Property

Question 1

Which of the following factors help determine whether an item of personal property has become a fixture?

• Manner of affixation
• Value of the item
• Intent of the annexor

Answer 1

• Manner of affixation = YES
• Value of the item = NO
• Intent of the annexor = YES

The degree of affixation and the intent of the annexor are critical factors in determining whether an item is a fixture, but the value is not an issue. Integration into the real property is important, despite the value.

Question 2

Which of the following interests in land conveys the greatest ownership rights?

• Easement by implication.
• Life estate.
• Fee simple.
• Nonfreehold estate.

Answer 2

Fee simple. A fee simple estate gives the owner the right to sell, will, mortgage, and lien the property. It is the highest form of land ownership.

Question 3

In general, what must be included in the writing of Deeds and Lease agreements?

Answer 3

DESCRIPTION of the property!

Question 4

On August 15, 1994, Tower, Nolan, and Oak were deeded a piece of land as tenants in common. The deed provided that Tower owned 1/2 the property and Nolan and Oak owned 1/4 each. If Oak dies, the property will be owned as follows:

• Tower 1/2, Nolan 1/4, Oak’s heirs 1/4.
• Tower 1/3, Nolan 1/3, Oak’s heirs 1/3.
• Tower 5/8, Nolan 3/8.
• Tower 1/2, Nolan 1/2.

Answer 4

Tower 1/2, Nolan 1/4, Oak’s heirs 1/4. In a tenancy in common, the owners have the right to pass their interests to their heirs through their estate.

Question 5

Which of the following deeds will give a real property purchaser the greatest protection?

• Quitclaim.
• Bargain and sale.
• Special warranty.
• General warranty.

Answer 5

A general warranty deed is the deed that gives the grantee/transferee the best protection on title.

Question 6

Which of the following is a defect in marketable title to real property?

• Recorded zoning restrictions.
• Recorded easements referred to in the contract of sale.
• Unrecorded lawsuit for negligence against the seller.
• Unrecorded easement.

Answer 6

Unrecorded easement. These types of hidden defects affect marketable title.

Question 7

A purchaser who obtains real estate title insurance will:

• Have coverage for the title exceptions listed in the policy.
• Be insured against all defects of record other than those excepted in the policy.
• Have coverage for title defects that result from events that happen after the effective date of policy.
• Be entitled to transfer the policy to subsequent owners.

Answer 7

Be insured against all defects of record other than those excepted in the policy. The title policy protects against these types of defects unless specifically excluded.

Question 8

Rich purchased property from Sklar for $200,000. Rich obtained a $150,000 loan from Marsh Bank to finance the purchase, executing a promissory note and a mortgage. By recording the mortgage, Marsh protects its

• Rights against Rich under the promissory note.
• Rights against the claims of subsequent bona fide purchasers for value.
• Priority against a previously filed real estate tax lien on the property.
• Priority against all parties having earlier claims to the property.

Answer 8

Rights against the claims of subsequent bona fide purchasers for value. The purpose of recording is to keep the rights of the original parties intact and protect against future transfers or recorded rights.

Question 9

Mortgagor vs. Mortgagee

Answer 9

• Mortgagor = the BUYER
• Mortgagee = the financial institution

Question 10

Sklar, Rich, and Cey own a building as joint tenants with the right of survivorship. Sklar gave Sklar’s interest in the building to Marsh by executing and delivering a deed to Marsh. Neither Rich nor Cey consented to this transfer. Rich and Cey subsequently died. After their deaths, Marsh’s interest in the building would consist of

• A 1/3 interest as a tenant in common.
• A 1/3 interest as a joint tenant.
• Total ownership due to the deaths of Rich and Cey.
• No interest because Rich and Cey did not consent to the transfer.

Answer 10

A 1/3 interest as a tenant in common. A joint tenancy requires that all tenants acquire their interests at the same time. Since Marsh acquired his interest after the fact, he would be a tenant in common.

Marsh was not a joint tenant and therefore is not entitled to the interests of the other joint tenants who predeceased him.

Question 11

The Accounting Syndicate Publishing Co. (ASPC) wants an accounting textbook on IFRS for the university market. It hires Ed, a retired college professor, to write the book, on the understanding that the copyright would belong to ASPC. Ed finishes the book on January 1, 2010. ASPC is unenthusiastic about the book and does not publish it until January 1, 2018. Meanwhile, Ed has died on January 1, 2011. When does ASPC’s copyright expire?

• Just before January 1, 2105.
• Just before January 1, 2131.
• Just before January 1, 2113.
• Just before January 1, 2130.

Answer 11

Just before January 1, 2113.

This is 95 years from the date of publication, which is shorter than 120 years from the date of creation (January 1, 2130), so it is the best answer.

Work for Hire Rule is you take the shorter of 95 years from DOP or 120 years from date of creation.

Question 12

Carlos writes a novel about an accountant that is published on January 1, 2010. Carlos files his novel with the U.S. copyright office on January 1, 2015. Carlos dies on January 1, 2020. Carlos’ family wishes to know when the copyright will expire. It will expire immediately before:

• January 1, 2080.
• January 1, 2085.
• January 1. 2090.
• None of the above.

Answer 12

January 1. 2090.

A copyright lasts for the life of the author, plus 70 years.

Question 13

Tim is a songwriter. One morning, he is sitting in a coffee shop, whistling some notes that he thinks might ultimately become part of a song he was working on. He forgot about the notes, until he heard them on the radio one day as part of a song written and recorded by Julie. It turns out Julie had been in the coffee shop that day and really liked what Tim was whistling. Tim sues Julie for copyright infringement. What will happen?

• He will lose, because he never filed anything with the government.
• He will lose, because he never reduced the notes to a tangible medium.
• A and B.
• None of the above.

Answer 13

He will lose, because he never reduced the notes to a tangible medium.

Until Tim writes the notes down or records them, they are not protectable.

Elements of Copyrightability:

1. must fixed in some tangible medium of expression
2. creative
3. original

Question 14

Lanny files for a utility patent on January 1, 2011. The patent is granted on January 1, 2015. The patent will expire just before January 1:

• 2025
• 2031
• 2032
• 2035

Answer 14

2031

The patent would expire 20 years from the date of filing, and expire just before January 1, 2031.

Note that this is a utility patent, design patents expire 14 years from the date of filing with the PTO.

Question 15

Sam patents a “rat zapper,” a shoe-box-sized device that uses bait to lure in a rat and then kills it with an electrical charge. Lon files a patent application for a “gopher zapper,” a slightly bigger device that uses bait to lure in a gopher and then kills it with an electrical charge. What is true regarding Lon’s application?

• It will probably be denied, as not being useful.
• It will probably be denied as not involving patentable subject matter.
• It will probably be denied for failing the non-obviousness requirement.
• All of the above are correct.

Answer 15

It will probably be denied for failing the non-obviousness requirement.

Unfortunately, Sam got there first. Lon’s idea would be obvious to practitioners in the field of rodent control who had ordinary skill.

Elements of Patentability:

1. Patentable subject matter
2. must be useful
3. must be novel
4. must be non-obvious
5. must file with the Patent Trade Organization.

Question 16

A long-lost relative of Albert Einstein’s recently filed for a patent for Einstein’s famous formula, E = MC2. Which of the following is true?

• The patent application will be denied as filed in untimely fashion.
• The patent application will be denied as consisting of unpatentable subject matter.
• The patent application will be denied for failing the non-obviousness requirement.
• A and B.

Answer 16

A and B. A is correct, because the application was filed in extremely untimely fashion. B is correct, because abstract ideas are not patentable.

Question 17

How long is a trademark of a corporation valid under the law of the United States?

1. For 100 years if registered.
2. For 20 years if not registered and for 50 years if registered.
3. Indefinitely if not registered, until the corporation abandons it.
4. Indefinitely, but only if registered.

Answer 17

Indefinitely if not registered, until the corporation abandons it. Trademarks last as long as they retain their distinctiveness. Therefore, they can last indefinitely. Trademarks are terminated by their actual abandonment or their constructive abandonment if the owner allows the trademark to lose its distinctiveness.

Question 18

Dash has agreed to sell a warehouse for $300,000 to Bosch. The contract provided that Dash will convey to Bosch whatever interest Dash may have in the warehouse. Under the terms of the contract, Bosch is entitled to receive a(n)

1. Insurable deed.
2. Quitclaim deed.
3. General warranty deed.
4. Special warranty deed.

Answer 18

Quitclaim deed. A quitclaim deed conveys merely whatever interest the grantor has in a specified piece of real property. It gives no warranty as to title, right to convey, etc. Since the problem states that the contract provides that Dash will convey to Bosch only whatever interest Dash may have, without mention of any covenants, it appears that Bosch is entitled to receive a quitclaim deed.

Question 19

Rand conveys her real property to Hume by deed for 5 years with the remainder going to Tran for Tran’s life. If Rand dies first, Tran second, and Hume in 6 years, who has title to the real estate?

1. Rand’s heirs in 5 years.
2. Rand’s heirs in 6 years.
3. Hume’s heirs in 5 years.
4. Hume’s heirs in 6 years.

Answer 19

Rand’s heirs in 5 years. Once the 5 years are lapsed, Hume’s interest terminates. The interest goes back to Rand’s heirs because she is no longer living. Notice since Tran died before the 5-year period, Tran never received the property because Tran’s life estate terminates on his death.

Question 20

In a notice-type recordation jurisdiction, failure by the mortgagee to record its mortgage

1. Releases the mortgagor (borrower) from the underlying obligation to pay.
2. Permits a subsequent mortgagee without knowledge of the prior mortgage to have a superior security interest.
3. Permits a subsequent purchaser for value with knowledge of the mortgage to take the property free of the prior security interest.
4. Permits a subsequent mortgagee with knowledge of the prior mortgage to have a superior security interest provided he promptly records his mortgage.

Answer 20

Permits a subsequent mortgagee without knowledge of the prior mortgage to have a superior security interest.

The recordation of a mortgage serves to protect the rights of the mortgagee against third parties who do not have actual knowledge of a prior mortgage. Under a notice-type recordation statute, if a subsequent mortgagee acquires a mortgage in a parcel of property, without the knowledge of a prior mortgage, then the subsequent mortgagee obtains a superior security interest over the prior mortgagee’s interest, whether the second mortgagee records the mortgage or not. Under the race-notice-type statute, a subsequent mortgagee who acquires the security interest in good faith only defeats a prior mortgagee if the second mortgagee records his mortgage first (i.e., a “race” to file first).

Under a notice-type statute, a subsequent good-faith mortgagee has priority over previous mortgagee who did not file

Question 21

Datam Corporation purchased some software for use in its business from Softcompute Company. Softcompute claims that the software has been legally copyrighted. Which of the following is correct?

1. Datam cannot be subject to a copyright unless the software contained a copyright notice.
2. Datam may make archival copies in case of malfunction.
3. If any portion of the software is based on a database, it may not be copyrighted.
4. If the software consists entirely of a database compiled by Softcompute, it may not be copyrighted.

Answer 21

Datam may make archival copies in case of malfunction.

It is not an infringement of a software copyright if the purchaser makes copies that will be used if the purchased copy becomes unusable.

Question 22

To which of the following people does the 1967 Age Discrimination in Employment Act apply?

1. A 16-year-old checkout clerk at a grocery store employing 40 people.
2. A 38-year-old mechanic in an auto shop employing 15 people.
3. A 52-year-old waitress at a cafe employing 12 people.
4. A 45-year-old assistant controller at a tool and die company employing 200 people.

Answer 22

A 45-year-old assistant controller at a tool and die company employing 200 people.

1. Generally applies to individuals at least 40 years old
2. Applies to most businesses employing at least 20 people

Question 23

Mini, Inc. entered into a 5-year lease with Rein Realtors. The lease was signed by both parties and immediately recorded. The leased building was to be used by Mini in connection with its business operations. To make it suitable for that purpose, Mini attached a piece of equipment to the wall of the building. Which of the following statements is correct regarding Mini’s rights and liabilities?

1. Mini is prohibited from assigning the lease if it is silent in this regard.
2. Mini has a possessory interest in the building.
3. Mini is strictly liable for all injuries sustained by any person in the building during the term of the lease.
4. Mini’s rights under the lease are automatically terminated by Rein’s sale of the building to a third party.

Answer 23

Mini has a possessory interest in the building.

A lease creates a possessory interest in real property. Mini has the right to occupy the building for the term of the lease regardless of whether the owner, Rein, sells the property to a third party.

Question 24

Jane and her brother each own a 50% interest in certain real property as tenants in common. Jane’s interest

1. Is considered personal property.
2. Will pass to her brother by operation of law upon Jane’s death.
3. Will pass upon her death to the person Jane designates in her will.
4. May not be transferred during Jane’s lifetime without her brother’s consent.

Answer 24

Will pass upon her death to the person Jane designates in her will.

Under tenancy in common, a deceased tenant’s interest in real property will pass to the individual named in a will if the deceased died testate (with a valid will), or to her legal heir(s) if she died intestate (without a valid will). Therefore, if Jane executed a valid will before her death, the interest in the property will pass to the person she designated in the will.

Tenancy in common, unlike joint tenancy, does not have the right of survivorship. If Jane and her brother had owned the property as joint tenants, upon Jane’s death the property would have passed to her brother by operation of law.

Question 25

Unless an exception to title is noted in the title insurance policy, a title insurance company will be liable to a land purchaser for

1. Closing costs.
2. Recorded easements.
3. Unrecorded assessments.
4. Zoning violations.

Answer 25

Recorded easements.

Title insurance insures against all defects of record and defects the grantee may be aware of. Thus, a title insurance company would be liable to a land purchaser for recorded easements.

• Generally used to insure that title is good and to cover the warranties by seller
  
  • a.Not required if contract does not require it.
• Without title insurance, purchaser’s only recourse is against grantor and s/he may not be able to satisfy the damages

Question 26

In order for a deed to be effective between the purchaser and seller of real estate, the deed must be

1. Delivered by the seller with an intent to transfer title.
2. Recorded within the permissible statutory time limits.
3. In writing and signed by the seller and purchaser.
4. Essentially in the same form as the contract for purchase and sale and include the actual sales price.

Answer 26

Delivered by the seller with an intent to transfer title. Even though a deed may be executed it does not become effective until delivery is made with the proper intent.

Question 27

On July 1, A, B, C, and D purchased a parcel of land as tenants in common each owning an equal share. On July 10, A died leaving a will. Subsequently, B died intestate. If C sells her interest in the land to X,

1. The tenancy in common will terminate.
2. D and X will each own a 1/2 interest in the land.
3. D and X will each own a 1/3 interest in the land.
4. D and X will each own a 1/4 interest in the land.

Answer 27

D and X will each own a 1/4 interest in the land.

Because the death of neither A nor B will have an effect on C and D’s property interest as there is no right of survivorship under a tenancy in common. Therefore, were X to purchase C’s interest, s/he could only receive a 1/4 interest in the land.

Question 28

Which of the following provisions must be included in a residential lease agreement?

1. A description of the leased premises.
2. The due date for payment of rent.
3. A requirement that the tenant have public liability insurance.
4. A requirement that the landlord will perform all structural repairs to the property.

Answer 28

A description of the leased premises.

A residential lease agreement must contain the following essential elements:

1. the parties involved,
2. lease payment amount,
3. lease term, and
4. a description of the leased property. The omission of any of these terms will cause the agreement to fail for indefiniteness.

Question 29

Bronson is a residential tenant with a 10-year written lease. In the absence of specific provisions in the lease to the contrary, which of the following statements is correct?

1. The premises may not be sublet for less than the full remaining lease term.
2. Bronson may not assign the lease.
3. The landlord’s death will automatically terminate the lease.
4. Bronson’s purchase of the property will terminate the lease.

Answer 29

Bronson’s purchase of the property will terminate the lease.

Question 30

On July 1, Bean deeded her home to Park. The deed was never recorded. On July 5, Bean deeded the same home to Noll. On July 9, Noll executed a deed, conveying his title to the same home to Baxter. On July 10, Noll and Baxter duly recorded their respective deeds. In order for Noll’s deed from Bean to be effective it must

1. Contain the actual purchase price paid by Noll.
2. Be signed by Noll.
3. Include a satisfactory description of the property.
4. Be recorded with Bean’s seal affixed to the deed.

Answer 30

Include a satisfactory description of the property.

The necessary requirements for a valid deed are (1) the names of the buyer (grantee) and the seller (grantor), (2) words evidencing an intent to convey, (3) a legally sufficient description of the land, (4) the grantor’s (and usually the spouse’s) signature, and (5) delivery of the deed.

Question 31

Trees were cut down and made into lumber. The lumber was used to build a house. Which of the following statements best describes the property aspect of these events?

1. The trees were and remained tangible personal property.
2. The trees were and remained real property.
3. The trees were real property, then became and remained personal property.
4. The trees were real property, became personal property, then reverted to being real property.

Answer 31

The trees were real property, became personal property, then reverted to being real property.

Trees that are growing on land are considered real property and a part of the land. When they are cut down, they are no longer part of that real property and thus become personal property. A house built on land becomes part of the real property of that land. This includes the materials used to build that house such as lumber.

Question 32

Which of the following is(are) used to protect intellectual property rights incorporated in computer software?

• I.Law of Trade Secrets
• II.Law of Copyrights
• III.Patent Law

1. I only.
2. I and II only.
3. II and III only.
4. I, II, and III.

Answer 32

All 3.

Under the law, trade secrecy law is a valid method to protect intellectual property. Also under modern law, copyrights and patents can be used effectively to protect software in many cases.

Question 33

Sussex, Inc. had given a first mortgage when it purchased its plant and warehouse. Sussex needed additional working capital. It decided to obtain financing by giving a second mortgage on the plant and warehouse. Which of the following statements is true with respect to the mortgages?

1. Default on payment of the second mortgage will constitute default on the first mortgage.
2. The second mortgage may not be prepaid without the consent of the first mortgagee.
3. The second mortgagee may not pay off the first mortgage to protect its security.
4. If both mortgages are foreclosed, the first mortgage must be fully paid before paying the second mortgage.

Answer 33

If both mortgages are foreclosed, the first mortgage must be fully paid before paying the second mortgage.

When two mortgages are foreclosed, the first mortgage is paid before paying the second mortgage. When mortgaged property is sold or destroyed, the proceeds from sale or insurance go to mortgagee with highest priority until it is completely paid, then the proceeds, if any, go to any mortgagees or other interest holders, with the next highest priority, etc.

Question 34

Green and Nunn own a 40-acre parcel of land as joint tenants with the right of survivorship. Nunn wishes to sell the land to Ink. If Nunn alone executes and delivers a deed to Ink, what will be the result?

1. Green will retain a 1/2 undivided interest in the 40-acre parcel, and will be unable to set aside Nunn’s conveyance to Ink.
2. Ink will obtain an interest in 1/2 of the parcel, or 20 acres.
3. Ink will share ownership of the 40 acres with Green as a joint tenant with a right of survivorship.
4. The conveyance will be invalid because Green did not sign the deed.

Answer 34

Green will retain a 1/2 undivided interest in the 40-acre parcel, and will be unable to set aside Nunn’s conveyance to Ink.

In a joint tenancy, each joint tenant has an equal and undivided interest in the property. The joint tenancy may only be severed by an inter vivos conveyance. Each joint tenant can sell his/her interest in the property without the prior consent of the other joint tenants. When this occurs, the conveyance destroys the joint tenancy and creates a tenancy in common between the remaining joint tenants and the third party. When Nunn conveyed his interest in the parcel of land to Ink, Green and Ink became owners as tenants in common. Each, as tenants in common, has a nonexclusive right to use and possess the property (undivided interests).

Question 35

A tenant’s personal property will become a fixture and belong to the landlord if its removal would

1. Increase the value of the personal property.
2. Cause a material change to the personal property.
3. Result in substantial harm to the landlord’s property.
4. Change the use of the landlord’s property back to its prior use.

Answer 35

Result in substantial harm to the landlord’s property.

A fixture is an item that was originally personal property but has been affixed to real property in a relatively permanent fashion such that it is considered to be part of the real property. It is generally held that an item has become a fixture if removal of the item would cause material harm to real property.

Question 36

Which of the following requirements must be met, by any type of deed, in order for title to real property to be transferred?

1. The deed must be delivered to the purchaser of the property.
2. The deed must be recorded by the seller of the property.
3. The deed must include a statement of the property’s value.
4. The deed must include a general warranty of title.

Answer 36

The deed must be delivered to the purchaser of the property.

1. Deed must have description of the real estate
   
   1. a.Purchase price not necessary in deed
2. There must be delivery for deed to be effective; there must be an intent on part of grantor to pass title (convey) to grantee
   
   1. Possession of the deed by grantee raises a presumption (rebuttable) of delivery
   2. A recorded deed raises a presumption (rebuttable) of delivery
   3. A deed given to a third party to give to grantee upon performance of a condition is a delivery in escrow
   4. Destruction of deed does not destroy title

Question 37

Green and Nunn own a 40-acre parcel of land as joint tenants with the right of survivorship. Nunn wishes to sell the land to Ink. If Nunn alone executes and delivers a deed to Ink, what will be the result?

1. Green will retain a 1/2 undivided interest in the 40-acre parcel, and will be unable to set aside Nunn’s conveyance to Ink.
2. Ink will obtain an interest in 1/2 of the parcel, or 20 acres.
3. Ink will share ownership of the 40 acres with Green as a joint tenant with a right of survivorship.
4. The conveyance will be invalid because Green did not sign the deed.

Answer 37

Green will retain a 1/2 undivided interest in the 40-acre parcel, and will be unable to set aside Nunn’s conveyance to Ink.

In a joint tenancy, each joint tenant has an equal and undivided interest in the property. The joint tenancy may only be severed by an inter vivos conveyance. Each joint tenant can sell his/her interest in the property without the prior consent of the other joint tenants. When this occurs, the conveyance destroys the joint tenancy and creates a tenancy in common between the remaining joint tenants and the third party. When Nunn conveyed his interest in the parcel of land to Ink, Green and Ink became owners as tenants in common. Each, as tenants in common, has a nonexclusive right to use and possess the property (undivided interests).

Question 38

On April 6, Walsh purchased a warehouse from Bock for $150,000. Best Title Co. had performed a title search of the property. The results of the title search indicated that a mortgage given to Stone by Bock was duly recorded against the warehouse on March 9. However, the title search failed to detect a purchase dated March 2, given by Bock to Todd. This mortgage was never recorded. Walsh was unaware of the mortgage to Todd. Under the circumstances,

1. Walsh will take title to the warehouse subject to Todd’s mortgage because it is a purchase money mortgage.
2. Walsh will take title to the warehouse free of Todd’s mortgage.
3. Todd’s mortgage is superior to Stone’s mortgage.
4. Best will be liable to Walsh because of its failure to detect the Todd mortgage.

Answer 38

Walsh will take title to the warehouse free of Todd’s mortgage.

A mortgage must be recorded to be effective against subsequent third parties who acquire an interest in property with no knowledge of the prior mortgage. Since Todd did not record his/her mortgage and Walsh did not have knowledge of Todd’s mortgage, Walsh will take title to the warehouse free of Todd’s mortgage.

Question 39

Mini, Inc. entered into a 5-year lease with Rein Realtors. The lease was signed by both parties and immediately recorded. The leased building was to be used by Mini in connection with its business operations. To make it suitable for that purpose, Mini attached a piece of equipment to the wall of the building. Which of the following is most important in determining whether the equipment became a fixture?

1. Whether the equipment can be removed without material damage to the building.
2. Whether the attachment is customary for the type of building.
3. The fair market value of the equipment at the time the lease expires.
4. The fact that the equipment was subject to depreciation.

Answer 39

Whether the equipment can be removed without material damage to the building.

There are several factors which must be considered in determining whether personal property attached to real property is a fixture. The most important consideration is the method and permanence with which the item is physically attached to the real property. If the item cannot be removed without material damage to the real property, then it is generally held that the item has become part of the real property.

Question 40

A mortgagor who defaults on his mortgage payments will not be successful if he attempts to

1. Assert the equitable right to redeem.
2. Redeem the property after a judicial foreclosure sale has taken place.
3. Obtain any excess resulting from a judicial foreclosure sale.
4. Contest the validity of the price received at a judicial foreclosure sale by asserting that a higher price could have been received at a later date.

Answer 40

Contest the validity of the price received at a judicial foreclosure sale by asserting that a higher price could have been received at a later date.

A judicial foreclosure sale of the debtor’s real property is conducted generally at the direction of a court official (county sheriff) and confirmed by the court. A court will not refuse to confirm a sale merely because a higher price might have been received at a later time. The court will refuse to confirm a sale if the price is so low as to raise a presumption of unfairness or lack of protection for the mortgagor.

Question 41

On June 1, Byrd Corp. purchased a high-rise building from Slade Corp. for $375,000. The building was encumbered by a mortgage and note dated May 1, executed by Slade. The mortgage had been duly recorded by the mortgagee, Fale Bank. The outstanding balance on the mortgage at the time of Byrd’s purchase was $300,000. Byrd acquired the property subject to the mortgage held by Fale and, in addition, gave a mortgage on the building to Foxx Finance to secure a nonpurchase money promissory note in the sum of $50,000. Prior to any payments being made on either loan, Byrd defaulted. As a result, the building was properly sold at a foreclosure sale for $280,000. As a result of the foreclosure sale

1. Fale is entitled to receive the full $280,000 out of the proceeds.
2. Fale is entitled to receive $240,000 out of the proceeds.
3. Foxx is entitled to receive its full $50,000 from either Byrd or Slade.
4. Foxx is entitled to receive $50,000 out of the proceeds.

Answer 41

Fale is entitled to receive the full $280,000 out of the proceeds.

Fale recorded the 300,000 mortgage.

A mortgage provides the mortgagee with a nonpossessory security interest in real property. The purpose of recording the mortgage is to give constructive notice to third parties acquiring an interest in the property that the property is subject to an existing mortgage. When there are multiple mortgages on a single parcel of real property, the first mortgagee to duly record the mortgage will have priority over all subsequent mortgagees. Therefore, Fale’s claim of $300,000 has priority over Foxx’s $50,000 claim. Since the foreclosure sale only netted $280,000, Fale is entitled to receive the entire amount.

Question 42

If a mortgagor defaults in the payment of a purchase money mortgage, and the mortgagee forecloses, the mortgagor may do any of the following except

1. Obtain any excess monies resulting from a judicial sale after payment of the mortgagee.
2. Remain in possession of the property after a foreclosure sale if the equity in the property exceeds the balance due on the mortgage.
3. Refinance the mortgage with another lender and repay the original mortgage.
4. Assert the equitable right of redemption by paying the mortgagee.

Answer 42

Remain in possession of the property after a foreclosure sale if the equity in the property exceeds the balance due on the mortgage.

After foreclosure of the mortgage, the mortgagor has several options. The mortgagor may redeem the property until the foreclosure sale by use of the equitable right of redemption. After the foreclosure sale, the mortgagor may pay off the loan within a statutory period. If these remedies are not used, the mortgagee must return any excess proceeds from the sale. The mortgagor, however, does not otherwise have the right to keep possession of the property after a foreclosure sale whether or not the equity exceeds the amount due on the mortgage.

Question 43

In general, a mortgage on real estate

1. Must be recorded to validate the mortgagee’s (lender’s) rights against the mortgagor(borrower).
2. Must be signed by the mortgagee and mortgagor to create an enforceable instrument.
3. Encumbers the mortgagor’s legal title to the real estate.
4. Gives the mortgagee the right to possess the real estate.

Answer 43

Encumbers the mortgagor’s legal title to the real estate.

A mortgage is a security interest in real property usually used to secure a debt. The mortgage creates a nonpossessory lien on the property in favor of the mortgagee.

The mortgage does not have to be recorded to be enforceable between the mortgagor and mortgagee. The purpose of recording the mortgage is to give constructive notice to third parties that the property is subject to an existing mortgage.

Question 44

How long is a trademark of a corporation valid under the law of the United States?

1. For 100 years if registered.
2. For 20 years if not registered and for 50 years if registered.
3. Indefinitely if not registered, until the corporation abandons it.
4. Indefinitely, but only if registered.

Answer 44

Indefinitely if not registered, until the corporation abandons it.

Trademarks last as long as they retain their distinctiveness. Therefore, they can last indefinitely. Trademarks are terminated by their actual abandonment or their constructive abandonment if the owner allows the trademark to lose its distinctiveness.

Question 45

Which of the following circumstances best describes a landlord’s constructive eviction of a tenant who has a written lease for the property?

1. The landlord changes the lock and refuses to give the tenant a new key.
2. The landlord starts a legal proceeding against the tenant for failure to pay rent.
3. The landlord sues the tenant because the tenant complained to a government agency about the condition of the premises.
4. The landlord refuses to provide utilities to the tenant.

Answer 45

The landlord refuses to provide utilities to the tenant.

Failing to provide utilities makes the premises uninhabitable and effectively forces the tenant to move.

Question 46

Watts gave a mortgage on a vacant lot to Fast to secure payment of a note. Fast assigned the note and mortgage to Beal who paid 85% of the face value for it. Neither Fast nor Beal recorded the mortgage. Subsequently, Fast assigned the same note and mortgage to Rusk who paid 75% of the face value for it and who had no notice of the prior assignment to Beal. Rusk promptly recorded the mortgage and the assignment. Watts has made no payments on the note. The jurisdiction has a notice-type of recordation statute. Under the circumstances

1. The assignments to Beal and Rusk are ineffective because Fast failed to record the mortgage.
2. Equity will require that Beal and Rusk share in the proceeds of the note equally as their interests may appear.
3. Rusk is entitled to recover only 75% of the face value of the note.
4. Rusk is entitled to the full face amount of the Watts note.

Answer 46

Rusk is entitled to the full face amount of the Watts note.

Since Rusk purchased the mortgage from Fast without knowledge of the previous sale to Beal, under a notice-type recordation statute, upon default, Rusk has the first priority to the property. He is entitled to the full face amount of Watts note. Under a notice-type statute there was no need for Rusk to record his mortgage first, only to take his mortgage without notice of the prior assignment. The fact that Rusk paid only 75% of the face value of the note does not prevent him from receiving the full face value. Rusk merely paid a discounted amount for the right to receive the face value of the note.

Question 47

On February 2, Mazo deeded a warehouse to Parko for $450,000. Parko did not record the deed. On February 12, Mazo deeded the same warehouse to Nexis for $430,000. Nexis was aware of the prior conveyance to Parko. Nexis recorded its deed before Parko recorded. Who would prevail under the following recording statutes?

• Notice statute
• Race statute
• Race-Notice statute

Answer 47

• Notice statute - PARKO
• Race statute - NEXIS
• Race-Notice statute - PARKO

​Under a notice statute, a subsequent good-faith purchaser, whether s/he records or not, wins over the previous purchaser who did not record before that subsequent purchase. Under a race-notice statute, the subsequent good-faith purchaser wins only if s/he also records first. Therefore, Parko wins under both of these statutes because Nexis was aware of Parko’s purchase, and thus, Nexis was not a good-faith purchaser. Under the race statute, however, Nexis wins because s/he was the first to record.

Question 48

Miser Corp. owned a factory which was encumbered by a mortgage securing Miser’s note to City Bank. Miser sold the factory to Sting, Inc. which assumed the mortgage note. Subsequently, Sting defaulted on the note which had an outstanding balance of $15,000. In order to recover the outstanding balance, City

1. Must sue Sting and Miser.
2. Must sue Sting first and then proceed against Miser for any deficiency.
3. May sue Sting or Miser.
4. May sue Sting only after suing Miser.

Answer 48

May sue Sting or Miser.

When a mortgage is assumed the buyer becomes personally liable on the debt. The seller remains liable on the debt unless s/he is released by the mortgage holder. Thus, in assumption of a mortgage the buyer (Sting) becomes the principal debtor and the seller (Miser) has the rights and responsibilities of a surety. Upon default, the mortgagee may proceed immediately against either the principal debtor or the surety. Both are deemed to be liable on the debt. Thus, City may sue Sting or Miser.

Question 49

Geller wore a raincoat to a client’s one day to finish an audit. He placed the raincoat in a closet used by several people. When he completed the audit in the early afternoon, he forgot to take the raincoat with him. Since the weather was nice for the next several days, he left the raincoat there and came back to get it 7 days later when he remembered he had left it. Which of the following statements is correct?

1. If another person sees the coat there for 5 days, he may treat the coat as lost and get title to it.
2. The client is the caretaker of the coat until Geller returns.
3. The coat is treated as abandoned property.
4. The coat is treated as lost property once Geller leaves the premises without the coat.

Answer 49

The client is the caretaker of the coat until Geller returns.

The coat is mislaid property because Geller voluntarily put the coat in the closet but forgot to take it with him. In such cases, the owner of the premises acts as a caretaker of the coat until the owner, Geller, comes back to retrieve it.

Mislaid Property happens when owner voluntarily puts the property somewhere but forgets to take it

• Finder does not obtain title to mislaid property

​Lost property happens when owner involuntarily leaves property somewhere

• Finder has title to lost property which is valid against all parties except the true owner

Question 50

Under the Documents of Title Article of the UCC, which of the following correctly describes the standard of liability that must be established to hold a warehouser liable for loss or damage to stored property?

1. Strict liability.
2. Ordinary negligence.
3. Gross negligence.
4. Deliberate destruction or theft.

Answer 50

What is the level of liability required in contract performance? Ordinary negligence.

This is an example of a bailment for mutual benefit and the bailee must take reasonable care of the property in light of the facts and circumstances. Thus, the warehouser would be held liable for ordinary negligence.

Question 51

Sharon Rockport wrote a book that she just published and copyrighted. She wishes to know what are her rights and the rights of her heirs. Which of the following is correct?

1. She must copyright this book and register the copyright to protect the book from others’ making a profit without her permission.
2. The copyright of the book exists even after death.
3. Her book requires a copyright notice on it to receive protection under copyright law.
4. Her heirs can have no interest in the profits on her book.

Answer 51

The copyright of the book exists even after death.

Copyrights created after January 1, 1978, are valid for the life of the author plus 70 years.

Question 52

Which of the following statements is the best definition of real property?

1. Real property is only land.
2. Real property is all tangible property including land.
3. Real property is land and intangible property in realized form.
4. Real property is land and everything permanently attached to it.

Answer 52

Real property is land and everything permanently attached to it.

Real property (realty)—includes land and things attached to land in a relatively permanent manner

EXAMPLE: A building is erected on a parcel of land. Both the land and the building are real property.

• Crops harvested are not real property because they are separate from land
• Growing crops are generally part of land and therefore realty

Question 53

Delta Corp. leased 60,000 square feet in an office building from Tanner under a written 25-year lease. Which of the following statements is correct?

1. Tanner’s death will terminate the lease and Delta will be able to recover any resulting damages from Tanner’s estate.
2. Tanner’s sale of the office building will terminate the lease unless both Delta and the buyer consented to the assumption of the lease by the buyer.
3. In the absence of a provision in the lease to the contrary, Delta does not need Tanner’s consent to assign the lease to another party.
4. In the absence of a provision in the lease to the contrary, Delta would need Tanner’s consent to enter into a sublease with another party.

Answer 53

In the absence of a provision in the lease to the contrary, Delta does not need Tanner’s consent to assign the lease to another party.

A lessee may sublease or assign a lease unless the lease prohibits these.

• Assignment is transfer by lessee of his/her entire interest reserving no rights
• A sublease is the transfer by lessee of less than his/her entire interest (e.g., for 3 months during summer, then lessee returns to it in the fall)

Question 54

Shea Corp. owns a factory that has a fair market value of $50,000. Deal Bank holds a first mortgage and Rift Finance holds a second mortgage on the factory. Shea has discontinued payments to Deal and Rift. As a result, Deal, which is owed $45,000, and Rift, which is owed $15,000, have foreclosed on their respective mortgages. If the factory is properly sold to Bean at a judicial sale for $50,000, after expenses,

1. Deal will receive $37,000 out of the proceeds.
2. Rift will receive $5,000 out of the proceeds.
3. Rift has a right of redemption after the judicial sale.
4. Bean will take the factory subject to the unsatisfied portion of any mortgage.

Answer 54

Rift will receive $5,000 out of the proceeds.

Upon foreclosure, a first mortgage holder has priority and must be paid in full before payments are made to any subsequent mortgagees. In this example, Deal would have the right to the first $45,000, and Rift would have the right to the remaining $5,000. Rift would become an unsecured creditor for the $10,000 deficiency.

Question 55

Tremont Enterprises, Inc. needed some additional working capital to develop a new product line. It decided to obtain intermediate term financing by giving a second mortgage on its plant and warehouse. Which of the following is true with respect to the mortgages?

1. If Tremont defaults on both mortgages and a bankruptcy proceeding is initiated, the second mortgagee has the status of general creditor.
2. If the second mortgagee proceeds to foreclose on its mortgage, the first mortgagee must be satisfied completely before the second mortgagee is entitled to repayment.
3. Default on payment to the second mortgagee will constitute default on the first mortgage.
4. Tremont cannot prepay the second mortgage prior to its maturity without the consent of the first mortgagee.

Answer 55

If the second mortgagee proceeds to foreclose on its mortgage, the first mortgagee must be satisfied completely before the second mortgagee is entitled to repayment.

The first mortgagee has priority and must be paid in full before any payment is made to a subsequent mortgagee (second or third mortgagees).

Question 56

Which of the following statements regarding the recording of a real estate mortgage in a state having a notice-race statute is correct?

1. By recording, the mortgagee will acquire additional rights against the mortgagor.
2. The mortgagee must file a financing statement with the appropriate state agency.
3. The recording of a mortgage is necessary to defeat the claims of a purchaser for value who had knowledge of the mortgage.
4. The recording of the mortgage will be important in determining priority among parties who claim an interest in the real estate.

Answer 56

The recording of the mortgage will be important in determining priority among parties who claim an interest in the real estate.

A notice-race statute states that priority among mortgagees claiming an interest in a specific piece of property will be determined based upon the order in which the mortgages were recorded. The party to record first will have the highest priority. Thus, the recording of the mortgage in a state having a notice-race statute is important in determining priority among parties who claim an interest in the real estate.

Question 57

A mortgage on real property must

1. Be acknowledged by the mortgagee.
2. State the exact amount of the debt.
3. State the consideration given for the mortgage.
4. Be delivered to the mortgagee.

Answer 57

Be delivered to the mortgagee

A mortgage is an interest in real property used to secure payment for a loan. A mortgage must be delivered to the mortgagee to secure the obligation due to the mortgagee.

Question 58

Which of the following statements is correct with respect to a real estate mortgage?

1. It must be signed only by the mortgagor (borrower).
2. It must be recorded in order to be effective between the mortgagor and mortgagee.
3. It does not have to be recorded to be effective against third parties without notice if it is a purchase money mortgage.
4. It is effective even if not delivered to the mortgagee.

Answer 58

It must be signed only by the mortgagor (borrower).

Mortgage is an interest in real property and thus must satisfy Statute of Frauds

• Must be in writing and signed by party to be charged
  
  • Party to be charged in this case is mortgagor (i.e., party taking out mortgage)
• Must include description of property and debt to be incurred

Question 59

Dombres is considering purchasing Blackacre. The title search revealed that the property was willed by Adams jointly to his children, Donald and Martha. The language contained in the will is unclear as to whether a joint tenancy or a tenancy in common was intended. Donald is dead and Martha has agreed to convey her entire interest by quitclaim deed to Dombres. The purchase price is equal to the full fair market price of the property. Dombres is not interested in anything less than the entire title to the tract. Under the circumstances, which of the following is correct?

1. There is a statutory preference which favors the finding of a joint tenancy.
2. Whether the will created a joint tenancy or a tenancy in common is irrelevant since Martha is the only survivor.
3. Dombres will not obtain title to the entire tract of land by Martha’s conveyance.
4. There is no way or means whereby Dombres may obtain a clear title under the circumstances.

Answer 59

Dombres will not obtain title to the entire tract of land by Martha’s conveyance.

When the deed is unclear as to whether a joint tenancy or tenancy in common was intended, there is a statutory presumption in favor of tenancy in common. Thus, Donald and Martha were tenants in common, and when Donald died, his interest passed to his heirs. Thus, if Dombres wanted to obtain the entire title, he would have to purchase the interest of Donald’s heirs, as well as Martha’s interest.

Question 60

Which of the following warranties is(are) given by a general warranty deed?

• I.The grantor owns the property being conveyed.
• II.The grantee will not be disturbed in her possession of the property by the grantor or some third party’s lawful claim of ownership.
• III.The grantor has the right to convey the property.

1. I only.
2. I, II, and III.
3. I and III only.
4. II and III only.

Answer 60

All three.

A general warranty deed warrants that (1) the grantor owns the property being conveyed, (2) the grantee will not be disturbed in her possession of the property by the grantor or some third party’s lawful claim of ownership, and (3) the grantor has the right to convey the property.

Question 61

Ivor, Queen, and Lear own a building as joint tenants with the right of survivorship. Ivor donated his interest in the building to Day Charity by executing and delivering a deed to Day. Both Queen and Lear refused to consent to Ivor’s transfer to Day. Subsequently, Queen and Lear died. After their deaths, Day’s interest in the building consisted of

1. Total ownership due to the deaths of Queen and Lear.
2. No interest because Queen and Lear refused to consent to the transfer.
3. A 1/3 interest as a joint tenant.
4. A 1/3 interest as a tenant in common.

Answer 61

A 1/3 interest as a tenant in common.

When rights in property held in joint tenancy are conveyed without the consent of the other joint tenants, the new owner becomes a tenant in common with the remaining joint tenants.

Question 62

Dove Corp. began operating a hardware store in the current year after constructing a building at a total cost of $100,000 on land previously acquired for $50,000. In the current year, the land had a fair market value of $60,000. Dove paid real estate taxes of $5,000 in the current year. What is the total depreciable basis of Dove’s business property?

1. $100,000
2. $150,000
3. $155,000
4. $160,000

Answer 62

$100,000

The depreciable basis of business property would consist of the $100,000 cost of the building. Land is not depreciable property, and the $5,000 of real estate taxes that Dove paid would be deductible as an ordinary business expense.