Chapter 5: Transfer of Property
Mike executed a grant deed to Trevor and recorded it. Later, Mike changed his mind and sought to set the conveyance aside, claiming there had been no delivery to Trevor. Why was Mike unsuccessful in his effort?
Delivery and acceptance is presumed with recording. (Recording presumes delivery and acceptance since the recorded deed is mailed to the grantee.)
In order to transfer fee title to a parcel of real estate, which of the following is required?
Delivery of a valid deed. A more complete answer might say "delivery and acceptance" of a deed. However, given the choices offered, only D. Delivery of a valid deed is acceptable.
An escrow officer may do which of the following when real property is being escrowed?
Accept written instructions from the seller and buyer to change the price and terms without the approval of any broker. When an escrow office is given instructions written and signed by both principals, the escrow officer does not need approval from the broker. Escrow officers cannot make decisions themselves nor resolve issues between the principals.
The Escrow Law is contained in the:
California Financial Code. (Escrow is guided by the California Financial Code. It is often an ancillary service of banks and title insurance companies.)
A resident of Nebraska who owns property in California dies while in Vermont. The probate procedures for this property are handled in:
California. (Property is probated in the state where it is located regardless of the owner's residency or place of death.)
Amelia deeds a property to Buster which is never recorded. How would Buster transfer title back to Amelia?
Creating a new deed. A deed becomes valid once it is delivered. To transfer a property to another individual or back to the previous owner, a new deed is to be executed and delivered. Failure to do so may render the ownership ambiguous and create a cloud on title.
In a buyer's closing statement, the selling price is listed as:
a debit to the buyer. The seller is credited for the sales price in the buyer's closing statement; the buyer is debited. The credit to the buyer comes from how the sales price is paid, typically a cash down payment and purchase-assist financing.
When the public records have been examined, a written summary of the chain of title is known as a(n):
abstract of title. (Note the words "chain of title" in the question, which is something that may also be covered in another question. The record of title is summarized in the abstract of title.)
All of the following items contained in a closing statement are generally prorated, except:
delinquent interest. (Delinquent interest is a seller expense and not prorated for the buyer.)
A deed:
does not have to be recorded to transfer title. (This question runs parallel to Question 19. A deed does not need to be recorded to be valid, but must be recorded to give constructive notice)
An American Land Title Association (ALTA) policy of title insurance goes beyond the protection afforded by a California Land Title Association (CLTA) policy in guarding against:
the location of property lines according to a formal survey. (Answer selection C is one of the extended benefits of an American Land Title Association (ALTA) policy.)
Implied warranties are not included in a:
quitclaim deed. There are no guarantees or warranties with a quitclaim deed.
All of the following may be added to the original cost basis of real property to arrive at an adjusted basis for federal income tax purposes, except:
the monthly mortgage payments.
When an eligible veteran purchases a home under the CalVet program, the grant deed is in favor of:
the California Department of Veterans Affairs. (The CalVet sale is a land sales contract with the California Department of Veterans Affairs as the seller (vendor).)
A transfer by deed is void when:
the grantee is nonexistent. A nonexistent grantee is likely an unlawful attempt by the grantor to hide an asset. Thus, a deed which transfers ownership to a nonexistent grantee is void as the purpose is unlawful.
A deed is recorded and indexed based on:
the grantor and grantee names alphabetically. (The names of both parties to the transfer are named and indexed accordingly.)
Most real estate sales lawsuits are heard in:
the state superior court. (The state superior court is where most real estate lawsuits are heard. Generally real estate cases are too large for a small claims court to settle. The court of appeals and the state supreme court will only hear those cases not settled by a lower court.)
To establish title by adverse possession, an occupant must show:
they have paid all taxes assessed against the property during their occupancy. period of possession must be 5 years.
"Et ux" written into a document means:
"and wife." (The "et" in Latin is " and;" "ux" means wife or spouse.)
Which of the following would be an incorrect amount for documentary transfer tax stamps?
$111.00. (Transfer stamps come in multiples of $0.55.)
Mr. Black purchased a home for $650,000. The terms of the sale stated Mr. Black will make a down payment of $200,000 and assume an existing first trust deed for the balance of the purchase price. At a basic rate of $0.55 per $500, how much will the transfer tax be?
$220.00 (Transfer taxes are charges against new money only. Since the transaction included the assumption of a $450,000 existing mortgage, the only tax charged is against the $200,000 down payment. The transfer tax rate in the county where the property is located is $0.55 per $500, which equals $1.10 per $1,000. Multiply $1.10 by 200, totaling $220 in transfer taxes paid on the sale.)
The original cost basis on a duplex purchased by Mr. Brown was $750,000. The tax assessor stated the breakdown of values to be 80% improvements and 20% land. Over the first five years, Mr. Brown depreciated the improvements at a rate of 2% each year. Mr. Brown then hired a licensed contractor to install a swimming pool at a cost of $50,000. Once the pool was completed, how much will the adjusted cost basis in the property be?
$740,000. (Depreciation can only be taken on the improvements (80%) portion of the purchase price. In this example: 80% x $750,000 = $600,000 (improvement portion of the original basis). $600,000 x 0.02 (2%) = $12,000 per year x 5 years = $60,000 (accrued depreciation). Then, subtract the accrued depreciation from the original cost basis. $750,000 (original cost basis) - $60,000 (accrued depreciation) = $690,000 (depreciated cost basis). Finally, add $50,000 for the new swimming pool improvement + $690,000 (depreciated cost basis) = $740,000 (adjusted cost basis).)
A residential duplex was purchased for $400,000. The buyer assumed an existing note and trust deed against the property for $300,000. The documentary transfer tax for this county is $.55 per $500 of consideration. The transfer tax is:
110 The transfer tax is based on the cash and new debt created in the transfer. In this question, the amount is $100,000 ($400,000 purchase price - $300,000 assumed note and trust deed). Determine how many times $500 factors into $100,000: $100,000/$500 = $200. Multiply this amount by the tax rate: $200 x .55 = $110.
Escrow calculates prorations based on _________ days in a year.
360 (Escrow works on a 30 day month multiplied by 12 months. Thus, for the purpose of calculating prorations, escrow considers there to be 360 days in a year.)
A property in probate is appraised at $960,000. At auction, the highest bid is $900,000. For the court to consider any other offer, it would have to be at least:
945500 (A probate court will only consider a subsequent bid that is raised by an amount equal to 10% of the first $10,000 ($1,000), plus 5% on the balance ($44,500).)
Which is not true of a tenancy in common?
A tenant in common may not will their interest in the property to others on their death. (Answer selections A, C and D are true of a tenancy in common, as distinct from a community interest such as joint tenancy. However, a tenant in common may will their interest in the property to others on their death.)
Which of the following is excluded from any policy of title insurance?
A zoning or regulation dispute. (This is an EXCLUDED question. There are no title insurance policies that will insure against zoning or regulation disputes.)
Escrow can legally prepare or do which of the following activities?
Draft escrow instructions and the grant deed. (Escrow officers can draft escrow instructions and the grant deed. They are neutral agents for the principals to the escrow. Thus, they are not permitted to make decisions for the principals nor mediate between them.)
Which of these is not a method by which an individual may take title to real property?
Escheat. (This is a NOT question. Individuals cannot acquire property by escheat, which is possible only by the state government.)
Which of the following is least likely to appear as a debit on a buyer's closing statement?
Interest on a loan assumed by the buyer. Interest on an assumed loan will be a credit on a buyer's closing statement.
Which of the following is not true regarding a notary acknowledgment contained in a grant deed?
It does not need to be signed by the grantor. (A grant deed is signed by the grantor and the records of the proof of identity are kept by the notary. This is another example of a question that offers potentially useful information that may be helpful when answering other questions on the state exam.)
Which of the following are not tax deductible under federal income tax laws concerning an owner-occupied single family dwelling?
Landscaping expenses. (Answer selection D is the only option that is not tax deductible for owner-occupied residences.)
Seller Suzy provides carryback financing to Buyer Mel secured by a trust deed. Mel goes into default. Which of the following statements is true?
Mel will have a period of time to redeem the property. (With seller carryback financing, the seller (as the mortgage holder) will normally pursue a nonjudicial trustee's sale to foreclose on the loan. A trustee's sale provides the borrower 90 days to redeem the property by paying the default before the sale procedure begins.)
If the state acquires title to an owner's property by escheat, how long must it wait before disposing it?
No holding period is required. (Once the state has acquired property through escheat, there is no requirement to delay disposing of the property.)
Which type of title insurance policy insures against all title risks?
No title policy covers all risks. (No title insurance policy can insure against all risk. Exceptions are included in all policies of title insurance.)
Anna sold her primary residence for $950,000. She originally paid $750,000 for the property four years ago. She spent $300,000 on capital improvements during her ownership. What can Anna write-off when filing her tax return?
None of the above. (First, determine the amount of the capital gain or loss. $750,000 purchase + $300,000 improvements = $1,050,000 adjusted basis. A sale price of $950,000 creates a $100,000 capital loss. Capital losses are not permitted on a primary residence.)
Which of the following statements is true concerning typical escrow procedures?
Once escrow has closed, the escrow agency changes from a dual agency to a separate agency of each principal. (Escrow officers act as dual agents during the escrow process and become a single agent to both after the close of escrow. While the escrow office owes an agency duty to both participants in the transaction, they are neutral and thus cannot act as an advocate or advisor for either.)
Sara and Marshal are joint tenants. Marshal obtains a loan from a lender secured by his interest in the property. When Marshal dies:
Sara owns the property free and clear of the encumbrance. (Joint tenants receive title clean of any obligations made by the deceased partner. Further, joint tenants do not need to be married and joint tenancy is not limited to only two people.)
Which of the following will not terminate an escrow?
The broker's order to terminate escrow. The broker is not a principal to the escrow and therefore has no authority to cancel it. A mutual agreement between the parties or the failure of a contingency to occur will cancel the escrow, as will the destruction of the property during the escrow.
An offer based on a $300,000 loan assumption was made and accepted. During escrow, it was discovered the loan was for $290,000, not $300,000. What is the most probable outcome?
The buyer can void the contract. (This is an example of a contingency in an escrow. This contingency favored the buyer and allowed them to void the sale since the loan balance was not as previously stated.)
Which of these is most correct concerning delinquent taxes and redemption rights?
The effect of a "sale to the state" by the tax collector is to start the redemption period running. (The redemption period begins with the sale.)
Which of the following would most likely result in the termination of a real estate sales escrow?
The mutual agreement of the buyer and the seller. (Escrow can be cancelled by mutual agreement between both principals, not unilaterally by one party. The broker is not a party to the escrow, therefore, they cannot authorize termination. In the event of the death of either party, their estate is still responsible for performing.)
Recorded title to a parcel of real property is vested in the name of Jennifer Baker, a single woman. After her marriage to Colin Matthews, she executes a deed to the property only in the name of Jennifer Matthews, a married woman. The discrepancy in the grantor's name is:
a cloud on the title. (An inconsistency in the names of the title holder and grantor on the deed will require clarification, creating a cloud on title until this has been accomplished.)
Property can be transferred without consideration with a gift deed. However, the transfer by a gift deed may be voided by:
a creditor of the grantor. (Creditors of a grantor may void a transfer by a gift deed. The grantor cannot gift the property to another in order to avoid debt held by a creditor.)
An abstract of title issued by a title insurance company is:
a written summary of documents shown in the title history of the property.
For delivery of a deed to occur, a grantor must intend to convey title and the grantee needs to:
accept the deed as immediately effective. (For delivery of a deed to occur, the grantee needs to accept the deed as immediately effective, not effective at a later date.)
Acquisition is the opposite of:
alienation. (Alienation is a transfer of property, such as a sale. Thus, it is the opposite of acquisition, which is a purchase of a property.)
Chain of title refers to:
an exact history of conveyances and encumbrances affecting title to a property.
The closing statements the buyer and seller get from escrow:
are always different from one another. (The buyer's and seller's closing statements will always be different. The two principals will have opposite positions on a number of entries. For example, the sales price is a credit to the seller and a debit for the buyer.)
The annual property taxes an owner of a home needs to pay are determined by:
assessing the land and improvements separately, then multiplying the total by one tax rate. (The land and improvements are valued separately though the tax rate is the same.)
The proper order of events in a court proceeding involving real estate is:
attachment, judgment, execution.
To be valid, restrictions in a grant deed need to:
be contained in a deed or a written agreement.
The instrument used to transfer title to personal property is the:
bill of sale. (A bill of sale is used to transfer personal property.)
An unsuspecting buyer who acquires the ownership of real estate without actual knowledge or recorded notice of a pre-existing enforceable purchase agreement held by another buyer regarding the same property is referred to as a(n):
bona fide purchaser. A bona fide purchaser is a buyer who lacks knowledge the property they are buying is the subject of a sale to another buyer, and purchases the property for valuable consideration. A bona fide purchaser needs to have made a good faith effort to discover the existence of the previous transfer. If there is no reasonable way for the second buyer to have known and be put on constructive notice, they will be given title to the property when they record their deed.
Escrow instructions can be executed by:
buyers, sellers, third parties
When a property is vested with "alienable title," this means it:
can be conveyed. (Alienation refers to the ability to transfer property. Therefore, alienable title is one that can be conveyed.)
No matter how vested, all property acquired jointly by a married couple is presumed to be:
community property. (In California, when a married couple buys property jointly, it is presumed to be community property. This is known as the community property presumption.)
The California Land Title Association (CLTA) standard policy and the American Land Title Association (ALTA) policy does not protect the insured against:
encumbrances which are created or become encumbrances after issuance of the policy.
The broker's commission is typically paid when:
escrow closes.
An exception in a grant deed:
excludes part of the property from the grant. (Grant deeds transfer title to property. When an exception is stated, a portion of the property is not transferred with the grant deed. For example, consider an easement being retained by the owner, or a specific space such as highway frontage or beach frontage to be held for other purposes.)
A husband nominates his wife to manage his will. Thus, she will function as an:
executrix. (The term for manager of a will is executor. As the wife is managing the will, the correct answer is the feminine form of this word: executrix.)
If a dispute arises during escrow between the buyer and seller preventing the close of escrow, the escrow agent may:
file an interpleader action. (When a dispute arises in escrow, the escrow agent can file an interpleader action with the courts asking for judicial resolution. The escrow officer is a neutral agent and cannot make decisions for the parties. Further, they have no authority to cancel an escrow or arbitrate on behalf of the principals.)
A brother and sister held title to a duplex as joint tenants. All their other business and personal properties were held separately. The sister, who was insolvent, died with outstanding debts owed to creditors. After her death, title to the duplex is held by the brother:
free and clear. (Joint tenancy properties are transferred to the surviving tenant free and clear of any debt owed by the deceased joint tenant.)
The primary purpose of any deed is to:
give evidence of the change in title or transfer of an interest in real property. The primary purposes of a deed is to give evidence of a change in title. In order for the deed to provide constructive notice, it needs to be recorded.
Recording is not required for a:
grant deed.
In a deed, the clause that defines the nature of the estate being granted is the:
habendum. (Habendum is the clause that defines the nature of the estate being granted. This reiterates the importance of terminology.)
A person holding title to real property in severalty:
has sole ownership of the property. (The word "severalty" is similar to "sever." Thus, a person holding title to real property in severalty has sole ownership of a property.)
Housing expenses are one of the largest denominators in the Consumer Price Index (CPI)since:
housing is one of the largest expenses for consumers.
In an escrow statement, the term "recurring costs" is in reference to:
impound account items. ("Recurring" means costs that will repeat. In this question, only impounds are recurring.)
A standard policy of title insurance covers:
incompetence of any of the parties.
A land contract, when compared to a grant deed transfer, is different in the:
interest conveyed signatures of the principal parties designation of purchase price
The words "time, title, interest and possession" are most closely related to which of the following concepts:
joint tenancy. (Time, title, interest and possession (TTIP) relate to joint tenancy only.)
All of the following may be impound requirements for a borrower, except:
mortgage interest. (The exception here is mortgage interest. The other three answer selections are related in that monies are accumulated in the impound account against an annual or semi-annual payment.)
During a sales escrow, the escrow officer receives two structural pest control reports. The escrow officer is to:
notify the buyer and seller of the discrepancy and obtain written instructions as to which report to use.
When a married person dies intestate leaving a spouse and two children, their separate property is delivered:
one-third to the spouse and two-thirds to the children. (To die intestate means to pass away without a will. If a property owner dies intestate, the probate court will award the estate to the spouse and any children once all creditors have been paid.)
Escrow closes on the 16th day of February (28 days). The seller receives $500 in rent for the month of February. The seller:
owes the buyer $250. Remember, escrow calculates a month as 30 days, so disregard the reference to the literal number of days in the month. The 16th day of the month is first day of the second half of the month and thus the seller owes the buyer precisely half of $500.
Although title to an income-producing property held by co-owners for profit is vested in the names of all the co-owners, it is collectively called a(n):
partnership (An investment property owned by several people is described as a partnership.)
Assemblage is closest to:
plottage. (Assemblage is the act of combining parcels of land to derive an increase in value, called plottage.)
If a buyer and seller decide to rescind a deal after the deed has been recorded, the buyer is to:
provide a new grant deed to the seller. (Once the deed is recorded, a new deed is needed to transfer the property to anyone else.)
Unless otherwise licensed, a real estate licensee is prohibited from doing all of the following, except:
sell real estate.
A writ of execution is issued for a(n):
sheriff's sale. (A sheriff's sale will cause a writ of execution to be drawn and recorded.)
On April 1, 2015, an escrow agent opened a preliminary title report order for the sale of a property. The seller purchased the home in 1998, financing it with a Federal Housing Administration (FHA) loan on which they are currently making payments. A preliminary title report dated April 5, 2015 will:
show a deed of trust with the seller as trustor. (On April 5th the seller will still be the owner and the trustor on the Federal Housing Administration (FHA) loan. Thus, answer choice B is the only correct answer.)
A grant deed has been executed once it has been:
signed by the grantor. (A signature completes the execution. The transfer process requires delivery and acceptance to be complete.)
At a tax foreclosure sale, the winning bidder receives a(n):
tax deed. (The answer to this question is contained in the language of the question itself.)
A title company performs a title search by viewing the records of all except:
the federal registry. (A title company performs a title search by viewing the records of the county clerk's office, county recorder and the secretary of state. A search of the public records of all entities is required to determine a property's chain of title and any relevant records for the buyer or seller (e.g. an income tax lien). A federal registry of any sort of least likely to contain information relevant to a property's title.)
Alienation of title refers to:
transferring an estate. (Alienation of title refers to a transfer of ownership.)
A standard policy of title insurance does not cover:
unrecorded liens. easements and liens on the property not revealed by the public records. rights of parties in possession. Only the American Land Title Association (ALTA) policy covers these items. Recognize how information in this question can make it possible to answer other questions regarding alternative title insurance policies.
If there is no specific closing date named in the escrow instructions, escrow is to close:
within a reasonable period of time. (An escrow is to close within a reasonable time. In some instances this may be shorter than 30 days or longer than 90, and thus there is no specific time period prescribed. A prudent person is able to adjust the closing of escrow in accordance with a specific type of property, location or market condition.)
Marc purchased an apartment building for $2,000,000. The list price was $2,500,000. Marc put $500,000 down and acquired a new first trust deed for the difference. Marc's cost basis for income tax purposes is:
$2,000,000 (Cost basis is the cost incurred to acquire and improve property and is used primarily for tax reporting and recovery of capital. Loans have no effect on a property's cost basis, and neither does a seller's list price.)
Which of the following is insufficient to transfer an interest in real estate?
A bill of sale. (This is an INSUFFICIENT question. The question asks which cannot transfer real estate. A bill of sale is used for personal property and thus cannot be used to transfer real estate.)
Which of the following is not considered to be a contract?
A deed. (A deed is a written instrument which, when signed and delivered (executed), conveys title to real property from one person (grantor) to another (grantee). Listings are employment contracts. Mortgages are loan contracts. A land sales contract is a contract by name.)
The relationship between an escrow officer and the parties to a real estate transaction is usually described as which of the following?
A neutral agent. The escrow officer is a neutral agent to the two principals during escrow.
Which of these persons or entities may not engage in the escrow business?
A principal in the transaction. (A principal in the transaction cannot perform as an escrow agent in the same transaction as they are not impartial or neutral.)
Why are warranty deeds rarely used in California but commonly used in other states?
Recourse against a title company under a grant deed is more effective than trying to collect from the grantor under a warranty deed. (A warranty deed places the liability on the grantor rather than a title company. It is often difficult to find the seller after the escrow has closed. To sue and hope for a judgment against the seller is impractical.)
Under which type of title insurance policy is a title insurance company least likely to physically inspect the property?
Standard policy. A standard policy of title insurance is least likely to require the title insurance company physically inspect the property. Note that answer selection B. Abstract of title and D. Preliminary title report are not insurance policies. Answer selection C. Extended coverage policy suggests something greater than the standard policy, and thus would be more likely to entail a physical inspection
After escrow instructions have been signed, the seller asks escrow to return the grant deed to them so they can have an attorney check it. What is the result of this activity?
The escrow officer cannot return the deed based on the seller's request. (The neutral escrow agent cannot unilaterally make a decision that affects either principal. Once the buyer has deposited money or the seller has deposited documents, approval by both parties is required before either can be released.)
What is meant by "unadjusted basis"?
The original cost of a property. The unadjusted basis is the original cost of the property. One is generally asked to identify the adjusted basis, which is the original cost of a property plus improvements minus depreciation. This value is required for capital gains tax purposes. However, this question is looking for the unadjusted basis.
Which of the following parties is in the weakest position against loss of property due to a claimof title by a third party?
The person possessing an unrecorded quitclaim deed who does not occupy the property.
Which of the following deed provisions are enforceable?
The property may not be used for religious purposes. A deed restriction can prohibit religious use of a property but not discriminate against minorities or females.
When the administrator of an estate sells a parcel:
court approval is required. (A sale from an estate involves a court and will therefore require court approval.)
The least protection from a defect in a property's title is provided by a(n):
abstract of title. (This is a LEAST question. An abstract of title is simply a report showing the chain of title issued by the title company after a search of title records. It does not provide protection from title defects, and a disclaimer in the report indemnifies the company against any missing or inaccurate records. Answer choices A. standard policy of title insurance and B. American Land Title Association (ALTA) title policy are both insurance policies. C. guarantee of title is a formal guarantee by the title company.)
Title insurance is the means by which the title insurance company __________ a person who acquires an interest in real estate against a monetary loss caused by an encumbrance on title.
holds harmless reimburses indemnifies (Title insurance is a form of indemnity insurance by which a title insurance company holds harmless a person who acquires an interest in real estate against a monetary loss caused by an encumbrance on title that is not listed in the policy and the insured was unaware of when the policy was issued. The title insurance company then reimburses the insured for a later claim.)