Transfer of Property
A deed is presumed to be delivered when: (a) the seller handed the deed to the buyer, but the buyer did not record it. (b) the escrow officer mailed the deed which had been acknowledged by the seller, but delivery was made after the seller died. (c) the escrow company delivered the deed to the buyer prior to the buyer meeting all the terms of escrow. (d) the deed was delivered to the grantee after the death of the grantor in accordance with instructions the grantor left with his attorney.
Your answer: (a) is correct. A deed need not be recorded to be considered delivered. As long as it is given to the grantee and accepted, it will be considered delivered.
What kind of deed transfers the title to real property without receipt of consideration? (a) grant deed (b) gift deed (c) quitclaim deed (d) deed in lieu
The correct answer is b: A gift deed is a formal written legal document which gives legal ownership in property from one person (commonly referred to as the "donor") to another person. Since the transfer of ownership is based upon a gift, there is no money, or consideration (something of value) exchanged for the transaction.
All of the following must be recorded to have effect EXCEPT: (a) a judgment. (b) a grant deed. (c) a mechanic's lien. (d) a declaration of homestead.
The correct answer is b: A grant deed is valid without recording.
A reservation in a deed: (a) cancels the deed. (b) is a retention of an interest. (c) prevents the transfer (d) guarantees the transfer.
The correct answer is b: A reservation in a deed is the creation on behalf of the grantor, of a new right issuing from what was granted. A reservation thus is something that did not exist as an independent right before the conveyance. For example, Smith conveys to Jones a 10-acre parcel "reserving to Smith a life estate therein."
A title officer of a title insurance company is familiar with an "Abstract of Title" and would know that it is: (a) where the legal description of the property is found in the title policy. (b) a written summary of the various recorded documents relating to the title of the subject property. (c) a standard form of title insurance that is used by most title companies. (d) an opinion of the title officer as to the condition of the title.
The correct answer is b: An abstract of title is a written summary of the recorded documents relating to a particular property. It is no longer used today in favor of a policy of title insurance.
Which of the following describes a "perfect escrow?" (a) All documents submitted to escrow have been proofed for errors. (b) All documents, funds, and instructions needed to close the transaction are in the hands of the escrow agent. (c) The title search has taken place and the policy of title insurance has been issued. (d) All financial settlements have taken place and the documents are recorded.
The correct answer is b: An escrow is said to be "perfect" (or perfected) when all documents, funds, and instructions needed to close the transaction are in the hands of the escrow agent.
The recording of an instrument gives: (a) actual notice. (b) constructive notice. (c) positive notice. (d) passive notice.
The correct answer is b: Constructive notice is knowledge the law presumes a person has about a paritcular fact regardless of whether the person knows about the fact or not. Examples of constructive notice would include the proper recording of a deed in the public records or the physical possession of property by an owner or tenant.
If a property owner believes that the assessed value on his or her property has been set too high, the owner could file a request to seek a reduction from the: (a) County Board of Supervisors. (b) Assessment Appeals Board. (c) Tax Collector. (d) State Board of Equalization.
The correct answer is b: Each county has an Assessment Appeals Board to which an individual can question their property's value set by the assessor.
An escrow prorates based on a: (a) 300 day year. (b) 360 day year. (c) 365 day year. (d) None of the above
The correct answer is b: Escrow prorates using a 360 day year and a 30 day month.
Added improvements to an existing structure that increase the value of the property will be taxed: (a) when completed. (b) when completed and reassessed. (c) as of March 1st following completion. (d) only when the property is sold.
The correct answer is b: The assessor does not wait for a new tax year to reassess the improved property. As soon as the improvements are completed, the property is reassessed and the supplemental tax bill is issued that year.
Baker sells a property to Davis and executes a grant deed in favor of Davis. Davis then takes the deed and places it in a safety deposit box. Baker then sells the same property to Charles who subsequently records it. Which of the following is correct? (a) Davis can sue Baker for fraud. (b) Charles is the legal owner of the property. (c) Davis is the legal owner of the property. (d) Any loan on the property would be void.
The correct answer is b: The first to record is the legal owner. The only exceptions to the recording statute would involve possession or actual notice, neither of these apply in the example. Davis had the right to record and failed to do so.
The first person to make an acknowledgment on a deed is the: (a) county recorder. (b) maker. (c) purchaser. (d) notary public.
The correct answer is b: The maker acknowledges the deed first by his/her signature before a notary public.
The marginal tax rate is the tax rate: (a) that will be used when you enter the next higher tax bracket. (b) which is used for the last dollar of taxable income earned. (c) applied to the highest tax bracket. (d) applied to the lowest tax bracket.
The correct answer is b: The marginal tax rate is the ordinary rate of income tax charged on the last dollar of income, often used when making calculations for investment decisions.
Which of the following is required for a couple to qualify for the "Universal Exclusion" from capital gains? (a) Occupancy of your primary residence for at least 24 consecutive months you owned the home during the 5 years leading up to the date of sale. (b) Your home must be your primary residence for at least 24 of the months you owned the home during the 5 years leading up to the date of sale. (c) Your home must be your primary residence for at least 12 of the months you owned the home during the 5 years leading up to the date of sale. (d) Occupancy of your primary residence for at least 12 consecutive months you owned the home during the 5 years leading up to the date of sale
The correct answer is b: To qualify for the Universal Exclusion from capital gains, your home must be your primary residence for at least 24 of the months you owned the home during the 5 years leading up to the date of sale. The 24 months of residence can fall anywhere within the 5-year period. It doesn't even have to be a single block of time. All you need is a total of 24 months (730 days) of residence during the 5-year period.
Mr. and Mrs. Homeowner realized a $600,000 profit by selling the home they had lived in for three years. What amount is subject to taxes? (a) $600,000 (b) $100,000 (c) $20,000 (d) Nothing
The correct answer is b: Universal Exclusion (two year rule): In 1997, the old 24 month trade up and 55 year old rules changed. The new law states that there will be no tax on gains up to $250,000 for single people and $500,000 for married people who file joint returns. To qualify, the home must have been your principal residence for at least 2 years during the preceding 5 years prior to sale. Both spouses must have lived there for the 2 year period to get the maximum exemption of $500,000 with joint filing. The full exclusion can only be used once every 2 years. Solution: $600,000 - 500,000 exclusion = $100,000 taxable amount.
When a real estate broker speaks of "tax shelter," he/she is referring to: (a) principal payments. (b) net income. (c) income tax. (d) real property taxes.
The correct answer is c: "Tax Shelter" refers to income tax shelter.
In the sale of a business, bulk transfer laws pertain to: (a) fixtures. (b) good will. (c) stock-in-trade. (d) All of the above
The correct answer is c: A "bulk transfer" is any transfer in bulk (not in the ordinary course of the seller's business), of a major part of the materials, inventory, or supplies of the business. The main purpose of the bulk transfer law is to afford a merchant's creditors an opportunity to satisfy their claims against a merchant who owes them money before the merchant can sell assets and vanish with the proceeds.
An exact history of conveyances and encumbrances affecting the title of property is called a(n): (a) title search. (b) abstraction. (c) chain of title. (d) abstract of title.
The correct answer is c: A chain of title is the recorded history of matters that affect the title to a specific parcel of real property, such as ownership, encumbrances and liens, beginning with the original recorded source of the title. The chain of title shows the successive changes of ownership, each one linked to the next so that a "chain" is formed.
Which of the following would be true about a lis pendens: (a) It can only be removed by court action (b) It can be recorded no matter what type of lawsuit it is (c) It may affect title to real property based on the results of the lawsuit (d) None of the above
The correct answer is c: A lis pendens is recorded to warn anyone interested in the property, that it is subject to a lawsuit. The property can be sold with the lis pendens filed against it, but the sale may be set aside and the property may be used for execution depending on the results of the lawsuit.
Which type of deed has no express or implied covenants or warranties? (a) tax deed (b) grant deed (c) quitclaim deed (d) warranty deed
The correct answer is c: A quitclaim deed transfers only whatever right, title and interest the grantor had in the land at the time of its execution, without any implied covenants or warranty.
Which of the following can a property owner expect after sewer lines are installed in front of his/her property? (a) supplemental assessment (b) general assessment (c) special assessment (d) All of the above
The correct answer is c: A special assessment is a tax imposed against only those specific parcels of realty that will benefit from a proposed public improvement, as opposed to a general tax on the entire community.
Which of the following dates represent the final date the property owner may file for the State Homeowner's Property Tax Exemption? (a) March 1st (b) April 15th (c) December 10th (d) June 30th
The correct answer is c: A timely filing for the Homeowner's Property Tax Exemption is February 15th. However, if the homeowner does not file before February 15th, he/she may make a late filing up until December 10th.
A title plant refers to the title records of properties in a: (a) city. (b) state. (c) county. (d) town.
The correct answer is c: A title plant is an accumulation of title records in a specific county.
A valid deed must contain: (a) evidence of recordation. (b) a date. (c) a granting clause. (d) the signature of the grantee.
The correct answer is c: A valid deed must have a granting clause or some words to indicate that the grantor wishes to transfer the property to the grantee ("I hereby grant").
A deed would contain all of the following EXCEPT: (a) a description of the property. (b) a date. (c) the signature of the grantee. (d) a granting clause.
The correct answer is c: A valid grant deed requires the signature of the grantor, not the grantee.
Ad valorem is best defined as: (a) added value. (b) fixed value. (c) according to value. (d) at replacement value.
The correct answer is c: Ad valorem means according to value.
An exception in a grant deed: (a) cancels the deed. (b) is identical to a reservation. (c) excludes part of the property from the grant. (d) prevents the transfer.
The correct answer is c: An exception in a grant deed excludes some part of the property granted. The title to that withdrawn part remains in the grantor by virtue of the original title rights. For example, a conveyance by Grant Park to Bob Lee of a 10-acre parcel "exception of a strip of land 10 feet wide running along the northerly boundary" constitutes a legal exception.
An owner-occupied residence qualifies for a homeowner's exemption of: (a) $1,000. (b) $4,000. (c) $7,000. (d) None of the above
The correct answer is c: An owner-occupied residence, including a condominium or duplex unit, qualifies for a homeowner's exemption of the first $7,000 of full cash value.
Boot refers: (a) leases. (b) foreclosure. (c) exchanges. (d) business sales.
The correct answer is c: Boot is money or other property that is not like-kind, which is given to make up any difference between exchanged properties.
A property sold for a total of $800,000. An existing loan of $100,000 was assumed. What would the Documentary Transfer Tax be? (a) $880.00 (b) $800.00 (c) $770.00 (d) $110.00
The correct answer is c: Documentary Transfer Tax is calculated at a rate of 55 cents for each $500 of consideration or fraction thereof. A portion of the total price paid for the property may be exempt because a lien remains on the property. $800,000 - $100,000 (assumed loan) = $700,000 $700,000 ÷ $500 = 1,400 1,400 x .55 = $770.00
On an escrow closing statement, due and unpaid taxes are listed as: (a) a credit to the buyer only. (b) a debit to the seller always. (c) either a debit or credit to the buyer or seller depending on the situation. (d) None of the above
The correct answer is c: Due and unpaid taxes are prorated and can either be debits or credits for the buyer or seller since the buyer must pay the seller's tax obligation.
The buyer and seller agree on a 60-day escrow. As the closing date approaches, it becomes obvious that it will not close on time. Which of the following is TRUE? (a) The escrow can close as originally scheduled. (b) The escrow is automatically terminated after 60 days. (c) The buyer and seller must agree to extend the escrow or it is cancelled. (d) The escrow agent has the authority to extend the escrow.
The correct answer is c: If the escrow cannot be completed on time, the escrow would terminate unless both parties agreed in writing to an extension. This would be accomplished with an amendment to the escrow instructions extending the closing date.
Tax delinquent real property not redeemed by the owner during the five year statutory redemption period is deeded to the: (a) city. (b) county. (c) state. (d) school district.
The correct answer is c: If the property is not redeemed by the owner during this statutory redemption period, the property is deeded to the state.
The term impounds refers to: (a) personal property. (b) clarity of title. (c) reserves. (d) trust funds.
The correct answer is c: Impounds are monies set aside (reserves) to cover future payments of recurring costs such as taxes and insurance.
Without any agreement on a specific date, physical possession should be given: (a) one week prior to close of escrow. (b) one week after close of escrow. (c) at close of escrow. (d) upon the buyer's request.
The correct answer is c: In the absence of an agreement, possession would be given when all escrow instructions have been met (close of escrow).
All of the following are usually treated as credits on the seller's closing statement EXCEPT: (a) prepaid taxes. (b) prepaid insurance. (c) Standard Policy of title insurance. (d) None of the above
The correct answer is c: It is important to understand that this can change based on geographic region and custom. Who pays for title insurance is ultimately a negotiable item.
With reference to an escrow, recurring costs mean: (a) closing fees. (b) tax calculations. (c) impound accounts. (d) realtor fees.
The correct answer is c: Most mortgage lenders require an impound account to cover future payments of recurring costs, such as taxes, assessments, private mortgage insurance and home insurance to protect their security from defaults and tax liens.
Real property taxes become a lien on: (a) November 1st. (b) February 1st. (c) January 1st. (d) July 1st.
The correct answer is c: Next year's real property taxes become a lien on January 1st.
When does the broker's commission get paid? (a) When the broker obtains an offer and communicates acceptance (b) When the buyer's deposit is logged into escrow (c) At close of escrow (d) None of the above
The correct answer is c: On the state exam you may see two very similar questions, one asking when the broker's commission is paid and another asking when the broker has earned his/her commission. The broker's commission is paid at close of escrow. The broker has earned his/her commission when the buyer's offer is accepted.
During a sales escrow, the escrow officer receives two structural pest control reports. The escrow officer should: (a) contact the inspection companies to determine which one is most recent. (b) send the report that requires the most work to the buyer and obtain his/her approval. (c) notify the broker and obtain written instruction from the buyer and seller concerning the reports. (d) request the broker to find out from the seller which report to use.
The correct answer is c: The escrow agent is the agent of both the buyer and the seller, and should receive instructions from both if a conflict arises such as this.
During escrow, if an unresolved dispute should arise between the seller and buyer preventing the close of escrow, the escrow holder may legally: (a) arbitrate the dispute as a neutral party. (b) rescind the escrow and return all documents and monies to the respective parties. (c) file an interpleader action in court. (d) do any of the above.
The correct answer is c: The escrow holder does not arbitrate arguments between buyer and seller. He/she would most likely file an interpleader action in court. By filing an interpleader action, the escrow agent is asking the court to accept any money or property he or she holds and distribute it to the rightful claimant.
How would a taxpayer adjust the tax basis of his/her personal residence for Federal tax purposes? (a) property taxes (b) accrued depreciation (c) addition of a concrete patio (d) None of the above
The correct answer is c: The tax basis on a personal residence consists of the cost of the property plus capital improvements like the addition of a concrete patio.
Which of the following is NOT a requirement of a valid will? (a) signature (b) witnesses (c) acknowledgment (d) testator of sound mind
The correct answer is c: The testator must be of sound mind and of adult age, and must declare the writing to be his/her last will and testament and sign it, usually in the presence of two or more credible witnesses.
When the first party agrees to pay for a financial loss arising from a specific event, and the second party agrees to make periodic payments to the first party, the agreement is known as: (a) A fidelity bond (b) A surety bond (c) An insurance policy (d) A mortgage
The correct answer is c: This is a good definition of an insurance policy.
Deed restrictions are valid: (a) for 10 years. (b) for 50 years. (c) in perpetuity. (d) until the property is sold.
The correct answer is c: Unless there's a written expiration date, deed restrictions don't expire automatically and continue in perpetuity.
For tax purposes, points paid by the seller would: (a) increase the cost basis. (b) be treated as a selling expense. (c) both (a) and (b) (d) neither (a) nor (b)
The correct answer is c: When the seller pays points, he/she may deduct this cost as a selling expense. This will increase the cost basis and reduce capital gains. Buyer points are treated as interest.
A Standard Policy of Title Insurance covers all of the following EXCEPT: (a) forgery and matters of record. (b) lack of signature of either husband and/or wife. (c) zoning laws. (d) capacity of parties.
The correct answer is c: Zoning is excluded from the coverage of title insurance. The standard policy also does not protect the policyholder against defects in title known to the holder to exist at the date of the policy and not previously disclosed to the insurance company.
A broker can, without being licensed as an escrow, handle the escrow on transactions where he or she: (a) acts as a principal. (b) represents the buyer. (c) represents the seller. (d) Any of the above
The correct answer is d: A broker may act as an escrow on his/her own sales or on sales in which he/she acts as a principal.
Why would a borrower in default prefer a deed in lieu of foreclosure over foreclosure proceedings? (a) It immediately releases the borrower from most or all of the debt. (b) The borrower avoids the public notoriety of a foreclosure proceeding. (c) It is not as damaging to the borrower (d) All of the above
The correct answer is d: A deed in lieu of foreclosure is a deed instrument in which a mortgagor (i.e. the borrower) conveys all interest in a real property to the mortgagee (i.e. the lender) to satisfy a loan that is in default and avoid foreclosure proceedings.The deed in lieu of foreclosure offers several advantages to both the borrower and the lender. The principal advantage to the borrower is that it immediately releases him/her from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than he/she would in a formal foreclosure. Another benefit to the borrower is that it hurts his/her credit less than a foreclosure does.Advantages to a lender include a reduction in the time and cost of a repossession, lower risk of borrower revenge (i.e., metal theft, vandalism), and additional advantages if the borrower subsequently files for bankruptcy. If there are any junior liens a deed in lieu is a less attractive option for the lender.Main disadvantage for lender: The lender will likely not want to assume the liability of the junior liens from the property owner, and accordingly, the lender will prefer to foreclose in order to clean the title.
A will written in the testator's own handwriting is called a: (a) sealed will. (b) gift certificate. (c) nontransferable will. (d) holographic will.
The correct answer is d: A holographic will is written, dated and signed in the testator's handwriting but not witnessed.
During a title search, the word "land patent" came up. This would be a(n): (a) Easement (b) Escheat to the state of land left after the death of a person with no will and no known heirs (c) Invention (d) Transfer of title from the government to the first private individual
The correct answer is d: A land patent is an exclusive land grant made by a sovereign entity (the government) with respect to a particular tract of land.
On an escrow closing statement, an existing mortgage that is to be assumed by the buyer is treated as: (a) a debit to the buyer. (b) a credit to the buyer. (c) a debit to the seller. (d) both (b) and (c).
The correct answer is d: A loan being assumed by the buyer is listed as a credit to the buyer and a debit to the seller.
A real property sales contract represents a tax advantage because: (a) it reduces tax rates. (b) it eliminates taxes all together. (c) it is a tax exemption. (d) it defers payment of capital gains.
The correct answer is d: A real property sales contract (formerly referred to as an "installment land sale contract") allows the taxpayer to postpone the receipt and reporting of income tax to future years when his/her other income may be lower. Thus, a taxpayer can avoid paying the entire tax on the gain in the year of sale.
The document issued to a person as a receipt for paying delinquent taxes on a property owned by another is called a: (a) deed of reconveyance. (b) certificate of deposit. (c) lien release. (d) tax certificate
The correct answer is d: A tax certificate is the document issued to a person as a receipt for paying delinquent taxes on a property owned by another, entitling the person to receive a deed to the property if the property is sold for unpaid taxes and not redeemed within a certain period of time.
In order to alienate property you must: (a) create an easement. (b) create a cloud on the title. (c) record a homestead. (d) convey the property.
The correct answer is d: Alienation: The act of conveying ownership, title or an interest or estate in real property from one person to another. Property is usually sold or conveyed by voluntary alienation as with a deed or an assignment of lease. Involuntary alienation takes place when property is sold against the owner's will as in a foreclosure sale or a tax sale.
A homeowner took a $30,000 loss on his property. For federal income tax purposes, he can declare: (a) $10,000. (b) 40% of the loss as deductible. (c) the capital gain less the loss as deductible. (d) nothing as deductible.
The correct answer is d: Although capital gains on the sale of the owner's principal place of residence may be taxed if the gain exceeds the statutory amount, losses on the sale of a principal place of residence are not deductible.
A man appointed by the court to settle the estate of a person who died intestate is called a(n): (a) devisee. (b) testator. (c) executor. (d) administrator.
The correct answer is d: An administrator (male, administratix-female) is appointed by the court when the deceased died without leaving a will (intestate). A devisee is one who receives a gift or real property by will. A testator (male, testatrix-female) is one who makes a will. An executor (male, executrix-female) is the one appointed by the deceased to execute (carry out the terms of) a will.
An exception in a grant deed: (a) makes the deed invalid to future grantees. (b) gives the grantee special privileges. (c) has no effect on the property value. (d) withdraws a portion of the property from the grant
The correct answer is d: An exception in a grant deed means the grantor is holding back part of the estate being granted. This would withdraw part of the property from the grant deed and reduce the property or rights given to the grantee.
Who may obtain a copy of a termite report after it has been filed with the Structural Pest Control Board? (a) Only the escrow agent involved in the transaction (b) Only the buyer and seller (c) Any agent or party involved in the transaction (d) Anyone
The correct answer is d: Anyone may search the Structural Pest Control Board's system to see if a specific property has been inspected within the last two years.
A federal income tax advantage can be realized by: (a) depreciating income property. (b) an installment sale. (c) exchanging. (d) All of the above
The correct answer is d: Depreciation is an expense deduction that allows for the recovery of the cost of the investment. An installment sale allows one to save on taxes by postponing the receipt and reporting of income to future years. Exchanging property of "like kind" is a popular method of deferring capital gains taxes.
The signed escrow instructions disagree with the purchase contract. As to the disagreement, which of the following is TRUE? (a) The true intent of the parties must first be discovered. (b) The courts would have to decide the matter. (c) The purchase contract prevails. (d) The escrow instructions prevai
The correct answer is d: Escrow instructions are a more current and more accurate reflection of the true intent of both parties.
Escrow instructions should be: (a) certified. (b) notarized. (c) recorded. (d) executed
The correct answer is d: Escrow instructions should be executed by both parties to satisfy the requirements of the contract and complete the escrow.
An escrow agent discovers there is no specified date of closing. In this case, escrow should close: (a) within 30 days. (b) within 60 days. (c) within 90 days. (d) within a reasonable time.
The correct answer is d: If a specific closing date is not specified, the parties may agree in writing to a closing date, otherwise, the escrow would continue and close within a reasonable period of time.
A lender uses an impound account to protect against non-payment of all of the following EXCEPT: (a) assessments. (b) property taxes. (c) insurance premiums. (d) mortgage interest payments.
The correct answer is d: Mortgage interest is part of the loan payment. The others are held by the lender in a reserve account called impounds. Lender pays these bills as they become due.
What type of title insurance policy covers all risks? (a) extended policy (b) ALTA policy (c) standard policy (d) no policy covers all risks
The correct answer is d: No title insurance policy covers all risks. It is a good idea to familiarize yourself with the various types of title insurance policies and their coverage.
Mr. Johnson deeds a parcel of land to Mr. Smith, but the deed is never recorded. How can Mr. Smith transfer title back to Mr. Johnson? (a) tear up the deed. (b) simply hand the deed back to Mr. Johnson. (c) write "void" across the deed, have it notarized, then give it back to Mr. Johnson. (d) None of the above
The correct answer is d: Once there is a valid delivery and acceptance, the act of the grantee in surrendering the property or destroying the deed will not put title back to the original grantor. To accomplish this, the grantee must execute a new deed back to the original grantor.
What does the term "short rate" refer to? (a) loan interest rate (b) real property taxes (c) stock portfolios (d) homeowner's insurance
The correct answer is d: Short Rate: A higher periodic rate charged for a shorter term than that originally contracted. The increased premium charged by an insurance company on early cancellation of a policy to compensate the insuror for the fact that the original rate charged was calculated on the full period of the policy. This increased charge enters into a buyer's decision whether to assume the seller's existing homeowner's hazard insurance policy or to cancel it and obtain a new policy.
When using a grant deed, title transfers at the time of: (a) signing. (b) acknowledgment. (c) recording. (d) delivery.
The correct answer is d: Technically, delivery is the legal act of transferring ownership.
The purpose of the assessment roll, as compiled by the assessor's office is: (a) Determination of the actual tax (b) The equalization of the assessments among the various properties (c) The setting of the tax rates (d) The establishment of the tax roll
The correct answer is d: The assessment roll serves as the tax base.
A home was purchased on February 1st with the understanding that property taxes had been paid for the fiscal tax year. The buyer received a tax bill anyway known as a: (a) new homeowner tax bill. (b) delinquent tax bill. (c) reassessment tax bill. (d) supplemental tax bill.
The correct answer is d: The supplemental tax bill would adjust for an increase in tax liability for the balance of the tax year.
Once an offer has been made and accepted by the seller, the buyer would have: (a) pending title. (b) equitable title. (c) contract title. (d) no title.
The correct answer is d: Title remains with the owner (seller) until all the contingencies of the contract have been met and escrow closes. When escrow closes, legal title would transfer from the seller to the buyer.
To be recorded, a deed must have: (a) the signature of the grantee. (b) a mention of consideration. (c) a seal. (d) an address where tax bills should be mailed.
The correct answer is d: To be recorded, a grant deed must have an address where tax bills should be mailed. A valid grant deed requires the signature of the grantor not the grantee.
Which of the following is most likely to pay property taxes? (a) Income property owner with negative cash flow (b) Churches (c) Charitable organizations (d) Non-profit state colleges
Your answer: (a) is correct. Negative cash flow might be deductible against ordinary income, but not property taxes.
Which of the following is considered an ad valorem tax? (a) real property tax (b) sales tax (c) use tax (d) death tax
Your answer: (a) is correct. Real estate taxes are assessed according to value.
Which of the following would be treated as a credit on the seller's closing statement? (a) prepaid insurance (b) prepaid rents of tenants (c) both (a) and (b) (d) neither (a) nor (b)
Your answer: (a) is correct. Since this is prepaid insurance, it would be a credit on the seller's closing statement.
The Street Improvements Act of 1911 allows the issuance of bonds to raise funds for subdivision improvements on: (a) streets and sewers. (b) land and structures. (c) off-site utilities. (d) anything.
Your answer: (a) is correct. The Street Improvements Act of 1911 is used for improvements such as streets and sewers.
Who is responsible for reporting a sale to the IRS? (a) escrow (b) buyer (c) seller (d) broker
Your answer: (a) is correct. The escrow agent (title company, escrow corporation, etc.) is responsible for reporting sales to the IRS.
A will is said to be ambulatory because it can be: (a) changed. (b) recorded. (c) witnessed. (d) transferred.
Your answer: (a) is correct. The legal definition of ambulatory is "not fixed; alterable." A will takes effect only upon the testator's death, and thus can be revoked or amended at any time during the testator's life.
A resident of Nevada dies in Nevada but owns property in California. The probate proceedings for this property would be held in: (a) California. (b) Nevada. (c) federal court. (d) Nevada state court.
Your answer: (a) is correct. The probate proceedings are held in the state where the property is located.
A quitclaim deed conveys only the present right, title and interest of the: (a) grantor. (b) servient tenement. (c) grantee. (d) property.
Your answer: (a) is correct. The quitclaim deed transfers only whatever right, title and interest the grantor had in the property at the time of the execution of the deed and does not pass to the grantee any title or interest subsequently acquired by the grantor (after-acquired title).
Which of the following represents one of the essentials of a grant deed: (a) Parties capable of receiving the grant (b) Offer and acceptance (c) Acknowledgement (d) Recordation
Your answer: (a) is correct. There are several different essentials to a valid deed, namely: It must be in writing. The parties must be properly described. The parties must be competent to convey and be capable of receiving the grant. The property conveyed must be adequately described. There must be a granting clause, operative words or conveyance ("I hereby grant"). The deed must be signed by the party or parties making the conveyance or grant. Delivery and acceptance is required.
When a deed is recorded, according to law: (a) title always passes. (b) presumption of delivery arises. (c) possession is guaranteed. (d) None of the above
Your answer: (b) is correct. It is logical to presume that the grantor intended to deliver the deed if his/her signature has been acknowledged by a notary public, which is required for the recording of a deed. A deed must be delivered to be effective, but does not have to be recorded. Recording establishes presumption of delivery.
Pest control reports which contain information concerning wood destroying insects are kept on file with the: (a) Department of Wood-destroying Control. (b) Structural Pest Control Board. (c) Environmental Protection Agency. (d) United States Department of Insect Control.
Your answer: (b) is correct. You may search the Board's Wood Destroying Organism System to see if a specific property has been inspected within the last two years.
A recorded deed: (a) gives constructive notice. (b) creates presumption of delivery. (c) must have been acknowledged. (d) All of the above
Your answer: (d) is correct. Delivery presumes acknowledgement and gives constructive notice. Recording establishes presumption of delivery
To determine property taxes on a residence: (a) assess land and improvements together, then multiply by separate tax rates. (b) total all land and improvements, then multiply by one tax rate. (c) assess land and improvements separately and multiply each by a different tax rate. (d) assess land and improvements separately, then multiply the total by one tax rate.
Your answer: (d) is correct. Land and improvements are added separately and then multiplied by one tax rate.
Shortly after a valid escrow is established, both the buyer and seller die. What should the escrow agent do? (a) Return all monies (b) Cancel the escrow (c) Let the agents decide (d) Continue with the escrow
Your answer: (d) is correct. Under something called the "Doctrine of Relation-Back," death of the grantor does not terminate the escrow or revoke the agent's authority to deliver an executed deed. Delivery of the deed to the grantee relates back to the date it was originally deposited with the escrow agent, and it is considered as if the grantor made delivery to the grantee before the grantor's death.
A property owner builds a swimmimg pool at his apartment building in order to attract more tenants. For tax purposes, he can: (a) deduct the cost of the pool, dollar-for-dollar, from his income tax. (b) deduct the cost of the pool from his vacancy losses. (c) add the cost of the pool to his book value and depreciate it. (d) None of the above
c) add the cost of the pool to his book value and depreciate it. The cost of the pool may be added to the book value (cost basis) and then be depreciated.
Owner bob owns an apartment complex which is managed by broker X. Owner bob wants to sell his apartments and broker X is the listing broker. Who distributes the security deposit? (a) the seller (b) the broker (c) the escrow company (d) the lender
The correct answer is c: Security deposits technically belong to the tenant. However, they are held by the owner until the tenant leaves and the owner inspects the unit. It is probably true that Broker X must hand the deposits to escrow, but escrow distributes everything at the close to the new buyer. This includes all proration of prepaid rent, taxes etc. The security deposits would be a credit to the buyer.
Buyers' and sellers' closing statements are: (a) always the same. (b) always executed. (c) always different. (d) always equal.
The correct answer is c: Separate closing statements are prepared for the buyer and seller showing debits and/or credits at closing. Buyers and sellers always have different closing statements.
How much of a broker's personal funds may be contributed to a client's trust fund bank account to offset any bank service charges? (a) $25.00 (b) $100.00 (c) $200.00 (d) Nothing
The correct answer is c: Since banks sometimes have service charges; out of necesssity, the broker is allowed to maintain up to $200 of personal funds in a trust account to cover these type of bank charges.
To adjust for any increase in tax liability due to a reassessment after the property was purchased, the tax authority would issue a: (a) new tax bill. (b) property tax postponement. (c) supplemental assessment. (d) replacement lien notice.
The correct answer is c: Since few people take possession of real estate on July 1st, the first day of the tax year, supplemental assessments are made to adjust for any increase in tax liability.
Under the Street Improvements Act of 1911, how long does an owner have to pay the bill? (a) 90 days after completion (b) 60 days after completion (c) 30 days after receipt (d) 60 days after receipt
The correct answer is c: Street improvements assessments must be paid off within 30 days after receipt.
Mr. Kwan has a $30,000 loss on the operation of his rental property. This is his only rental investment. With respect to his income tax, he may do which of the following? (a) Write off $10,000 per year for 3 years (b) Take 40% of the loss (c) Offset this loss against capital gains (d) Take the full loss against his personal income
The correct answer is c: The $30,000 may be used to offset capital gains for income tax purposes. If he has no capital gains, the maximum loss that may be deducted would be $25,000 with the remaining as a "carryover" loss against future gains.
An ALTA policy of title insurance protects the: (a) buyer. (b) seller. (c) lender. (d) All of the above
The correct answer is c: The ALTA policy is used to protect lenders and usually requires a survey. It expands the standard policy to include: Rights of parties in possession; Unrecorded liens; Easements; Claims that a correct survey or inspection would show; Mining claims and water rights.
The California sales tax is a(n): (a) ad valorem tax. (b) tax paid on real estate. (c) tax paid on tangible personal property. (d) tax paid on all personal property.
The correct answer is c: The California State Sales Tax is imposed on retailers for the privilege of selling tangible personal property at retail.
A deed is recorded and indexed: (a) by location. (b) by recording day and time. (c) by grantor and grantee names alphabetically. (d) All of the above
The correct answer is c: The County Recorders Office must keep an adequate index system by grantee and grantor names alphabetically.
The Office of Interstate Land Sales Registration (OILSR) applies to: (a) cemetery lots. (b) sales to developers. (c) development of 100 or more unimproved lots for sale. (d) trucking.
The correct answer is c: The Office of Interstate Land Sales Registration (OILSR) oversees implementation of the 1968 Interstate Land Sales Full Disclosure Act (ILSA). The Act requires a developer of a subdivision containing 100 or more nonexempt lots to register its subdivision with the DRE. The developer must also provide lot purchasers with a disclosure statement known as a property report before a sales contract is signed.
When a valid grant deed is prepared, title passes when: (a) acknowledged. (b) delivered. (c) signed. (d) recorded.
The correct answer is b: A deed must always be signed by the party or parties making the conveyance or grant of the premises, and it must be delivered to the party to whom the property rights are to be transferred. A deed is of no effect unless delivered.
The selling price on a buyer's closing statement is treated as: (a) a credit to the buyer. (b) a debit to the buyer. (c) a debit to the seller. (d) None of the above
The correct answer is b: A closing statement is a detailed cash accounting of a real estate transaction prepared by a broker, escrow officer, attorney or other persons designated to process the mechanics of the sales, showing all cash received, all charges and credits made and all cash paid out in the transaction. Selling price on the buyer's closing statement is treated as a debit to the buyer.
Tax consequences with respect to real estate should take place: (a) prior to acquisition. (b) at time of sale. (c) at close of escrow. (d) three months after taking possession.
The correct answer is a: At any other time, it may be too late.
By Proposition 13, the annual real estate tax on a parcel of property in California is limited to: (a) 1% of its assessed value. (b) 1.5% of its assessed value. (c) 2% of its assessed value. (d) 2.5% of its assessed value.
The correct answer is a: By Proposition 13, the annual real estate tax on a parcel of property is limited to 1% of its assessed value. This "assessed value," may be increased only by a maximum of 2% per year, until and unless the property has a change of ownership. At the time of the change in ownership the low assessed value may be reassessed to complete current market value which will produce a new base year value for the property, but future assessments are likewise restricted to the 2% annual maximum increase of the new base year value.
The unadjusted basis of a taxpayer's residence would be: (a) cost. (b) cost minus improvements. (c) cost plus improvements. (d) cost plus improvements minus depreciation.
The correct answer is a: For federal income tax purposes in determining gain or loss on real property, the term "unadjusted basis" most nearly means "original cost."
Property taxes are assessed: (a) annually (b) twice-annually (c) every 2 years (d) once upon purchase
The correct answer is a: Property taxes are "assessed" annually with a property tax bill mailed to the homeowner in early October of each year. The bill is payable in two installments.
The most important element of proper and effective delivery of a deed is: (a) intent of the grantor. (b) recording. (c) acknowledgment of grantor's signature. (d) knowledge of its existence by grantee.
The correct answer is a: The grantor must intend for a deed to be delivered or the deed is not effective. Recording and acknowledgment are not required for the effectiveness of a deed.
A document that describes the property and any existing encumbrances is called a: (a) preliminary report. (b) abstract of title. (c) title plant. (d) binder.
The correct answer is a: The preliminary report describes the property and current owner of record, as well as any recorded liens or other encumbrances. The escrow holder reads the report to verify the legal description and to determine if there are any child support liens, taxes, or judgments for which a release will be required prior to the close of escrow. The buyer is required to review and sign acceptance of the preliminary report
A broker is acting as the agent of the seller in a transaction in which the seller carried back a second trust deed. The broker must cause the deed of trust to be recorded or advise the seller to record the trust deed: (a) within one week after close of escrow. (b) one business day after close of escrow. (c) 30 days after close of escrow. (d) none of the preceding as this is not the responsibility of the agent.
The correct answer is a: Within one week after closing of a transaction, the broker must cause a deed of trust to be recorded with the county recorder or cause it to be delivered to the beneficiary with a written recommendation that it be recorded forthwith, unless written instructions not to record are received from the beneficiary. If the transaction is closed through escrow and the deed of trust is delivered to the escrow holder within one week, that shall be deemed compliance on the part of the broker.
The second property tax installment is due and delinquent on: (a) February 1st - April 10th (b) November 1st - December 10th (c) December 31st - June 30th (d) March 1st - July 1st
The correct answer is a: You must know the fiscal tax year for the state exam. Memorization Aid: No, Darn, Foolin, Around: November 1st: First installment due; December 10th: Delinquent date for 1st installment; February 1st: Second installment due; April 10th: Delinquent date for 2nd installment.
When a real estate licensee accepts trust funds from his/her client in connection with the purchase of real property, the licensee must place these funds in: 1) a neutral escrow depository; 2) the hands of the offeree or owner; or 3) a trust account. The licensee must place these funds into one of these three authorized places: (a) by the next working day following receipt. (b) within three business days following receipt. (c) by midnight of the current day. (d) by midnight of the second business day following receipt.
The correct answer is b: If the broker or broker's salesperson fails to place the funds into one of these three authorized places within three business days following receipt, he/she is liable for commingling the funds.
The redemption period for unpaid real property taxes is: (a) five years from the assessment date. (b) five years from the tax default date. (c) five years from the sale by the state at public auction. (d) five years from loss of possession.
The correct answer is b: If there are ANY unpaid taxes as of 5 p.m. on June 30 (end of the fiscal tax year), then the property becomes "tax defaulted." If the property has not been redeemed within five years after the initial declaration of default, the property will become subject to the tax collector's power of sale.
Money in an impound account belongs to the: (a) escrow company. (b) trustor. (c) trustee. (d) beneficiary.
The correct answer is b: Impound accounts usually contain money prepaid by the trustor (buyer).
The doctrine of "first in time, first in right" refers to: (a) First right of refusal. (b) Recording rights. (c) Date and time one signs a contract. (d) First right in judgment lien.
The correct answer is b: In California, lien priority (and, therefore, right to payment) is determined by the maxim "first in time, first in right" (Civil Code 2897). Thus, liens that are recorded first have priority over later-recorded liens. The recording statutes were enacted for the purpose of establishing priorities among claims upon property and provide adequate means by which those with an interest in property may protect their rights. Moreover, a properly recorded lien serves as constructive notice of its contents to all subsequent purchasers and encumbrances (Civ. Code 1213).
Which of the following would constitute boot in an exchange transaction? (a) decrease in the basis (b) net mortgage relief (c) cost compensation (d) appraisal fee
The correct answer is b: In an exchange, it is rare to find two properties of equal value and equity; therefore, to balance the equities, one party usually also pays some money or assumes a larger amount of underlying debt. This mortgage relief would be treated as boot and will be taxed to the extent of the boot received.
When a person dies intestate and no heirs claim his/her property, it reverts to the state by: (a) patent. (b) escheat. (c) deed. (d) will.
The correct answer is b: In cases where a decedent dies intestate and there are no heirs capable of inheriting, the property escheats to the state.
What usually happens to a person's property who died intestate? (a) It escheats to the state. (b) It is distributed to his/her heirs. (c) It is distributed according to his/her will. (d) None of the above
The correct answer is b: Intestate means dying without a will or leaving a defective will. The intestate decedent's property passes to his/her heirs according to the laws of descent in the state where such real property is located.
Probate proceedings are conducted by: (a) the probate referee. (b) superior court. (c) municipal court. (d) federal court.
The correct answer is b: Most real estate matters including probate are handled by the superior court.
Personal income taxes are structured using rates that are: (a) regressive. (b) progressive. (c) equal. (d) level.
The correct answer is b: Progressive means the more you make, the more you pay. It might also be termed "graduated."
Which of the following is TRUE with respect to reserves in an escrow? (a) The lender holding the reserves pays the same interest rate on funds that savings and loans pay on savings accounts. (b) They benefit both the trustor and the beneficiary. (c) The maximum amount cannot exceed five percent of the annual disbursements. (d) Reserves are required on all homes.
The correct answer is b: Reserves in escrow (impound accounts) are there for the benefit of both the trustor (borrower) and the beneficiary (lender). By impounding taxes and insurance, the lender is certain that these debts will be paid. The borrower is also certain that the payment will be made.
How often should a trust fund account be reconciled? (a) Once-a-week (b) Once-a-month (c) Semi-annually (d) Once-a-year
The correct answer is b: Similar to balancing your checkbook, reconciliation is the process of comparing two or more sets of records to determine whether their balances agree. This should reveal if the records are completed accurately. To assure the accuracy of the records, they must be reconciled at least once-a-month.
All of the following will terminate an escrow EXCEPT: (a) agreement of the parties. (b) demand of the broker. (c) inability to meet a contingency. (d) None of the above
The correct answer is b: Since a broker is not a party to the transaction, he/she cannot order an escrow terminated.
Holographic wills cannot be: (a) written with colored ink. (b) signed with an "X." (c) written in anything other than ink. (d) All of the above
The correct answer is b: Since a holographic will is handwritten, it is assumed that the person is capable of signing his/her full name.
The adjusted basis of a taxpayer's residence would be: (a) cost plus improvements minus depreciation. (b) cost plus improvements. (c) cost. (d) cost minus improvements.
The correct answer is b: Since you cannot depreciate your personal residence, the adjusted basis would be cost plus capital improvements.
Street assessments are distributed to those that benefit by which method? (a) equally distributed (b) by front foot (c) by square foot (d) according to benefits received
The correct answer is b: Street assessments are levied according to the front footage of the lot benefited.
An investor owned less than a 10% interest in an investment group that owns a major income producing property. If the property operates at a sizeable loss for income tax purposes and the investor's adjusted gross income is $100,000, the maximum amount of passive income loss that could be deducted by the investor is: (a) $10,000. (b) $25,000. (c) $50,000. (d) None
The correct answer is b: Taxpayers having an adjusted gross income of $100,000 or less, can shelter (deduct) real estate losses up to $25,000 of active income (e.g. wages).
A Notary Public can do all of the following EXCEPT: (a) Demand and accept promissory notes (b) Notarize signatures (c) Administer oaths in depositions (d) Witness and authenticate the execution of documents
Your answer: (a) is correct. A Notary's duty is to screen the signers of important documents — such as property deeds, wills and powers of attorney — for their true identity, their willingness to sign without duress or intimidation, and their awareness of the contents of the document or transaction. Some notarizations also require the Notary to put the signer under an oath, declaring under penalty of perjury that the information contained in a document is true and correct. A Notary Public cannot demand or accept promissory notes - this is typically done in escrow.
What kind of deed clears minor imperfections on the title of real property? (a) quitclaim deed (b) warranty deed (c) gift deed (d) grant deed
Your answer: (a) is correct. A quitclaim deed is often used to cure an imperfection or defect (a "cloud on the title") in the recorded history of a real estate title. Title defects include items such as issues with wording (for example, a document does not comply with state standards), a missing signature (such as that of a spouse) or failure to properly record real estate documents. For example, if the name of a grantee is misspelled on a warranty deed placed in the public record, a quitclaim deed with the correct spelling can be executed to the grantee to perfect the title.
The term title plant refers to: (a) records of a title insurance company. (b) records of lender. (c) records of a brokerage. (d) mortgage interest payments.
Your answer: (a) is correct. A title plant is the storage facility of a title insurance company in which it has accumulated complete title records of properties in its area. Many of the larger title insurance companies maintain their own title plants containing copies of all recorded instruments.
Which of the following is required for the existence of a valid escrow? (a) A binding contract and conditional delivery (b) The services of a licensed real estate broker (c) A complete chain of title (d) Complete escrow instructions
Your answer: (a) is correct. A valid escrow cannot exist without a binding contract between buyer and seller and the conditional delivery of transfer documents to a third party.
If Johnson's intent is to accomplish a "tax-free" exchange of his apartment building, he should exchange for: (a) an apartment building of greater value with boot paid to balance the trade. (b) an apartment building of equal value with Johnson receiving net mortgage relief. (c) a smaller, less expensive apartment building and take cash boot to make up the difference. (d) an owner-occupied, single-family residence of equal or greater value.
Your answer: (a) is correct. All choices except (a) would result in tax consequences.
Which of the following would protect a buyer against a right of a party in possession? (a) Extended-coverage policy (b) Standard policy (c) either (a) or (b) (d) neither (a) nor (b)
Your answer: (a) is correct. An extended-coverage policy insures the title against matters that might be discovered by an inspection of the premises. Its coverage includes mechanics' liens, tax liens, miscellaneous liens, encumbrances, easements, rights of parties in possession and encroachments which may not be disclosed by the public records.
What is an imputed interest rate? (a) An estimated interest rate used instead of the established interest rate associated with a debt. (b) The rate at which banks loan money. (c) The interest rate before taking inflation into account. (d) The annual rate charged for borrowing or earned through an investment.
Your answer: (a) is correct. An imputed interest rate is an estimated interest rate used instead of the established interest rate associated with a debt. An imputed rate is used because the established rate does not accurately reflect the market rate of interest, or there is no established rate at all. From a real estate/finance standpoint, imputed Interest refers to interest that is considered by the IRS to have been paid for tax purposes, even if no interest payment was made. The IRS uses imputed interest as a tool to collect tax revenues on loans that don't pay interest, or stated interest is very low.
Which of the following may NOT engage in the escrow business? (a) An individual who is not a real estate broker or attorney (b) Bank (c) Domestic corporation (d) Foreign corporation
Your answer: (a) is correct. An individual who is NOT an attorney may not engage in the escrow business.
When there is a substantial discrepancy between the dates for close of escrow and the new owners occupying the property, the agent must prepare a(n):` (a) interim occupancy agreement. (b) addendum. (c) sale-leaseback agreement. (d) None of the above
Your answer: (a) is correct. Closing delays can occur due to a number of reasons. For example, delays in obtaining a homeowner's insurance policy or if the funding check from the buyer's lender isn't issued in time. Sometimes work on the property needs to be completed before close of escrow. Another common reason for a delay is when two home sales are closing concurrently and a delay in one causes a delay in the other. Ideally, buyers shouldn't take possession of their new homes until the sale has closed. As a last resort, the buyer can ask the seller for permission to occupy the property before the closing and if the seller agrees, an interim occupancy agreement should be signed by the buyer and seller, and the buyer's personal and liability insurance should be in effect as of the date of occupancy.
A standard policy of title insurance covers all of the following EXCEPT: (a) unrecorded liens. (b) incorrectly given marital status. (c) incompetent grantor. (d) forged deed.
Your answer: (a) is correct. Generally, a standard policy of title insurance will protect the insured against losses arising from such title defects as:1) Forged documents such as deeds, releases of dower, mortgages;2) Undisclosed heirs; lack of capacity (minors);3) Mistaken legal interpretation of wills;4) Misfiled documents, unauthorized acknowledgments;5) Confusion arising from similarity of names;6) Incorrectly given marital status; mental incompetence.
When a fire insurance claim is filed which of the following is true? The claimant would: (a) Neither gain nor lose financially (b) Gain financially, but lose value on the property (c) Might lose financially, but not lose value on the property (d) Might lose financially and lose on the value of the property
Your answer: (a) is correct. In theory, this is the correct answer.
Homebuyers are most likely to purchase: (a) standard insurance. (b) extended insurance. (c) ALTA policy. (d) an abstract of title.
Your answer: (a) is correct. Most homebuyers purchase a standard policy of title insurance. "ALTA" stands for American Land Title Association and is an extended coverage policy.