Contracts

Question 1

Generally, the law of contracts comes from

(a) Statutes passed by Congress
(b) Laws passed by state legislatures
(c) Common law based on court decisions
(d) None of the above

Answer 1

(c) Common law based on court decisions

Question 2

The following are true regarding contracts except

(a) An express contract is one that has been put into words, whether written or verbal
(b) An implied contract is one that has not been verbalized or written but has been implied by the actions of the parties.
(c) A valid contract which has been performed by all principals is said to be an executory contract
(d) A contract is also void if it involves an illegal act

Answer 2

(c) A valid contract which has been performed by all principals is said to be an executory contract

Question 3

The following are true regarding a minor’s legal capacity except

(a) A minor may acquire title to real property
(b) A minor may dispose of real property
(c) An exception to the age requirement for legal capacity applies to an emancipated minor
(d) A loan contract by a minor to hypothecate real property is void

Answer 3

(b) A minor may dispose of real property

Question 4

An emancipated minor is one of the following:

(a) Married
(b) Currently on active duty in the U.S. armed forces
(c) Has a court declaration of emancipation
(d) All the above

Answer 4

(d) All the above

An emancipated minor is one of the following:

• Is or has been married
• Is currently on active duty in the armed forces of the United States. One who has been discharged from military service if under legal age is no longer emancipated.
• Has received a court declaration of emancipation

Emancipated minors must also demonstrate that they are:
• living separately and apart from parents or guardian with their consent, and
• managing their own financial affairs with income from lawful sources.

Question 5

Consideration must be any of the following except

(a) Cash
(b) Equity in an asset
(c) Sufficient to bind the parties
(d) Tangible

Answer 5

(d) Tangible

The agreement must include consideration, something of value, usually cash or equity in an asset, such as in an exchange of real property. Contract law requires the consideration to be sufficient to bind the parties. The consideration need not necessarily be tangible, with the promise itself the consideration.

Question 6

Sales of one-to-four unit properties require

(a) The seller to disclose all known defects
(b) Agents to perform a diligent visual inspection and disclose any defect not offered by the seller
(c) Both a and b
(d) Neither a nor b

Answer 6

(c) Both a and b

Question 7

Regarding liens against parties to an escrow

(a) It is a common practice to allow judgment liens to be paid through escrow.
(b) It is not common for IRS and state tax liens to be paid through escrow.
(c) Property tax liens may not be paid through escrow.
(d) The escrow officer will not record a satisfaction of judgment for such liens paid through escrow.

Answer 7

(a) It is a common practice to allow judgment liens to be paid through escrow.

Question 8

The following are true regarding structural pest control inspections and reports except

(a) Recommendations to eliminate or mitigate the problems
(b) Estimates or bids for all work to be performed
(c) Which chemicals and procedure will be used
(d) Are limited to one-to-four unit properties

Answer 8

(d) Are limited to one-to-four unit properties

Question 9

Section I of the structural pest control inspection report includes all the following except

(a) Evidence of any wood-destroying pests
(b) Fungus
(c) Termites and wood boring beetles, etc., and the resulting structural damage that is visible
(d) Conditions that are not presently affected but which could lead to future infestations

Answer 9

(d) Conditions that are not presently affected but which could lead to future infestations

Question 10

Most insurance policies will include exclusions to coverage, such as

(a) Earthquakes
(b) Flood
(c) Mudslide
(d) All the above

Answer 10

(d) All the above

Question 11

Common interest developments (CID)

(a) Consist only of condominiums
(b) Are governed by the Davis-Stirling Act
(c) Are a type of property construction
(d) All of the above

Answer 11

(b) Are governed by the Davis-Stirling Act

Question 12

The Home Owners’ Association (HOA) documents requested by the escrow holder

(a) Include bylaws and restrictions along with a copy of the current financial statement and annual budget
(b) Must be delivered by the HOA to the seller within 10 business days of the request date
(c) Both a and b
(d) Neither a nor b

Answer 12

(c) Both a and b

Question 13

Nonconforming properties may include all the following except

(a) Add on improvements to the home performed without appropriate permits
(b) Garage conversions performed without permits
(c) Apartment conversions performed without permits
(d) Apartment conversions in compliance with the Uniform Housing Code

Answer 13

(d) Apartment conversions in compliance with the Uniform Housing Code

Question 14

California Civil Code Section 1103 which may require the completion and delivery to a buyer of the Natural Hazard Disclosure Statement (NHD) revealing the existence of any natural hazard is required for

(a) An apartment building having 5 or more units
(b) A non-residential purchase transaction
(c) A one-to-four-unit property purchase transaction
(d) A lease for a single family home

Answer 14

(c) A one-to-four-unit property purchase transaction

Question 15

Hazard insurance for a home located in a Wildland Forest Fire Risk Area may be available through FAIR, which stands for

(a) The Fire Abatement Insurance Region program
(b) The Fair Access to Insurance Requirements program
(c) The Fire Access to Insurance Requirements program
(d) The Fair Abatement Insurance Region program

Answer 15

(b) The Fair Access to Insurance Requirements program

Question 16

The Department of Housing and Urban Development (HUD)

(a) Traces its roots to the National Housing Act of 1937
(b) Was established in 1965 as a cabinet-level department of the U.S. government
(c) Does not make loans directly
(d) Was replaced by FHA in administering the FHA loan program

Answer 16

(b) Was established in 1965 as a cabinet-level department of the U.S. government

Question 17

Interest rates on non-personal real estate loans made by nonexempt lenders

(a) May not exceed the Federal Reserve “discount rate” plus 5%
(b) May not exceed the Federal Reserve’s “Fed-funds” rate plus 5%
(c) May not exceed 5.25%
(d) May not exceed .25%

Answer 17

(a) May not exceed the Federal Reserve “discount rate” plus 5%

Question 18

The law defines broker-controlled funds as those monies owned by any of the following except

(a) The broker
(b) A spouse, child, parent, grandparent, brother, sister
(c) A father-in-law, mother-in-law, brother-in-law, or sister-in-law of the broker
(d) Any entity in which the broker independent of family has an ownership interest of greater than 50%

Answer 18

(d) Any entity in which the broker independent of family has an ownership interest of greater than 50%

wrong; correct = any entity in which the broker alone or together with any of the above relatives of the broker has an ownership interest of greater than 25%.

Question 19

The federal Truth in Lending Act (TILA), is covered under

(a) Regulation A
(b) Regulation Q
(c) Regulation Z
(d) None of the above

Answer 19

(c) Regulation Z

Question 20

Truth in Lending rules were amended under The Dodd-Frank

(a) Mortgage Lenders Licensing act
(b) Wall Street Reform and Consumer Protection Act
(c) Wall Street Revision Act
(d) Wall Street Reform and Reconstruction Act

Answer 20

(b) Wall Street Reform and Consumer Protection Act

Question 21

The Real Estate Settlement Procedures Act (RESPA) is applicable to

(a) Federally related mortgage loans on all residential properties
(b) Federally related mortgage loans on all one-to-four unit residences
(c) Federally related mortgage loans on only single family homes
(d) All loans

Answer 21

(b) Federally related mortgage loans on all one-to-four unit residences

Question 22

The lender must retain each completed HUD-1 or HUD-1A Settlement Statement and related documents

(a) For five years after settlement unless the lender disposes of its interest in the mortgage (sells it) and does not service the mortgage
(b) For five years after settlement whether it retains the mortgage or not
(c) For the life of the loan
(d) None of the above

Answer 22

(a) For five years after settlement unless the lender disposes of its interest in the mortgage (sells it) and does not service the mortgage

Question 23

An express contract is one that has been put into words,

(a) whether written or verbal.
(b) in writing only.
(c) verbally only.
(d) none of these.

Answer 23

(a) whether written or verbal.

Question 24

A bilateral contract occurs when a promise to perform is made by one party,

(a) but an equal promise to perform is not required of the party.
(b) but typically few contracts are bilateral.
(c) and a second party makes an equal promise to perform.
(d) and it carries the same effect as a unilateral contract.

Answer 24

(c) and a second party makes an equal promise to perform.

Question 25

A contract that is considered valid but not enforceable if it is rejected by one of the parties is said to be

(a) voidable.
(b) void.
(c) validated.
(d) unvoidable.

Answer 25

(a) voidable.

Question 26

To be valid, effective, and enforceable, a contract must include

(a) mutual consent, capacity to contract, consideration, and a lawful object.
(b) mutual consent, capacity to contract, and consideration.
(c) capacity to contract, consideration, and a lawful object.
(d) mutual consent, consideration, and a lawful object.

Answer 26

(a) mutual consent, capacity to contract, consideration, and a lawful object.

Question 27

Under the statute of frauds, which of the following contracts must be in writing?

(a) A real estate listing agreement
(b) A real estate purchase agreement
(c) An agreement between brokers to share a commission
(d) Both (a) and (b)

Answer 27

(d) Both (a) and (b)

Question 28

The structural pest control report

(a) consists of four parts.
(b) requires an inspection to only determine live infestation.
(c) includes a Section I and a Section II.
(d) is regulated by the U.S. Department of Agriculture.

Answer 28

(c) includes a Section I and a Section II.

Question 29

The Natural Hazard Disclosure Statement is NOT required for properties

(a) located in a special flood hazard zone.
(b) located in a seismic hazard zone.
(c) having five units or more.
(d) both (a) and (b).

Answer 29

(c) having five units or more.

Question 30

A master insurance policy would be obtained for

(a) a new single-family home.
(b) a condominium.
(c) protection against forgery or fraud.
(d) protection against off-record matters.

Answer 30

(b) a condominium.

Question 31

Under Regulation Z, a creditor is defined as

(a) one who extends credit more than five times a year secured by a dwelling.
(b) one who extends credit one to four times a year secured by a dwelling.
(c) anyone who extends credit.
(d) anyone who obtains credit.

Answer 31

(a) one who extends credit more than five times a year secured by a dwelling.

Question 32

The primary regulator for lending on residential housing in the United States is the

(a) Department of Urban Development.
(b) Department of Housing.
(c) Department of Housing and Urban Development.
(d) Department of Housing and Lending.

Answer 32

(c) Department of Housing and Urban Development.