Ch 5 Transfer Of Property

Question 1

All of the following persons or entities may engage in the escrow business, except:

a. A real estate broker.
b. A domestic or foreign corporation.
c. A principal in the transaction.
d. An attorney.

Answer 1

c — A principal in the transaction cannot perform as an escrow agent in the same transaction as they are not impartial or neutral.

Question 2

Escrow calculates prorations based on ___ days in a year.

a. 300
b. 360
c. 365
d. 370

Answer 2

b — Escrow works on a 30 day month multiplied by 12 months. Thus, for the purpose of calculating prorations, escrow considers there to be 360 days in a year.

Question 3

Which of the following would most likely result in the termination of a real estate sales escrow?

a. The mutual agreement of the buyer and the seller.
b. The revocation by the broker for the buyer.
c. The death of the seller.
d. The cancellation of the escrow by the seller

Answer 3

a — Escrow can be cancelled by mutual agreement between both principals, not unilaterally by one party. The broker is not a party to the escrow, therefore, they cannot authorize termination. In the event of the death of either party, their estate is still responsible for performing.

Question 4

All of the following will terminate an escrow, except:

a. Agreement of the parties.
b. The broker’s order to terminate escrow.
c. One of the parties’ inability to meet a contingency.
d. The destruction of the property during the escrow

Answer 4

b — The broker is not a principal to the escrow and therefore has no authority to cancel it. A mutual agreement between the parties or the failure of a contingency to occur will cancel the escrow, as will the destruction of the property during the escrow.

Question 5

In an escrow statement, the term “recurring costs” is in reference to:

a. title insurance fees.
b. insurance prorations.
c. impound account items.
d. recording fees.

Answer 5

c — “Recurring” means costs that will repeat. In this question, only impounds are recurring.

Question 6

Escrow closes on the 16th day of February (28 days). The seller receives $500 in rent for the
month of February. The seller:
a. owes the buyer $250. 
b. owes the buyer more than $250. 
c. owes the buyer less than $250.
d. keeps the entire $500.

Answer 6

a — Remember, escrow calculates a month as 30 days, as stated in Question 2 so disregard the reference to the literal number of days in the month. The 16th day of the month is first day of the second half of the month and thus the seller owes the buyer precisely half of $500.

Question 7

All of the following are true of a tenancy in common, except:

a. Interests may be unequal.
b. A tenant in common may not will their interest in the property to others on their death.
c. An individual owner can sell their interest without the consent of the other tenants.
d. The owner does not own a specific part of the property.

Answer 7

b — Answer selections A, C and D are true of a tenancy in common, as distinct from a community interest such as joint tenancy. However, a tenant in common may will their
interest in the property to others on their death.

Question 8

A person holding title to real property in severalty:

a. owns the property with several other owners.
b. has an estate for years.
c. takes title with their spouse.
d. has sole ownership of the property.

Answer 8

d — The word “severalty” is similar to “sever.” Thus, a person holding title to real property in severalty has sole ownership of a property.

Question 9

Unless otherwise licensed, a real estate licensee is prohibited from doing all of the following, except:

a. sell real estate.
b. give legal advice.
c. draft building plans.
d. give tax advice.

Answer 9

a — Answer selections B, C and D are not covered under real estate licensure.

Question 10

Sara and Marshal are joint tenants. Marshal obtains a loan from a lender secured by his interest in the property. When Marshal dies:

a. Sara and the lender become tenants in common, each owning one-half interest in the property.
b. Sara owns the property free and clear of the encumbrance.
c. Sara owns the property subject to the loan.
d. Sara and the beneficiary own the property as joint tenants, each with a one-half interest.

Answer 10

b — Joint tenants receive title clean of any obligations made by the deceased partner. Further, joint tenants do not need to be married and joint tenancy is not limited to only two people.

Question 11

The words “time, title, interest and possession” are most closely related to which of the following concepts:

a. severalty.
b. joint tenancy.
c. parol evidence.
d. adverse possession.

Answer 11

b — Time, title, interest and possession (TTIP) relate to joint tenancy only.

Question 12

The California Land Title Association (CLTA) standard policy and the American Land Title Association (ALTA) policy does not protect the insured against:

a. the unmarketability of title or the inability to use it as security for financing.
b. lack of ingress and egress rights to the property.
c. encumbrances which are created or become encumbrances after issuance of the policy.
d. losses due to the ownership being vested in someone other than the buyer.

Answer 12

c — Both the California Land Title Association (CLTA) standard and American Land Title Association (ALTA) policies provide coverage for all answer selections except C.

Question 13

A standard policy of title insurance covers:

a. encroachments.
b. incompetence of any of the parties.
c. zoning restrictions.
d. an easement by prescription.

Answer 13

b — Only the American Land Title Association (ALTA) policy will give additional coverage, such as for encroachments and prescriptive easements. Incompetence of any of the parties is covered by both standard and extended policies.

Question 14

A standard policy of title insurance does not cover:

a. unrecorded liens.
b. easements and liens on the property not revealed by the public records.
c. rights of parties in possession.
d. All of the above.

Answer 14

d — Only the American Land Title Association (ALTA) policy covers these items. Recognize how information in this question can make it possible to answer other questions regarding alternative title insurance policies.

Question 15

On April 1, 2020, an escrow agent opened a preliminary title report order for the sale of a property. The seller purchased the home in 1998, financing it with a Federal Housing Administration (FHA) loan on which they are currently making payments. A preliminary title report dated April 5, 2020 will:
a. include exactly the same information as a future standard policy of title insurance
issued on the close of escrow.
b. show a deed of trust with the seller as trustor.
c. obligate the title company for insurance in an amount equal to the purchase price.
d. show title vested in the buyer’s name.

Answer 15

b — On April 5th the seller will still be the owner and the trustor on the Federal Housing Administration (FHA) loan. Thus, answer choice B is the only correct answer.

Question 16

An American Land Title Association (ALTA) policy of title insurance goes beyond the protection afforded by a California Land Title Association (CLTA) policy in guarding against:

a. existing liens and encumbrances as disclosed by the public records.
b. a deed of reconveyance issued by a minor.
c. the location of property lines according to a formal survey.
d. an error in the sequence of recording trust deed loans.

Answer 16

c — Answer selection C is one of the extended benefits of an American Land Title Association (ALTA) policy

Question 17

When the public records have been examined, a written summary of the chain of title is known as a(n):

a. abstract of title.
b. acknowledgment of title.
c. affidavit of title.
d. title guarantee.

Answer 17

a — Note the words “chain of title” in the question, which is something that may also be covered in another question. The record of title is summarized in the abstract of title.

Question 18

A deed is recorded and indexed based on:

a. the legal description of the property.
b. the sales price of the transaction.
c. the grantor and grantee names alphabetically.
d. the location of the property.

Answer 18

c — The names of both parties to the transfer are named and indexed accordingly.

Question 19

Recording is not required for a:

a. notice of default (NOD).
b. notice of completion.
c. homestead declaration.
d. grant deed.

Answer 19

d — A grant deed is valid whether or not it is recorded.

Question 20

Which of these is most correct concerning delinquent taxes and redemption rights?

a. The effect of a “sale to the state” by the tax collector is to start the redemption period running.
b. The state sale gives notice to the owner they need to vacate the property with 180 days.
c. In the event the delinquent owner transfers or otherwise alienates the property, the redemption period is automatically terminated.
d. The property is automatically deeded to the state if the property is not redeemed within one year.

Answer 20

a — The redemption period begins with the sale.

Question 21

The annual property taxes an owner of a home needs to pay are determined by:

a. assessing the land and improvements separately, then multiplying the total by one tax rate.
b. assessing the land and improvements together, then multiplying by one tax rate.
c. assessing the land and improvements separately, then multiplying by different tax rates.
d. subtracting the value of the improvements from the value of the land, then multiplying the total by one tax rate.

Answer 21

a — The land and improvements are valued separately though the tax rate is the same.

Question 22

Which of the following is an ad valorem tax?

a. Income tax.
b. Use tax.
c. Real estate tax.
d. Value added.

Answer 22

c — Ad valorum is the tax assessor’s valuation for real estate.

Question 23

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

a. contact the inspection companies to determine which one controls.
b. send the report that requires the most work to the buyer and obtain their approval.
c. notify the buyer and seller of the discrepancy and obtain written instructions as to which report to use.
d. use the report which found the least amount of infestation and damage.

Answer 23

c — Remember, only the principals can make decisions about transaction terms to escrow.

Question 24

The instrument used to transfer title to personal property is the:

a. quit claim deed.
b. bill of sale.
c. security agreement.
d. chattel deed.

Answer 24

b — A bill of sale is used to transfer personal property.

Question 25

All of the following may be added to the original cost basis of real property to arrive at an adjusted basis for federal income tax purposes, except:

a. miscellaneous sale expenses.
b. the real estate brokerage commission earned on the sale.
c. the cost of improvements.
d. the monthly mortgage payments.

Answer 25

d — Mortgage payments are the exception. The other three answer selections have similarities and may be added to the original cost basis of real property to arrive at an adjusted basis for federal income tax purposes.

Question 26

All of the following are tax deductible under federal income tax laws concerning an owneroccupied single family dwelling, except:

a. Mortgage interest payments.
b. A mortgage prepayment penalty that was incurred.
c. Property taxes.
d. Landscaping expenses.

Answer 26

d — Answer selection D is the only option that is not tax deductible for owner-occupied residences.

Question 27

All of the following items contained in a closing statement are generally prorated, except:

a. property insurance.
b. property taxes and assessments.
c. impounds.
d. delinquent interest.

Answer 27

d — Delinquent interest is a seller expense and not prorated for the buyer.

Question 28

Which of the following would be an incorrect amount for documentary transfer tax stamps?

a. $110.00.
b. $55.00.
c. $220.00.
d. $111.00

Answer 28

d — Transfer stamps come in multiples of $0.55.

Question 29

At a tax foreclosure sale, the winning bidder receives a(n):

a. tax deed.
b. warranty deed.
c. sheriff’s deed.
d. trustee’s deed

Answer 29

a — The answer to this question is contained in the language of the question itself.

Question 30

A deed:

a. gives constructive notice.
b. when recorded, gives actual notice of its contents.
c. requires buyer occupancy.
d. does not have to be recorded to transfer title.

Answer 30

d — A deed does not need to be recorded to be valid, but must be recorded to give constructive
notice (answer selection A).

Question 31

Implied warranties are not included in a:

a. quitclaim deed.
b. warranty deed.
c. gift deed
d. grant deed.

Answer 31

a — The quitclaim deed is the exception here. There are no guarantees or warranties with a quitclaim deed

Question 32

A grant deed has been executed once it has been:

a. delivered to escrow.
b. delivered to the grantee.
c. recorded.
d. signed by the grantor.

Answer 32

d — A signature completes the execution. The transfer process requires delivery and acceptance to be complete.

Question 33

Recorded title to a parcel of real property is vested in the name of Jennifer Baker, a single woman. After her marriage to Colin Matthews, she executes a deed to the property only in the name of Jennifer Matthews, a married woman. The discrepancy in the grantor’s name is:

a. automatically cured after 90 days.
b. a defect which could cause separate property of both spouses to become joint tenancy property.
c. a cloud on the title.
d. immaterial so long as the property is adequately described.

Answer 33

c — An inconsistency in the names of the title holder and grantor on the deed will require clarification, creating a cloud on title until this has been accomplished.

Question 34

A land contract, when compared to a grant deed transfer, is different in the:

a. interest conveyed.
b. signatures of the principal parties.
c. designation of purchase price.
d. All of the above.

Answer 34

d — All of these will differ between a contract and a deed.

Question 35

A property in probate is appraised at $960,000. At auction, the highest bid is $900,000. For the court to consider any other offer, it would have to be at least:

a. $900,001.
b. $945,500.
c. $1,008,000.
d. $945,000.

Answer 35

b — A probate court will only consider a subsequent bid that is raised by an amount equal to 10% of the first $10,000 ($1,000), plus 5% on the balance ($44,500).

Question 36

A writ of execution is issued for a(n):

a. sheriff’s sale.
b. transfer by adverse possession.
c. attachment.
d. trustee’s sale.

Answer 36

a — A sheriff’s sale will cause a writ of execution to be drawn and recorded.

Question 37

When an eligible veteran purchases a home under the CalVet program, the grant deed is in favor of:

a. the veteran.
b. the California Department of Veterans Affairs.
c. the lender that made the CalVet loan.
d. the title company.

Answer 37

b — The CalVet sale is a land sales contract with the California Department of Veterans Affairs as the seller (vendor).

Question 38

To establish title by adverse possession, an occupant must show:

a. they have occupied the property in a way which constitutes no notice to the record owner.
b. their occupancy is consistent with the owner’s title.
c. they have been in possession of the property for a continuous and uninterrupted period of at least two years.
d. they have paid all taxes assessed against the property during their occupancy.

Answer 38

d — Only answer choice D fits the requirements for adverse possession. The period of possession must be at least five years, not two. This is why answer choice C is incorrect.

Question 39

Chain of title refers to:

a. an exact history of conveyances and encumbrances affecting title to a property.
b. a title report.
c. equity held in a property plus the debt encumbering it.
d. abstract of title.

Answer 39

a — This is an example of one question delivering the answer to a different question. Another question in this section defines the chain of title as a written summary of public records.

Question 40

An offer based on a $300,000 loan assumption was made and accepted. During escrow, it was
discovered the loan was for $290,000, not $300,000. What is the most probable outcome?
a. The seller needs to accept the buyer’s note of $10,000.
b. The buyer needs to come up with $10,000 more in cash.
c. The buyer can void the contract.
d. The seller needs to reduce the price by $10,000.

Answer 40

c — This is an example of a contingency in an escrow. This contingency favored the buyer and allowed them to void the sale since the loan balance was not as previously stated.

Question 41

Mike executed a grant deed to Trevor and recorded it. Later, Mike changed his mind and sought to set the conveyance aside, claiming there had been no delivery to Trevor. Why was Mike unsuccessful in his effort?

a. Delivery and acceptance is presumed with recording.
b. He was unsuccessful only if Trevor can prove he took possession.
c. Recording creates an entry on the chain of title.
d. Recording acknowledges the deed.

Answer 41

a — The transfer process requires delivery and acceptance to be complete. Recording presumes
delivery and acceptance since the recorded deed is mailed to the grantee.

Question 42

All of the following may be impound requirements for a borrower, except:

a. property insurance.
b. bond payments.
c. property taxes.
d. mortgage interest.

Answer 42

d — The exception here is mortgage interest. The other three answer selections are related in that monies are accumulated in the impound account against an annual or semi-annual payment.

Question 43

Anna sold her primary residence for $950,000. She originally paid $750,000 for the property four years ago. She spent $300,000 on capital improvements during her ownership. What can Anna write-off when filing her tax return?

a. $200,000 gain.
b. $500,000 gain.
c. $100,000 loss
d. None of the above.

Answer 43

d — First, determine the amount of the capital gain or loss. $750,000 purchase + $300,000 improvements = $1,050,000 adjusted basis. A sale price of $950,000 creates a $100,000 capital loss. However, capital losses are not permitted on a primary residence.

Question 44

Mr. Black purchased a home for $650,000. The terms of the sale stated Mr. Black will make a down payment of $200,000 and assume an existing first trust deed for the balance of the purchase price. At a basic rate of $0.55 per $500, how much will the transfer tax be?

a. $715.00
b. $220.00
c. $495.00
d. $357.50

Answer 44

b — Transfer taxes are charges against new money only. Since the transaction included the assumption of a $450,000 existing mortgage, the only tax charged is against the $200,000 down payment. The transfer tax rate in the county where the property is located is $0.55 per $500, which equals $1.10 per $1,000. Multiply $1.10 by 200, totaling $220 in transfer taxes paid on the sale.

Question 45

The original cost basis on a duplex purchased by Mr. Brown was $750,000. The tax assessor stated the breakdown of values to be 80% improvements and 20% land. Over the first five years, Mr. Brown depreciated the improvements at a rate of 2% each year. Mr. Brown then
hired a licensed contractor to install a swimming pool at a cost of $50,000. Once the pool was completed, how much will the adjusted cost basis in the property be?
a. $725,000.
b. $740,000.
c. $785,000.
d. $792,000.

Answer 45

b — Depreciation can only be taken on the improvements (80%) portion of the purchase price. In this example: 80% x $750,000 = $600,000 (improvement portion of the original basis). $600,000 x 0.02 (2%) = $12,000 per year x 5 years = $60,000 (accrued depreciation). Then, subtract the accrued depreciation from the original cost basis. $750,000 (original cost basis) - $60,000 (accrued depreciation) = $690,000 (depreciated cost basis). Finally, add $50,000 for the new swimming pool improvement + $690,000 (depreciated cost basis) = $740,000 (adjusted cost basis).