3.3 Closing, Escrow, and Settlement

Closing (also called settlement) is where the deed and the money change hands. The national portion tests federal settlement rules and proration math; the state portion expects familiarity with how Arkansas transactions are conducted.

How Arkansas Closings Are Conducted

Arkansas closings are typically handled by a title company or a closing attorney acting as the neutral settlement agent. The settlement agent:

• Orders and reviews the title search and issues title insurance
• Collects funds (loan proceeds, buyer's cash to close, prorated amounts)
• Pays off existing liens and the seller's mortgage
• Disburses proceeds and records the deed and mortgage

The broker's role at closing is to deliver the earnest money from the trust account per the contract, ensure the parties meet contingencies, and shepherd documents — not to perform the legal closing itself.

Exam Tip: Distinguish the escrow/closing agent (neutral, holds and disburses funds, no agency loyalty) from the broker (represents a party and holds earnest money in trust until closing).

Federal Settlement Disclosures (RESPA / TILA)

Most consumer mortgage closings are governed by federal rules enforced through the TRID ("TILA-RESPA Integrated Disclosure") framework:

Warning: RESPA Section 8 prohibits paying or receiving anything of value for referrals of settlement business. An agent who accepts a kickback from a title company or lender violates federal law — and likely the License Law as well.

Prorations

Prorations divide recurring, shared expenses between buyer and seller as of the closing date so each pays only for the period they own the property.

Arkansas Taxes Are Paid in Arrears

Arkansas real property taxes are paid in arrears — taxes assessed in one year are paid the following year. At closing, the seller typically credits the buyer for the seller's share of taxes that have accrued but are not yet due, because the buyer will pay the full bill later.

Exam Tip: "Paid in arrears" is the key Arkansas proration fact. Expect a math item where the seller credits the buyer for taxes accrued during the seller's ownership.

Transfer of Title by Deed

Ownership passes by a deed that is properly executed and delivered to (and accepted by) the grantee.

Essential deed elements include a competent grantor, a named grantee, words of conveyance (the granting clause), a legal property description, and the grantor's signature. Consideration is recited but need not be the true price.

Recording and Notice

Recording the deed in the county where the property lies (with the circuit clerk/recorder) gives constructive notice to the world of the buyer's ownership and protects priority against later claims. Arkansas follows a race-notice recording approach: a later buyer who takes without notice of a prior unrecorded interest and records first can prevail. Recording is not required to make a deed valid between the parties, but it is essential to protect the buyer against third parties.

Title Insurance

A title search examines the public record chain of title; title insurance then protects against covered defects (forgery, undisclosed heirs, recording errors, certain liens).

Key Point: Recording protects priority and notice; title insurance protects against hidden defects a search might miss. Buyers usually want both an owner's policy and a clean recorded deed.

Proration Math (Worked Example)

Most exams include at least one proration item. Assume annual property taxes of $2,400 and a June 30 closing in a state-of-the-art "365-day" calculation. The seller owned the property for roughly the first half of the tax year.

• Daily tax = $2,400 / 365 = $6.575/day.
• Seller's share (Jan 1-Jun 30 = 181 days) = 181 x $6.575 = ~$1,190.
• Because Arkansas taxes are paid in arrears, the buyer will later pay the full $2,400, so the seller credits the buyer ~$1,190 at closing.

Exam Tip: Identify (1) the item's annual amount, (2) the closing date, and (3) who pays the bill later. In arrears, the seller credits the buyer; if a cost were prepaid, the buyer credits the seller.

Survey, Inspections, and Walk-Through

Before closing, buyers commonly obtain a survey (to confirm boundaries and reveal encroachments), complete agreed inspections, and perform a final walk-through to verify the property's condition and that agreed repairs were made. Unresolved issues are addressed through the inspection contingency or a written amendment rather than at the closing table.

Key Point: The settlement agent handles the money and recording; the licensee makes sure contingencies, repairs, and the walk-through are satisfied so the closing is not derailed.