4.4 Closing, Settlement & Federal Compliance
Key Takeaways
- South Dakota closings are commonly handled by title companies or closing attorneys; the responsible broker remains accountable for the brokerage's funds and disclosures.
- RESPA governs federally related mortgage loans on 1-4 family homes: it bans kickbacks and unearned referral fees (Section 8) and requires the Loan Estimate and Closing Disclosure under TRID.
- The Loan Estimate is delivered within 3 business days of application; the Closing Disclosure must reach the borrower at least 3 business days before consummation.
- Prorations split recurring costs (property taxes, HOA dues) between buyer and seller as of the closing date; South Dakota property taxes are paid in arrears, which affects who credits whom.
- The transfer fee ($0.50 per $500) and recording occur at closing, and the deed must be delivered and accepted to pass title.
Who Closes a South Dakota Transaction
South Dakota does not require an attorney at closing, and most residential settlements are handled by a title company or, by choice, a closing attorney. The settlement agent collects funds, pays off existing liens, prepares the settlement statement, records the deed and mortgage, and disburses proceeds. The responsible broker stays accountable for any earnest money the brokerage held and for delivering required disclosures, even after handing the file to the settlement agent.
| Closing role | Responsibility |
|---|---|
| Settlement agent (title co. / attorney) | Collects funds, pays liens, records documents, disburses |
| Lender | Funds the loan; issues TRID disclosures |
| Responsible broker | Accounts for trust funds; ensures disclosures delivered |
| Buyer / seller | Bring funds / deliver clear title and the deed |
RESPA — The Anti-Kickback Statute
The Real Estate Settlement Procedures Act (RESPA) applies to federally related mortgage loans on one-to-four-family residential property. Its most heavily tested rule is Section 8:
RESPA Section 8 prohibits paying or accepting any fee, kickback, or thing of value for the referral of settlement-service business.
| RESPA rule | Plain meaning |
|---|---|
| Section 8 — kickbacks | No payment for referrals; a real referral fee between licensees is fine, but paying a lender or title company for sending business is illegal |
| Section 9 — title choice | Seller may not require the buyer to use a particular title insurer |
| Affiliated business | Permitted only with written disclosure and no required use |
Exam trap: A broker who accepts a gift card from a title company "for every closing you send us" violates RESPA Section 8 — intent to repay or the small dollar amount is irrelevant. Splitting a commission with another licensee for actual work performed is not a kickback.
TILA / TRID — The Two Disclosures and the 3-Day Rules
The Truth in Lending Act (TILA) and RESPA disclosures were merged into the TILA-RESPA Integrated Disclosure (TRID) rule, which produces two consumer forms:
| Form | Replaces | Timing |
|---|---|---|
| Loan Estimate (LE) | Old GFE + early TIL | Delivered within 3 business days of loan application |
| Closing Disclosure (CD) | Old HUD-1 + final TIL | Must be received at least 3 business days before consummation |
A borrower must have the Closing Disclosure in hand 3 business days before closing so they can compare it to the Loan Estimate. Certain changes (a higher APR beyond tolerance, a prepayment penalty added, or a loan-product change) restart the 3-day clock.
Memory hook: "3 after application, 3 before closing." The Loan Estimate comes 3 days after applying; the Closing Disclosure must arrive 3 days before consummation.
Prorations: Splitting Recurring Costs
At closing, recurring expenses are prorated so each party pays only for the period they own the property. The most common prorated item in South Dakota is property tax, and the timing matters because South Dakota taxes are paid in arrears (taxes for one year are payable the following year).
| Prorated item | How it splits |
|---|---|
| Property taxes | Seller owes the days they owned the home in the current period |
| HOA dues | Split as of the closing date |
| Prepaid items (insurance, interest) | Buyer reimburses the seller for any prepaid portion that benefits the buyer |
Because taxes are paid in arrears, the seller typically gives the buyer a credit at closing for the taxes that have accrued during the seller's ownership but are not yet due. The buyer then pays the full bill when it comes due the next year.
Worked example. Annual taxes are $3,650 ($10/day). A sale closes on day 200 of the tax year. The seller owned the property for 200 days, so the seller credits the buyer 200 × $10 = $2,000 at closing for the accrued-but-unpaid taxes; the buyer later pays the full $3,650 bill. (Exam math may use a 360-day banker's year or a 365-day actual year — read the question for which.)
Debits and Credits on the Settlement Statement
| Item | Buyer | Seller |
|---|---|---|
| Purchase price | Debit | Credit |
| Earnest money already paid | Credit | — |
| New loan amount | Credit | — |
| Existing loan payoff | — | Debit |
| Accrued property taxes (arrears) | Credit | Debit |
| Real estate transfer fee | — | Debit (grantor pays) |
| Brokerage commission | — | Debit (per listing) |
Transferring Title at Closing
Title passes when the deed is delivered and accepted, not merely signed. At a South Dakota closing the settlement agent:
- Confirms clear/marketable title (title search and title insurance commitment).
- Collects the transfer fee ($0.50 per $500 of value) and a certificate of value.
- Records the deed and any new mortgage at the county Register of Deeds to give constructive notice and fix priority (South Dakota's race-notice rule).
- Disburses payoff to the prior lender, commission to the brokerage(s), proceeds to the seller, and any refund to the buyer.
Exam tip: Recording is not required to make the deed valid between buyer and seller — delivery and acceptance pass title — but recording protects the buyer's priority against later claims. Both ideas appear in the same question.
The Broker's Closing Duties
The licensee should ensure all signed disclosures (property condition, lead-based paint for pre-1978 homes, agency) are in the file, that earnest money is properly accounted for and released per the contract, and that the commission is collected through the responsible broker — a broker associate may never be paid directly by the client. After closing, the broker retains transaction and trust records for the period SDREC requires.
Under RESPA Section 8, which of the following is PROHIBITED?
When must a borrower receive the Closing Disclosure under the TRID rule?
South Dakota property taxes are paid in arrears. At a closing partway through the tax year, what typically happens for the accrued-but-unpaid taxes?
At a South Dakota closing, when does title actually pass from seller to buyer?
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