Law & Practice 4 Test
ou have listed a house for $197,800. If the house sells for the listed price, the seller will make a profit of 15%. What price did the seller pay for the house? A: 167900 B: 172000 C: 168130 D: 176500
172000 Explanation The selling price is 115% of what the seller paid for it. To find out what the seller paid for it divide $197,800 by 115% = $172,000 Let's use the IRV method we discuss in the classes. Since the property sold for the listing price, the income generated (the top number in the circle) was $197,800, since this represented 15% over the original purchase price of the property, the Rate (bottom left side of the circle) is 115%. This is because the Rate and Income Generated are always the same value, only one is expressed in dollars and the other as a percentage. Since the $197800 represents the original price + 15%, then that number as a percentage would be 115% of the original price. Divide the rate into the income generated and it will give you the unknown part of the circle Value (bottom right) or $172,000. Remembering these formulas can be tricky, so in the classes we teach the IRV method.
The current value of a property is $255,000, and it is assessed at 35% of its current market value. What is the amount of the real estate tax due on the property if the tax rate is $3.50 per $100 of assessed value? A: 2039.99 B: 2499 C: 1115.63 D: 3123.75
3123.75 Explanation 255,000 x .35 = 89,250.00, 89,250 x .035 = 3,123.75
Bob Burnside has defaulted in payment of several debts, and a court has ordered his property sold to satisfy them. A report reveals several outstanding liens against the property. Which has first priority? A: The outstanding mortgage dated and recorded one year ago B: Current real estate taxesA mechanic's lien for work that was started C: two months before the date the mortgage was recorded D: A court judgment rendered and recorded last month
Current real estate taxes Explanation Real estate taxes always have first priority.
A lien placed on the property without the consent of the owner is known as a(n): A: involuntary lien B: deed of trust lien C: voluntary lien D: mortgage lien
Explanation An involuntary lien is created by law without any action on the owner's part. A voluntary lien, just the opposite, is created by the owner -- this includes a mortgage lien or deed of trust lien. involuntary lien—a lien arising without the lienor's consent. voluntary lien—a lien created with the lienor's consent. An involuntary lien is a claim made against property to which the property owner did not consent or agree. Due to some action or inaction by the property owner, a third party places a lien on the property to secure money owed to the third party by the property owner. Common types of involuntary liens include local, state, and federal government tax liens, and contractor's or mechanic's liens for improvements made on the real estate. In each of these types of involuntary liens, the property owner did not consent to having the lien placed on the property; however, the third party was able to place a lien on the property due to the property owner's failure to pay tax bills, or pay for services or materials provided by a builder or contractor. An involuntary lien is the opposite of a voluntary lien, such as a mortgage lien; in the case of a voluntary lien, the property owner takes some affirmative action to have a lien placed on the property.
All of the following are examples of a specific lien, EXCEPT: A: Mortgage B: Mechanic's lien C: Judgment D: Property taxes
Judgment Explanation All of the rest apply to a specific property, while a judgment is against an individual and all of their property.
Which of the following is a voluntary lien? A: Mortgage B: Estate tax C: Special assessment D: Ad valorem tax
Mortgage Explanation A mortgage is voluntary: taxes are assessed whether or not we want them.
Which of the following is a lien on real estate? A: Encroachment B: Easement C: Mortgage D: License
Mortgage Explanation A mortgage loan is a loan secured by real property through the use of a mortgage note or promissory note which evidences the existence of the loan and the encumbrance of that real estate. A mortgage is a lien, an encroachment and an easement may be encumbrances.
Which of the following is a lien that does not need to be recorded? A: Money judgments B: A tax deed C: Real estate taxes D: Voluntary lien
Real estate taxes Explanation Real estate property tax liens automatically attach to the property as of January 1 of the current year. All other liens do not attach to the property automatically.
Mr. and Mrs. Davis, tenants, decide to have their apartment redecorated on June 15. Contractor Jones says he will do the job for $4,000 and informs Smith (the property owner), by registered letter, the job will be completed by June 13. Upon completion, Davis tells Jones to see Smith for payment: A: Smith is not liable since he did not contract with Jones B: Smith may be liable since he had notice and did nothing C: Smith is not liable since his wife signed for the registered letter D: Mr. and Mrs. Davis only are liable
Smith may be liable since he had notice and did nothing Explanation Smith must pay the contractor. He had express notice (the registered letter) that the work was being performed. His failure to respond indicated approval. He may, however, take legal action against Davis. Smith should have provided notification of his non-responsibility as soon as he was notified.
A lien's priority is determined by: A: The size of the lien determines priority B: A mechanic's lien always has first priority C: The date of the lien determines priority D: The date the lien is recorded determines priority except mechanic's liens
The date the lien is recorded determines priority except mechanic's liens Explanation The date that the lien is recorded determines its priority, except for a mechanic's lien. The priority for a mechanic's lien is determined by the date the work commenced or the materials delivered.
Johnson helped dig a sewage ditch for property owner Smith on February 21 and 22. On March 9, a mortgage was recorded against the property. On March 11, still unpaid, Johnson filed a mechanic's lien of record. Which of the following is true? A: The bank's mortgage lien was recorded first and has priority over the mechanic's lien B: The mechanic's second lien status precludes a foreclosure action by Johnson C: The mechanic's lien has priority over the mortgage lien D: Mortgage liens always have priority over all other types of liens except for property tax liens
The mechanic's lien has priority over the mortgage lien Explanation How the priority date of Mechanic's liens are determined is different than any other lien. The date labor ensued or when supplies were delivered and not the date the lien was recorded is the priority date of a Mechanics lien. In this question - the labor was provided before the mortgage lien was filed of record - therefore the Mechanics lien would take precedence. Mechanic's Lien: The right of a craftsman, laborer, supplier, architect or other person who has worked upon improvements or delivered materials to a particular parcel of real estate (either as an employee of the owner or as a sub-contractor to a general contractor) to place a lien on that specific property for the value of the services and/or materials if not paid. With certain exceptions, the Colorado Mechanic's Lien Act requires that a mechanic's lien be recorded within four months of the date that the contractor, subcontractor or supplier performed its last work or last supplied material or equipment. The priority date is as of the date material was delivered or work began, rather than the date recorded. Recording a mechanic's lien assists in securing the real property upon which improvements were made as collateral. The lien claimant has six months from the date that last work was performed or material supplied to file a lawsuit to foreclose its lien and to record notice of its lawsuit (this notice is called a "lis pendens") with the Clerk and Recorder of the County where the real property is located. Mechanics' Liens are classified as an Involuntary lien because the owner has no choice. They are also classified as an Equitable lien because the lien holder does not have possession of the property the lien is against. BTW - this is why at closings, good Buyer's agents always insist on seeing paid receipts for work the Sellers perform on the property. Nothing will ruin a new homeowner's day than to find out the Seller never paid for that new roof and under the rules of a Mechanics Lien, the roofer has slapped a lien on the property. Ultimately, the new homeowner is not responsible for the roof obligation, but they are now going to have to go to court to clear the lien.
When a lien against a parcel of real estate may result from a lawsuit currently before the courts, one examining the public records would look for: A: constructive notice B: a lis pendens notice C: the chain of title D: a suit to quiet title
a lis pendens notice Explanation Lis pendens means "suit pending".
The type of lien that is secured by specific property and only affects that property is known as: A: a statutory lien B: a voluntary lien C: an equitable lien D: a specific lien
a specific lien Explanation A specific lien involves specific property- as opposed to voluntary liens, created by choice, equitable liens, created by agreement, or statutory liens, created by law.
This type of lien is created by law. It is known as: A: a statutory lien B: a voluntary lien C: an equitable lien D: a specific lien
a statutory lien Explanation An equitable lien comes from a court order. You could argue that courts are enforcing the laws. However, the reason for the judgment is to satisfy a civil matter and not directly a mandate by law. Statutory liens are mandates by law and as such do not require a court order to enforce. Here are some definitions that might help: equitable lien n. A lien on property imposed by a court in order to achieve fairness, particularly when someone has possession of property which he/she holds for another. statutory lien: Involuntary lien created by the operation of law. Statutory liens (such as a tax lien) do not require the consent of any party or a court order to be enforceable. voluntary lien: A claim that one person has over the property of another as security for the payment of a debt. Liens are attached to the property and not to a person. A voluntary lien is contractual or consensual, meaning that the lien is created by an action taken by the debtor, such as a mortgage loan to buy real estate. specific lien: Charge that (unlike a general lien) does not cover all fixed and floating assets of a lienee but binds only a specific asset or property. Also called particular lien.
Property taxes are also referred to as: A: ad valorem B: lis pendens C: lien pendens D: ad valium
ad valorem Explanation Ad valorem means according to value. The higher the value the higher the amount of tax.
If a debtor owns three pieces of real estate located in the same county, and a judgment is entered against him, it will be a lien against: A: the property first acquired B: the property last acquired C: all three properties D: homestead property only
all three properties Explanation A judgment lien is general, involuntary lien, affecting all properties owned by a debtor in the county where the judgment was recorded, as well as any he acquires subsequent to the judgment
A charge levied by a local government to finance improvements such as repairing sidewalks in a neighborhood is: A: an ad valorem tax B: zoning charge C: an equalizer D: an assessment
an assessment Explanation Because it's for a particular property or properties' benefit only, it's called a special assessment. Special assessment is the term used in the United States to designate a unique charge that government units can assess against real estate parcels for certain public projects. This charge is levied in a specific geographic area.
The tax on a given piece of real property is always determined by multiplying the mill levy by the: A: selling price B: assessed valuation of the property C: mortgage loan D: value book value
assessed valuation of the property Explanation The assessed value of property is the County Assessor's determination of a percentage of the true and fair market value of the property.
Rico and Bernice Wilcox have a home valued at $275,000 for tax purposes. This valuation is called a (an): A: tax rate B: assessed value C: board of review appraisal D: equalization factor
assessed value Explanation The assessed value is a percentage of the market value. The dollar value of an asset assigned by a public tax assessor for the purposes of taxation. Many jurisdictions impose tax on a value that is only a portion of market value. This assessed value is the market value times an assessment ratio. Assessment ratios are often set by local taxing jurisdictions. However, some states impose constraints on the assessment ratios used by taxing jurisdictions within the state. Some such restrictions vary by type or use of property, and may vary by jurisdiction within the state. Some states impose restrictions on the rate at which assessed value may increase.
A lien is a monetary claim that if unpaid awards the lien holder the right of: A: foreclosure B: eviction C: ownership D: possession
foreclosure Explanation A lien on a property gives the lienee (the lender) a right of foreclosure if the lien is not paid. Foreclosure is a specific legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan. Eviction is the removal of a tenant from rental property by the landlord or from premises that were foreclosed and then sold to the highest bidder.
What kind of liens come from judgments (i.e. courts)? A: specific liens (against a specific property the lienee owns) B: fiduciary encumbrances C: general liens (against everything the lienee owns) D: limited liens
general liens (against everything the lienee owns) Explanation Judgments are general liens issued by a court and are against everything the debtor owns. Judgments are usually collected through the lien mechanism. The creditor will place a lien on the debtor's real and personal property (by recording the judgment with the county recorder's office or entering it with the Secretary of State), and the lien will be satisfied when the property is sold by the debtor or foreclosed upon by the creditor. Once the underlying judgment is satisfied, the lien must be released. Judgments continue to exist for 10 years from the date of the entry of the judgment. Judgments may be renewed for additional terms of 10 years. A specific lien is against one property. Examples would be: A trust deed or mortgage, property tax, assessment, and Mechanics Lien.
A lien that covers all real and personal property of the debtor within the county where recorded is a: A: mechanic's lien B: judgment lien C: writ of execution D: lis pendens
judgment lien Explanation A judgment lien (a general lien) is a lien that covers all real and personal property of the debtor.
A recorded legal document that gives constructive notice that an action affecting a certain property has been filed in court is called: A: habendum clause B: general warranty deed C: estoppel certificate D: lis pendens
lis pendens Explanation Lis pendens is Latin for "litigation pending," which will help you to remember that while a lis pendens isn't a lien, it is notice that litigation is pending, let the buyer beware (caveat emptor).
An instrument, which requires recordation to be legally effective, is a(n): A: mechanic's lien B: agreement to sell real estate C: will
mechanic's lien Explanation A mechanic's lien does not exist unless it is recorded. The mechanic's lien is one of the few documents that must be recorded to be legally effective. Deeds are almost always recorded to make it difficult for someone to contest that the transfer of ownership occurred and to make it easier to prove ownership. It's just that it is not legally required to record a deed. For a deed to be valid it must have the grantor's signature (the seller), consideration (payment), a description of the property, words of conveyance and the deed must be delivered within the lifespan of the grantor.
Real estate property taxes are: A: general - involuntary liens B: general - voluntary liens C: specific - voluntary liens D: specific - involuntary liens
specific - involuntary liens Explanation If the property tax is unpaid, the tax can be satisfied only from the sale of the specific property upon which the tax is levied. The only voluntary liens are mortgages and deed of trust.
Mechanic's liens have a priority date of: A: the day the judgment was issued B: the day the work first began C: halfway through the work D: the day the judgment was recorded
the day the work first began Explanation Mechanic's liens have priority as of the date material was delivered or work began, rather than the date recorded. Mechanic's Lien: The right of a craftsman, laborer, supplier, architect or other person who has worked upon improvements or delivered materials to a particular parcel of real estate (either as an employee of the owner or as a sub-contractor to a general contractor) to place a lien on that real property for the value of the services and/or materials if not paid. With certain exceptions, the Colorado Mechanic's Lien Act requires that a mechanic's lien be recorded within four months of the date that the contractor, subcontractor or supplier performed its last work or last supplied material or equipment. The priority date is as of the date material was delivered or work began, rather than the date recorded. Recording a mechanic's lien assists in securing the real property upon which improvements were made as collateral. The lien claimant has six months from the date that last work was performed or material supplied to file a lawsuit to foreclose its lien and to record notice of its lawsuit (this notice is called a "lis pendens") with the Clerk and Recorder of the County where the real property is located.
A court orders real property sold, to satisfy an unpaid lien, is an action known as a(n): A: easement B: encumbrance C: attachment D: writ of execution
writ of execution Explanation A writ of execution is a court ordered sale. This can be used in foreclosures by courts to order the sale of a property. A writ of execution (also known as an execution) is a court order granted to put in force a judgment of possession obtained by a plaintiff from a court. When issuing a writ of execution, a court typically will order a sheriff or other similar official to take possession of property owned by a judgment debtor.