Briefing Exam 5 Flashcards
- When a valid grant deed is prepared, title passes when:
a. acknowledged
b. delivered
c. signed
d. recorded
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.
- 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
a. Parties capable of receiving the grant
There are several different essentials to a valid deed, namely:
- It must be in writing.
- The parties must be properly described.
- The parties must be competent to convey and be capable of receiving the grant.
- The property conveyed must be adequately described.
- There must be a granting clause, operative words or conveyance (“I hereby grant”).
- The deed must be signed by the party or parties making the conveyance or grant.
- Delivery and acceptance is required.
- 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
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.
- The recording of an instrument gives:
a. actual notice
b. constructive notice
c. positive notice
d. passive notice
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.
- 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
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.
- 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
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.
- 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
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.
- 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
c. by grantor and grantee names alphabetically
The County Recorders Office must keep an adequate index system by grantee and grantor names alphabetically.
- 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
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.
- A quitclaim deed conveys only the present right, title and interest of the:
a. grantor
b. servient tenement
c. grantee
d. property
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).
- 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
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.
- A valid deed must contain:
a. evidence of recordation
b. a date
c. a granting clause
d. the signature of the grantee
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”).
- A recorded deed:
a. gives constructive notice
b. creates presumption of delivery
c. must have been acknowledged
d. all of these
d. all of these
Delivery presumes acknowledgement and gives constructive notice. Recording establishes presumption of delivery.
- A reservation in a deed:
a. cancels the deed
b. is a retention of an interest
c. prevents the transfer
d. guarantees the transfer
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.”
- 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
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.
- When using a grant deed, title transfers at the time of:
a. signing
b. acknowledgement
c. recording
d. delivery
d. delivery
Technically, delivery is the legal act of transferring ownership.
- 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
c. use of the entire property
There are five requirements to acquire title by adverse possession.
- The possession must be by actual occupation and be open and notorious.
- It must be hostile to the true owner’s title.
- It must be under claim of right or color of title.
- Possession must be continuous and uninterrupted for a period of five years.
- Claimant must have paid all real property taxes levied and assessed for a period of five years continuously.
- The legal seizure of property for sidewalks by the government is referred to as:
a. zoning
b. escheat
c. eminent domain
d. lis pendens
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.
- 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
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.
- 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
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.
- 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
b. escheat
In cases where a decedent dies intestate and there are no heirs capable of inheriting, the property escheats to the state.
- A will written in the testator’s own handwriting is called a:
a. sealed will
b. gift certificate
c. nontransferable will
d. holographic will
d. holographic will
A holographic will is written, dated, and signed in the testator’s handwriting, but not witnessed.
- 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
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.
- A will is said to be ambulatory because it can be:
a. changed
b. recorded
c. witnessed
d. transferred
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.
- 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
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.
- 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
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.
- Personal income taxes are structured using rates that are:
a. regressive
b. progressive
c. equal
d. level
b. progressive
Progressive means the more you make, the more you pay. It might also be termed “graduated.”
- 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
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.
- Ad valorem is best defined as:
a. added value
b. fixed value
c. according to value
d. at replacement value
c. according to value
Ad valorem means according to value.
- Which of the following is considered an ad valorem tax?
a. real property tax
b. unit tax
c. use tax
d. death tax
a. real property tax
Real estate taxes are assessed according to value.
- 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
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.
- 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
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.
- Real property taxes become a lien on:
a. November 1st
b. February 1st
c. January 1st
d. July 1st
c. January 1st
Next year’s real property taxes become a lien on January 1st.
- 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
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.
- 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
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.
- 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
c. income tax
“Tax Shelter” refers to income tax shelter.
- 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
a. streets and sewers
The Street Improvements Act of 1911 is used for improvements such as streets and sewers.
- 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
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.
- A federal income tax advantage can be realized by:
a. depreciating income property
b. an installment sale
c. exchanging
d. all of these
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.
- 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
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.
- 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)
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.
- 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
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.
- 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
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.
- 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
d. supplemental tax bill
The supplemental tax bill would adjust for an increase in tax liability for the balance of the tax year.
- 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
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.
- 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
c. state
If the property is not redeemed by the owner during this statutory redemption period, the property is deeded to the state.
- 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
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.
- An owner occupied residence qualifies for a homeowner’s exemption of:
a. $1,000
b. $4,000
c. $7,000
d. none of these
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.
- 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
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.
- 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)
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.
- 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
d. no loss or gain
A taxpayer cannot take a loss on his or her primary residence.
- 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
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.
- Who is responsible for reporting a sale to the IRS?
a. escrow
b. buyer
c. seller
d. borker
a. escrow
The escrow agent (title company, escrow corporation, etc.) is responsible for reporting sales to the IRS.
- 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
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.
- 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
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.
- 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
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.
- 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
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.
- Escrow instructions should be:
a. certified
b. notarized
c. recorded
d. executed
d. executed
Escrow instructions should be executed by both parties to satisfy the requirements of the contract and complete the escrow.
- 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
d. the escrow instructions prevail
The escrow instructions are a more current and more accurate reflection of the true intent of both parties.
- 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
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.
- An ALTA policy of title insurance protects the:
a. buyer
b. seller
c. lender
d. all of these
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
- Homebuyers are most likely to purchase:
a. standard insurance
b. extended insurance
c. ALTA policy
d. an abstract of title
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.
- 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
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
- 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
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.
- What type of title insurance policy covers all risks?
a. extended policy
b. ALTA policy
c. standard policy
d. no policy covers all risks
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.
- 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
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.
- 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
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.
- 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
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.
- How often should a trust fund account be reconciled?
a. once a week
b. once a month
c. semi annually
d. once a year
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.
- An escrow prorates based on a:
a. 300 day year
b. 360 day year
c. 365 day year
d. none of these
b. 360 day year
Escrow prorates using a 360 day year and a 30 day month.
- 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
b. demand of the broker
Since a broker is not a party to the transaction, he/she cannot order an escrow terminated.
- Buyer’s and seller’s closing statements are:
a. always the same
b. always executed
c. always different
d. always equal
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.
- 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
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.
- 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
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.
- With reference to an escrow, recurring costs mean:
a. closing fees
b. tax calculations
c. impound accounts
d. realtor fees
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.
- The term impounds refers to:
a. personal property
b. clarity of title
c. reserves
d. trust funds
c. reserves
Impounds are monies set aside (reserves) to cover future payments of recurring costs such as taxes and insurance.
- Money in an mound account belongs to the:
a. escrow company
b. trustor
c. trustee
d. beneficiary
b. trustor
Impound accounts usually contain money prepaid by the trustor (buyer).
- 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
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.
- 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
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.
- 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
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.
- 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
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.
- 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
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.
- 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
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.
- 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
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.
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
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.
- 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
d. none of these
Death of the grantor does not terminate the escrow or revoke the agent’s authority to deliver an executed deed.
- 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
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).
- 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
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.
- 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
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.
- 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
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.
- What does the term “short rate” refer to?
a. loan interest rate
b. real property taxes
c. stock portfolios
d. homeowner’s insurance
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.
- 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
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.
- 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
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.
- 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
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.
- 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
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.
