Chapter 5 Conveying and Financing Real Estate

Question 1

What is the purpose of title insurance?

Answer 1

It provides compensation in the event a title defect should be later discovered.

Question 2

Under most recording statutes, a deed:

a. does not need to be recorded to be valid
b. must be recorded by both the grantee and grantor
c. must be recorded by a grantor
d. should be recorded in two different forms

Answer 2

a. does not need to be recorded to be valid

Question 3

Permanent financing does NOT necessarily involve:

a. a loan commitment from a lender
b. creation of an escrow account
c. the participation of a mortgage broker
d. the return of the buyer’s good faith deposit money

Answer 3

c. the participation of a mortgage broker

Question 4

Normally, what is the term of a construction loan?

Answer 4

The term is generally the time expected to complete construction

Question 5

In a real estate default action, who is a receiver?

Answer 5

A court appointed person appointed to take custody of the debtor’s property in the event of borrower default.

Question 6

Why are deeds recorded?

Answer 6

It provides public notice of the identity of those persons owning an interest in real estate at any particular moment in time.

Question 7

What is an escrow account?

Answer 7

An account paid into by the borrower from which real estate taxes and insurance is paid.

Question 8

Which type of financing involves the purchaser paying for real estate with his or her existing cash or other assets, as opposed to borrowing money from the seller or a third party lender?

a. equity
b. debt
c. installment
d. default

Answer 8

a. equity

Question 9

To verify that the leasing information provided by borrowers is accurate, permanent lenders usually require tenants to sign and deliver:

a. rent rolls
b. financial statements
c. estoppel certificates
d. leasing agreements

Answer 9

c. estoppel certificates

Question 10

The legal description of a property based on a sequence of courses and distances is written using the :

a. metes and bounds system
b. Governing Survey System
c. recorded plat system
d. Torrens system

Answer 10

a. metes and bounds system

Question 11

What is equity financing?

Answer 11

The purchaser pays for real estate with his existing cash or other assets instead of borrowing money.

Question 12

A buyers due diligence should occur:

a. as part of pre-closing activities
b. as a yearly follow-up to explore the investment’s progress
c. shortly after purchasing the property
d. only when required by the lender

Answer 12

a. as part of pre-closing activities

Question 13

Which item usually specifies the earnest money deposit amount?

a. a present covenant
b. the doctrine of equitable conversion
c. marketable title
d. the contract of sale

Answer 13

d. the contract of sale

Question 14

What must a signed contract for the sale of land include to satisfy the statute of frauds?

Answer 14

It must be in writing, identify parties to the contract, identify the property being sold, state the purchase price or other considerations, language that shows the intent to sell the property, and it must be signed.

Question 15

The appointment of a receiver generally involves:

a. contract amendments
b. a financial grace period
c. a need for a debt mediator
d. proving that the subject property or its rental income is in danger

Answer 15

d. proving that the subject property or its rental income is in danger

Question 16

Why are construction loans almost always made on a recourse basis?

a. they are riskier for the lender
b. They are more convenient for the borrower
c. They must be paid in full without financing
d. The recourse basis eases agent relationships

Answer 16

a. they are riskier for the lender

Question 17

What is an estoppel certificate?

Answer 17

a written certificate issued by a tenant to a lender in which the tenant verifies the material terms of the lease agreement and states whether the tenant has any claims or rights that offset against the borrower/landlord under the lease.

Question 18

Which of the following is a advantage of a cash purchase?

a. the deal will take longer to close
b. loan commitment fees will be reduced
c. the purchaser may not have the necessary assets available.
d. the broker is required to accept a lower commission rate

Answer 18

c. the purchaser may not have the necessary assets available.

Question 19

Which of the following is TRUE about mortgage loans?

a. all mortgages loan transactions involve the acquisition of real estate
b. companies cannot mortgage previously owned real estate to borrow funds
c. companies can refinance previously owned real estate to pay off a mortgage loan
d. mortgage loans are not secured by a deed of trust

Answer 19

c. companies can refinance previously owned real estate to pay off a mortgage loan

Question 20

What are the most important loan documents?

Answer 20

promissory notes-provide evidence of the debt and terms for repayment

mortgages and deeds of trust-they secure repayment of the debt by creating a lien on the borrower’s real estate

security agreements-involves windows, fixtures, etc.

financing statements-a document that is executed by a borrower and filed in public filing offices in order to perfect and protect the lender’s security interest in personal property

Question 21

What are three common forms of a legal description of property?

Answer 21

Government Survey System-more accurately a means of locating the property than a complete legal description.

Metes and Bounds-the property is described by a sequence of courses and distances that correspond to a properties boundaries

Recorded Plat-a map of a specific land area that conforms to certain governmental requirements as to format and accuracy and locates individual parcels of land, or lots, by reference to larger parcels of land, known as blocks and subdivisions, within in a town

Question 22

What does the term REFINANCE mean?

Answer 22

To enter into a new loan which pays off the existing loan to get a lower interest rate or some other benefit.

Question 23

Which of the following is NOT an important loan document in virtually every commercial real estate loan?

a. promissory note
b. title commitment
c. security agreement
d. financing statement

Answer 23

b. title commitment

Question 24

The title policy is deigned as a(n) _______, which means that the insurance company will reimburse the buyer if the buyer suffers an actual loss and/or will defend the buyer against claims that are insured under the policy.

a. collateral
b. indemnifictaion
c. estoppel
d. equity investment

Answer 24

b. indemnifictaion

Question 25

What are some reasons a buyer may not want to make a cash purchase?

Answer 25

The buyer may not have the cash necessary to make the purchase or may prefer to keep the cash available for other purchases or asa cash reserve.

Question 26

What is the significance of due diligence as part of pre-closing activities?

Answer 26

It is checks that the buyer will complete to make sure the property is a good purchase-check the title, physical condition of the property, zoning, environmental conditions, etc.