Ch. 11

void

A contract that has no legal force or effect is A) voidable. B) void. C) valid if the parties agree to its terms. D) enforceable if no one objects.

voidable

A contract that is entered into by a person who is under the age of contractual capacity is A) valid. B) void. C) voidable. D) unenforceable.

bilateral contract

A legally enforceable agreement under which both parties promise to do something for each other is called A) an option agreement. B) a bilateral contract. C) a legal pledge. D) an escrow agreement.

a novation

A real estate buyer takes over the seller's loan that originated in 2005. The lender releases the seller of liability and substitutes the buyer as the party primarily liable for the mortgage debt. This type of transaction is A) never allowed. B) a novation. C) a subordination of loan. D) a non-qualifying assumption.

changes must be addressed through the use of an amendment

Once a contract has been agreed upon and signed by all parties A) changes must be addressed through the use of an amendment. B) any changes are to be addressed in the special provisions paragraph. C) the broker will write up an exhibit to the contract to address changes. D) no changes will be allowed.

a land contract

The buyer of real estate takes possession but not legal title to property under A) a land contract. B) an option. C) a counteroffer. D) a purchase money mortgage.

is a change to the existing content in the contract

The main difference between an amendment and an addendum is that an amendment A) is a change to the existing content in the contract. B) does not require signatures from all parties. C) is the same as a contingency. D) is additional material to be added to a contract.

an option

The property owner has given a potential buyer the right to buy the property at a set price for a set period of time; this is A) a listing agreement. B) a right of first refusal. C) a purchase contract. D) an option

a contingency

The sales contract says the buyer will purchase only if an attorney approves the sale by the following Saturday. The attorney's approval is A) a contingency. B) a reservation. C) a warranty. D) a consideration.

is the time during which parties to a contract may bring a legal action to enforce their rights

The statute of limitations A) is the same in every state. B) does not apply to real estate contracts. C) is the time during which parties to a contract may bring a legal action to enforce their rights. D) ensures rights can be enforced after the applicable time period has expired.

novation

A buyer and a seller sign a contract for the sale of real property. A few days later, they decide to change many terms of the contract, while retaining the basic intent to buy and sell. The process by which the new contract replaces the old one is called A) rescission. B) assignment. C) assemblage D) novation.

executed

A contract that has been fully performed is A) executed. B) voidable. C) unenforceable. D) executory.

unenforceable

A person approaches an owner and says, "I'd like to buy your house." The owner says, "Sure," and they agree on a price. What kind of contract is this? A) Void B) Unenforceable C) No contract D) Implied

an earnest money deposit, held in escrow account

All of these are essential to a valid real estate sales contract EXCEPT A) an earnest money deposit, held in an escrow account. B) consideration. C) legally competent parties. D) offer and acceptance.

performance

All of the following are essential to the formation of a contract EXCEPT A) consideration. B) acceptance. C) performance. D) offer.

changes the contract

An amendment A) clarifies the promises made in a contract. B) has no effect on farm and ranch contracts. C) changes the contract. D) is rarely used in real estate contracts.

unenforceable

If a contract seems to be valid, but neither party can sue the other to force performance, the contract is said to be A) breached. B) unenforceable. C) voided. D) rescinded.

has only an equitable interest in the property's title

The purchaser of real estate under an installment contract A) generally pays no interest charge. B) receives title immediately. C) has only an equitable interest in the property's title. D) is not required to pay property taxes for the duration of the contract.

equitable title with the right of possession

Under a land contract, the vendee receives A) equitable title with the right of possession. B) fee title without the right of possession. C) equitable title without the right of possession. D) fee title with the right of possession.

the vendor

Under an installment contract, the legal title to the property is held by A) the vendee. B) the trustor. C) the trustee. D) the vendor.

Land Sales Contract

A buyer and a seller enter into a real estate sales contract. Under the contract's terms, the buyer will pay the seller $500 a month for 10 years. The seller will continue to hold legal title, while the buyer will live in the home and pay all real estate taxes, insurance premiums, and regular upkeep costs. What kind of contract do the buyer and seller have? A) Option contract B) Contract for mortgage C) Land sales contract D) Unilateral contract

a suit for specific performance

A buyer asks a court to enforce the provisions of a contract by bringing A) a suit for specific performance. B) a quiet title action. C) a bill of attainment. D) a request for injunctive relief.

The buyer and seller have an express, bilateral executory contract.

A buyer makes an offer on a house, and the seller accepts in writing. What is the current status of this relationship? A) The buyer and seller do not have a valid contract until the seller delivers title at closing. B) The buyer and seller have an express, bilateral executory contract. C) The buyer and seller have an express, bilateral executed contract. D) The buyer and seller have an implied, unilateral executory contract.

an executory contract.

A buyer who owns the property in equity has A) an executory contract. B) a liquidated damages contract. C) an option contract. D) a lease.

void

A contract for the sale of real estate that does not state the consideration and provides no basis on which the consideration could be determined is considered A) void. B) executory. C) voidable. D) enforceable.

the signatures of the parties

A contract is said to be executed when it includes A) the signatures of the parties. B) the consideration. C) the competent parties. D) the offer and acceptance.

a bilateral contract

A legally enforceable agreement in which two parties promise to do something for each other is classified as A) a bilateral contract. B) an escrow agreement. C) an option agreement. D) a legal pledge.

A portion of the lease payments to be applied to the purchase price if the option is exercised

A special feature of a residential lease option is that it may provide for A) a portion of lease payments to be applied to the purchase price if the option is exercised. B) conditions to be met to make the property suitable for the optionee. C) the optionor to terminate the option without notice. D) a change of zoning.

liquidated damages

The buyer has defaulted on a purchase contract, and the seller's only remedy is to keep the buyer's earnest money. In this case, the seller's remedy is known as A) liquidated damages. B) specific performance. C) actual damages. D) suit to quiet title.

liquidated damages

An amount of money that serves as compensation for a breach of contract is called A) liquidated damages. B) lienholder approval. C) contingent funds. D) equitable title.

seller only

An option to purchase binds which of the following parties? A) Neither buyer nor seller B) Seller only C) Both buyer and seller D) Buyer only

mutual assent

Another term for the meeting of the minds that occurs in the formation of a contract when there is an offer and acceptance is A) consideration. B) performance. C) mutual assent. D) counteroffer.

they can do so as long as both parties agree to the change

If the parties change their original promises by executing an amendment and then decide they want to make a change to the closing date A) there is nothing they can do; the amendment has already been filled out. B) they can do so as long as both parties agree to the change. C) the broker must rewrite the contract form after all the changes so that there is a neat and clearly understood contract form. D) they should write this change in Paragraph 11, Special Provisions.

relieved of the original offer

If, upon the receipt of an offer to purchase a property, the seller makes a counteroffer, the prospective buyer is A) not able to counter the counteroffer. B) bound by whichever offer is lower. C) bound by the original offer. D) relieved of the original offer.

has possession during the term of the contract

In a land contract, the vendee A) does not pay interest and principal. B) is not responsible for the real estate taxes on the property. C) obtains legal title at closing. D) has possession during the term of the contract.

Have both Parties initial or sing in the margin near each change.

In a preprinted sales contract, several words were crossed out or inserted by the parties. To eliminate future controversy as to whether the changes were made before or after the contract was signed, the usual procedure is to A) have each party write a letter to the other approving the changes. B) redraw the entire contract. C) have both parties initial or sign in the margin near each change. D) write a letter to each party listing the changes.

forfeiture of the earnest money deposit

Should the buyer default, an example of liquidated damages to the seller in a purchase contract could be A) forfeiture of the earnest money deposit. B) damages for the taking of private land for public use. C) recovery of money lost as a result of the breach. D) a court action for specific performance.

Closing must be on or before September 7

The buyer and seller agreed to a closing date of September 7 and that time is of the essence. Which of these is the closest meaning of the phrase? A) Closing must be on or before September 7. B) If either party gives notice, the date can be moved back. C) The date of closing may only be delayed by one day at a time. D) If closing is not held on September 7, there is an automatic extension built in.

The change should be initialed in the margin by the buyer before presentation to the seller

The buyer and the seller are negotiating an offer. During the final stages of negotiations, the buyer crosses out part of paragraph 19 that states the seller has the right to continue to show the property and receive, negotiate, and accept back up offers and the seller agrees. What are the implications? A) This is illegal; only a real estate attorney can do this. B) The change should be initialed in the margin by the buyer before presentation to the seller. C) This can only take place on an amendment form. D) The broker will need to have a separate written agreement drawn up for the parties.

voidable

When a seller deliberately deceives a buyer about the condition of real property, their contract of sale would be considered A) voidable. B) void. C) illegal. D) a novation.

all obligations under the agreement have been performed

Which of the following describes an executed contract? A) One party has yet to perform an obligation under the agreement B) All obligations under the agreement have been performed C) A sales contract is signed, but ownership has not yet changed hands. D) Two parties have yet to perform an obligation under the agreement

All contracts must allow assignments

Which of the following is FALSE about assignments? A) Obligations may be delegated. B) Generally, rights and obligations may be assigned to a third party. C) All contracts must allow assignments. D) The original party remains primarily liable.

Whether it is an amount sufficient to cover the broker fees

Which of these is NOT typically a factor in determining the amount of the earnest money deposit? A) Whether it is an amount sufficient to discourage the buyer from defaulting B) Whether it is an amount sufficient to cover the broker fees C) Whether it is an amount sufficient to compensate the seller for taking the property off the market D) Whether it is an amount sufficient to cover any expenses the seller might incur if the buyer defaults

buyer and seller

Whose signature is necessary for a signed offer to purchase real estate to become a contract? A) Buyer and seller B) Seller only C) Buyer only D) Seller and seller's broker

assignment

A buyer has given rights under a sales contract to a third party but has not been released of the liability under the contract. This is called A) assignment. B) fraud. C) novation. D) transference.

when an accepted offer becomes a contract

Earnest money checks should be deposited A) upon receipt of the offer. B) as soon as the broker receives it. C) when an accepted offer becomes a contract. D) before closing.

the letter of intent

The document that can be used to begin negotiations between the parties is A) the addendum. B) the land contract. C) the letter of intent. D) the preliminary title report.

assignment

A buyer has given rights under a sales contract to a third party but has not been released of the liability under the contract. This is called A) transference. B) fraud. C) assignment. D) novation.

earnest money

A deposit provided when making an offer to purchase real estate is known as A) equitable title. B) binder. C) earnest money. D) acceptance.

the conveyance of legal title at a future date.

A land contract provides for A) the sale of unimproved land only. B) the sale of real property under an option agreement. C) the conveyance of legal title at a future date. D) the immediate transfer of reversionary rights.

If the closing date passes and no closing takes place, the contract may be rescinded by the party who was ready to settle on the scheduled date.

A buyer and a seller agree on a purchase price of $300,000 for a house. The contract contains a clause stating that "time is of the essence." Which statement is TRUE? A) A "time is of the essence" clause is not binding on either party. B) If the closing date passes and no closing takes place, the contract may be rescinded by the party who was ready to settle on the scheduled date. C) The closing date must be stated as a particular calendar date, and not simply as a formula, such as "two weeks after loan approval." D) The closing must take place within a reasonable period before the stated date.

the seller is not liable because the buyer should not have incurred the $1,500 cost before the sale.

A buyer and a seller enter into a sales contract for the sale of a home. The seller backs out of the contract at the last minute, and the buyer suffers a financial loss of $1,500 and must rent a home in which to live. Unless the contract provides otherwise, all of these are legal actions that are likely to succeed EXCEPT A) the buyer may sue the seller for specific performance, forcing the sale of the home to the buyer. B) the buyer may sue the seller for the rent he paid. C) the buyer may sue the seller for damages to recover the $1,500 loss. D) the seller is not liable because the buyer should not have incurred the $1,500 cost before the sale.

a property sale contingency

A buyer makes an offer on a seller's house. Pursuant to this offer, the buyer is obligated to perform only if the buyer is first able to sell a condominium. This is an example of A) a time-is-of-the-essence contingency. B) a mortgage contingency. C) a property sale contingency. D) an option contingency.

holds the deed to the home until final payment

A buyer purchased a home under a land contract. In this form of seller-carry lending, the seller A) holds the deed to the home until final payment. B) has equitable title and the buyer has legal title. C) passes title at the closing and has a second lien against the property. D) holds the deed and possession of the property until final payment.

option

A buyer signs a contract under which he is given the right to purchase a property for $130,000 anytime in the next six months. The buyer pays the current owner $500 at the time that contract is signed. Which of the following BEST describes this agreement? A) Sales B) Contingency C) Option D) Installment

mutual rescission

A buyer under an executory contract has found numerous inspection issues the seller is unwilling to repair. The seller and the buyer agree to terminate the contract with all things of value returned to each party. This is known as A) liquidated damages. B) specific performance. C) mutual rescission. D) mutual performance.

The broker could find out whether the seller is willing to provide financing for the buyer; if the seller agrees, they could fill out a seller financing addendum

A buyer would like to place an offer on a property but doesn't have good credit. Which of the following is a logical next step? A) The broker needs to refer the buyer to the real estate broker down the street, because the buyer probably won't be able to get a loan. B) The broker could find out whether the seller is willing to provide financing for the buyer; if the seller agrees, the parties can address the financing through the special provisions paragraph of the contract. C) The buyer needs to forget about purchasing a property until the market and lending improve. D) The broker could find out whether the seller is willing to provide financing for the buyer; if the seller agrees, they could fill out a seller financing addendum.

a contingency clause

A clause in a purchase agreement that would allow the buyer to cancel the contract if the buyer cannot secure financing from a lender is A) a due-on-sale clause. B) a contingency clause. C) a release clause. D) an acceleration clause.

an offer

A real estate professional has found a buyer for a seller's home. The buyer has indicated in writing a willingness to buy the property for $1,000 less than the asking price and has provided an earnest money check for $5,000. The seller is out of town for the weekend, and the real estate professional has been unable to inform the seller of the signed document. At this point, there is A) an implied contract. B) a voidable contract. C) an offer. D) an executory agreement.

a unilateral contract

A seller accepted money from a buyer in exchange for the buyer's unrestricted right to cancel the purchase transaction (option to terminate) within 10 days of the executed date of the sales contract. This agreement is A) a unilateral contract. B) a covenant clause in the sales contract. C) a bilateral contract. D) an executory agreement .

the buyer may obtain certain inspections of the property, at the buyer's expense

An inspection contingency in a real estate sales contract provides that A) the seller must obtain a property inspection report before an offer to purchase is made. B) the seller must have the property inspected and a report issued to the buyer, at the seller's expense. C) the buyer may obtain certain inspections of the property, at the buyer's expense. D) the buyer has the option of having the specified inspection(s) performed or cancelling the contract.

equitable title

In the period after an offer to purchase real estate is accepted and the sale is closed, the buyer acquires an interest in the property that is called A) preliminary title. B) after-acquired title. C) quiet title. D) equitable title.

an installment contract or contract for deed

Real estate can be purchased under a land contract, also called A) an installment contract or contract for deed. B) a contract for note or installment contract. C) an installment deed. D) a contract for note.

an amendment must be used

To make a change to a contract A) the parties must state the change in the special provisions paragraph. B) the parties must request the change in writing to their broker. C) the parties may agree to change orally. D) an amendment must be used.