A California buyer's lender requires an impound account for property taxes and homeowner's insurance as a condition of the loan. Which of the following most accurately describes what the buyer will owe into the impound account at closing?
Correct Answer
D) An initial deposit based on the next upcoming tax and insurance installments, plus a lender cushion of up to two months per item as permitted by RESPA
Under the Real Estate Settlement Procedures Act (RESPA, 12 U.S.C. §2609) and its implementing regulation Regulation X (12 C.F.R. §1024.17), lenders may require an initial impound deposit at closing sufficient to cover the next upcoming tax and insurance installments, plus a cushion not to exceed two months' worth of each escrow item. The total initial deposit will vary depending on how soon the next tax or insurance payment is due, but the two-month cushion per item is the statutory maximum the lender may collect above the projected disbursement amount.
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Related Topics & Key Terms
Key Terms:
Related Concepts
Marketable title is title that is free from reasonable doubt as to who the owner is and free from liens, encumbrances, or defects that would cause a reasonable buyer to hesitate before purchasing. It is also known as merchantable title.
Probate is the legal process by which a deceased person's will is validated by the court and their estate is administered, including the transfer of real property to the named beneficiaries or heirs.
A quitclaim deed transfers whatever interest the grantor may have in a property without making any warranties or guarantees about the quality of title. It offers the least protection to the grantee.
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A buyer in a California transaction receives the preliminary title report and notices that there is an easement for a utility company across the back of the property. The buyer asks the escrow officer whether this easement can be removed before closing. The escrow officer should explain that:
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A California escrow involves a probate sale where the court has confirmed the sale at $475,000. During the court confirmation hearing, another bidder offers $510,000, which meets the overbid requirements under California Probate Code. What happens to the original escrow?