3. Acceptance
  • a. Mailbox rule [Digital REM search for: mailbox]
  • i. Acceptable notification as long as offer does not prohibit it
  • ii. Must be properly addressed to the offeror
  • iii. Offer considered accepted at date and time of mailing
  • iv. Neither party can withdraw offer or acceptance once mailed
  • v. Only applies to communicating acceptance of an offer; not termination of an offer or contract
  • b. Communication to agent same as to principal
  • 4. Termination of offers
  • a. Counteroffer (a new offer with partial or conditional acceptance of original offer terms)
  • b. Rejection by offeree by notification or lapse of time specified in offer
  • c. Revocation by offeror any time prior to communication of acceptance from offeree
  • d. Destruction of the property
  • e. Death or insanity of the offeror immediately terminates without notice to the offeree
  • f. Response to Buyer’s Offer (NC REALTORS® Standard Form 340-T) [Digital REM search for: 340-T]
  • i. Is not a counteroffer; the seller is not bound, so free to negotiate and even go under contract with others while waiting for original buyer’s response to the form
  • ii. Can be used with one or multiple offers
  • iii. Three (3) possible responses to the buyer
  • B. Consideration: Anything that is bargained for and given in exchange for a promise; usually the sales price or rent in real estate
  • C. Legal Capacity of the Parties [Digital REM search for: legal capacity]
  • 1. Obtain legal advice if unsure of legal capacity of a party prior to executing an offer or acceptance
  • 2. No legal capacity to contract
  • a. Minors (persons under the age of 18 in NC) - voidable
  • b. Persons declared mentally incompetent by court of law - void
  • c. Persons mentally incompetent in fact - voidable
  • d. Persons intoxicated or under drug influence who do not understand what they are doing when signing a contract - voidable
  • D. Lawful Objective
  • III. Impediments to Mutual Consent [Digital REM search for: mutual consent]
  • A. Mistake
  • 1. Mistake of fact
  • a. Definition: an erroneous impression on the part of one or both parties regarding some material aspect of the contract
  • b. Contract may be voidable if the mistake of fact
  • i. Involves a material term or aspect;
  • ii. Is mutual; and
  • iii. Is not the result of fraud or negligence
  • c. Unilateral mistakes of fact do not release parties from their obligations
  • 2. Mistake of law
  • a. Definition: mistaken understanding of legal effect of the contract
  • b. Does not excuse obligation of a party
  • B. Fraud and Misrepresentation
  • 1. Fraud
  • a. Elements of fraud
  • i. False misrepresentation or omission of a past or existing material fact
  • ii. Made with knowledge of falsity or in reckless disregard of its truth
  • iii. With the intent that it will be acted upon by the other party
  • iv. That is acted on by that party resulting in their injury
  • b. Voidable by the deceived party; not automatic
  • 2. Innocent misrepresentation
  • a. Definition: an untrue representation by a party believing it to be true
  • b. May be basis for contract rescission
  • C. Unfair or Deceptive Trade Practices Act [NCGS 75-1.1] [Digital REM search for: deceptive]
  • 1. Includes
  • a. Providing a misleading opinion or false inducement
  • b. Failing to disclose a material fact
  • c. Misleading advertising
  • d. Misrepresenting the nature or extent of a guarantee or warranty
  • 2. Injured party is entitled to treble damages [NCGS 75-16]
  • 3. Application
  • a. Applies to
  • i. Real estate brokers
  • ii. Owners who regularly sell real estate
  • b. Does not apply to For Sale By Owner that does not generally engage in real estate trade
  • D. Duress
  • 1. Overcoming the will of a person by violence or threat of violence
  • 2. Voidable by injured party through legal action within a reasonable time after duress is removed
  • E. Undue Influence
  • 1. One person takes unfair advantage of another person due to a close, confidential, or fiduciary relationship (e.g., parent - child, broker - client, attorney - client)
  • 2. Voidable if contract was induced by undue weight being given to the counsel of the fiduciary party
  • IV. Other Contract Law Issues
  • A. Statute of Frauds [NCGS 22-2] [Digital REM search for: statute]
  • 1. Certain contracts must be in writing to be enforceable
  • a. All contracts to convey interest in real property
  • b. A lease that exceeds 3 years from the “making”/signing of the lease agreement
  • c. Contract modifications
  • d. Agency agreements are considered employment contracts, not real estate contracts, and are excluded from Statute of Frauds; Commission rules require these to be in writing
  • 2. Verbal negotiations and agreements are not enforceable (See Parol Evidence Rule below)
  • 3. Necessary elements for compliance with Act
  • a. Individual names of the parties to the contract
  • b. Subject matter of the contract
  • c. Material terms and conditions
  • d. Signature of any party to be charged with the contract (or an authorized
  • B. Electronic Transactions
  • 1. Uniform Electronic Transactions Act (UETA) [Digital REM search for: UETA]
  • a. Applies to interstate transactions involving at least one natural person who is
  • i. Purchasing or selling an owner-occupied dwelling, or
  • ii. Leasing a vacation rental property for personal use, or
  • iii. Leasing a pre-1978 dwelling to use as their residence
  • b. If parties consent to use electronic means, they cannot later deny the validity of those transactions
  • c. Electronic signature: a sound, symbol or process attached to, or logically associated with, a record, executed or adopted by a person with the intent to sign the record
  • d. North Carolina version (NCUETA) [NCGS Article 40, Chapter 66]
  • i. Regulates intrastate commerce
  • ii. Required notice in NC consumer transactions [NCGS 66-327]
  • 2. Electronic Signatures in Global & National Commerce Act (ESIGN) [Digital REM search for: electronic signatures] regulates interstate and foreign commerce (i.e., commerce across state lines)
  • measures. Refer to Cybersecurity section of the 2020-2021 Update and Wire Fraud section of the 2019-2020 Update for examples of application to brokerage transactions.
  • C. Discharge of Contracts [Digital REM search for: discharge of contracts]
  • 1. Full and complete performance of all contract terms by all parties
  • 2. Agreement of the parties
  • a. Release: a contract to destroy an earlier contract
  • b. Novation: a new contract substituted for a previous contract
  • c. Subsequent Modifying Agreement: a new contract changing the terms of the original contract
  • d. Accord and Satisfaction: mutually agreed upon compromise
  • e. Cancellation
  • 3. Material breach
  • a. Failure of one party to perform a major contract obligation may release non- breaching party from obligation to perform
  • b. Not all failures to perform are material; obtain legal guidance
  • c. Most contracts do not use “time of the essence” so a reasonable time to perform must be allowed
  • 4. Impossibility of performance
  • a. Consequences of contingent contract conditions should be addressed in the contract terms; non-performance of such conditions seldom allow for contract termination without specific contract language
  • b. Generally refers to impossibility of the thing to be done, not the inability of the promisor to do it
  • c. If a party dies after contract formation, but prior to closing, the contract is binding upon heirs and/or estate of contract parties
  • 5. Operation of law may override contract (e.g., bankruptcy of a party; statutes of limitation; government action)
  • D. Assignment
  • 1. Transfer of all contract rights and obligations of the assignor to the assignee
  • 2. Unless released by the other party to the contract, the assignor will remain secondarily liable for performance of contract terms
  • E. Rules for Interpretation of Contracts
  • 1. Parol Evidence Rule [Digital REM search for: parol evidence]
  • a. All previous negotiations and informal agreements are superseded by written contract terms
  • b. Preliminary negotiations inconsistent with terms of written contract are not admissible to alter the terms of the contract
  • 2. A contract is to be interpreted as a whole
  • 3. Ordinary words will be interpreted in their ordinary, popular sense unless circumstances show that the parties clearly intended a different use
  • 4. Written provisions will override pre-printed contract language, if there is a conflict
  • 5. Writer of ambiguous language will be held liable for confusion; court generally rules in favor of party that did not draft the confusing language
  • F. Contract Remedies for Breach [Digital REM search for: contract remedies]
  • 1. Money Damages
  • a. Compensatory damages: intended to make injured party whole, not to penalize the breaching party
  • b. Consequential damages: also known as special damages, a money award made by a court to compensate the injured party for damages that resulted from a foreseeable result of wrongdoing that a reasonable person could have foreseen); very unusual in real estate transactions
  • 2. Specific Performance [Digital REM search for: specific performance]
  • a. One party sues the other party to make them perform according to the contract terms
  • b. Frequently granted to buyers due to the unique nature of each parcel
  • c. Rarely granted to sellers
  • 3. Rescission [Digital REM search for: rescission]
  • a. Declares the contract invalid and returns the parties to the position they were in prior to entering the contract
  • b. May be granted for
  • i. Mutual mistake of fact
  • ii. Fraud or misrepresentation cases
  • iii. Undue influence or duress situations
  • G. Real Estate Auction Sales Level 1
  • 1. With reserve vs. without reserve
  • 2. Regulation of auctions & auctioneers
  • a. Real estate license not required for person acting solely as auction’s crier of sales
  • b. Real estate license is required for person performing any activity other than “crier”, such as advertising and conducting the auction, making representations about the property, or soliciting people to attend the auction
• Real Estate Sales Contract Preparation

  • I. Introductory Concepts
  • A. Expectation of Broker Competence [NCGS 93A-6(a)(8)]
  • 1. Competent and accurate completion of pre-printed standard sales contract forms
  • 2. Understanding of all provisions in standard pre-printed forms
  • 3. Inclusion of all points of agreement in the final written contract; no ambiguous terms
  • 4. Incompetence is a violation of fiduciary duties under the common law of agency and License Law
  • B. Prohibition against Drafting Contract Language for Others [Digital REM search for: drafting]
  • 1. Drafting constitutes unauthorized practice of law [NCGS 93A-6(a)(11)]
  • 2. Brokers are legally permitted to fill in the blanks of preprinted forms
  • 3. Have an attorney draft any unique contract language
  • C. Sources of Standardized Sales Contract Forms
  • 1. REALTORS® may obtain and use the contract forms created by NC REALTORS® as part of their membership benefits
  • 2. Non-REALTOR® brokers may not initiate use of forms bearing the REALTOR® logo
  • 3. Non-REALTOR® brokers may obtain and use the sales contract forms and standard addenda that are jointly approved by North Carolina REALTORS® and the North Carolina Bar Association (NCBA), that bear only the NCBA logo/approval, through an attorney or forms vendor
  • D. Requirements for Broker-Provided Preprinted Sales Contract Forms [Rule 58A .0112] [Digital REM search for: preprinted contract]
  • 1. Must include 19 items/issues
  • 2. The NC Bar Association/NC Association of REALTORS®, Inc. (NCBA/NCAR) jointly approved contract forms are Rule-compliant
  • 3. Prohibited provisions [Rule 58A .0112(b)]
  • a. Brokerage compensation
  • b. Liability disclaimer for broker
  • 4. Parties to the contract (including licensed parties)
  • a. May alter, amend, or delete any provision in a standardized contract
  • b. May draft their own offer or contract
  • c. May have an attorney draft an offer or contract on their behalf
  • II. Detailed Review and Completion of the Standard Sales Contract Forms Jointly Approved by NC REALTORS® and the North Carolina Bar Association (NCBA)
  • A. Standard Contract Forms and Addenda to be Reviewed
  • 1. Specialized standard NCBA/NCAR sales contracts (e.g., residential, vacant lot/land, commercial)
  • a. Offer to Purchase & Contract, Standard Form 2-T (with Form 2-G Guidelines for Completing the Offer to Purchase and Contract)
  • i. Primarily intended for sale of existing single-family residences
  • ii. Use standard addenda to tailor to needs of the parties
  • iii. Do not use for lease-option agreement, lease-purchase agreement, or installment land contract
  • b. Offer to Purchase & Contract -- Vacant Lot/Land, Standard Form 12-T (with Form 12-G Guidelines)
  • i. Intended for sale of unimproved land or lot being bought for personal use
  • ii. not intended for sale of a large tract of land, such as purchase of land for subdivision development and resale
  • c. Offer to Purchase & Contract (New Construction), Standard Form 800-T (with Form 800G Guidelines)
  • i. Intended for sale of new residential construction to be built prior to closing
  • ii. If sale involves completion of new construction that is well under way at time of contract formation, use Standard Form 2-T with 2A3-T, New Construction Addendum
  • d. Agreement for Purchase & Sale of Improved Real Property, Standard Form 580-T; commercial sales transactions
  • e. Agreement for Purchase & Sale of Land, Standard Form 580L-T
  • i. Very similar to 580-T that was previously used with attorney-drafted addendum for land purchases
  • ii. Includes provisions that deal with unique land issues (e.g., possibility of a price per acre purchase price; rollback taxes; leases that may need to be terminated prior to closing; etc.)
  • 2. Twelve (12) NC REALTORS® /NCBA jointly approved standard addenda (Forms 2A1-T through 2A14-T and 3-T with Guidelines) for use in conjunction with the various standard residential Offer to Purchase and Contract forms
  • 3. Guidelines are provided for many standard NC REALTORS® forms
  • B. Common Mistakes in Contract Completion
  • 1. Use of the phrase “owner of record”
  • 2. Failure to clearly list fixtures that will not convey
  • 3. Failure to clearly specify Seller’s personal property that will convey
  • 4. Failure to clearly define all critical dates
  • 5. Failure to timely present offers and executed contracts
  • 6. Confusion about negotiating repair issues vs. completion of repair work
  • C. General Guidelines for Contract Completion [Digital REM search for: 2G]
  • 1. Type or print legibly
  • 2. Fill in ALL the blanks; enter “N/A” or “none” as appropriate
  • 3. Be precise; avoid abbreviations, acronyms, or unclear terminology
  • 4. Both Buyer & Seller should initial and date every change, addition, or deletion
  • 5. Rewrite offer if there are numerous changes; retain copies of all offers and contracts
  • 6. Review ALL contract provisions with the parties and recommend they obtain legal advice to answer legal questions
  • III. Major Paragraphs of Standard Form 2-T (Manual, pp. 330-355) [Digital REM search for: 2-T]
  • transaction. Pay particular attention to application Rule 58A .0116(b)(3-4) regarding following Buyer’s instructions for delivery to and the timing of deposit by the Escrow Agent.
  • IV. All Standard NC REALTORS® Residential Addenda
  • A. 2A1-T: Back-up Contract Addendum (Manual, Chapter 11, Back-Up Contract Addendum, pp. 356-357)
  • 1. Seller is not required to take Property off the market once under contract
  • 2. Addendum ties dates for DDP and Settlement Date to Seller’s delivery of notice that the contract has primary status; contract blanks for these dates should reference the Addendum
  • 3. Back-up Contract remains in secondary position until primary contract is performed or terminated
  • 4. Back-up Buyer may terminate with automatic termination date or any time prior to notification that their contract has primary status
  • 5. There can be multiple Back-up Contracts on the same property; proper completion of the forms is critical for clarity
  • B. 2A3-T: New Construction Addendum
  • C. 2A4-T: FHA/VA Financing Addendum
  • D. 2A5-T: Seller Financing Addendum
  • E. 2A6-T: Loan Assumption Addendum
  • F. 2A7-T: Buyer Possession Before Closing Addendum
  • G. 2A8-T: Seller Possession After Closing Addendum
  • H. 2A9-T: Lead-Based Paint or Lead-Based Paint Hazard Addendum
  • I. 2A11-T: Additional Provisions Addendum
  • 1. Expiration of offer with Time Being of the Essence
  • 2. Septic System Installation/Modification
  • 3. Rental/Income/Investment Property
  • 4. Agreed-Upon Repairs and/or Improvements (for items identified before contract formation)
  • 5. Manufactured (Mobile) Home
  • 6. Pool/Spa Inspection/Preparation
  • 7. Off-site and/or Separate Septic Lot, Boat Slip, Garage, Parking Space, Storage Unit
  • J. 2A12-T: Owners’ Association Disclosure and Condominium Resale Statement Addendum
  • K. 2A13-T: Vacation Rental Addendum
  • L. 2A14-T: Short Sale Addendum
  • 1. Definition of Short Sale and associated risks
  • 2. Contingent on written approval of all Seller’s lienholders
  • 3. Rights to Terminate
  • 4. Dates established for DDP and Settlement
  • 5. Other Offers
  • 6. Issues with Foreclosure/Bankruptcy/Tax Consequences
  • V. Review of Other Specialized Sales Contracts
  • A. Offer to Purchase and Contract – Vacant Lot/Land (Form 12-T) and Guidelines for Completing (Form 12-G)
  • B. Offer to Purchase & Contract (New Construction), (Form 800-T) and Guidelines for Completing (Form 800-G)
  • C. Agreement for Purchase & Sale of Improved Real Property (Form 580-T)
  • D. Agreement for Purchase & Sale of Land, (Form 580L-T)
• Sales Contract Procedures

  • I. Submitting Offers to Sellers [NCGS 93A-6(a)(13); Rule 58A .0106] [Digital REM search for: submitting offers]
  • A. Delivery to Parties of Offers, Contracts, and other Transactional Documents
  • 1. No later than 3 days from receipt by broker of executed document
  • 2. Applies to all brokers in the transaction regardless of who they represent or how they will be compensated
  • 3. Oral presentation of the offer terms to the offeree does not negate the requirement for the broker to deliver the offer within 3 days
  • 4. Listing broker has no authority to accept or reject an offer on behalf of Seller; the broker should point out advantages and disadvantages of the offer and provide any information that might affect the Seller’s decision, such as notice that another offer is forthcoming
  • 5. Only 1 contract signed by all parties required to be binding; copies to all contract parties required by Rule 58A .0106
  • B. Multiple Offers [Digital REM search for: multiple offers]
  • 1. All Offers must be presented immediately (but no later than 3 days) even if Property already under contract
  • 2. Concurrent Offers must be presented at the same time; no particular order of presentation is required
  • 3. Disclosure of Offer and/or Terms
  • i. Existence of other offers not a material fact
  • ii. Broker prohibited from sharing material terms of an offer without express permission of offeror [Rule 58A .0115]
  • iii. Broker needs Seller’s authority to share existence of other offers and/or terms that might be acceptable to the Seller
  • II. Offer Modification and Counteroffers
  • A. Assume any change to an offer rejects the original offer
  • B. A counteroffer is created if offeree makes changes to original offer, initials those changes, and signs the offer before returning it to the original offeror
  • C. Possible use of NC REALTORS® Standard Form #340-T Response to Buyer’s Offer
  • D. Numerous term changes should prompt use of a new offer form completed with current terms under consideration by the parties
  • E. Retain all offers, even if rejected or replaced [Rule 58A .0108]
• Closing Preparations and Procedures

  • I. General Pre-Closing Procedures [Digital REM search for: pre-closing]
  • A. Respective Responsibilities of the Parties
  • B. Select the Settlement Agent [Digital REM search for: settlement agent]
  • 1. Buyer should identify the Settlement Agent of their choice immediately after contract formation, if not before
  • 2. In North Carolina, most real estate closings are handled by a real estate closing attorney
  • 3. Settlement Agent usually represents Buyer, Buyer’s lender, and may provide some services to Seller
  • 4. Buyer agent may make recommendations for Settlement Agent as long as there is no reward for referring (e.g., kickback)
  • C. Provide Information to Settlement Agent
  • 1. All available information that will assist in preparing for closing, including but not limited to
  • a. Copies of the contract
  • b. Seller’s deed
  • c. Seller’s title insurance policy
  • d. Information on Seller’s loan payoff or lender
  • e. Contact information for any owners’ association that charges dues, fees, or assessments
  • f. Any invoices or services that are to be paid at Settlement
  • g. Any contract amendments, as soon as executed
  • 2. Both parties should provide information to Settlement Agent as soon as available to expedite Closing
  • D. Settlement Date and Delays
  • performance. Review the paragraphs in Standard Form 2-T regarding this matter
  • II. Buyer’s Due Diligence Process [Digital REM search for: due diligence process]
  • A. General Responsibility of Broker Working with a Buyer
  • B. Inspections and Investigations
  • 1. Including, but not limited to, those recommended under Paragraph 4 of Standard Form 2-T
  • 2. Possible Discoveries during Physical Inspection by Buyer
  • a. Tenants
  • b. Easements & encroachments
  • c. Recent construction or renovations
  • C. Resolution of Inspection/Repair Issues
  • 1. Buyer strongly encouraged to resolve any issues prior to the end of DDP
  • 2. Seller is under no obligation to make repairs or improvements to the Property, unless they are terms of the contract
  • 3. Standard forms to use in negotiation of repair issues
  • a. Additional Provisions Addendum (Form 2A11-T)
  • b. Due Diligence Request & Agreement (Form 310-T)
  • c. Agreement to Amend Contract (Form 4-T)
  • III. Other Pre-Closing Matters
  • A. Title Search [Digital REM search for: title search]
  • B. Clearing of any Title Defects by Seller [Digital REM search for: title defect]
  • 1. Seller’s existing mortgage loan
  • 2. Any home equity loans
  • 3. Mechanic’s liens
  • C. Prepare Assignment of any Outstanding Leases and Related Security Deposits from Seller to Buyer
  • D. Final Pre-Closing Procedures [Digital REM search for: final pre-closing]
  • 1. Transfer EMD from Escrow Agent to the Settlement Agent no earlier than 10 days prior to scheduled Settlement [Rule 58A .0116(e)]
  • 2. Review draft of Closing Disclosure by listing and selling broker for accuracy as soon as available
  • a. TRID requires lender to provide Borrower’s Closing Disclosure (BCD) to borrower at least 3 business days prior to Settlement
  • i. Definition of delivery and receipt
  • ii. Buyer agents should alert buyers to look for and acknowledge receipt of BCD in a timely manner
  • b. Any of the following three (3) changes will prompt the need for a new BCD and a new 3 business day waiting period
  • i. An increase in APR
  • ii. A change in loan product
  • iii. Addition of a prepayment penalty
  • c. No delivery deadline prior to Settlement for Seller’s Closing Disclosure
  • 3. Notify Buyer of certified funds needed to close
  • 4. Attorney orders title insurance policy for lender and owner
  • IV. Closing Methods [Digital REM search for: closing method]
  • A. Escrow Closing Method
  • 1. Escrow agreement instructions accomplished virtually by Escrow Agent; parties do not attend a meeting
  • 2. Escrow Agent is generally a title company or lender’s escrow division
  • 3. Relation Back Doctrine: deed is considered delivered once Seller has delivered it to Escrow Agent
  • 4. Extremely rare in NC
  • B. Settlement Meeting Method
  • 1. Most common closing method in NC
  • 2. Residential closings in NC are generally coordinated by 1 attorney; separate attorneys may be used in complex or commercial transactions
  • 3. Role of Non-lawyers at Settlement
  • a. Present & identify documents necessary to complete NC closing
  • b. Direct parties where to sign documents
  • c. Ensure parties have properly executed the documents
  • d. Receive & disburse closing funds
  • e. Avoid performing unlawful practice of law activities
  • 5. Settlement Meeting Procedures
  • a. Location and parties attending
  • i. Buyer generally attends
  • ii. Seller may not attend if all documents have been signed
  • iii. Listing broker and selling broker should attend, unless broker’s license is no longer on active status on settlement date
  • b. Review of documents
  • c. Post-settlement meeting tasks: title update, recording, disbursing funds, tax reporting requirements, etc.
• Real Estate Settlement Procedures Act (RESPA) and TILA- RESPA Integrated Disclosure Rule (TRID)

  • I. Applicability of RESPA [Digital REM search for: respa]
  • A. Federally related residential mortgage loan made by institutional lenders to purchase 1-4 family dwelling that is or will be constructed or placed on the property within 2 years of purchase
  • B. Regulation X administered by Consumer Financial Protection Bureau (CFPB) under the Dodd-Frank Act
  • C. Applies to all settlement services providers (brokers, lenders, closing attorneys, title companies, appraisers, surveyors, etc.)
  • D. Does not apply to loans for commercial, business or agricultural purposes, even if residential property is included
  • II. RESPA Requirements/Consumer Protections
  • A. Purpose is to protect consumers against abusive lending practices and ensure accurate and timely disclosure of settlement costs
  • B. Disclosure & Borrower Credit for Yield Spread Premiums
  • C. Loan Servicing Disclosure Requirements
  • 1. Whether loan servicing can be sold, transferred or assigned
  • 2. Borrower notification required prior to transfer of servicing
  • D. Escrow Account Restrictions
  • 1. Maximum amount collected monthly by the lender is 1/12 of annual tax & insurance disbursement
  • 2. Lender may escrow a cushion amount not to exceed 1/6 of annual tax & insurance disbursement
  • E. Prohibited Kickbacks or Referral Fees
  • 1. Applies to all service providers including real estate brokers for payment or receipt of payment for referral of business to or from another service provider
  • 2. Referral fees between real estate brokers for brokerage activities are expressly permitted
  • 3. Any thing of value includes money, prizes, coupons, gift certificates, etc.
  • 4. Disclosure of Affiliated Business Arrangements
  • a. Disclosure of relationship and a written estimate of charges for services
  • b. Person is not required to use a particular service provider
  • c. Only “thing of value” received for referral is return on ownership interest
  • F. Special Information Booklet for Homebuyer/Borrowers
  • 1. Lender or mortgage broker must provide booklet to consumer within 3 business days following loan application
  • 2. Educational booklet about the buying and borrowing process [available at
  • G. Written Estimate of Settlement Charges (the Loan Estimate) within 3 business days of loan application [Digital REM search for: loan estimate]
  • 1. Definition of Loan Application
  • 2. Intended to encourage borrowers to shop for loans
  • H. HUD-1 Settlement Statement generally replaced by Closing Disclosures
  • I. Penalties for Violating RESPA
  • 1. Criminal fines up to $10,000 per violation
  • 2. Imprisonment for up to 1 year
  • 3. Injunctions against illegal activity and orders to compensate victims for illegal profits
  • 4. Civil lawsuits for treble damages
  • 5. Violation of License Law 93A-6(a)(10) for brokers
  • III. TILA-RESPA Integrated Disclosure (TRID) Rule [Digital REM search for: TRID]
  • A. The Loan Estimate (LE)
  • 1. Permissible Variations/Tolerance Limits
  • 2. Brokers’ Responsibility for LE
  • B. The Closing Disclosures [Digital REM search for: closing disclosure]
  • 1. Delivery of Borrowers’ Closing Disclosure no less than 3 business days prior to Settlement (excludes only Sundays & 10 federal holidays in day count)
  • 2. Corrected/Revised Closing Disclosure requiring a 3 day waiting period to Close (See Section 4, III.D.2.b.)
  • 3. Brokers’ Responsibilities [93A-6(a)(14)]
  • a. Confirm accuracy of entries about which they have direct knowledge
  • i. Amounts noted in contract
  • ii. Broker may assume amounts paid by third parties are correct unless there is cause for a reasonable broker to suspect an amount is incorrect
  • iii. All expenses related to the transaction should be reflected, not just amounts paid by Settlement Agent or paid by third parties
  • iv. As to all debits and credits related to the transaction, whether paid before or at closing, the broker must
  • b. Notify all parties to the transaction of any errors or omissions
  • c. May rely on attorney or lawful settlement agent for delivery of statement to parties
• The Settlement Statement

  • I. Allocation of Settlement Expenses [Digital REM search for: closing expenses]
  • A. Credits and Debits for Buyers and Sellers
  • 1. Definitions
  • a. Credit: an amount payable to a party usually for an amount already paid (e.g., EMD or DDF for buyer) or being reimbursed (e.g., prepayment of buyer’s prorated tax portion for seller) or being paid by a third party on one’s behalf (e.g., loan amount for buyer)
  • b. Debit: an amount owed by a party that is to be paid at settlement
  • 2. Typical NC Buyer Expenses
  • a. Closing attorney’s fee
  • b. Appraisal
  • c. Inspection fees
  • d. Loan fees, if applicable
  • e. Interim interest on loan
  • f. Escrow pre-paid deposits, if required by lender
  • i. Property taxes
  • ii. Mortgage insurance
  • iii. Homeowners insurance
  • iv. Owner association dues, if paid by lender on behalf of owner
  • v. Aggregate adjustment
  • g. Survey
  • h. Recording fees for deed and loan documents
  • 3. Typical NC Seller Expenses
  • a. Broker’s commission
  • b. Excise tax
  • c. Deed preparation
  • d. Quick claim deed preparation, if needed to clear title
  • e. Seller concessions per contract terms
  • B. Prorated Entries [Digital REM search for: prorated]
  • 1. Definition of Proration: the division or distribution of property expenses at settlement between the buyer and the seller proportionate to the ownership period of each
  • 2. Common Prorated Items
  • a. Real Estate Taxes (various situations)
  • b. Rents
  • c. Homeowner’s Dues
  • II. Buyer’s Closing Disclosure
• Other Topics (45 minutes) Level 2

  • I. Alternate Conveyance Contracts (Manual, Chapter 11, Installment Land Contract, pp. 367-376)
  • A. Installment Land Contract (also called Contract for Deed, Land Contract) [Digital REM search for: installment land]
  • 1. Definition: Agreement whereby real property is sold on the installment payment
  • 2. No standard contract form; consult an attorney; do not use REALTOR® Standard Form 2-T
  • 3. Seller must record Contract for Deed or a Memorandum within 5 business days of execution
  • 4. Buyer must be allowed up to 30 days to cure a default
  • 5. Advantages and Disadvantages
  • B. Option to Purchase [Digital REM search for: option to purchase]
  • 1. Definition of Option: Unilateral contract that binds the property owner (optionor) to hold an offer to sell open for a set period of time and gives the other party (optionee) a legal right, in exchange for an option fee, to accept or not accept that offer to sell during the time period of the option
  • 2. No standard option form; consult an attorney; do not use NC REALTORS® Standard Form 2-T
  • 3. Rights of parties
  • a. Optionor
  • i. Gives up right to sell property to anyone other than optionee during option period
  • ii. Negotiations during the option period do not affect original terms of the option
  • b. Optionee
  • i. Has exclusive right to buy property during the option period only on specified terms of the option
  • ii. Has no obligation to exercise the option
  • iii. Can negotiate different terms during the option period without giving up right to exercise the option
  • 4. Two types of consideration
  • a. Option fee, generally non-refundable
  • b. Purchase price
  • 5. Must be in writing and recorded
  • 6. Time Being of the Essence in regard to date to exercise the option
  • 7. Residential leases may include an option to purchase
  • 8. Advantages and Disadvantages
  • C. Preemptive Rights Level 1 [Digital REM search for: preemptive]
  • 1. Right of First Refusal: owner legally promises another party that, if the owner decides to sell in the future, the other party can buy the property by matching a bona fide offer from a third party
  • 2. Right of First Opportunity to Purchase: owner legally promises another party that, if the owner decides to sell in the future, the owner will give the other party the first opportunity to buy the property at a price to be determined at that time
  • II. License Status and Education Issues [NCGS 93A-4; Rules 58A .0503, A .0504, A .0505, and A .0506]
  • A. License Status: Meaning of provisional broker, active, inactive, expired, suspended, and revoked status.
  • B. Postlicensing Education Requirement (and consequences of failure to satisfy) [Rule 58A .1902]
  • C. Continuing Education Requirement (and consequences of failure to satisfy) [Rules 58A .0504(b); 58A .1702]
  • D. Requirements and procedures to activate an Inactive license [Rules 58A .0504(c) & (d), .1703]
  • E. Requirements and procedures to reinstate an Expired license (Same process for a Revoked or Surrendered license)
  • 1. License expired for not more than 6 months [Rules 58A .0505(c) & (h)]
  • 2. License expired between 6 months and 2 years [Rules 58A .0505(d) & (h)]
  • 3. License expired for more than 2 years [Rules 58A .0505(e) (f) & (h)]

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