Briefing Exam 5

Question 1

1. When a valid grant deed is prepared, title passes when:

a. acknowledged
b. delivered
c. signed
d. recorded

Answer 1

b. delivered

A deed must always be signed by the party or parties making the conveyance or grant of the premises, and it must be delivered to the party to whom the property rights are to be transferred. A deed is of no effect unless delivered.

Question 2

2. Which of the following represents one of the essentials of a Grant Deed?

a. Parties capable of receiving the grant
b. Offer and acceptance
c. Acknowledgement
d. Recordation

Answer 2

a. Parties capable of receiving the grant

There are several different essentials to a valid deed, namely:

1. It must be in writing.
2. The parties must be properly described.
3. The parties must be competent to convey and be capable of receiving the grant.
4. The property conveyed must be adequately described.
5. There must be a granting clause, operative words or conveyance (“I hereby grant”).
6. The deed must be signed by the party or parties making the conveyance or grant.
7. Delivery and acceptance is required.

Question 3

3. To be recorded, a deed must have:

a. the signature of the grantee
b. a mention of consideration
c. a seal
d. an address where tax bills should be mailed

Answer 3

d. an address where tax bills should be mailed

To be recorded, a grant deed must have an address where tax bills should be mailed. A valid grant deed requires the signature of the grantor not the grantee.

Question 4

4. The recording of an instrument gives:

a. actual notice
b. constructive notice
c. positive notice
d. passive notice

Answer 4

b. constructive notice

Constructive notice is knowledge the law presumes a person has about a particular fact regardless of whether the person knows about the fact or not. Examples of constructive notice would include the proper recording of a deed in the public records or the physical possession of property by an owner or tenant.

Question 5

5. The most important element of proper and effective delivery of a deed is:

a. intent of the grantor
b. recording
c. acknowledgment of grantor’s signature
d. knowledge of its existence by grantee

Answer 5

a. intent of the grantor

The grantor must intend for a deed to be delivered, or the deed is not effective. Recording and acknowledgement are not required for the effectiveness of a deed.

Question 6

6. A deed has a provision regarding racial and religious discrimination. The deed may be changed:

a. if the restrictions are discriminatory or offensive
b. if the restrictions are pre-1978
c. if a title company agrees the wording is discriminatory or offensive
d. by court action

Answer 6

a. if the restrictions are discriminatory or offensive

Effective January, 2000, a county recorder, title insurance company, escrow company, or real estate licensee who provides a declaration, governing documents or deed to any person must provide a statement about the illegality of discriminatory restrictions and the right of the homeowners to have such language removed. The statement must be contained in either a cover page placed over the document or a stamp on the first page.

Question 7

7. A deed is presumed to be delivered when:

a. the seller handed the deed to the buyer, but the buyer did not record it
b. the escrow officer mailed the deed which had been acknowledged by the seller, but delivery was made after the seller died
c. the escrow company delivered the deed to the buyers prior to they buyer meeting all the terms of escrow
d. the deed was delivered to the grantee after the death of the grantor in accordance with instructions the grantor left with his attorney

Answer 7

a. the seller handed the deed to the buyer, but the buyer did not record it

A deed need not be recorded to be considered delivered. As long as it is given to the grantee and accepted, it will be considered delivered.

Question 8

8. A deed is recorded and indexed:

a. by location
b. by recording day and time
c. by grantor and grantee names alphabetically
d. all of these

Answer 8

c. by grantor and grantee names alphabetically

The County Recorders Office must keep an adequate index system by grantee and grantor names alphabetically.

Question 9

9. An exception in a grant deed:

a. makes the dedd invalid to future grantees
b. gives the grantee special privileges
c. has no effect on the property value
d. withdraws a portion of the property from the grant

Answer 9

d. withdraws a portion of the property from the grant

An exception in a grant deed means the grantor is holding back part of the estate being granted. This would withdraw part of the property from the grant and reduce the property or rights given to the grantee.

Question 10

10. A quitclaim deed conveys only the present right, title and interest of the:

a. grantor
b. servient tenement
c. grantee
d. property

Answer 10

a. grantor

The quitclaim deed transfers only whatever right, title and interest the grantor had in the property at the time of the execution of the deed and odes not pass to the grantee any title or interest subsequently acquired by the grantor (after acquired title).

Question 11

11. The doctrine of “first in time, first in right” refers to:

a. first right of refusal
b. recording rights
c. date and time one signs a contract
d. first right in judgment lien

Answer 11

b. recording rights

In California, lien priority (and, therefore, right to payment) is determined by the maxim “first in time, first in right.” Thus, liens that are recorded first have priority over later recorded liens. The recording statutes were enacted for the purpose of establishing priorities among claims upon property and to provide adequate means by which those with an interest in property may protect their rights. Moreover, a properly recorded lien serves as constructive notice of its contents to all subsequent purchasers and encumbrances.

Question 12

12. A valid deed must contain:

a. evidence of recordation
b. a date
c. a granting clause
d. the signature of the grantee

Answer 12

c. a granting clause

A valid deed must have a granting clause or some words to indicate that the grantor wishes to transfer the property to the grantee (“I hereby grant”).

Question 13

13. A recorded deed:

a. gives constructive notice
b. creates presumption of delivery
c. must have been acknowledged
d. all of these

Answer 13

d. all of these

Delivery presumes acknowledgement and gives constructive notice. Recording establishes presumption of delivery.

Question 14

14. A reservation in a deed:

a. cancels the deed
b. is a retention of an interest
c. prevents the transfer
d. guarantees the transfer

Answer 14

b. is a retention of an interest

A reservation in a deed is the creation, on behalf of the grantor, of a new right issuing from what was granted. A reservation thus is something that did not exist as an independent right before the conveyance. For example, Smith conveys to Jones a 10 acre parcel “reserving to Smith a life estate therein.”

Question 15

15. An exception in a grant deed:

a. cancels the deed
b. is identical to a reservation
c. excludes part of the property from the grant
d. prevents the transfer

Answer 15

c. excludes part of the property from the grant

An exception in a grant deed excludes some part of the property granted. The title to that withdrawn part remains in the grantor by virtue of the original title rights. For example, a conveyance by Grant Park to Bob Lee of a 10 acre parcel “exception of a strip of land 10 feet wide running along the northerly boundary” constitutes a legal exception.

Question 16

16. When using a grant deed, title transfers at the time of:

a. signing
b. acknowledgement
c. recording
d. delivery

Answer 16

d. delivery

Technically, delivery is the legal act of transferring ownership.

Question 17

17. Which of the following is NOT necessary to establish title by adverse possession?

a. possession open and notorious for five years
b. paying taxes for five years
c. use of the entire property
d. against the true wishes of the owner

Answer 17

c. use of the entire property

There are five requirements to acquire title by adverse possession.

1. The possession must be by actual occupation and be open and notorious.
2. It must be hostile to the true owner’s title.
3. It must be under claim of right or color of title.
4. Possession must be continuous and uninterrupted for a period of five years.
5. Claimant must have paid all real property taxes levied and assessed for a period of five years continuously.

Question 18

18. The legal seizure of property for sidewalks by the government is referred to as:

a. zoning
b. escheat
c. eminent domain
d. lis pendens

Answer 18

c. eminent domain

Eminent domain is condemnation by government for public purposes. Just compensation must be paid. Condemnation is part of the government’s right of eminent domain.

Question 19

19. An interest in real property acquired by prescription is:

a. the right to use another’s land
b. a possessory title
c. an equitable interest
d. a private grant

Answer 19

a. the right to use another’s land

Adverse possession refers to land while prescription is a term usually applied to easements. We speak of title by adverse possession and easements by prescription. An easement by prescription creates a right to use someone else’s land.

Question 20

20. What usually happens to a person’s property who died intestate?

a. it escheats to the state
b. it is distributed to his/her heirs
c. it is distributed according to his/her will
d. none of the above

Answer 20

b. it is distributed to his/her heirs

Intestate means during without a will or leaving a defective will. The intestate decedent’s property passes to his or her heirs according to the laws of descent in the state where such real property is located.

Question 21

21. When a person dies intestate and no heirs claim his/her property, it reverts to the state by:

a. patent
b. escheat
c. deed
d. will

Answer 21

b. escheat

In cases where a decedent dies intestate and there are no heirs capable of inheriting, the property escheats to the state.

Question 22

22. A will written in the testator’s own handwriting is called a:

a. sealed will
b. gift certificate
c. nontransferable will
d. holographic will

Answer 22

d. holographic will

A holographic will is written, dated, and signed in the testator’s handwriting, but not witnessed.

Question 23

23. Holographic wills cannot be:

a. written with colored ink
b. signed with an “X”
c. written in anything other than ink
d. all of the above

Answer 23

b. signed with an “X”

Since a holographic will is handwritten, it is assumed that the person is capable of singing his/her full name.

Question 24

24. A will is said to be ambulatory because it can be:

a. changed
b. recorded
c. witnessed
d. transferred

Answer 24

a. changed

The legal definition of ambulatory is “not fixed;alterable.” A will takes effect only upon the testator’s death, and thus can be revoked or amended at any time during the testator’s life.

Question 25

25. A man appointed by the court to settle the estate of a person who has died intestate is called a(n):

a. devisee
b. testator
c. executor
d. administrator

Answer 25

d. administrator

An administrator (male, administratrix-female) is appointed by the court when the deceased died without leaving a will (intestate). A devisee is one who receives a gift or real property by will. An executor (male, executrix-female) is the one appointed by the deceased to execute (carry out the terms of) a will.

Question 26

26. By proposition 13, the annual real estate tax on a parcel of property in California is limited to:

a. 1% of its assessed value
b. 1.5% of its assessed value
c. 2% of its assessed value
d. 2.5% of its assessed value

Answer 26

a. 1% of its assessed value

By proposition 13, the annual real estate tax on a parcel of property is limited to 1% of its assessed value. This “assessed value,” may be increased only by a maximum of 2% per year, until and unless the property has a change of ownership.

Question 27

27. Personal income taxes are structured using rates that are:

a. regressive
b. progressive
c. equal
d. level

Answer 27

b. progressive

Progressive means the more you make, the more you pay. It might also be termed “graduated.”

Question 28

28. The California sales tax is a(n):

a. ad valorem tax
b. tax paid on real estate
c. tax paid on tangible personal property
d. tax paid on all personal property

Answer 28

c. tax paid on tangible personal property

The California State Sales Tax is imposed upon retailers for the privilege of selling tangible personal property at retail.

Question 29

29. Ad valorem is best defined as:

a. added value
b. fixed value
c. according to value
d. at replacement value

Answer 29

c. according to value

Ad valorem means according to value.

Question 30

30. Which of the following is considered an ad valorem tax?

a. real property tax
b. unit tax
c. use tax
d. death tax

Answer 30

a. real property tax

Real estate taxes are assessed according to value.

Question 31

31. If a property owner believes that the assessed value on his or her property has been set too high, the owner could file a request to seek a reduction from the:

a. County Board of Supervisors
b. Assessment Appeals Board
c. Tax Collector
d. State Board of Equalization

Answer 31

b. Assessment Appeals Board

Each county has an Assessment Appeals Board to which an individual can question their property’s value set by the assessor.

Question 32

32. The second property tax installment is due and delinquent on:

a. February 1st - April 10
b. November 1st - December 10th
c. December 31st - June 30th
d. March 1st - July 1st

Answer 32

a. February 1st - April 10

You must know the fiscal tax year for the state exam.
Memorization Aid: No, Darn, Foolin, Around
November 1st: First installment due, December 10th: Delinquent date for 1st installment. February 1st: Second installment due, April 10th: Delinquent date for 2nd installment.

Question 33

33. Real property taxes become a lien on:

a. November 1st
b. February 1st
c. January 1st
d. July 1st

Answer 33

c. January 1st

Next year’s real property taxes become a lien on January 1st.

Question 34

34. How would a taxpayer adjust the tax basis of his/her personal residence for Federal tax purposes?

a. property taxes
b. accrued depreciation
c. addition of a concrete patio
d. none of these

Answer 34

c. addition of a concrete patio

The tax basis on a personal residence consists of the cost of the property plus capital improvements like the addition of a concrete patio.

Question 35

35. Susan owns an apartment house and deducted $10,000 from the gross income for depreciation on her federal income tax return. For income tax purposes, the basis of the property is:

a. adjusted only when sold
b. unaffected
c. increased by $10,000
d. decreased by $10,000

Answer 35

d. decreased by $10,000

Basis is the value carried on the books of the owner. When the owner deducts $10,000 for depreciation, the book value/basis goes down by $10,000.

Question 36

36. When a real estate broker speaks of “tax shelter” he/she is referring to:

a. principal payments
b. net income
c. income tax
d. real property taxes

Answer 36

c. income tax

“Tax Shelter” refers to income tax shelter.

Question 37

37. The Street Improvements Act of 1911 allows the issuance of bonds to raise funds for subdivision improvements on:

a. streets and sewers
b. land and structures
c. off site utilities
d. anything

Answer 37

a. streets and sewers

The Street Improvements Act of 1911 is used for improvements such as streets and sewers.

Question 38

38. A property owner builds a swimming pool at his apartment building in order to attract more tenants. For tax purposes, he can:

a. deduct the cost of the pool, dollar for dollar, from his income tax
b. deduct the cost of the pool from his vacancy losses
c. add the cost of the pool to his book value and depreciate it

Answer 38

c. add the cost of the pool to his book value and depreciate it

The cost of the pool may be added to the book value (cost basis) and then be depreciated.

Question 39

39. A federal income tax advantage can be realized by:

a. depreciating income property
b. an installment sale
c. exchanging
d. all of these

Answer 39

d. all of these

Depreciation is an expense deduction that allows for the recovery of the cost of the investment. An installment sale allows one to save on taxes by postponing the receipt and reporting of income to future years. Exchanging property of “like kind” is a popular method of deferring capital gains taxes.

Question 40

40. An installment sale represents a tax advantage because:

a. it reduces tax rates
b. it eliminates taxes all together
c. it is a tax exemption
d. it defers payment of capital gains

Answer 40

d. it defers payment of capital gains

An installment sale allows the taxpayer to postpone the receipt and reporting of income to future years when his or her other income may be lower. Thus, a taxpayer can avoid paying the entire tax on the gain in the year of sale.

Question 41

41. For tax purposes, points paid by the seller would:

a. increase the cost basis
b. be treated as a selling expense
c. both (a) and (b)
d. neither (a) or (b)

Answer 41

c. both (a) and (b)

When the seller pays points, he/she may deduct this cost as a selling expense. This will increase the cost basis and reduce capital gains. Buyer points are treated as interest.

Question 42

42. Which of the following can a property owner expect after sewer lines are installed in front of his/her property?

a. supplemental assessment
b. general assessment
c. special assessment
d. all of these

Answer 42

c. special assessment

A special assessment is a tax imposed against only those specific parcels of realty that will benefit from a proposed public improvement, as opposed to a general tax on the entire community.

Question 43

43. To adjust for any increase in tax liability due to a reassessment after the property was purchased, the tax authority would issue a:

a. new tax bill
b. property tax postponement
c. supplemental assessment
d. replacement lien notice

Answer 43

c. supplemental assessment

Since few people take possession of real estate on July 1st, the first day of the tax year, supplemental assessments are made to adjust for any increase in tax liability.

Question 44

44. A home was purchased on February 1st with the understanding that property taxes had been paid for the fiscal tax year. The buyer received a tax bill anyway known as a:

a. new homeowner tax bill
b. delinquent tax bill
c. reassessment tax bill
d. supplemental tax bill

Answer 44

d. supplemental tax bill

The supplemental tax bill would adjust for an increase in tax liability for the balance of the tax year.

Question 45

45. The redemption period for unpaid real property taxes is:

a. five years from the assessment date
b. five years from the delinquency date
c. five years from the sale to the state
d. five years from loss of possession

Answer 45

c. five years from the sale to the state

The importance of a “sale of the state” by the tax collector for nonpayment of real property taxes is that it starts the five year redemption period running.

Question 46

46. Tax delinquent real property not redeemed by the owner during the five year statutory redemption period is deeded to the:

a. city
b. county
c. state
d. school district

Answer 46

c. state

If the property is not redeemed by the owner during this statutory redemption period, the property is deeded to the state.

Question 47

47. The marginal tax rate is the tax rate:

a. that will be used when you enter the next higher tax bracket
b. which is used for the last dollar of taxable income earned
c. applied to the highest tax bracket
d. applied to the lowest tax bracket

Answer 47

b. which is used for the last dollar of taxable income earned

The marginal tax rate is the ordinary rate of income tax charged on the last dollar of income; often used when making calculations for investment decisions.

Question 48

48. An owner occupied residence qualifies for a homeowner’s exemption of:

a. $1,000
b. $4,000
c. $7,000
d. none of these

Answer 48

c. $7,000

An owner occupied residence, including a condominium or duplex unit, qualifies for a homeowner’s exemption of the first $7,000 of full cash value.

Question 49

49. Which of the following dates represent the final date the property owner may file for the State Homeowner’s Property Tax Exemption?

a. March 1st
b. April 15th
c. December 10th
d. June 30th

Answer 49

c. December 10th

A timely filing for the Homeowner’s Property Tax Exemption is February 15th. However, if the homeowner does not file before February 15th, he or se may make a late filing up until December 15th.

Question 50

50. Which of the following is required for a couple to qualify for the universal exclusion?

a. Continous occupancy for two years
b. Live in their permanent residence for at least two years during the preceding five years
c. Both (a) and (b)
d. Neither (a) nor (b)

Answer 50

b. Live in their permanent residence for at least two years during the preceding five years

To qualify for the Universal Exclusion, the home must have been your principal residence for at least 2 years during the preceding 5 years prior to sale.

Question 51

51. Mr. Johnson sells his personal residence for $800,000 that he purchased only 12 months ago for $900,000. For tax purposes he has:

a. a $100,000 loss
b. a tax deferred loss
c. a $100,000 capital gain
d. no loss or gain

Answer 51

d. no loss or gain

A taxpayer cannot take a loss on his or her primary residence.

Question 52

52. Mr. Jones, a single man age 50, sells his personal residence for $600,000. He originally purchased it 9 years ago for $550,000. If Mr. Jones does not purchase a new home after selling this one, what portion of the sales price is taxable?

a. $600,000
b. $550,000
c. $50,000
d. none

Answer 52

d. none

The new law states that there will be no tax on gain up to $250,000 for single and $500,000 for married people who file joint returns.

Question 53

53. Who is responsible for reporting a sale to the IRS?

a. escrow
b. buyer
c. seller
d. borker

Answer 53

a. escrow

The escrow agent (title company, escrow corporation, etc.) is responsible for reporting sales to the IRS.

Question 54

54. Which of the following may NOT engage in the escrow business?

a. an individual who is not a real estate broker or attorney
b. bank
c. domestic corporation
d. foreign corporation

Answer 54

a. an individual who is not a real estate broker or attorney

An individual who is NOT an attorney may not engage in the escrow business.

Question 55

55. A broker can, without being licensed as an escrow, handle the escrow on transactions where he or she:

a. acts as a principal
b. represents the buyer
c. represents the seller
d. any of the above

Answer 55

d. any of the above

A broker may act as an escrow on his or her own sales on sales in which he/she acts as a principal.

Question 56

56. During escrow, if an unreserved dispute should arise between the seller and buyer preventing the close of escrow, the escrow holder may legally:

a. arbitrate the dispute as a neutral party
b. rescind the escrow and return all documents and monies to the respective parties
c. file an interpleader action in court
d. do any of the above

Answer 56

c. file an interpleader action in court

The escrow holder does not arbitrate arguments between buyer and seller. He/she would most likely file an interpleader action in court. By filing an interpleader action, the escrow agent is asking the court to accept any money or property he or she holds and distribute it to the rightful claimant.

Question 57

57. Which of the following is TRUE with respect to reserves in an escrow?

a. the lender holding the reserves pays the same interest rate on funds that savings and loans pay on savings accounts
b. they benefit both the trustor and the beneficiary
c. the maximum amount cannot exceed five percent of the annual disbursements
d. reserves are required on all homes

Answer 57

b. they benefit both the trustor and the beneficiary

Reserves in escrow (impound accounts) are there for the benefit of both the truster (borrower) and the beneficiary (lender). By impounding taxes and insurance, the lender is certain that these debts will be paid. The borrower is also certain that the payment will be made.

Question 58

58. Escrow instructions should be:

a. certified
b. notarized
c. recorded
d. executed

Answer 58

d. executed

Escrow instructions should be executed by both parties to satisfy the requirements of the contract and complete the escrow.

Question 59

59. The signed escrow instructions disagree with the purchase contract. As to the disagreement, which of the following is TRUE?

a. the true intent of the parties must first be discovered
b. the courts would have to decide the matter
c. the purchase contract prevails
d. the escrow instructions prevail

Answer 59

d. the escrow instructions prevail

The escrow instructions are a more current and more accurate reflection of the true intent of both parties.

Question 60

60. A Standard Policy of Title Insurance covers all of the following EXCEPT:

a. forgery and matters of record
b. lack of signature of either husband and/or wife
c. zoning laws
d. capacity of parties

Answer 60

c. zoning laws

Zoning is excluded from the coverage of title insurance. The standard policy also does not protect the policyholder against defects in title know to the holder to exist at the date of the policy and not previously disclosed to the insurance company.

Question 61

61. An ALTA policy of title insurance protects the:

a. buyer
b. seller
c. lender
d. all of these

Answer 61

c. lender

The ALTA policy is used to protect lenders and usually requires a survey. It expands the standard policy to include: 1) Rights of parties in possession; 2) Unrecorded liens; 3) Easements; 4) Claims that a correct surgery or inspection would show; 5) Mining claims and water rights

Question 62

62. Homebuyers are most likely to purchase:

a. standard insurance
b. extended insurance
c. ALTA policy
d. an abstract of title

Answer 62

a. standard insurance

Most homebuyers purchase a standard policy of title insurance. “ALTA” stands for American Land Title Association and is an extended coverage policy.

Question 63

63. A standard policy of title insurance covers all of the following EXCEPT:

a. unrecorded liens
b. incorrectly given marital status
c. incompetent grantor
d. forged deed

Answer 63

a. unrecorded liens

Generally, a standard policy of title insurance will protect the insured against losses arising from such title defects as:

1) Forged documents such as deeds, releases of dower, mortgages
2) Undisclosed heirs; lack of capacity (minors)
3) Mistaken legal interpretation of wills
4) Misfiled documents, unauthorized acknowledgements
5) Confusion arising from similarity of names
6) Incorrectly given marital status; mental incompetence

Question 64

64. Which of the following would protect a buyer against a right of a party in possession?

a. extended coverage policy
b. standard policy
c. either a or b
d. neither a or b

Answer 64

a. extended coverage policy

An extended coverage policy insures the title against matters that might be discovered by an inspection of the premises. It’s coverage includes mechanics’ liens, tax liens, miscellaneous liens, encumbrances, easements, rights of parties in possession and encroachments, which may not be disclosed by the public records.

Question 65

65. What type of title insurance policy covers all risks?

a. extended policy
b. ALTA policy
c. standard policy
d. no policy covers all risks

Answer 65

d. no policy covers all risks

No title insurance policy covers all risks. It is a good idea to familiarize yourself with the various types of title insurance policies and their coverage.

Question 66

66. A title officer of a title insurance company is familiar with an “Abstract of Title” and would know that it is:

a. where the legal description of the property is found in the title policy
b. a written summary of the various recorded documents relating to the title of the subject property
c. a standard form of title insurance that is used by most title companies
d. an opinion of the title officer as to the condition of the title

Answer 66

b. a written summary of the various recorded documents relating to the title of the subject property

An abstract of title is a written summary of the recorded documents relating to a particular property. It is no longer used today in favor of a policy of title insurance.

Question 67

67. How much of a broker’s personal funds may be contributed to a client’s trust fund bank account to offset any bank service charges?

a. $25.00
b. $100.00
c. $200.00
d. nothing

Answer 67

c. $200.00

Since banks sometimes have service charges, out of necessity, the broker is allowed to maintain up to $200 of personal funds in a trust account to cover these type of bank charges.

Question 68

68. When a real estate licensee accepts trust funds from his/her client in connection with the purchase of real property, the licensee must place these funds in: 1) a neutral escrow depository; 2) the hands of the offer or owner; or 3) a trust account. The licensee must place these funds into one of the these three authorized places:

a. by the next working day following receipt
b. within three business days following receipt
c. by midnight of the current day
d. by midnight of the second business day following receipt

Answer 68

b. within three business days following receipt

If the broker (or broker’s salesperson) fails to place the funds into one o these three authorized places within three business days following receipt, he/she is liable for commingling the funds.

Question 69

69. How often should a trust fund account be reconciled?

a. once a week
b. once a month
c. semi annually
d. once a year

Answer 69

b. once a month

Similar to balancing your check book, reconciliation is the process of comparing two or more sets of records to determine whether their balances agree. This should reveal if the records are completed accurately. To assure the accuracy of the records, they must be reconciled at least once a month.

Question 70

70. An escrow prorates based on a:

a. 300 day year
b. 360 day year
c. 365 day year
d. none of these

Answer 70

b. 360 day year

Escrow prorates using a 360 day year and a 30 day month.

Question 71

71. All of the following will terminate an escrow EXCEPT?

a. agreement of the parties
b. demand of the broker
c. inability to meet a contingency
d. none of these

Answer 71

b. demand of the broker

Since a broker is not a party to the transaction, he/she cannot order an escrow terminated.

Question 72

72. Buyer’s and seller’s closing statements are:

a. always the same
b. always executed
c. always different
d. always equal

Answer 72

c. always different

Separate closing statements are prepared for the buyer and seller showing debits and/or credits at closing. Buyer’s and seller’s always have different closing statements.

Question 73

73. During a sales escrow, the escrow officer receives two structural pest control reports. The escrow officer should:

a. contact the inspection companies to determine which one is most recent
b. send the report that requires the most work to the buyer and obtain his/her approval
c. notify the broker and obtain written instructions from the buyer and seller concerning the reports
d. requires the broker to find out from the seller which report to use

Answer 73

c. notify the broker and obtain written instructions from the buyer and seller concerning the reports

The escrow agent is the agent of both the buyer and seller and should receive instructions from both if a conflict arises such as this.

Question 74

74. Owner Bob owns an apartment complex which is managed by Broker X. Owner Bob wants to sell his apartments and Broker X is the listing broker. Who distributes the security deposit?

a. the seller
b. the broker
c. the escrow company
d. the lender

Answer 74

c. the escrow company

Security deposits technically belong to the tenant. However, they are held by the owner until the tenant leaves and the owner inspects the unit. It is probably true that Broker X must hand the deposits to escrow, but escrow distributes everything at the close of escrow to the new buyer. This includes all proration of prepaid rent, taxes etc. The security deposits would be a credit to the buyer.

Question 75

75. With reference to an escrow, recurring costs mean:

a. closing fees
b. tax calculations
c. impound accounts
d. realtor fees

Answer 75

c. impound accounts

Most mortgage lenders require and impound account to cover future payments of recurring costs such as taxes, assessments, private mortgage insurance and home insurance to protect their security from defaults and tax liens.

Question 76

76. The term impounds refers to:

a. personal property
b. clarity of title
c. reserves
d. trust funds

Answer 76

c. reserves

Impounds are monies set aside (reserves) to cover future payments of recurring costs such as taxes and insurance.

Question 77

77. Money in an mound account belongs to the:

a. escrow company
b. trustor
c. trustee
d. beneficiary

Answer 77

b. trustor

Impound accounts usually contain money prepaid by the trustor (buyer).

Question 78

78. A lender uses an impound account to protect against non payment of all of the following, except:

a. assessments
b. property taxes
c. insurance premiums
d. mortgage interest payments

Answer 78

d. mortgage interest payments

Mortgage interest is part of the loan payment. The others are held by the lender in a reserve account called impounds. Lenders pays these bills as they become due.

Question 79

79. The term title plant refers to:

a. records of a title insurance company
b. records of lender
c. records of a brokerage
d. all of these

Answer 79

a. records of a title insurance company

A title plant is the storage facility of a title insurance company in which it has accumulated complete title records of properties in its area. Many of the larger title insurance companies maintain their own title plants containing copies of all recorded instruments.

Question 80

80. A document that describes the property and any existing encumbrances is called a:

a. preliminary report
b. abstract of title
c. title plant
d. binder

Answer 80

a. preliminary report

The preliminary report describes the property and current owner of record, as well as any recorded liens or other encumbrances. The escrow holder reads the report to verify the legal description and to determine if there are any child support liens, taxes, or judgments for which a release will be required prior to the close of escrow. The buyer is required to review and sign acceptance of the preliminary report.

Question 81

81. An exact history of conveyances and encumbrances affecting the title of a property is called a(n):

a. title search
b. abstraction
c. chain of title
d. abstract of title

Answer 81

c. chain of title

A chain of title is the recorded history of matters that affect the title to a specific parcel of real property, such as ownership, encumbrances and liens, beginning with the original recorded source of the title. The chain of title shows the successive changes of ownership. each one linked to the next so that a “chain” is formed.

Question 82

82. Which of the following is required for the existence of a valid escrow?

a. a binding contract and conditional delivery
b. the services of a licensed real estate broker
c. a complete chain of life
d. complete escrow instructions

Answer 82

a. a binding contract and conditional delivery

A valid escrow cannot exist without a binding contract between buyer and seller and the conditional delivery of transfer documents to a third party.

Question 83

83. All escrow companies must be incorporated and licensed by the:

a. real estate commissioner
b. insurance commissioner
c. corporations commissioner
d. securities and exchange commission

Answer 83

c. corporations commissioner

Under the provisions of the Financial Code of the State of California, all escrow companies must be incorporated and licensed by the Corporations Commissioner to operate.

Question 84

84. An escrow agent discovers there is no specified date of closing. In this case escrow should close:

a. within 30 days
b. within 60 days
c. within 90 days
d. within a reasonable time

Answer 84

d. within a reasonable time

If a specific closing date is not specified, the parties may agree in writing to a closing date, otherwise the escrow would continue and close within a reasonable period of time.

Question 85

Shortly after a valid escrow is established, both the buyer and seller die. What should the escrow agent do?

a. return all monies
b. cancel the escrow
c. let the agents decide
d. continue with the escrow

Answer 85

d. continue with the escrow

Under something called the “Doctrine of Relation-Back,” death of the grantor does not terminate the escrow or revoke the agent’s authority to deliver an executed deed. Delivery of the deed to the grantee relates back to the date it was originally deposited with the escrow agent, and it is considered as if the grantor made delivery to the grantee before the grantor’s death.

Question 86

86. Which of the following automatically terminates an escrow?

a. death of the buyer
b. death of the seller
c. death of the broker
d. none of these

Answer 86

d. none of these

Death of the grantor does not terminate the escrow or revoke the agent’s authority to deliver an executed deed.

Question 87

87. Without any agreement on a specific date, physical possession should be given:

a. one week prior to close of escrow
b. one week after close of escrow
c. at close of escrow
d. upon the buyers request

Answer 87

c. at close of escrow

In the absence of an agreement, possession would be given when all escrow instructions have been met (close of escrow).

Question 88

88. When there is a substantial discrepancy between the dates for close of escrow and the new owners occupying the property, the agent must prepare a(n):

a. interim occupancy agreement
b. addendum
c. sale leaseback agreement
d. none of the above

Answer 88

a. interim occupancy agreement

Closing delays can occur due to a number of reasons. For example, delays in obtaining a homeowner’s insurance policy or if the funding check from the buyer’s lender isn’t issued in time. Sometimes work on the property needs to be completed before close of escrow. Another common reason for a delay is when two home sales are closing concurrently and a delay in one causes a delay in the other. Ideally, buyers shouldn’t take possession of their new homes until the sale has closed. As a last resort, the buyer can ask the seller for permission to occupy the property before the closing and, if the seller agrees, an interim occupancy agreement should be signed by the buyer and seller, and the buyer’s personal property and liability insurance should be in effect as of the date of occupancy.

Question 89

89. The buyer and seller agree on a 60 day escrow. As the closing date approaches, it becomes obvious that it will not close on time. Which of the following is TRUE?

a. the escrow can close as originally scheduled
b. the escrow is automatically terminated after 60 days
c. the buyer and seller must agree to extend the escrow or it is cancelled
d. the escrow agent has the authority to extend the escrow

Answer 89

c. the buyer and seller must agree to extend the escrow or it is cancelled

If the escrow cannot be completed on time, the escrow would terminate unless both parties agreed in writing to an extension. This would be accomplished with an amendment to the escrow instructions extending the closing date.

Question 90

90. When does the broker’s commission get paid?

a. when the broker obtains an offer and communicates acceptance
b. when the buyers deposit is logged into escrow
c. at close of escrow
d. none of the above

Answer 90

c. at close of escrow

On the state exam you may see two very similar questions, one asking when the broker’s commission is paid and another asking when the broker has earned his/her commission. The broker’s commission is paid at close of escrow. The broker has earned his/her commission when the buyer’s offer is accepted.

Question 91

91. What does the term “short rate” refer to?

a. loan interest rate
b. real property taxes
c. stock portfolios
d. homeowner’s insurance

Answer 91

d. homeowner’s insurance

Short rate: A higher periodic rate changed for a shorter term than that originally contracted. The increased premium charged by an insurance company upon early cancellation of a policy to compensate the insuror for the fact that the original rate charged was calculated on the full period of the policy. This increased charge enters into a buyer’s decision whether to assume the seller’s existing homeowner’s hazard insurance policy or to cancel it and obtain a new policy.

Question 92

92. When is the title insurance premium paid?

a. on the date of possession
b. the date escrow is opened
c. the date escrow is closed
d. the date the preliminary title report is issued

Answer 92

c. the date escrow is closed

Third party items, such as title insurance premiums, are paid at the close of escrow. It is at the close of escrow that title transfers. That is the date the new title insurance policy becomes effective.

Question 93

93. Pest control reports which contain information concerning wood destroying insects are kept on file with the:

a. department of wood destroying control
b. structural pest control board
c. environmental protection agency
d. United States department of insect control

Answer 93

b. structural pest control board

Pest control reports which contain information concerning wood destroying insects are kept on file with the Structural Pest Control Board.

Question 94

94. A broker is acting as the agent of the seller in a transaction in which the seller carried back a second trust deed. The broker must cause the deed of trust to be recorded or advise the seller to record the trust deed:

a. within one week after close of escrow
b. one business day after close of escrow
c. 30 days after close of escrow
d. none of the preceding as this is not the responsibility of the agent

Answer 94

a. within one week after close of escrow

Within one week after closing of a transaction, the broker must cause a deed of trust to be recorded with the county recorder, or cause it to be delivered to the beneficiary with a written recommendation that it be recorded forthwith, unless written instructions not to record are received from the beneficiary. If the transaction is closed through escrow and the deed of trust is delivered to the escrow holder within one week, that shall be deemed compliance on the part of the broker.

Question 95

95. Baker sells a property to Davis and executes a grant deed in favor of Davis. Davis then takes the deed and places it in a safety deposit box. Baker then sells the same property to Charles who subsequently records it. Which of the following is correct:

a. Davis can sue Baker for fraud
b. Charles is the legal owner of the property
c. Davis is the legal owner of the property
d. Any loan on the property would be void

Answer 95

b. Charles is the legal owner of the property

The first to record is the legal owner. The only exceptions to the recording statute would involve possession or actual notice. Neither of these would apply in the example. Davis had the right to record and failed to do so.