Ch 12.3 Flashcards
When does a buyer hold equitable title
Once the purchase agreement has been signed
According to the Risk Act, if real property subject to a sales agreement is destroyed or taken by eminent domain, who can enforce the contract
The seller
The seller can’t enforce the contract, and the buyer gets any deposits back.
When is the buyer responsible for the purchase price of a real property destroyed or taken by eminent domain?
If title or possession was transferred before the loss occurred
The Risk Act does not address the issue of the loss of monetary deposits but, under California common law, the risk of loss is on which party?
whichever party holds title to a particular deposited item until closing
T/F: if a valid deed has been deposited into escrow, and the seller loses the ability to convey property or the buyer loses the ability to accept it, then the transfer of title is considered to have happened on what date?
The day the deed was deposited
A seller deposits a deed into escrow, and then dies the next day, before closing occurs. The transfer of title is considered to have happened as of the day the deed was deposited into escrow, under the:
Relation back doctrine
Which of the following loans is not exempt from RESPA?
- Agricultural loan
- Loan to purchase four-unit residential building
- Loan to purchase 30 acres
- seller financing
Loan to purchase four-unit residential building
A transaction collapses, and the buyer and seller dispute ownership of funds placed into escrow. The escrow agent deposits the funds with a court and files a suit to determine the funds’ owner. This action is known as a/an _____
Interpleader action
(T/F) Once a depositor puts funds into escrow, he no longer owns those funds
False
The general rule is that the depositor still owns the deposit, until all escrow conditions have been satisfied.
(T/F) The Uniform Vendor and Purchaser Risk Act states that if possession transferred before the property was destroyed, the buyer must pay the full purchase price.
True
Under the Risk Act, if title or possession were transferred before the loss occurred, then the buyer remains responsible for the purchase price.
(T/F) The parties should enter into an interim occupancy agreement if a buyer takes possession before closing
True
An interim occupancy agreement is advisable if a buyer takes possession prior to closing, regardless of how the parties allocate the ris
(T/F) A seller deposits a valid deed into escrow, and then dies the next day. The transaction must be called off
False
Under the relation back doctrine, the date of title transfer ‘relates back’ to the date of the deposit into escrow, if the seller dies or becomes incompetent.
(T/F) Escrow agents must report gross proceeds from a sale of real property on a 1099-S form unless the sales price is below a specified amount.
True
An escrow agent will report sales proceeds to the IRS using a 1099-S form.
(T/F) A buyer must withhold 15% of the seller’s net proceeds and send them to the IRS, if the seller is a non-resident alien
True
Under ____, the buyer is responsible for withholding 15% of the proceeds if the seller is a non-resident alien. These conditions are typically performed by the escrow agent.
FIRPTA
(T/F) If one party breaches a purchase agreement, the escrow will terminate through default.
True
An escrow may terminate because of one party’s default. The escrow instructions should contain procedures for handling funds held in escrow in the event of default
RESPA applies only to this type of loan
Federally related loan.
RESPA applies to federally related loans. These involve lenders who are federally regulated, have federally insured accounts, sell loans on the secondary market, or make more than $1 million in loans per year.
_____ doctrine applies in any of the following situations:
the seller becomes incompetent,
the seller dies, or
the buyer dies.
Relation back
Does wrongful delivery convey title?
No
If the escrow agent delivers the purchase money before the appropriate conditions have been met, and the seller won’t return the money, who has to reimburse the buyer ?
The escrow agent
The IRS requires escrow agents to report the gross proceeds from every sale of real property on a ____ form
1099-S
Form ____ is unnecessary for the sale of a principal residence if the seller certifies in writing that none of the gain is taxable, and the sale is for $_____ or less ($____ for married couples filing jointly).
1099-S
$250,000
$500,000
The IRS also requires an escrow agent who receives more than $10,000 in cash to report the payment using Form _____, in order to help prevent money laundering and tax evasion
8300
Form 8300 must be filed within __ days of receiving the cash, and the escrow agent must keep a copy for five years.
15
____ is aimed at preventing foreign investors from selling property in the U.S. without paying income tax on their capital gains.
The Foreign Investment in Real Property Tax Act (FIRPTA)
The funds withheld for FIRTPA must be paid to the IRS no more than __ days after closing.
20
FIRPTA exempts sales of homes under $_____ that will be occupied by the buyer. And if the amount realized on the sale of a residence to be owner-occupied is between $300,000 and $1 million, only 10% need be withheld.
$300,000
Under FIRTPA, if the amount realized on the sale of a residence to be owner-occupied is between $300,000 and $1 million, only __% need be withheld.
10%
____ helps prevent out-of-state sellers from avoiding state income or franchise taxes.
Cal-FIRPTA
Buyers must withhold ___% of the sales price from sellers who live out-of-state but who are selling California real estate.
3.33%
Alternatively, the seller may choose a withholding amount based on her estimated gain from the sale.
Re: FIRTPA, the funds must be sent to the state’s Franchise Tax Board by the 20th day of the month after ____
the month of closing
There are three ways in which an escrow can terminate:
1)
2)
3)
1) the transaction closes
2) the parties agree to terminate, or
3) a party defaults by breaching the purchase agreement.
T/F: escrow terminates automatically
True
T/F: even if the parties mutually decide to rescind the sale and terminate the escrow, the seller may still be liable for the broker’s commission.
True
Why should the purchase agreement be expressly rescinded?
a party could try to enforce it despite the termination of escrow.
When the parties agree to terminate the two agreements, the escrow agent has the parties sign a ____ agreement
Cancellation
The cancellation agreement should contain:
1)
2)
1) what happens to funds already in escrow, and
2) who pays for the escrow costs already incurred
If an escrow ends automatically because of a failed contingency, the parties should still sign a cancellation agreement because ____
The purchase agreement automatically terminate but doesnt
Escrow terminates through _____ when a party to a purchase agreement wants to complete the transaction, but the other side breaches the agreement having changed her mind about the sale or because she can’t meet a particular contractual requirement
Default
Notice of breach must be provided within __ days
3
procedures for handling a default by a party—such as how the nonbreaching party gives notice of any time period to cure the default - should be stated in the ____
Escrow instructions
escrow instructions usually require the escrow agent to turn over the good faith deposit to ____
The seller
If one party refuses in bad faith to release escrowed funds to which the other party is entitled, the one who acted in bad faith is liable to the other party for
1)
2)
3)
1) the amount in escrow,
2) attorney’s fees and
3) a penalty equal to triple the escrowed amount (up to a maximum of $1,000).
T/F: No release is required in the event of a good faith dispute over funds
True
