RES EXPRESS

Question 1

RESPA would prohibit which of the following acts?

Steering

Paying of kickbacks

Blockbusting

Redlining

Answer 1

PAYING OF KICKBACKS

RESPA concerns itself only with educating consumers about the true costs of borrowing and standardizing lending practices. As such, referral “fees” are prohibited.

Question 2

A buyer assumes the mortgage. How is the owner relieved of the liability?

Subject to mortgage

Novation (or “full assumption)

Substitution

Graduation

Answer 2

Novation (or “full assumption)

Essentially, novation means to substitute a new contract for an old one; thus the holder of the original is relieved of his or her responsibilities.

Question 3

Which of the following is true if a Residential Contract to Buy and Sell form is marked to indicate the “Liquidated Damages” choice in case the buyer is in default?

Seller may keep earnest money and also sue for actual damages resulting from the buyer’s default.

Buyer may cure the default by offering money.

Earnest money and any other payments or things of value received from the buyer will be kept by the seller as seller’s sole remedy for buyer’s default.

Seller may be able to sue to force the buyer to perform under the contract.

Answer 3

EARNEST MONEY AND ANY OTHER PAYMENTS OR THINGS OF VALUE RECEIVED FROM THE BUYER WILL BE KEPT BY THE SELLER AS SELLER’S SOLE REMEMDY FOR BUYER’S DEFAULT

The seller may keep the earnest money and any other payments received from the buyer but has no other options. Liquidated damages are defined as a predetermined sum that becomes the seller’s sole and only remedy for default by the buyer.

Question 4

What is the primary difference between the Commission-approved deed of trust forms?

Forms contain different provisions for assumption of the loan upon sale of the property.

Forms are specific for public trustee or private trustee transactions.

Forms are specific for residential, agricultural, and investment loans.

Forms contain different provisions depending on the loan program to be used for funding the loan.

Answer 4

FORMS CONTAIN DIFFERENT PROVISIONS FOR ASSUMPTION OF THE LOAN UPON SALE OF THE PROPERTY

The forms contain different provisions for assumption of the loan upon sale of the property. Three versions are approved: Strict Due on Sale, Qualified Assumption, and Feely Assumable upon Sale of the Property.

Question 5

Which of the following is TRUE if no box is checked for the Appraisal Condition section of the Residential Contract to Buy and Sell?

The form has been improperly completed.

The buyer will be released from the contract if a new loan is refused due to a low appraisal.

The seller will have the ability to terminate the contract if the appraisal is substantially higher than the selling price.

The buyer will be able to obtain a VA or FHA loan, but the loan will not be subject to the appraisal.

Answer 5

THE FORM HAS BEEN IMPROPERLY COMPLETED

At least 1 option should be checked or the form has been improperly completed. Either the appraisal provision is to be waived, or it will apply to a specific loan or to the buyer’s evaluation of a cash purchase or loan assumption.

Question 6

Andrew is selling his property and has no knowledge of any plumbing system problems. In fact the pipes are corroded and will require replacement very soon. How should Andrew respond in the seller’s property disclosure when asked if the seller has any knowledge of plumbing system problems?

Yes

No

I don’t know

The seller would not be the one required to respond to this question.

Answer 6

NO

Andrew should answer “No” because he has no knowledge of any problems at the time he completed the form.

Question 7

When the lender under a deed of trust requires title insurance, who would be the most likely person to pay for it?

The mortgagee

The trustee

The trustor

The beneficiary

Answer 7

THE TRUSTOR

“Trustor” is another name for the borrower and “trustee” is a “supposedly” neutral third party who holds naked legal title, the right to foreclose at the instructions of the beneficiary for non-payment of a promissory note. The beneficiary is the lender in a Deed of Trust. Even though it’s the lender who requires the insurance to protect his/her position, it’s the borrower who pays for it.

Question 8

Usury MOST nearly means

making loans without the benefit of co-signors.

lending money at fluctuating interest rates.

redlining.

illegal interest.

Answer 8

ILLEGAL INTEREST

Each state sets its own ceiling for the maximum interest rate lenders may charge. Rates above that ceiling are considered usurious and illegal. No reputable lender exceeds those rates and those that make a practice of it are commonly known as loan sharks.

Question 9

All of the following are true of conventional loans except what?

They are made to the buyer without governmental insurance or guarantee.

The policy requirements of the lenders are not uniform.

The qualification requirements are uniformly fixed by state law.

They require a higher down payment than non-conventional loans.

Answer 9

The qualification requirements are uniformly fixed by state law.

Not only are guidelines not uniform, qualification standards can vary enormously from lender to lender. There are no state-mandated qualifying requirements for conventional loans.

Question 10

A mortgage company makes a number of loans to be assembled into one package and sold to permanent investors. This process is an example of interim financing to the mortgage company and is called

blanket financing.

package financing.

warehousing.

discounting.

Answer 10

WAREHOUSING

Warehousing refers to the process whereby banks and other lenders make mortgage loans to consumers for the purpose of quickly selling those loans on the secondary market. The “warehousing” occurs when individual loans are bundled, often with a common element such as the size of the mortgage or credit worthiness of the borrowers, and sold as a single unit.

Question 11

The maximum permissible amounts are based on “loan to value ratios”

based on sale price or appraised value, whichever is lower.

not determined by federal statute in the case of FHA loans.

based on the banker’s competitive market analysis.

fixed by law for conventional loans.

Answer 11

BASED ON SALE PRICE OR APPRAISED VALUE, WHICHEVER IS LOWER

Although various banks, mortgage companies and programs have different LTVs, the lower, more conservative number is used.

Question 12

In the section on Purchase Price and Terms in a Mandatory Residential Contract to Buy and Sell, which of the following is TRUE concerning the entry for cash at closing?

It represents the total amount the buyer should plan to bring to closing.

It should match the good-faith estimate provided with the HUD-1 form.

It represents the approximate amount the seller will receive at closing.

It does not include the buyer’s closing costs, such as loan fees.

Answer 12

IT DOES NOT INCLUDE THE BUYERS CLOSING COSTSM SUCH AS LOAN FEES

The line item of cash at closing is entered in order to complete the math showing the sources of funds that equal the total purchase price. The amount does not include closing costs or new loan fees and is not intended to represent final figures.

Question 13

Which type of loan will result in the largest reduction of the principal balance most quickly?

5. 5% over 30 years
6. 75% over 20 years

6% over 15 years

7% over 20 years

Answer 13

6% OVER 15 YEARS

The shorter the term of a loan, the more quickly principal is paid down and the faster equity builds. A 15-year loan at 6% interest rate would provide the LARGEST and FASTEST reduction in the principal. Interestingly, the payments on a 15-year loan are often not that much higher than the same loan with a 30-year payback.

Question 14

The inspection provision of the Residential Contract to Buy and Sell allows the buyer to terminate the contract in which of the following situations?

If the property is unsatisfactory in the buyer’s subjective discretion.

If the seller refuses to correct certain defects in which case the buyer may do so immediately.

Only if a licensed inspector determines that there are significant problems with the property.

Only after listing unsatisfactory conditions that cause the buyer to terminate.

Answer 14

IF THE PROPERTY IS UNSATISFACTORY IN THE BUYERS SUBJECTIVE DISCRETION

The buyer solely determines the conditions a seller must correct. A Resolution Deadline is set, by which time the seller must correct the conditions; 1 day after that deadline, the contract will terminate automatically unless the buyer withdraws the objections.

Question 15

The amount of earnest money deposit is determined by

the real estate licensing statutes.

an agreement between the parties.

the broker’s office policy on such matters.

the acceptable minimum of 5 percent of the purchase price.

Answer 15

AN AGREEMENT BETWEEN THE PARTIES

Earnest money is a demonstration of sincerity on the part of the purchaser and provides preliminary evidence that he or she is financially capable of completing the transaction. While it should be substantial enough to meet these two criteria, there is no set or customary amount or percentage.

Question 16

The Closing Disclosure (CD) form is

the document used to make Fair Housing complaints.

provided after signing a listing agreement.

a statement of actual charges and adjustments.

the document that must be displayed in brokerages.

Answer 16

a statement of actual charges and adjustments.

The Closing Disclosure (CD) is a standard form in use which is used to itemize services and fees charged to the borrower by the lender. The form is called for in the TILA RESPA Integrated Disclosure (TRID).

Question 17

A tenant leased 3,000 square feet at $10 per square foot and 8% of gross income. The total annual rent she paid was $60,000. What was the gross income on which she paid percentage rent?

$120,000

$160,000

$300,000

$375,000

Answer 17

375000

At $10 per square foot, the tenant’s base rent is $30,000. Since the total rent was $60,000, that means the remaining $30,000 was due to the gross sales percentage. Since that figure is 8%, simply divide $30,000 by .08 to arrive at $375,000.

Question 18

Owner Grace’s property has been foreclosed. After the property was sold for $340,000, she still owed $60,000 to the lender. The lender may be able to get a personal judgment against Grace for the $60,000. This is called a

leverage lien.

partition lawsuit.

reverse foreclosure judgment.

deficiency judgment.

Answer 18

DEFICIENCY JUDGEMENT

A deficiency judgment enables the lender to attach and foreclose a judgment lien on other real or personal property the borrower owns.The lender’s ability to pursue such a judgment may be limited, however.

Question 19

Which of the following is NOT a closing document?

Agent-Seller Agreement

Sales Contract

Deed of Trust

Answer 19

AGENT-SELLER AGREEMENT

Question 20

Which of the following is true of a second mortgage?

It has priority over a first mortgage.

It cannot be used as a security instrument.

It is subject to termination with mortgagor notification.

It is usually issued at a higher rate of interest.

Answer 20

IT IS USUALLY ISSUED AT A HIGHER RATE OF INTEREST

Question 21

In an installment land contract, what type of title did the seller retain?

Joint

Legal

Equitable

Record

Answer 21

LEGAL

In this type of contract, the BUYER doesn’t receive legal (i.e. statutory) title to the property until the final payment is made. The BUYER receives equitable title at closing, and upon final payment to the seller receives legal title.

Question 22

A broker and seller terminate the listing contract. An offer is received in the mail by the broker after the termination of the listing contract. The offer is for full price and includes all of the terms and conditions of the seller. Why is this NOT a valid contract?

There is no consideration involved.

No acceptance has been given.

No earnest money has been enclosed.

There is no current listing agreement.

Answer 22

NO ACCEPTANCE HAS BEEN GIVEN

It has not been presented to or accepted by the owner. Remember, contracts aren’t valid until both parties agree. However, even though the listing agreement has expired, the offer should be presented. If it’s accepted and the transaction closes, the broker will generally be entitled to his or her full commission.

Question 23

Discrimination is prohibited in lending practices under

ECOA.

RESPA.

Truth in Lending Act.

FNMA.

Answer 23

ECOA - EQUAL CREDIT OPPORTUNITY ACT OF 1922

prohibits a broad spectrum of discriminatory lending practices, including the granting or denial of credit or the costs associated with borrowing based on race, gender, marital status, source of income (e.g., public assistance) and other factors.

Question 24

When an out-of-state investor sells a property in Colorado, which of the following is required of the closing entity?

Withhold up to 2% of the selling price as a state transfer tax.

Withhold up to 2% of the selling price as possible income tax liability.

Withhold up to 2% of the net proceeds of the sale as sales tax.

Withhold up to 2% of the proceeds of the sale as possible income tax.

Answer 24

WITHHOLD UP-TO 2% OF THE SELLING PRICE AS POSSIBLE INCOME TAX LIABILITY

When the seller is out of state after closing, the Colorado Department of Revenue requires withholding of the lesser of 2% of the selling price or the entire net proceeds due to the seller at closing.

Question 25

The title to real estate passes when a valid deed is

signed and recorded.

delivered and accepted.

filed and uploaded to the cloud.

executed and mailed.

Answer 25

DELIVERED AND ACCEPTED

Question 26

How may 2 or more owners of a single property in Colorado hold title?

Joint tenancy with right of survivorship

Tenancy by the entirety

Tenancy in severalty

Community property

Answer 26

JOINT TENEANCY W RIGHT OF SURVIVORSHIP

Question 27

The seller and the buyer agreed to a purchase price of $270,000 with the closing to occur on June 15. The seller’s loan balance after the June 1 payment was $170,000. with an interest rate of 6%.The monthly payment was $1,800 principal and interest. What was the loan balance the day of closing, and how much interest did the seller owe the bank?

Loan balance $171,800; interest due $850

Loan balance $170,000; interest due $2,550

Loan balance $270,000; interest due $862.50

Loan balance $170,000; interest due $425

Answer 27

Loan balance $170,000; interest due $425

Although many types of loans can become more complex in their calculations of remaining principal and interest at a particular point in time, in this case the interest portion of the payment is calculated simply by multiplying $170,000 by 6% and dividing by twelve. That results in monthly interest of $850, with half that amount, or $425 added to the principal payment at closing.

Question 28

If additional information is not provided, which of the following would be in violation of Truth in Lending?

“FHA financing available”

“Assumable loan”

“No down payment required.”

“Easy financing terms”

Answer 28

“No down payment required.”

Question 29

On an 8% straight loan of $6,071, the borrower paid total interest of $1,700. How long did he have the loan?

30 months

36 months

42 months

48 months

Answer 29

42 MONTHS

Eight percent of $6,071 is $486 per year or $40.50 per month. $1,700 divided by $40.50 means the borrower held the loan for forty-two months.

Question 30

When a prospective buyer makes a written purchase offer that the seller accepts, then the

buyer may take possession of the real estate.

seller grants the buyer ownership rights.

buyer receives legal title to the property.

buyer receives equitable title to the property.

Answer 30

buyer receives equitable title to the property.

“Equitable title” means that the prospective buyer has obtained the right to acquire ownership of a property currently owned and occupied by another.

Question 31

To assign a contract for the sale of real estate means to

record the contract with the county recorder’s office.

permit another broker to act as agent for the principal.

transfer one’s rights under the contract.

allow the seller and the buyer to exchange positions.

Answer 31

TRANSFER ONES RIGHTS UNDER THE CONTRACT

Assigning a contract means to transfer it to another.

Question 32

What recourse do the buyers have if they determine that property they have contracted to purchase is within a special taxing district?

They may demand that the seller pay the indebtedness of such a district.

They may petition to be excluded from the district.

The sales contract must be automatically terminated.

They may terminate the contract by written notice to the seller.

Answer 32

THEY MAY TERMINATE THE CONTRACT BY WRITTEN NOTICE TO THE SELLER

Termination requires written notice of intent to terminate and the buyers must provide written notice to the seller no later than the Off-Record Matters date. However, termination of the sales contract is not required.

Question 33

A Residential Contract to Buy and Sell does NOT require inclusion of which of the following?

Fireplace screens and grates

Leased security systems

Parking and storage facilities as described in a condominium community

Window coverings on the property on the date of the sales contract

Answer 33

LEASED SECURITY SYSTEMS

The Inclusions and Exclusions section of the Contract does not specify inclusion of items likely to be leased, such as security systems, water softeners, smoke/fire detectors and satellite systems. These are included only if the appropriate box is checked.

Question 34

Under an FHA graduated payment mortgage, which of the following fluctuates over the term of the loan?

Interest rate

Monthly payments

Finance charge

Annual rate

Answer 34

MONTHLY PAYMENTS FLUCTUATE

Graduated payment mortgages are aimed particularly at young families who expect to see their earnings rise over the next five to ten years. As such, payments for interest and principal are less than the actual costs in the early years and gradually rise to make up the difference.

Question 35

Who is NOT an originator of primary loans?

Savings and loans

Credit unions

Commercial banks

FHA

Answer 35

FHA

The FHA encourages lenders to make these low-interest, low-down payment loans by insuring them against default. It does not actually lend money itself.

Question 36

A mortgage broker

arranges loans between borrowers and investors.

is a lender.

buys mortgages in the secondary mortgage market.

buys mortgages and resells them at a profit.

Answer 36

ARRANGES LOANS BETWEEN BORROWERS AND INVESTORS

Mortgage brokers function much like independent insurance agents and represent a variety of lenders. Their role is to match the circumstances of individual buyers with the mortgage program best suited to their needs.

Question 37

A house sold for $420,000. The buyer made a 20% down payment. Monthly interest on the loan was $1,400. What was the interest rate on the loan?

4%

7%

5%

9%

Answer 37

5%

With a 20% down payment of $84,000, the buyer had a mortgage of $336,000. Since interest is expressed in annual terms, multiply the monthly payment of $1,400 times twelve. That yields an annual interest cost of $16,800, divided by the principal balance of $336,000, yields an annual rate of 5%.

Question 38

Which of the following is required in the event of a dispute between the parties relating to the Contract to Buy and Sell?

The parties must accept the solution presented by the qualified mediator chosen by the parties.

The parties must submit the dispute to arbitration if mediation is unsuccessful.

The parties may immediately decide to mediate or seek arbitration or litigation.

The parties must mediate in good faith to seek a settlement for up to 30 days.

Answer 38

THE PARTIES MUST MEDIATE IN GOOD FAITH TO SEEK SETTLEMENT FOR UPTO 30 DAYS

For dispute resolution, the contract only requires nonbinding mediation. If mediation does not reach a voluntary settlement after 30 days, either party may proceed to arbitration or litigation.

Question 39

Which of the following is TRUE if a buyer receives a property inspection report indicating several apparently serious problems on the day after the Inspection Objection Deadline?

The buyer can compel the seller to correct these serious defects before closing.

The buyer missed the opportunity to object based on inspection issues, and the contract is still in force.

The buyer may still object because the report came after the deadline.

The buyer is in default for missing the deadline, and the seller may terminate the contract.

Answer 39

THE BUYERS MISSED THE OPPORTUNITY TO OBJECT BASED ON INSPECTION ISSUES, AND THE CONTRACT IS STILL IN FORCE

Obtaining the inspection and submitting any objections prior to the deadline is the responsibility of the buyer. Based on the inspection provision of the Residential Contract to Buy and Sell, the inspection contingency is waived if the buyer does not file an objection, regardless of the reason for not doing so.

Question 40

A VA loan may be granted for the purchase of a one-family to four-family property if

the veteran certifies the rent collected will equal the mortgage payments.

the loan will be amortized for not more than 20 years.

the down payment will be at least 10%.

the veteran agrees to live there.

Answer 40

THE VETERAN AGREES TO LIVE THERE

Question 41

The Smiths’ purchased a residence for $750,000. They made a down payment of $150,000 and agreed to assume the seller’s existing mortgage, which had a current balance of $230,000. The Smiths’ financed the remaining $370,000 of the purchase price by executing a second mortgage whereby the seller became a mortgagee. This type of loan is called a

wraparound mortgage.

package mortgage.

balloon note.

part (junior) purchase money mortgage.

Answer 41

PART (JUNIOR) PURCHASE MONEY MORTGAGE

Also known as a “purchase money second,” this is a streamlined and often cost-effective financing option.

Question 42

The Residential Contract to Buy and Sell includes various provisions that call for notification to one of the parties about various events or objections. Which of the following is TRUE with regard to the wording of the approved form?

Notice may be sent to the broker but is effective only when received by the party.

Notice is effective when received by either the party or the broker working with that party.

Notice must be directly to the party and not its broker.

Notice to the party must be by “normal channels of communication,” such as telephone, mail, or fax

Answer 42

NOTICE IS EFFECTIVE WHEN RECEIVED BY EITHER THE PARTY OR THE BROKER WORKING WITH THAT PARTY

The notice is effective when received by either the other party or the broker working with that party. Because the contract form provides for notice in this manner, the contract would have to be altered if the form was unsatisfactory.

Question 43

Owner Stan has been defaulting on mortgage payments and owes more than his property is worth. Stan’s lender is allowing him to sell the property for less money than necessary to satisfy the loan. The bank has permitted Stan to do what?

Commit tax fraud

Short sale the property

Deed the property to HUD

“Flip” the property

Answer 43

SHORT SALE OF THE PROPERTY

Question 44

Who administers Colorado tributary water rights and well permits?

Colorado legislature

Colorado Supreme Court

Colorado Ground Water Commission

State engineer

Answer 44

STATE ENGINEER

A Colorado state engineer administers tributary water. Nontributary water in six defined water basins is administered by the Colorado Ground Water Commission.

Question 45

Why is the RESPA closing statement allowed to be examined on or before closing?

To allow the buyer to see costs at or before closing to see if he/she can get the loan at a cheaper price

To make sure the title insurance came from the right company

To check for errors

To provide for special fees to specific parties for business related to the real estate transaction

Answer 45

TO CHECK FOR ERRORS

This is not a step that should be dismissed. With the increased volume in home mortgages, the fact is a significant amount of closing statements do contain errors and it’s easer and better to correct them before closing than after.

Question 46

Which of the following describes a mortgage that requires principal and interest payments at regular intervals and is called the liquidation of debt by periodic installment until the debt is satisfied?

Amortized loan

Annuity loan

Acceleration loan

Assemblage loan

Answer 46

AMORTIZED LOAN

This question is a formal description of amortized loans–the most common form of mortgage where monthly payments include both principal and interest (as opposed to balloon or interest-only seconds). Typically, monthly payment amounts remain constant, while the interest portion is higher in the earlier years, giving homeowners a larger tax deduction with higher percentages of principal paid in the later years.

Question 47

Which of the following is TRUE concerning listings based on a “net price?”

They are illegal in Colorado.

They are more profitable because no minimum is set on the amount of commission.

They are legal in Colorado as long as the seller agrees, and the broker has the necessary form prepared by an attorney representing one of the parties to the transaction.

They are permissible with approval of the Colorado Real Estate Commission.

Answer 47

THEY ARE LEGAL IN COLORADO AS LONG AS THE SELLER AGREES, AND THE BROKER HAS THE NECESSARY FORM PREPARED BY THE ATTOURNEY REPRESENTING ONE OF THE PARTIES TO THE TRASNACTION

Net listings are legal in Colorado but because of the potential for conflict of interest between the seller and broker they can be problematic. A Broker can only use commission-approved forms and if another listing contract is necessary, an attorney representing one of the parties (buyer or seller) must prepare it.

Question 48

The primary purpose of Truth in Lending is to

control interest rates on behalf of the consumer.

control the true costs to close a transaction.

prevent usury.

disclose the true costs of obtaining credit.

Answer 48

DISCLOSE THE TRUE COSTS OF OBTAINING CREDIT

Truth in Lending, otherwise known as Regulation Z, is intended to do away with deceptive financing tactics, especially those involving hidden costs–for example, advertising a $250 car lease as zero-down and then tacking a $1,200 upfront payment at the time of contract disguised as an “incidental” acquisition fee.