National Exam Prep

Question 1

Jerry and Simon signed a contract giving Jerry the option to purchase all of Simon’s restaurant equipment for a set price after Simon closes his restaurant next month. The contract contains a provision that states Jerry has one year from the purchase date to file a suit relative to the purchase. After the year is up, Jerry forfeits the right. What kind of contract clause is this?

Answer 1

Statute of LImitations

Question 2

What is the order in which the elements considered in the sales comparison approach are applied?

Answer 2

financing terms and cash equivalency
conditions of sale
market conditions at the time of contract and closing
location
physical characteristics.

Question 3

What would NOT trigger full disclosure under TILA?

Answer 3

APR %

An ad can show the APR without disclosing all the other credit terms. But if certain other “trigger” terms are included, such as down payment, payment amount, number of payments, or interest rate (other than APR), this would require full disclosure.

Question 4

What is a REO?

Answer 4

Real Estate Owned

Failed foreclosure sales and deed in lieu of foreclosure actions result in lenders taking title to properties they previously had mortgage loans on. These properties are called real estate owned, or REOs.

Question 5

How do you calculate interest rate if you have the monthly payment and the loan amount?

Answer 5

Annual payment ÷ loan balance = interest rate.

$1,830 x 12 to get the annual payment of $21,960. Then divide the annual payment by the loan amount: $21, 960 ÷ $349,000 = .0629, or 6.29%.

Question 6

What is the minimum down payment for an FHA loan?

Answer 6

The minimum down payment for an FHA loan is 3.5%

Question 7

The Clayton Act of 1914

Answer 7

supports the Sherman Antitrust Act of 1890 by prohibiting mergers or acquisitions that would result in an unreasonable reduction in competition or the creation of monopolies.

Question 8

The government’s authority at all levels to ensure the health, safety and welfare of its citizens, which includes the control of public land use is the definition of ______.

Answer 8

Police Power

Question 9

Who signs the title to transfer ownership?

Answer 9

The seller (grantor) must deliver a marketable title. The grantee isn’t required to sign.

Question 10

What is NOT required in a seller-financed transaction?

Answer 10

the Closing Disclosure and Loan Estimate

Question 11

The economic principle of ______ says that when there are two houses in the same neighborhood with the same size, appeal, and utility, the lower-priced one will tend to sell first.

Answer 11

Substitution

Question 12

When a buyer is represented by a licensee, who is responsible for following up on issues identified in the inspection report to ensure that they are addressed?

Answer 12

The licensee representing the buyers

Question 13

A part of your property is used by the local utility company to maintain its power lines. What’s this an example of?

Answer 13

Easement

An easement allows a person the right to use or cross over another’s property for a specific reason.

Question 14

A buyer is purchasing a property for $500,000. He has a down payment of $50,000 and is financing the rest. What’s the amount of the loan origination fee if the lender charges one-and-a-half points?

Answer 14

$6,750

The amount paid for points = loan amount × number of points. The buyer is financing $450,000 ($500,000–$50,000). Multiply the loan amount of $450,000 by 1.5% (or 0.015)

Question 15

The covenant against encumbrances assures the grantee that _________.

Answer 15

No encumbrances exist other than those that are publicly recorded or noted in the deed.

Question 16

The covenant of quiet enjoyment promises that the grantee ________.

Answer 16

won’t have his enjoyment of the property hampered by claims against the title.

Question 17

What is “inverse condemnation”?

Answer 17

Inverse condemnation involves a private property owner suing for just compensation by the government or a public agency that has taken the property for economic development or public improvement through the law of eminent domain.

Question 18

Which covenant requires the grantor to execute any necessary legal documents (within his power) necessary to fix title defects discovered after closing?

Answer 18

The covenant of further assurances requires grantors to take necessary steps (within their scope of power) to perfect the title conveyed.

Question 19

Which fiduciary duty may continue even after the transaction closes?

Answer 19

The duty of accounting

Question 20

A property’s value is dropping because the neighboring property’s yard is filled with trash. What’s this an example of?

Answer 20

Regression

Question 21

This legal description defines half of a quarter-quarter section. A quarter-quarter section is 40 acres; half of a quarter-quarter section is 20 acres. Alternatively, multiply the three fractions’ denominators (2 × 4 × 4) and divide into 640 (640 ÷ 32 = 20).

Question 22

When calculating loan-to-value ratios, values will be used by the lender?

Answer 22

The lesser of the sale price and the appraised value.

Question 23

Kenneth entered into a contract to sell his home to Valerie, who put down a $5,000 earnest money deposit. At the last minute, Valerie backed out of the deal and Kenneth kept the earnest deposit. This is an example of ______.

Answer 23

accepting liquidated damages

Question 24

When agents put their clients’ interests ahead of their own, this describes the duty of ______.

Answer 24

Loyalty

Question 25

What are CC&Rs?

Answer 25

covenants, conditions, and restrictions

Question 26

Definition of Joint Tenancy

Answer 26

The holding of an estate or property jointly by two or more parities, the share of each passing to the other or others in death.

Question 27

In a real estate transaction, which two parties are owed the same duties?

Answer 27

Clients and Customers

Question 28

Tiers in the rectangular government survey system are formed by ______.

Answer 28

East-west lines of a survey, which are parallel to the baseline, are called township lines. Township lines form strips of land known as tiers, and townships fall within these tiers.

Question 29

What is tax abatement?

Answer 29

A tax abatement program will lower the property taxes on a given property for a set amount of time. This is typically in response to some sort of improvement or rehabilitation, or for some new construction properties.

Question 30

Townships in a section are numbered beginning in the ______ ______ corner and continue in a ________ pattern.

Answer 30

Upper right

Zigzag

Question 31

What is idemnification?

Answer 31

Indemnifying one of the contract parties releases that party from all liability or loss.

Question 32

An exclusive right-to-sell agreement must include ______.

Answer 32

A start and end date for the listing period

Question 33

Tony bought a house at a foreclosure auction. A few weeks later, he was notified that he couldn’t take possession of or title to the property. What likely happened?

Answer 33

The previous owner paid off all mortgage payments and fees owed and retained the property.

Question 34

What are the two types of physical depreciation?

Answer 34

Curable and Incurable

Question 35

What does a buyer representation agreement include? (3 things)

Answer 35

a general description of the property the buyer seeks (price, location, size, etc.)

the method and timing of the broker’s compensation

the parties’ obligations.

Question 36

Escrow accounts are most widely used in real estate to hold _______ money deposits. These accounts may be opened and managed by the ______ ________, a ____ _______ representative who’s serving as a closing officer, or an ___________.

Answer 36

Earnest

Brokerage firm
Title Insurance
Attorney

Question 37

Recording the deed provides __________ notice of the property sale.

Answer 37

constructive

Question 38

A borrower has a 30-year, $500,000 loan with an interest rate of 6.25%. His monthly principal and interest payment is $3,078.59. What’s the total amount of interest he’ll pay over the course of the loan?

Answer 38

$608,292.40

First, multiply the monthly payment by the total number of payments. Then subtract the original loan value: $3,078.59 x 360 = $1,108,292.40 ‒ $500,000 = $608,292.40.

Question 39

The Town of Petersville has just decided to restrict density in one area of town that previously allowed a higher density. This is known as ______.

Answer 39

Downzoning

While it may result in more beautiful neighborhoods and does result in lowering density, downzoning also reduces possible uses and potential value.

Question 40

Wendell just listed Barb’s home. Barb told him that there weren’t any easements on the property, and Wendell hasn’t seen a copy of the survey. What is Wendell’s responsibility relative to the disclosure of any easements?

Answer 40

He only needs to disclose easements if they’re known.

Sellers and listing agents must only disclose easements of which they have actual knowledge. If neither are aware of any easements, then the buyer will typically discover them during due diligence.

Question 41

A buyer has a 30-year, $400,000 loan with a 7% interest rate. How much of the first month’s mortgage payment is interest?

Answer 41

$2,333.33

400,000 × 0.07 = $28,000; then $28,000 ÷ 12 =

Question 42

Which clause orders the lender (or the trustee, if a deed of trust secures the loan) to immediately release full title to the property to the borrower once the loan is paid in full?

Answer 42

The defeasance clause

Question 43

____________ is the process by which water gradually recedes, which reveals new land.

Answer 43

Reliction

Question 44

After getting into a fender bender, Parker had to buy a new car. To make the down payment on the car, he had to skip a couple of his mortgage payments. He received a notice from his lender indicating the remaining amount of his loan is due immediately and in full. What clause in his mortgage stipulates this?

Answer 44

Acceleration Clause

The acceleration clause gives the lender the right to make all money owed immediately due and payable if the borrower defaults.

Question 45

The USDA Farm Service Agency offers __________ loans to agricultural lenders.

Answer 45

Guaranteed

Question 46

Angelo’s aging mother needs a place to live out her remaining years. Angelo conveys a home to her, but only for her lifetime. This is an example of what type of life estate?

Answer 46

Ordinary

Ordinary life estates are granted for the lifetime of the grantee. When the life estate holder dies, remaining interest is either returned to the original owner (reversion) or is granted to a third party (the remainderman).

Question 47

Which clause directs the parties to a real estate sales contract to proceed in good faith, and not unduly delay the process?

Answer 47

Time is of the Essence

“Time is of the essence” is a common clause in real estate purchase contracts. This clause means that the parties agree to proceed in good faith and not unduly delay the process.

Question 48

_____________ means that a licensee or brokerage firm uses trust funds for personal or operating purposes.

Answer 48

Conversion

Question 49

What forms the boundaries of a township?

Answer 49

Township lines and range lines

The boundaries of townships are township lines, which run parallel to baselines meridian, and range lines, which run parallel to principal meridians.

Question 50

Sandra is set to close on Thursday, September 21. By what date must her lender provide the Closing Disclosure?

Answer 50

September 18th

Lenders must provide the Closing Disclosure three days before closing

Question 51

In many cases, property managers must get explicit permission in order to disburse funds from a trust account. What is one common way to do so without this explicit permission?

Answer 51

Put it in the property management agreement

Question 52

“Beginning at a stake and stones about 30 feet from the center of the brook that runs across the road Southwesterly from the dwelling house of the late Bethany Smith …” is an example of what type of legal description?

Answer 52

Metes and Bounds

Question 53

Who must sign the deed? The grantor, the grantee or both?

The deed must include an act of _________.

Answer 53

Grantor

Conveyance

The grantor is the seller; the grantee is the buyer. The grantor must sign the deed, be of legal capacity, and be positively identified. The deed must include an act of conveyance.

Question 54

Who determines the height of air lots?

Answer 54

The city or other governing authority establishes the air lot’s height.

Question 55

To make valid computations of adjustments for the sales comparison approach to value, elements of comparison must be applied in a specific order. Which element is applied first?

Answer 55

Financing terms and cash equivalency

When using the sales comparison approach, appraisers consider elements in a specific order: financing terms and cash equivalency, conditions of sale, market conditions at the time of contract and closing, location, and physical characteristics.

Question 56

What are “bounds”?

Answer 56

Bounds are physical features that define the boundaries of the property. Combined with directions and distances (metes), these form the basis of a metes and bounds legal description.

Question 57

________ ________ occurs when a property’s value is negatively affected by government regulation, but the owner is not offered just compensation according to the requirements of the Takings Clause.

Answer 57

Inverse condemnation

Question 58

What is “contribution”?

Answer 58

Contribution pertains to how a change in a property impacts the value as a whole. Does converting a garage into a family room contribute to or detract from value? The answer to that would be in the eyes of the buyer.

Question 59

Sheila is unable to use her designated timeshare week this year. What will happen?

Answer 59

She can exchange it for another week. Timeshares allow one designated week to be exchanged for another.

Question 60

What is a “bridge loan”?

Answer 60

A bridge loan is usually a temporary, short-term interest-only loan secured by the borrower’s existing home.

Question 61

Prior to a certain act’s existence, there was no legal protection for women who endured sexual harassment from landlords and sellers when they attempted to obtain housing. What’s this act called?

Answer 61

Housing and Community Development Act of 1974

The Housing and Community Development Act of 1974 included gender or a person’s sex in the list of protected classes.

Question 62

Eloise is interested in buying a bungalow on the outskirts of the city. Her agent is reviewing the property details and informs her that there are several easements on the property. In particular, the gas company has a right of way because the natural gas line for the neighborhood runs through the back of the lot. What type of easement would this be?

Answer 62

Easement in Gross

An easement in gross is granted to a specific individual or company—in this case, the gas utility company.

Question 63

Elaina and Allen just purchased a home using a deed of trust. Who will hold the title until the loan is paid?

Answer 63

A trustee

When a deed of trust secures a loan, a trustee holds the title until the loan is paid. Because the right to sell in the event of a default is part of the deed of trust’s language, a non-judicial foreclosure may be used.

Question 64

A mortgage is a legally binding document that creates a lien on a piece of property and gives the lender the right to foreclose on the property if the borrower defaults. Who or what entity is considered the mortgagee?

Answer 64

The lender

The lender holds the mortgage on the property, so the lender is the mortgagee.

Question 65

Monica received a promotion at work that requires her to relocate. Because of the timing of her promotion, she’ll need to buy a new house in her new city before her current one is sold. So, she won’t have any equity from her current home to make a down payment on the new house. What loan option would allow her to make the purchase before selling the old house?

Answer 65

Bridge Loan

Sometimes there is a delay between the sale of a property and the purchase of another, and the bridge loan gives the homeowner the ability to pay for two homes at the same time.

Question 66

When must a lease be in writing?

Answer 66

If the lease is for more than a year

Question 67

A contract involving an exchange of promises or other consideration between two parties is a _________ contract.

Answer 67

bilateral

Question 68

What additional protected classes were added to the Fair Housing Act of 1968 through the Fair Housing Amendments Act of 1988? (2)

Answer 68

Familial Status and Disability

In 1988, the Fair Housing Amendments Act provided consumers with remedies if they became victims of discrimination in housing and also added familial status and disability to the list of protected classes.

Question 69

What is usually used to determine ownership boundaries if they come into question?

Answer 69

Recorded legal descriptions, often in conjunction with a survey or surveyor’s opinion of what the legal description indicates, may be used to determine ownership boundaries.

Question 70

What’s one of the most fundamental of all fiduciary duties, and is the one that underlies all other duties?

Answer 70

Loyalty

Question 71

The Nettles have accepted the Briars’ purchase offer, and both parties have signed the sales contract. The funds, and the title, should transfer in a matter of days, but otherwise the all elements and terms of the contract have been met. What type of contract do the Nettles and the Briars have?

Answer 71

Executory Contract

The Nettles and Briars have a valid contract that’s in the process of being completed. Because one or more terms of the contract must still be completed, they have an executory contract.

Question 72

When a contract doesn’t provide specific dates for when the terms need to be met, what should the parties assume regarding performance of the contract?

Answer 72

Performance must take place in a “reasonable time”

Question 73

The appraisal report submitted to Jenkins, the lender, notes that the property is being conveyed with all property rights intact. Which step in the appraisal process does this represent?

Answer 73

State the Problem

The first step in the appraisal process is to state the problem. This includes a description of the rights associated with the property.

Question 74

Which agency, which operates through the USDA, provides loan guarantees to lenders for up to 95% of the loss of principal and interest?

Answer 74

The Farm Service Agency

Question 75

Jordan works as a property manager for several residential property owners. When she receives security deposits from tenants, how long does she have to deposit them into an escrow account?

Answer 75

It depends on her state’s requirements

Question 76

The covenant of _______ assures that the grantor will warrant and defend the title against the lawful claims of others.

Answer 76

warranty

Question 77

What is usury?

Answer 77

When a loan’s interest rate is higher than the maximum allowable rate

Question 78

A _______ is used to create, verify, or correct a legal description. It’s a professional on-site measurement of the lot lines and dimensions of a property.

Answer 78

survey

Question 79

Two essential elements of a deed are the ______ and _________.

Answer 79

Grantor’s signature and conveyance clause

Question 80

Bobby, the buyer, makes an offer on a house that doesn’t meet the appraisal contingency. He cancels the sale. This is known as a ________ rescission.

Answer 80

unilateral

Question 81

Larry purchased an old warehouse with the intent to create shared studio space for artists. However, he didn’t perform due diligence before the purchase, and it turns out that there are hazardous materials that need to be cleaned up first. Larry took the prior owners to court, and the court ruled that Larry is responsible for the costs of cleanup. What kind of liability is this?

Answer 81

Strict Liability