Challenge

Question 1

Deficiency judgement

Answer 1

money awarded to creditors when assets securing a loan do not cover the debt owed by a debtor; a court ruling against a debtor who is in default on a secured loan, when the sale of the property that secured the loan fails to cover the debt in full.

Allows the lender to collect additional money from the debtor to make up the difference.

Question 2

Negative declaration

Answer 2

a positive gov response to an Environmental Impact Statement, not a statement files by a neighboring property owner. Document that states upon completion of an initial study that there is no substantial evidence that the project may have a significant effect on the environment.

Question 3

Statute of Frauds

Answer 3

form of statute in CA Civil Code section that requires certain contracts to be in writing (or that there be written evidence of the contract’s terms) to be valid. Thus, an oral contract may not be enforceable.

Question 4

Statute of Limitations

Answer 4

law that sets the maximum amt of time that parties involved in a dispute have to initiate legal proceedings from the date of an alleged offense, whether civil or criminal.

Question 5

Testate vs. Intestate

Answer 5

Testate = having a will
Intestate = without a will

Question 6

Easements

Answer 6

non-revocable rights, so the seller or buyer cannot terminate or revoke the easement. Only choice for the buyer is to take the property with the easement or terminate the purchase contract if the easement is an issue.

“Run with the land” so they are transferred with sale of real property. Easements themselves are a type of real property as well.

Note: easements grant access, not use, whereas licenses grant use temporarily.
Also, all easements are encumbrances, not liens. All encumbrances are not all easements (can include mortgages, liens, etc).

Question 7

Mechanic’s lien

Answer 7

involuntary specific liens; contractor/construction lien which may be enforced and filed suit within 90 days. Must be created by a supplier/contractor and recorded within same time frame to be valid. It is statutory law contained in the CA Civil Code.
All mechanic’s liens take priority as of the first day of construction, and may even take priority earlier than their date of recording.
Notices for mechanic’s liens are completion, cessation, and non-responsibility.

Question 8

Judgement lien

Answer 8

court ruling that gives a creditor the right to take possession of a debtor’s real and/or personal property if the debtor fails to fulfill his/her contractual obligations. Needs to be recorded to be valid.
Requirement for individuals to record liens is due in part to the necessity of correctly identifying the complainant.
Most liens are against a specific property, but a judgment lien is a decision directed by the courts and can apply to whatever assets, real or personal, it deems appropriate.

Question 9

Doctrine of prior approriation

Answer 9

applied in places where water is scarcer. AKA “first in time is first in sight.”
Grants water rights to divert a specific amt of water from a specific source to irrigate a specific piece of property. Those rights are then assigned a priority based on when the right was first used or applied for. In periods of peak demand, they give those whose claim is the oldest the right to get their water first.

Question 10

Timeshare (aka vacation ownership)

Answer 10

ownership interest that permits multiple purchasers to buy interests in the same piece of real estate. Usu for resort condo units, in which multiple parties hold rights to use the property, and each owner of the same accommodation is allotted their period of time.

Question 11

Cooperate (or co-op)

Answer 11

a multi-family piece of real estate in which a business holds the title to the property. Residents gain equity in the building by buying shares in that business. They own a share of the property, but not the deed to the property itself.

Question 12

Lienee vs. Lienor

Answer 12

Lienee = grantor or owner of the property who grants the lien.
Lienor = lien holder, person who receives and benefits from the lien.

Question 13

Police power

Answer 13

power to regulate for the advancement and protection of the health, morals, safety, or general welfare of the community as a whole.

Includes building codes, zoning, and rent control. Does NOT include Declaration of Restrictions, which is a statement made by a developer of a new subdivision which sets out the restrictions of general application throughout the new development.

Question 14

Deed restrictions

Answer 14

usu set by the developer on a subdivision development. Goal of these restrictions, in theory, is to provide the greatest good for the greatest # of people in the community, and restrictions often exist to help the developer meet their responsibilities (includes making sure the streets, curbs, sidewalks, utilities, and gutters are completed and functional).

Question 15

Deed

Answer 15

evidence of the transfer of real property from a grantor to grantee. Requires grantors to be legally competent, must be delivered and accepted, and contain a granting or action clause. Does NOT need to be acknowledged to be valid.

Question 16

Quiet title action

Answer 16

lawsuit brought in a court having jurisdiction over land disputes, in order to establish a party’s title to real property against anyone and everyone, and thus “quiet” any challenges or claims to the title.

Question 17

Homestead exemptions

Answer 17

protect some of the equity a homeowner has in a property and provide some property tax relief. Property taxes, a deed of trust, and mechanics’ liens are all “secured liens” or specific liens that must be paid before any remaining equity reverts to the homeowner.

Question 18

Stipulation

Answer 18

agreement as to the facts of the case and the penalty reached btwn the attorneys for the DRE and licensee or licensee’s attorney.

Question 19

Appurtenance

Answer 19

include easements, stock in a mutual water company, covenants, and minerals. Considered real property, so they “run with the land” and require no separate conveyance.

Question 20

Mello-Roos Tax

Answer 20

CA special tax district that sells bonds and levies taxes to fund new or additional community facilities and services within specific boundaries. Each special tax district is called a Community Facility District (CFD). Must be disclosed by the seller.

Limits the property taxes to 1% of the assessed value and caps the rate of increase of the assessment to 2% per year.

Question 21

Easton vs. Strassburger (1984)

Answer 21

court case in CA that gave rise to the law requiring the seller and agent to make full disclosure of the condition of the property. Held that the broker has a duty to conduct a reasonably competent and diligent inspection of residential property and to disclose to prospective purchasers all facts revealed by the investigation that materially affect the value or desirability of the property.

Question 22

Jones vs. Mayer (1968)

Answer 22

US Supreme Court case which held that Congress could regulate the sale of private property to prevent racial discrimination. Civil Rights Act of 1866 provided the basis for this decision.

Question 23

Prima facie

Answer 23

at first sight; on the face of it; presumed true unless disproved.

Question 24

Subdivision

Answer 24

act of dividing land into pieces that are easier to sell or otherwise develop, usu via a plat, which is a diagram used to show how your purchased property is divided within your county, city, or neighborhood.

Question 25

Federal Fair Housing Act (aka Title VIII of the Civil Rights Act of 1968)

Answer 25

prohibits discrimination in the sales and leasing and lending of residential properties.

Question 26

Escalator/escalation clause

Answer 26

clause that guarantees a change in the agreement price once a particular factor beyond control of either party affecting the value has been determined.
Ex: a contract that adjusts for inflation.

Question 27

Truth-In-Lending Act (TILA) of 1968 (aka Regulation Z)

Answer 27

U.S. federal law designed to promote the informed use of consumer credit by requiring disclosures about its terms and costs; standardizes the manner in which costs associated with borrowing are calculated and disclosed, including loan fees, loan finder’s fees, and service charges.

Does not cover costs associated with borrower’s personal attorney fees. Does not include commercial or agricultural loans, nor initial home purchase loans. Covers 1-4 units of residential property. Does cover federally-related loans (FHA, VA, etc.)

Regulation Z is part of TILA that promulgates rules that protect consumers against misleading practices by the lending industry.

Question 28

TILA-RESPA Integrated Disclosure (TRID, aka Know Before You Owe)

Answer 28

used in real estate to inform people who apply for a mortgage and describe loan lender rules. It’s a consolidation of TILA (Truth in Lending) and RESPA (Real Estate Settlement Procedures Act) disclosures.
* Simplifies info by combining the 4 forms into 2 documents: the loan estimate, which informs the borrower of key info (interest rate, monthly payment, and closing costs) before they make the decision to enter into the loan, and the closing disclosure, which includes many fees, real estate commission, and partial payment info.

Question 29

Short-rate

Answer 29

when a casualty insurance policy is cancelled prior to expiration, the insurance company will refund but deduct from it based on additional fees for breach of contract. Thus, it differs from pro rata cancellation, where insurance companies normally refund ~50% of their original investment to the buyer.

Question 30

Devise

Answer 30

testamentary disposition of land or realty; gift of real property by the last will and testament of the donor. Can be used as a noun or verb, all basically meaning to dispose of real or personal property via will.

Question 31

Estoppel statement

Answer 31

used to inform a potential buyer of commercial or residential rental property of the rights and privileges of existing tenants.
Estoppel certificate requests info abt rental amt, lease terms, protected tenancy status, oral agreements with the landlord, etc. (basically describes the nature of the relationship btwn the landlord and tenant).

Note: this is diff from estoppel theory, which states that one is prevented from asserting a claim that contradicts with their previous statement or actions, or what has been legally established as true.

Question 32

CA financial code

Answer 32

contains escrow law

Question 33

Blanket mortgage

Answer 33

a loan that covers 2 or more pieces of real estate. The properties are held as collateral on the loan, but it differs from other mortgages in that it allows one of the properties to be sold before the entire mortgage loan is paid off.
* Especially useful for property developers. Often used to cover the costs of purchasing and developing land to be subdivided into individual lots.
* This is one loan that covers multiple developments, and as each portion of the mortgage is paid off, a release clause is triggered, allowing one of the homes to be released from the lien so it can be sold.
* Sometimes the loan may need to be refinanced as separate properties are sold.

Question 34

Buydown

Answer 34

a mortgage financing technique for a borrower/buyer to obtain a lower interest rate for at least the first few years of the mortgage or possibly its entire life. They usu do this by paying discount points at closing.

Like a mortgage subsidy, the seller contributes funds to an escrow acct that subsidizes the loan during the first years, resulting in lower monthly payment on the mortgage and making it easier for the buyer to qualify for the mortgage.

Question 35

Impound

Answer 35

acct maintained by mortgage companies to collect amts, such as hazard insurance, property taxes, private mortgage insurance, and other required payments from the mortgage holders.
* Impound accts often required of borrowers who put down less than 20%. Purpose of impound acct is to protect the lender.

Question 36

Deed vs. Title

Answer 36

Deed = evidence of the transfer (a document). Indicates that the property is free of encumbrances, liens, easements, and clouds. Contains names of seller and buyer, along with complete legal description of property. Signed by seller, usu in front of notary public (acknowledgement). Must be written according to Statute of Frauds. Can transfer a portion of your title or the entire interest.
Title = ownership (concept) that includes the bundle of rights: right of possession, right of control, right of exclusion, right of enjoyment, and right of disposition. May have partial interest in the property or full ownership. Can transfer your interest or a portion of it to others, but can never legally transfer more than you own.

Question 37

Subrogation vs. subordination

Answer 37

Subrogation = the right to pursue someone else’s claim. In the context of paying someone else’s debt or responsibility but then later pursuing that person for reimbursement.
Subordination (loan context) = legal arrangement which establishes one debt as ranking behind another debt in the priority for collecting repaying from a debtor.
*Debts that have a higher priority have a legal right to be repaid in full before lower priority debts receive any repayments. Often, the debtor does not have enough funds to pay all debts, and lower priority debts may receive little or no repayment.

Question 38

Metes vs. Bounds

Answer 38

Metes = boundary defined by the measurement of each straight run btwn the beginning and end points, plus an orientation or direction. The direction can be a simple compass bearing, or it can be precise as determined by accurate survey methods.
Bounds = more general boundary description, such as along a certain watercourse, a stone wall, an adjoining public road way, or an existing building.

Question 39

Government survey system

Answer 39

way of establishing/describing a location, uses two reference lines: principal meridian (north-to-south line) and baseline (east-to-west line), which intersect at the fixed point of beginning. Other lines are drawn on both sides of these two lines every six miles.
* Lines running east and west are called tiers. Lines running north and south are called range lines.
* Townships are the 6 mi x 6 mi squares (area 36 square miles) created by the tiers and range lines. Further broken down into 36 sections, which are about 1 mi x 1 mi each.

Question 40

Loan-to-value ratio (LTV)

Answer 40

amt of a loan expressed as a % of the value of the real estate offered as collateral. Most important lending consideration. Usu based on listing price or appraised value, whichever is lower.

Question 41

Reduction certificate

Answer 41

document signed by a lender stating the outstanding amt on a mortgage loan.

Question 42

Boot

Answer 42

in context of tax consequences of a Section 1031 tax-deferred exchange, cash that is remaining that was not used to buy the like-kind property will be the boot. Receipt of boot does not disqualify an exchange, but it may result in a taxable gain. Note: this term is not used in the Internal Revenue Code or the Regulations.

Question 43

Simple interest

Answer 43

type of interest usu charged when financing/getting a mortgage for home; determined by multiplying the daily interest rate by the principal by the # of days that elapse btwn payments.

Question 44

Alienation

Answer 44

voluntary act of an owner of some property disposing of the property, or “alienating the property from oneself,” by sale, gift, or some other method of transferring ownership.

Question 45

Residential Listing Agreement Seller Reserved

Answer 45

type of exclusive agency agreement that gives the signed broker exclusive rights to market a property, while allowing the seller to find their own buyer w/o paying a commission fee.

Question 46

Footing

Answer 46

a spreading at the foundation base.

Question 47

Joist

Answer 47

one of a series of horizontal parallel beams directly supporting a floor or roof. Can be made out of wood, steel, or steel-reinforced concrete. Joists are supported by other beams or bearing walls.

Question 48

Stud

Answer 48

vertical repetitive framing member in a building’s wall; may carry vertical structural loads or be non-load-bearing, such as in partition walls, which only separate spaces.

Question 49

Valuable consideration

Answer 49

necessary component of all contracts; benefit one party receives in exchange for granting benefit to the other; generally money in any amt both parties agree to, thought it can take other forms, such as personal property, work, or refraining from an act.

Question 50

Rescission

Answer 50

established by Truth in Lending Act (TILA), it is a right under federal law for a consumer to cancel certain types of loans (cancellation must occur within 3 days of closing). Differs from breaching a contract in that the consumer does not perform on a contract that was in place.

Question 51

Release clause (for a mortgage)

Answer 51

allows the release of some properties upon partial payment, when more than one property is used as security for the debt. Often found in a blanket mortgage.

Question 52

Mortgage fraud

Answer 52

crime in which the intent is to materially misrepresent or omit info on a mortgage loan application in order to obtain a loan, or to obtain a larger loan than could have been obtained had the lender or borrower known the truth.
* While a federal crime, the penalties are generally handled at the state level and are less severe than “40 years in federal prison.”
* It is investigated by the FBI, and can be described as use of inflated appraisal in collusion with a lender.

Question 53

Land contract

Answer 53

aka installment contract; contract in which the buyer occupies the property but the title is held in the name of the seller until some future point in time, often when the last payment is made. The seller under a land contract is called the vendor.

Question 54

Acceleration clause

Answer 54

in a loan/note, it can call the entire unpaid balance to be due immediately upon default of the loan. Adding this clause does not generally limit the negotiability of the note.

Question 55

Federal Trade Commission (FTC)

Answer 55

nation’s consumer protection agency that enforces the Equal Credit Opportunity Act (ECOA).

Question 56

Equal Credit Opportunity Act (ECOA)

Answer 56

prohibits discrimination on the basis of race, color, religion, national origin, sex, marital status, age, or because you get public assistance.

Note: if loan is rejected, explanation of reason for rejection must be given by the lender.

Question 57

Trustee’s sale

Answer 57

in a foreclosure, this sale is organized and prepared by the trustee (on behalf of the beneficiary); trustee must wait 3 months before publishing; trustor has right of reinstatement until 5 days before the sale goes through. It is more expedient than a sheriff’s sale , lien sale, or court sale.

Question 58

Company dollar

Answer 58

income of an office after commissions are all paid to the salespeople.

Question 59

National Do Not Call Registry

Answer 59

database maintained by the U.S. fed gov, listing the phone #s of individuals and families who have request that telemarketers not contact them.
Consumers who have made an inquiry or have submitted an application to a company may be contacted up to 3 months later. Those who have had an established business relationship with a company can be contacted up to 18 months later.

Question 60

RE commissioner’s subdivision final report

Answer 60

receipts of this report must be retained for a period of 3 years; does not guarantee that the developer is not overpricing.

Question 61

Amortization schedule

Answer 61

a complete table of periodic loan payments, showing the amt of principal and amt of interest that comprise each payment until the loan is paid off at the end of its term.

Question 62

Material facts

Answer 62

those dealing with a property’s physical structure or ability of parties to perform as promised; must always be disclosed when the agent knows or should have known abt them.

Question 63

Desist and refrain order

Answer 63

similar to a restraining order in that it immediately halts the action(s) in question, but it may be issued directly by the commissioner whereas a restraining order usu goes thru the courts.
* Ex: can use a desist and refrain order if the real estate commissioner believes a subdivision developer is making fraudulent statements.

Question 64

Title theory

Answer 64

property-law doctrine that says a mortgage transfers title to a property to the mortgagee (aka beneficiary/lender), who holds it until the mortgage has been paid off. Title then passes to the mortgagor (aka borrower). Though legal title is in the name of the mortgagee, it is held by a 3rd party called a trustee via deed of trust; trustee has power to initiate foreclosure in the event of a default by the mortgagor.
* Thus, the states in which the lender holds title to mortgaged real estate are called title-theory states.

Question 65

Rumford Fair Housing Act (1963) vs. Unruh Civil Rights Act (1959)

Answer 65

Rumford Act = CA legislature to help end racial discrimination by property owners and landlords who refused to rent/sell their property to people based on race.

Unruh Act = CA law that prohibits any business from engaging in unlawful discrimination against all persons.

Question 66

FHA loans

Answer 66

made by lenders who are approved to be insured by FHA. They insure lenders against loss of principal and interest payments for qualified loans. Loan limits are based on a formula that considers factors, like property location, credit, and income qualifications. Borrowers must pay mortgage insurance premiums, which protect the lender if a borrower defaults.
* Note: not private mortgage insurance since the mortgage insurance premiums are paid directly to FHA.

Question 67

Mortgage

Answer 67

most common example of a specific and voluntary lien. Created by contractual agreement and it is specific to the property being financed. Thus, NOT a general lien.

Question 68

Capitalization rate

Answer 68

net income of a property divided by the value. Shows a direct relationship btwn value and income. The higher it is, the more of a risk the investment would be.

Question 69

Security interest

Answer 69

the creditor’s interest in the debtor’s property.

Question 70

Tenancy by the entirety

Answer 70

a form of shared property ownership that is reserved only for married couples. Permits spouses to jointly own property as a single legal entity. Means that each spouse has an equal and undivided interest in the property. Creates a right of survivorship, so if one spouse dies, the surviving spouse automatically receives full title to the property.

Question 71

Graduated Payment Adjustable Mortgage (GPAM)

Answer 71

allows for deferment of certain principal payments during the early period of the loan.

Question 72

Discounting

Answer 72

by the lender, selling a note for an amt that is less than what is owed.

Question 73

Cal-Vet loan

Answer 73

type of land contract in which only equitable title (right to use and possess) is transferred to the buyer while the Dept of VA retains legal title to the property in question. Buyer makes loan payments until it is fully paid off. Since no lender is involved, it has the lowest closing costs.

Question 74

Planning commission

Answer 74

responsible for zoning of all real properties in the locality.

Question 75

R-3

Answer 75

zoning code for land used for multifamily residential developments (such as apt buildings).

Question 76

CLTA vs. ALTA

Answer 76

CLTA (CA Land Title Association, standard policy of title insurance) = protects against forgery and improper delivery, but does not include a survey or on-site inspection. Does not cover unrecorded liens and encumbrances nor a defect in chain of title.
ALTA (American Land Title Association) = more comprehensive coverage; offers additional protections, like unrecorded mechanic’s liens and unrecorded easements.

Question 77

Advance-fee rental agent

Answer 77

collects a fee in advance from prospective tenants to find them suitable rental properties. Must have a Prepaid Rental Listing Service license (PRLS). If the rental agent is a licensed broker, they are exempt from this PRLS requirement. PRLS contracts must be in writing and approved by the Real Estate Commissioner.

Question 78

Hypothecation

Answer 78

pledging of an asset as collateral for a loan, without transferring the property’s title to the lender. In a mortgage, property purchased is used to secure the loan, but the lender holds the title.

Question 79

HUD-1 Settlement Statement

Answer 79

standardized mortgage lending form in use in the U.S. on which creditors or their closing agents itemize all charges imposed on buyers and sellers in consumer credit mortgage transactions.
Usu involved in reverse mortgage and mortgage refinance transactions. Must be reviewed by borrower before closing to prevent errors/surprises.

Question 80

Writ of attachment vs. writ of execution

Answer 80

Writ of attachment = court order demanding the attachment or seizure of a debtor’s property prior to a judgment in the creditor’s favor. May be used in bankruptcy cases and in eviction cases. If creditor prevails, seized property may be sold at auction to satisfy unpaid debts.

Writ of execution = court order that puts in force a judgment of possession and directs law enforcement personnel to begin the transfer of assets, money, or property as the result of a legal judgment. Actually begins the transfer process from a judgment debtor to a plaintiff. Also may be used in bankruptcy cases and in eviction.

Question 81

General liens vs. Specific liens

Answer 81

General liens (involuntary only) = claims are for $ damages and may be collected against any property of the debtor, real or personal, which is not legally protected from an execution sale.
Ex: judgments, income tax liens (state or federal), attachment liens.

Specific liens =
Voluntary - liens voluntarily placed on a property by its owner. Normally given for purpose of borrowing money. If collateral fails to satisfy the debt, other assets may be looked to for satisfaction. Ex: trust deeds, mortgages.
Involuntary - liens created involuntarily. Only the particular property can be used to satisfy debt. Other assets cannot be looked to for satisfaction. Ex: mechanic’s liens, property taxes.

Question 82

Negotiable instrument

Answer 82

Signed document that promises a sum of payment to a specified person or the assignee.
Ex: promissory note, personal check, installment notes.
Trust deed or mortgage are NOT negotiable instruments.