Missed Test Questions Flashcards
Novation vs assignment
Novation is an assignment of all rights and liabilities. Requires consent.
Assignment is just some. Requires notification.
income capitalization approach (valuation)
appraiser calculates
the ratio of net operating income (NOI) to the sale prices of similar properties to derive a capitalization rate. Then
the appraiser applies that capitalization rate to the calculated NOI of the subject property to develop a likely sales
price.
Writ of Execution
court forces property to be sold to pay off the amount owed from a
Judgment.
Les Pendens
notice to the public of a legal action, attachments are motion granted as security in
case the plaintiff does win the judgment.
Which kind of title insurance would provide the most protection for the buyer of the property?
(a) Plain Language policy
(b) Extended Owner’s policy
(c) Standard policy
(d) ALTA Lender’s policy
There are many types of insurance policies, some you may know of as their
brand names. But of the choices given here, “extended” tells you it has the most coverage for the owner –
similar to the coverage in the lender’s policy.
Truth in Lending or Reg. Z includes all the following requirements EXCEPT:
(a) Your Home Loan Toolkit
(b) Disclosure of costs
(c) Advertising restrictions
(d) Use of APR
Your Home Loan Toolkit” is a booklet required to be given to prospective borrowers under the Real
Estate Settlement Procedures Act (RESPA), not Truth in Lending.
The phrase “the primary evidence of a loan” best describes:
(a) The defeasance clause
(b) The trust deed
(c) The mortgage document
(d) The promissory note
The promissory note is the evidence that a loan exists. The trust deed or mortgage
is the security or collateral for that loan.
What role does the federal government play in regards to FHA loans?
(a) Pre-qualifies borrowers based on need
(b) Provides tax incentives for borrowers to make higher down payments
(c) Guarantees the first 25% of the loan value
(d) Operates an insurance program
FHA operates a government-backed insurance program and for-profit,
privately lenders process and close FHA insured loans.
Z went to a trust deed foreclosure sale on an investment property that looked like a good deal. There were
other investors, but Z won the bid. Which of the following would Z expect to receive.
(a) Trust Deed
(b) Deed of Trust
(c) Sheriff’s Deed
(d) Trustee’s Deed
C
Deed of Trust and Trust Deed are the same thing: the collateral document the
borrower signed. A sheriff’s deed applies to foreclosure under a mortgage.
- J made a $100 earnest money deposit on a 4-plex and wisely used a real estate agent to assist him with the
paperwork. The agent charged him a 2% commission. The real estate agent wisely put the deposit in the
brokerage’s trust account. The home later sold for $50,500. How much will the escrow company pay the agent’s
brokerage?
The brokerage will be sent a check for the commission amount ($1,010) less the earnest money
deposit ($100) held in the brokerage’s trust account. When the check is received, it is time for the brokerage to
withdraw the earnest money from the trust account and claim it as commission.
Using the sales comparison method, if a subject property had an extra full bathroom ($6,000) that the
comparable property did not, but was on a less desirable lot ($5,000), the proper adjustment would be:
A characteristic such as having an extra bathroom in the subject property is the same as saying the
comparable is inferior so you would add $6,000 to the price of the comparable. Since the subject’s lot is not as
good as the comparable’s lot, that means the comparable is better so you subtract $5,000 from the comparable’s
price. The net effect is to add $1,000 to the comparable.
Automated underwriting systems offer the following benefits EXCEPT:
(a) Speed and low operating cost
(b) Objective-free of discrimination
(c) Reduced closing cost to borrower
(d) Immediate feedback for correcting deficiencies
C
The benefit of using an automated underwriting program is the speed in
which an answer is delivered on the acceptability of a loan, and the GSE’s willingness to purchase it once closed.
To run the file through automated underwriting, the 1003 loan application must be complete, credit must be pulled
and be available. Automated underwriting systems (AUS) objectively examines the credit report and the 1003 to
make a decision in seconds, based on published and acceptable guidelines.
Ad Valorem taxes
Taxes that are calculated as a percentage of the appraised value of
a property are called ad valorem taxes, meaning according to value.
When someone makes a statement to a qualified official that they freely and voluntarily executed a deed or
document:
(a) Acknowledge
(b) Recording
(c) Certification
(d) Habendum
A
Recording is to record a document with the county recorder. Habendum is a
clause in a deed. With a notary public you acknowledge that you are signing of your free will and provide proof of
who you are. A witnessed document also falls under the category of acknowledged.
All of the following are true about residential appraisals EXCEPT:
(a) Since a borrower’s available cash for closing is generally limited and the lending guidelines are rigid, the loan
originator should carefully review the appraisal for any errors.
(b) A lender will generally limit the loan to a maximum percentage of the appraised value of the property.
(c) The appraiser’s final estimated market value readily allows for an increase in settlement costs up to 10%
before the closing.
(d) A successful closing can be highly dependent on the appraiser’s opinion of value.
C
The loan application process and decision to lend money is heavily dependent on the appraisal
report. The majority of buyers face difficulty coming up with enough of their own cash at closing to complete the
deal so they need every penny of the requested loan amount. A lender has strict guidelines on how much to lend
and it’s generally based on a maximum percentage of the market value of the property. Often, there is no margin
for error; the full potential market value assumed in the loan application may be necessary to have a successful
closing
Bob the buyer has made an offer on Sam the seller’s property. That offer has been accepted. Bob is working
on finalizing his loan for the purchase as part of the contingencies of the agreement. What kind of agreement
exists between Bob and Sam?
the contract is passed acceptance but not yet performed it is considered an Executory
agreement. Though we may refer to these as ‘sale pending’ the proper terminology is executory.
The difference between present value and reproduction cost is:
Depreciation
If the appraiser uses the cost approach to determine the value of the improvement if it was built now,
that amount needs to be depreciated to the age of the subject property
K was hired to manage a large apartment building. He would be functioning as which type of agent?
(a) Universal
(b) General
(c) Attorney in Fact
(d) Specific
b
There are three types of agents: specific - hired to perform defined actions; general - hired to use
his/her expertise to meet the objectives of the client; universal - hired to do all things. The process of being an
attorney in fact could apply to any of the three.
When a remainder estate is involved, what owner interest is involved?
(a) Joint tenancy
(b) Life Estate
(c) Community property
(d) Ownership in severalty
b
Severalty means one owner. Joint tenancy and community property are co-owners held as a fee
estate. A life estate right ends with the person’s life, and then it passes to the remainderman.
A new apartment building was constructed with an elevator. Under the Fair Housing Amendment Act of 1988,
what would the owner have to do.
(a) Adapt all kitchens with sink, stove, etc. low enough for wheelchair use
(b) Make sure thermostats in all rooms are reachable from a wheelchair.
(c) Not have a “No Pets” rule in case a blind person rented one unit.
(d) Make all hallways and doorways extra wide.
The thermostat issue has to do with two things: 1) there is an elevator so all units are accessible;
therefore, 2) thermostats and electrical outlets have to be placed for ease of access by someone in a wheelchair.
An All-Inclusive Trust Deed is most closely related to all of the following EXCEPT:
(a) Blanket mortgage
(b) A Uniform Real Estate Contract
(c) Subject-To loan
(d) A wraparound mortgage
A
Although the terms all inclusive and blanket sound similar, a blanket mortgage is used to purchase
two or more parcels of land. The remaining options refer to the seller creating a new loan with a buyer while
keeping the seller’s original financing in place on a single property.
Which of the following requirements must be met for a REIT (real estate investment trust) to be legal?
(d) 100 members: 90% paid as profits
A REIT prevents double taxation. But it must meet the minimum requirements for number of members
and the amount of profits distributed.
Which of the following do not have the ability to enter a contract?
An Insane person
If the court determines that a person is insane they cannot enter a contract. They are protected by
law from harming themselves. A deceased person can enter a contract if represented by the executor or an
administrator.
Broker L lists a home and offers subagency through the MLS. Broker S takes a buyer to the house and then
writes an offer to purchase. Broker L has never met the buyer. Broker S has never met the seller. Broker S does
not have a written contract with the buyer. Which is true?
(a) Both Broker L and Broker S are agents of the seller.
(b) Broker L is the subagent of the buyer.
(c) Broker S is the agent for the buyer and seller.
(d) Broker L is the agent of the buyer.
A
It helps a lot with these types of questions to diagram the players on paper. Utah says a licensee
must represent one or both of the parties in a real estate transaction. Since it says S does not have a contract
with the buyer, and it does say the listing was published across the MLS, both brokers represent the seller - L as
agent, S as subagent. NOTE: It doesn’t matter for the test that no one does it this way anymore. It is a legal
concept and still can be done this way.
If the net operating income of a subject property is $1 million per year and the capitalization rate for similar
income properties in that particular market is 10%, what is its estimated value using the income capitalization
approach.
The income capitalization approach uses the formula; Income/Capitalization=Value. So, $1
million/10%=$10 million
D purchased a lot and subsequently built a house, planted a tree and built a garage/workshop separate from
the house. Which term describes this process?
Severance is the opposite of accession, like cutting the tree down. Hypothecation is using
something as collateral without giving up possession, an an encroachment is someone else invading your
territory.
A lessee agreed to pay property tax and hazard insurance as well as rent. This lease is:
Net Lease
With a gross lease the owner would pay the taxes and insurance. A tenant with a
percentage lease pays a percentage of the profits along with the base lease. A proprietary lease is the right to
occupy in a co-op granted because of purchasing stock in the corporation which owns the property.
When an apartment building is sold, how should the renters’ security deposits be handled on the HUD 1
statement?
They will be a debit to the seller and a notation in the buyer’s credit section.
They cannot be a credit in the buyer’s financial column or the buyer would be using other people’s
money to purchase the property. They will be “noted” but will not be “computed.”
A buyer wants to assume a loan without taking on any personal liability for the loan. In the purchase offer,
relative to the loan he should state he will:
(a) Hypothecate and accelerate the loan
(b) Subordinate to the seller’s interest
(c) Assume the loan and make the payments
(d) Take title on a “subject to” basis
d
Anyone who has a loan has liability. By taking title to the property on a subject-to
basis, the existing loan stays in the seller’s name. A foreclosure or late payments wouldn’t go against the buyer’s
name, but if the property gets foreclosed, it’s the buyer’s loss – so there’s no way out of that part of the
liability.
The key difference between a promissory note and a mortgage is:
Promissory notes are signed by people personally obligated to repay the loan.
H gives a life estate to her mother’s doctor, which states that the doctor will have the property for as long as
“Mom” is alive. Mom is very healthy, but the doctor is now dead. What happens?
The property goes to the doctor’s heirs
This is a life estate Pur Autre’ Vie (based on the life of another). The doctor (holder of the life
estate) is dead, but what about Mom, upon whose life it is based? If she’s still alive, the life estate is still alive and
will go to the doctor’s heirs.
was three years into a five-year lease and wanted to move elsewhere. T was willing to sublet the property.
Which is true?
(a) T is the only one who could be liable for damage to the property.
(b) S could increase the rent and make a profit.
(c) T pays rent directly to the owner.
(d) S has no further liability for rents or damages.
b
This is a sublet. S still has the primary liability and responsibility for rent payments to the
lessor and for any damages.
K and N owned homes in the same subdivision, bought the same year and the same size lot and type of
floor plan. K found out N’s taxes were $480 less. Where would K appeal to get lower taxes?
The Board of Equalization
The Board of Adjustment is where you would go to get a variance if you wanted
to do something different than allowed by zoning. You want your taxes to be equal to your neighbor’s, so you go
to the Board of Equalization.
Which of the following statements about deeds is FALSE?
(a) A notary is not required
(b) All the grantees must sign the deed
(c) Title is conveyed at the time the deed is delivered and voluntarily accepted
(d) All the grantors must sign the deed
b
All the grantors must sign the deed but grantees generally do not sign the deed. The
grantor’s signature and two witnesses are generally required, however a notary is not required - except in many
states all documents must be notarized in order to be recorded in the public records. The deed conveys title to
the property when it is delivered and voluntarily accepted by the grantee(s).
A property description that uses angles and degrees is referred to as:
Metes and bounds
A street address is an example of an informal description. The other three answers are the correct
names of the three methods for legal descriptions.
