Unit 13: Real Estate Taxes and Other Liens

A specific parcel of real estate has a market value of $160,000 and is assessed for tax purposes at 75% of market value. The tax rate for the county in which the property is located is 40 mills. The tax bill will be

A) $5,200. B) $6,400. C) $5,000. D) $4,800. Explanation The answer is $4,800. A mill is 1/1000 of a dollar: $0.001. The mill rate is the tax on every dollar of the assessed value of property. A rate of 40 mills ($0.040) is applied to 75% of the $160,000 market value of the property: $160,000 × 75% = $120,000, and $120,000 × $0.040 = $4,800.

Priority of liens refers to which of the following?

A) Dates liens are filed for record B) Order in which a debtor assumes responsibility for payment of obligations C) Fact that specific liens have greater priority than general liens D) Order in which liens will be paid if property is sold to satisfy a debt Explanation The answer is order in which liens will be paid if property is sold to satisfy a debt. Priority of liens refers to the order in which claims against a property will be paid off. In general, the rule for priority of liens is "first come, first served," but there are some exceptions, such as taxes and assessments.

Which of the following is a specific, involuntary, statutory lien?

A) Estate tax lien B) Judgment lien C) Real estate tax lien D) Income tax lien Explanation The answer is real estate tax lien. A real estate tax lien is always on a specific piece of realty; it happens without permission of the property owner and so is involuntary; it is created by statute. Therefore, it is specific, involuntary, and statutory.

Which statement is TRUE of both a mortgage lien and a judgment lien?

A) It involves a debtor-creditor relationship. B) It must be entered by the court. C) It is a general lien. D) It is an involuntary lien. Explanation The answer is it involves a debtor-creditor relationship. Both involve a debtor-creditor relationship. A mortgage lien is specific, not general, and is voluntary and entered by the lender. The lien is executed by legal action upon default of the borrower.

Which of the following is a voluntary, specific lien?

A) Mechanic's lien B) Mortgage lien C) Seller's lien D) IRS tax lien Explanation The answer is mortgage lien. A mortgage lien is created voluntarily by the borrower. The borrower names specific property in the mortgage agreement that serves as security for the lender.

Which lien usually would be given highest priority in disbursing funds from a foreclosure sale?

A) Mortgage dated last year B) Judgment rendered the day before foreclosure C) Real estate taxes due D) Mechanic's lien for work started before the mortgage was made Explanation The answer is real estate taxes due. Unpaid real estate taxes take priority when property is liquidated at a foreclosure sale. They are a statutory lien with priority over liens created by contract, such as mortgages.

Which of the following is a voluntary lien?

A) Real estate tax lien B) Judgment lien C) Mortgage lien D) Estate tax lien Explanation The answer is mortgage lien. A mortgage lien is created intentionally by the owner's action and so is a voluntary lien.

Which tax targets homeowners in particular?

A) Real property tax B) Personal property tax C) Luxury tax D) Franchise tax Explanation The answer is real property tax. The real property (ad valorem) tax falls on those who own real property, such as homeowners.

A mechanic's lien would be available to all of the following EXCEPT

A) subcontractors. B) real estate professionals. C) contractors. D) surveyors. Explanation The answer is real estate professionals. Contractors, subcontractors, and surveyors all have standing to seek a mechanic's lien. Real estate professionals typically do not have the right to place liens on property they have sold and for which they have not been paid the commission owed to them.