Chapter 2: Transfer of Property

A deed delivered in escrow is given to:

A neutral third party (The grantor (seller) delivers the deed to an escrow agent, who then delivers it to the grantee (buyer) upon fulfillment of specified conditions (or returns it to grantor if conditions fail). An escrow agent is a neutral third person, authorized by the parties to hold property or perform specified acts.)

Who would not usually perform title searches?

A real estate salesperson (A person who performs a title search is known as a title examiner or abstractor. To promote its own interests, the same company that insures title usually conducts the title search. Real estate salespersons do not generally perform title searches.)

When the grantor of a deed swears that he is conveying title of his own free will, this action is referred to as:

Acknowledgment (Swearing that the grantor passes title (in a deed) of his own free will is usually done before a notary public or some other official. This is called acknowledgment.)

Tax assessment of real property according to value is known as:

Ad valorem (One of the two principal methods of assessing real estate taxes is ad valorem (and the other is special assessment). "Ad valorem" is Latin for "according to value." Ad valorem taxes are based on the unique assessed value of the subject property.)

An individual, appointed by the court to handle the affairs of someone who died intestate, is exempt from the State of Order's License Law. This person is called a(n):

Administrator (The person died intestate (without a will), so the court will appoint an administrator. If the person had died testate (with a will), the WILL would have named someone to handle the affairs of the estate and that person would be the executor.)

Escrow may be used in which of the following situations?

All: When the property is purchased & secured by a deed of trust, In an exchange of property, With a contract for sale (Escrow is the holding of money, documents, etc. by a third party until the conditions of a contract have been satisfied by the principal parties. Escrow is commonly used in most real estate transactions, including the closing of mortgage loans and property exchanges.)

A quitclaim deed may be used to:

Any: Transfer of ownership of a fee simple estate, Transfer interest in a life estate, Terminate an easement (A quitclaim deed CAN be used to transfer any interest in real property from one party to another. It is normally used for the transfer of an interest that is less than fee simple.)

Bill sells real property to Betty through an escrow closing. Bill relinquishes control of the deed, but Betty does not receive it. What most likely happened to the deed?

Bill delivered it to an escrow agent (Note that the question states this is an escrow closing. In an escrow closing, the deed is placed in escrow, where the grantor relinquishes his control of the deed. The escrow agent delivers the deed to the grantee upon the completion of agreed upon conditions (usually specified in the sales contract).)

What is the result of recording a deed in the public office?

Constructive notice (The act of recording provides constructive notice to the world, regardless of whether anyone actually looks for it. Alone, the act of recording does not create actual notice (when an individual is directly informed about something). Recording the deed also has no affect on whether title will transfer.)

Deed restrictions apply to:

Current owners & Subsequent Owners (Deed restrictions run with the land, and therefore apply to the current owner and any other person who later occupies the property. While other homes in a neighborhood may have similar deed restrictions (for example, in developments), each deed restriction only applies to its owner.)

Title passes from the grantor to the grantee after a deed is:

Delivered (Legal title to real property conveys (passes) to a purchaser (grantee) when the deed is delivered by the seller (grantor) and accepted by the grantee. Acceptance is legally presumed in absence of evidence to the contrary.)

A title insurance policy reimburses the title holder for:

Loss as a result of a superior claim (Title insurance reimburses the policy holder for specified losses caused by title defects that arose before the effective date of the policy. Damage caused by fire or flood would be covered by homeowner's insurance, not title insurance.)

Which of the following transfers is an example of involuntary alienation?

Property transferred by descent (This is a form of involuntary alienation because the state (not the deceased) determines the disposition of property. The question of who inherits the descendant's estate (after the payment of applicable debts) is handled in each state by the laws of descent and distribution, also known as "intestate succession" statutes.)

Which act regulates the closing procedures in a real estate transaction?

RESPA (RESPA (Real Estate Settlement Procedure Act) regulates closing procedures in order to ensure that lenders: fully inform buyers and sellers of all settlement costs; and do not engage in unfair practices. It also limits who may conduct a real estate closing (settlement agent) and imposes further obligations on settlement agents.)

The covenant in a deed where the grantor guarantees that she owns the property and has the right to sell it is known as:

Seisin (A covenant of seisin is a promise by the grantor (seller) to the grantee (buyer) that the grantor actually has the degree of ownership that she's claiming to convey.)

A house sold for $109,000 with the buyer making a 20% down payment. The grantor's tax is based on the:

Selling price (The grantor's tax, also known as the transfer and/or recording tax, is based on the selling price of the property. It is customary in many jurisdictions for the grantor (seller) to pay the grantor's tax.)

A deed where the grantor only promises against claims that arose during his property ownership is referred to as a:

Special (limited) warranty deed (In a special warranty deed, the grantor only warrants against title defects and claims that occurred while the grantor held title to the property. Bargain and sale deeds and quitclaim deeds offer no warranty to the grantee regarding the status of title. General warranty deeds warrant against title defects and claims that occurred before and during the grantor's property ownership.)

For closed real estate transactions, a report must be filed with the IRS on form 1099-S. Required information includes the seller's name, social security number, and:

The selling price of the property (The selling price of the property is included on the 1099-S. This is the amount of income the seller received. At tax reporting time, this sale is subject to adjustments when calculating the actual tax due.)

Which of the following statements is NOT true about a title search?

The title searcher goes back at least 100 years (Title examiners must research the public record at least 40 years prior to the date of examination. As such, title searches only NEED to go back 40 years. Abstractors, or title examiners, examine the public record in order to determine whether the title is marketable or free from defects.)

Which of the following policies provides compensation for defects?

Title insurance (Title insurance reimburses the title holder for certain losses incurred due to defects in the title. Homeowner's insurance reimburses the homeowner for damage to the home or property. PMI is used by lenders to hedge against the risk that a borrower will default on a mortgage.)

All of the following circumstances are examples of insurable title defects, except:

Unrecorded easements (All of the listed items, except unrecorded easements, are commonly insured title defects. Unrecorded easements and other rights of parties in possession are generally excluded, along with facts that an accurate survey would reveal, taxes, assessments not yet due or payable, zoning, and other governmental restrictions.)

Gus the Mechanic knew of an individual, Josh, who was interested in buying a house in the area. Gus told a broker who was very familiar with real estate options in that area. Upon referral by Gus, the broker sold a house to Josh and received a $600,000 commission. Under RESPA, the broker may give Gus:

A thank you (Under RESPA, it is illegal for anyone to pay or receive a fee, kickback, or anything of value because they agreed to refer settlement service business to a particular person or organization. It is also illegal for anyone to accept a fee or part of a fee for services if that person has not actually performed settlement services for the fee.)

What is NOT a cloud on title?

A valid first mortgage (This question is intended to distinguish between "cloud on title," "title defect," and "marketable title." Cloud on title is an indication of a potential, but uncertain, defect that may be cleared. A valid first mortgage is certain to be a title defect (encumbrance) that prevents marketable title. Therefore, it is not a "cloud" because there is no ambiguity. The question is intended to illustrate these very fine distinctions, and more importantly, to demonstrate the difficulty of the licensing exam. The test will have a few questions that most students get wrong, no matter how hard they study!)

What is a written instrument or thing of value that is held by a disinterested third party, but which must be handed over upon satisfaction of specified conditions?

An escrow closing (The question describes an escrow closing. In an escrow closing, documents (deeds, mortgages, etc.) and funds are held by a third party until closing is complete. Upon closing (and as specified in the purchase agreement), the escrow agent turns over the deed and funds to the proper parties.)

Sam sells property to Sally. After the transfer, Sally discovers a defect in the title. However, this defect can be remedied if Sam were to file a correction deed. Which of the following covenants would best justify Sally's request that Sam execute the correction deed?

Covenant of further assurances (The covenant of further assurances is the grantor's promise to do such further acts as might be necessary in the future to guarantee or perfect the title conveyed. This covenant could justify forcing a grantor to execute a correction or quitclaim deed if necessary.)

The purpose of a recording act is to:

Create a local public record (Recording acts create local public records that are available for public inspection and ensures public notice of all recorded information.)

All of the following transfers would be considered involuntary alienation, EXCEPT:

Devise (Alienation means to transfer property. A devise is a gift of real property through a will, which is a voluntary act. Foreclosure (when the lender takes over property) and eminent domain (when the government takes over the property) are involuntary. Adverse possession can only occur WITHOUT the true owner's permission.)

If a seller deposits the deed with an escrow agent, but dies before it is delivered to the purchaser, the transfer of title becomes effective on the date the deed was deposited into escrow due to the:

Doctrine of relation-back (Note that this question states the definition of the relation-back doctrine.)

What are fees charged for the privilege of buying or selling property in a particular jurisdiction?

Excise taxes (Excise taxes (also known as transfer and recording taxes) are fees charged by local jurisdictions for the privilege of buying or selling real estate in that jurisdiction. Transfer taxes are generally paid by the seller, grantor, or lessor and are usually based on the sales price of the property.)

Chris defaults on his house loan and the lender wants to auction the property (which secures the loan) in order to satisfy his debt. This is known as:

Foreclosure (A short sale happens when the defaulting borrower sells the property to a new buyer for less than the full amount owed to the lender. Foreclosure is the loss of property to pay off a debt. Forfeiture is losing the property because the person has disobeyed a condition in the deed.)

Which of the following deeds creates the most liability for a seller?

General warranty deed (The general warranty deed is the most complete of all deeds. It carries all the warranties of title. A quitclaim deed is the least complete in that it warrants nothing. A special warranty deed only warrants against defects which arose during the tenure of the grantor's ownership and not against previous title defects.)

What should Sally Salesperson do with an earnest money check she received from Billy Buyer?

Give it to her broker (The deposit should be given to the broker as soon as the buyer's offer is accepted by the seller and a contract exists. Remember that a salesperson does NOT have an escrow account; only the broker does.)

Who pays excise taxes?

Grantor & Grantee (An excise tax is a tax assessed for a service. For the grantor, excise taxes may include transfer taxes paid at settlement. For the grantee, excise taxes may include recordation taxes.)

Which of the following clauses is least likely to be included in a mortgage?

Habendum (A habendum clause is found in a deed, not a mortgage. It is the clause that begins with "To have and to hold..." and describes how the property will be held by the new owner. All other items listed are generally included in the mortgage.)

A homeowner may claim which of the following items as deductions on his federal tax return?

Interest payments on the mortgage loan (Of the items listed, a homeowner may only deduct the interest paid on his/her mortgage loan.)

Which of the following statements is NOT true about title insurance?

It serves many of the same functions as homeowner's insurance (Title insurance and homeowner's insurance are two different things. Homeowner's insurance insures against damage to the home. A title insurance policy promises to reimburse the policy holder for specified title defects, so the policy will include exclusions.)

Smith is interested in purchasing a parcel of land, but wants to first examine any recorded documents relating to the parcel. Smith must have authorization from:

No one: The current owner, The civil court having jurisdiction, A magistrate (All recorded documents pertaining to land are public information. Therefore, no permission is required to gain access.)

In a foreclosure sale, what kind of deed does the mortgagor receive?

None: Sheriff's deed, Executor deed, or Quitclaim deed (This is a trick question, so read it carefully. The MORTGAGOR is the person that is in default. He is going to lose the property, therefore he would not receive anything. When anyone (other than the delinquent borrower) buys property at a public auction, they receive a sheriff's deed (also known as a referee's deed). A sheriff's deed functions to eliminate all unpaid junior liens against the property so the purchaser may receive marketable title.)

Larry sells property to David and the deed contains the following covenants: seisin, quiet enjoyment, against encumbrances, and further assurances. Following the transfer, David discovers utility poles on the property that lead to a nearby transformer. Larry failed to list the utility poles in the deed. Larry's failure to identify such encumbrances violates:

None: The covenant of quiet enjoyment, The covenant against encumbrances, & The covenant against grantor's acts (A covenant against encumbrances is the grantor's guarantee that there are no encumbrances against the property except those specifically disclosed. The utility poles are indeed an encumbrance. However, the covenant against encumbrances is NOT breached by failing to list an open and visible encumbrance, like a power line or drainage ditch. Open and visible encumbrances provide actual notice to purchasers. Therefore, such encumbrances need not be listed in the deed.)

Jill agrees to sell a three-bedroom ranch to Jason. Per the sales agreement, Jill deposits the deed to the ranch in escrow. Subsequently, Jill dies. The ranch will most likely:

Pass to Jason, provided he satisfies the terms of the sales agreement (Note that the relation-back doctrine establishes that the death of the grantor does not terminate escrow, and also authorizes the escrow agent to deliver the deed as instructed. Provided Jason satisfies the terms in the sales contract, Jill's death will not affect the transaction.)

Pete purchased a home from Tony. He did not record his deed, but took immediate possession. Tony died a few months later and according to the terms of his will, the property was to go to his nephew, Bob. Bob knew his friend Angela was interested in buying a house. They inspected the property and Angela agreed to buy it from Bob. Angela recorded her deed. Who owns the property?

Pete, because he purchased it from Tony (Remember that a deed need not be recorded to effectuate a valid transfer of title. If Bob and Angela inspected the property, they would have actual notice that Pete was in possession of the property (and should have questioned the ownership rights). There could be a fight in court if Angela sues, but the property legally belongs to Pete. Note that the relation-back doctrine applies where the grantor dies while the property is in escrow.)

Which of the following deed clauses is most likely to state the names of the parties?

Premises (Deeds may contain all of the following clauses: premises, habendum, and testimonium. However, only the premises clause names the parties to the transaction.)

In the event of any conflict, which clause would best state the extent of ownership?

Premises (While both the premises and habendum clauses could state the event of ownership being transferred, the premises clause controls in the event of a conflict.)

Quincy sold a piece of property to Ralph, and transferred title through a quitclaim deed. Later, a court determined that Quincy did not own the property. Which of the following statements is true in this situation?

Ralph has no interest in the property (With a quitclaim deed, the grantor does not promise that he has any interest or rights to convey. Because Quincy had no interest, he had nothing to sell, and Ralph has no interest in the property. On these facts, Ralph has no basis for a suit because through the quitclaim deed, Quincy never asserted he had an interest at all.)

Which of the following amounts is NOT prorated between buyer and seller at closing?

Recording fees (Recording fees are NOT prorated; each party pays his own. If insurance premiums have been paid in advance by the seller, they would be prorated if the buyer assumes the insurance policy. However, this is not as common a practice as it once was.)

Bill and Sue want to purchase the home that is occupied by their grandparents. However, they want to take title in such a way that will result in the least amount of income tax liability for themselves. How should a real estate sales agent advise them?

Refer Bill and Sue to an attorney or tax advisor (This is a problem that licensees should NOT get involved in. Tax matters can be very complex. You will be doing them a favor and keeping yourself out of possible trouble if you refer them to a professional.)

All of the following persons may act as escrow agents except:

Salespersons (An escrow agent is a neutral third-party that is authorized to hold property or perform specified acts. Both brokers and attorneys can act as escrow agents. However, most states do not allow salespersons to be escrow agents, though they may accept money and documents for escrow on behalf of their employing broker.)

When a property sells, who pays to record a satisfaction or release of the existing deed of trust?

Seller (The buyer pays to have his new deed recorded. The seller pays to have his existing deed of trust released.)

Gill had a bad year. In September 2014, Gill's vacation home had a 1st mortgage, a mechanic's lien, and a special assessment filed against it. Later, in May 2015, a second mechanic's lien was filed against the property. Which lien has priority?

Special assessment (Because special assessments are a form of real property tax, it would have priority over all the other liens. Real estate property taxes take priority over other types of liens, regardless of their date of recording.)

Dan has a loan secured by his home through Bank Trust Company (BTC). Dan has failed to make several mortgage payments and, as a result, BTC has begun to send collection notices. If Dan files for bankruptcy, BTC must:

Stop all collection activity during the pendency of Dan's bankruptcy petition (When someone files a petition for bankruptcy protection, a creditor must cease all collection activity until the petition is discharged. Therefore, pursuing any kind of collection action, like acceleration or foreclosure, would be improper. A notice of forfeiture would be a form of collection activity, but would not be sent by BTC since forfeiture is used for the breach of a land installment contract, not the breach of a mortgage contract.)

All of the following statements are true about valid restrictive covenants except:

The covenant may be at variance with Fair Housing laws (Any restrictive covenant that is at variance with Fair Housing laws would be unenforceable. The Federal Fair Housing law and state laws make it illegal to restrict the sale or lease of property based on a person's race, color, religion, national origin, sex, handicap, or familial status.)

What is the covenant in a deed where a grantor guarantees that no one has any other interest that might disturb the grantee's possession?

The covenant of quiet enjoyment (Two similar covenants are warranty forever and quiet enjoyment. Quiet enjoyment is the promise that the grantee's possession of the land will be defended against hostile claims and and that he shall enjoy possession of the property. Meanwhile, warranty forever is the promise the title will always be good.)

If a deed transferring legal title from one party to another is NOT recorded in the public record, which of the following statements is correct?

The deed is valid & The grantor gives up all rights to the property conveyed (A deed is valid even if it is not recorded. However, because recording a deed offers protection against third party claims to ownership, it is the wise and prudent thing done by most people. In transferring title, the grantor gives up his or her rights.)

Which of the following actions is required to transfer title to property by deed?

The deed must be signed by the grantor (Title passes after the deed has been delivered and accepted. The grantor (seller) must sign the deed, but the grantee (buyer) does not need to sign the deed so long as the grantee is identified.)

A court action to remove a cloud from the title is called an action or suit:

To quiet title (A court action (suit) for the removal of a defect, cloud, or claim against the title of a property is called a suit to quiet title)

All of the following situations represent a transfer of real property upon the death of an owner, except:

Transfer by eminent domain (Escheat is when a deceased owner has no will or heirs, so the property transfers back to the state. However, in most situations, the title immediately passes to the person it is devised to in a will. Transfer by descent states that in the absence of a valid will, the living heirs will inherit the estate. Meanwhile, eminent domain is the right of government to take ownership of private property, so long as it is taken for a legitimate public use and just compensation is paid to its (still alive) owner.)

Bob the Bigot imposes a deed restriction on his property, which prohibits the sale of his home to anyone from France. Bob's deed restriction is:

Void (Illegal covenants are void (not voidable) and unenforceable. Discrimination based on national origin is illegal under fair housing laws; therefore, Bob's deed restriction is void and unenforceable. While Bob's restriction is arguably irrelevant since it is unenforceable, that answer choice is not the "best" choice because it expresses an opinion.)