Test Exam #3

Question 1

Agency Law Disclosure

Answer 1

The Agency Law Disclosure form is NOT mandated to be presented to all parties when listing,
selling, buying or exchanging: trust deed notes.

All purchase agreements for targeted transactions are covered by agency law disclosure rules. Since the sale of trust deed notes is not a targeted transaction, it does not fall under the purview of the agency law disclosure.

Question 2

The stability of a residential neighborhood is maintained by all of these, except:

a. a high home sale turnover rate and increasing population density.
b. being located in the pathway of growth.
c. having many family households with school age children.
d. the conformity of residents with similar occupations.

Answer 2

The stability of a residential neighborhood is maintained by all of these, except a high home sale turnover rate and increasing population density.

This is an except question. Stability and a high turnover may be seen as the converse of one another. The alternative answer selections either support stability or at least do not directly work against it.

Question 3

The cost of a capital improvement and its effect on market value are:

a. always the same. c. generally the same.
b. never the same. d. rarely the same.

Answer 3

10. The cost of a capital improvement and its effect on market value are:
    rarely the same.

The cost of an improvement and its effect on value are rarely the same. The contribution of the Improvement is usually less than the cost. An appraiser is most often concerned with the added value - contribution - of the Improvement.

Question 4

15. A lease is classified as a(n):
    a. freehold estate. c. personal property interest.
    b. estate at sufferance. d. remainder in interest.

Answer 4

15. A lease is classified as a(n):
    personal property interest.

A lease is a personal property interest. None of the alternative answer choices speak to what a lease is. A lease can also be a less than Freehold estate, as a freehold estate constitutes ownership. An estate at sufferance is not a lease since the occupant has no right to occupy the property. A remainder in interest is future interest that will become a freehold estate once title has been transferred.

Question 5

16. Which of the following is an example of an implied covenant under a lease?
    a. Possession. c. Quiet enjoyment.
    b. Nuisance. d. Rental amount.

Answer 5

16. Which of the following is an example of an implied covenant under a lease?
    Quiet enjoyment.

The promise of quiet enjoyment is an implied Covenant the lessor makes the lessee. A covenant is a promise.

Question 6

18. An owner of an investment firm has a securities dealer license, but not a real estate broker
    license. The owner advertises and sells real estate for their clients. Since these transactions
    require a real estate broker license, who will prosecute the owner for violating the real estate
    law?
    a. The U.S. Attorney General. c. The California Real Estate Commissioner.
    b. The California Attorney General. d. The local District Attorney

Answer 6

18. An owner of an investment firm has a securities dealer license, but not a real estate broker license. The owner advertises and sells real estate for their clients. Since these transactions require a real estate broker license, who will prosecute the owner for violating the real estate law?
    The local District Attorney

The local district attorney is the authority that will prosecute the owner in this case. This is not a federal crime subject to action by the US attorney general, and the department of real estate can only discipline licensees. The remaining answer choice is the state attorney general, which is not typically interested in this type of dispute.

Question 7

24. Ethics is most nearly defined as:
    a. a broker’s responsibility to the public, their principal and other brokers.
    b. honesty.
    c. sincerity.
    d. fiduciary.

Answer 7

24. Ethics is most nearly defined as:
    a. a broker’s responsibility to the public, their principal and other brokers.

Given the choices offered, answer selection a, a broker’s responsibility to the public, their principal and other Brokers is the best description of Ethics in real estate. Each of the alternative answer choices may seem appropriate, but not sufficiently inclusive.

Question 8

26. The least protection from a defect in a property’s title is provided by a(n):
    a. standard policy of title insurance. c. guarantee of title.
    b. American Land Title Association d. abstract of title.
    (ALTA) title policy

Answer 8

26. The least protection from a defect in a property’s title is provided by a(n):
    abstract of title

This is a least question. An abstract of title is simply a report showing the chain of title issued by the title company after a search of title records. It does not provide protection from title defects, and a disclaimer in the report indemnifies the company against any missing or inaccurate records. Answer choices a standard policy of title insurance and be American Land Title Association title policy are both insurance policies. C guarantee of title is a formal guarantee by the title company.

Question 9

28. A grant deed signed with an “X” is:
    a. valid. c. unenforceable.
    b. voidable. d. void.

Answer 9

28. A grant deed signed with an “X” is:
    a. valid.

A grant deed signed with an X is valid. However it will require proof that the ex was an intended signature by the grantor.

Question 10

30. A dragnet clause in a mortgage covers:
    a. future court actions that might be anticipated.
    b. any additional parties added in the future to the loan.
    c. whatever future advances may be made on a loan.
    d. all activities of the heirs and assignees of the borrower.

Answer 10

30. A DRAGNET clause in a mortgage covers:
    c. whatever future advances may be made on a loan.

In the context of mortgages, Dragnet reflects any future advances made to or on behalf of the borrower.

Question 11

32. Consider a recorded trust deed that refers to a template of standard clauses contained in a
    previously recorded trust deed. The previously recorded trust deed is called a
    trust deed.
    a. disguised c. preliminary
    b. fictitious d. long form

Answer 11

32. Consider a recorded trust deed that refers to a template of standard clauses contained in a
    previously recorded trust deed. The previously recorded trust deed is called a FICTITIOUS TRUST DEED.
    b. fictitious

A previously recorded trust deed containing standard clauses is a fictitious trust deed.

Question 12

33. Economic rent is rent:
    a. received for similar space in an open market free of duress or otherwise affected by external conditions.
    b. the property would produce in a perfect market.
    c. necessary to produce a reasonable return on investment.
    d. allowed by government controls, such as federal monetary policy or local rent control
    ordinances.

Answer 12

33. Economic rent is rent:
    a. received for similar space in an open market free of duress or otherwise affected by external conditions.

Another name for economic rent is market rent. Given that information, answer Choice A seems more obvious. Also, note the length of the answer and the degree of detail used in the answer, which is also an indication that it is likely correct.

Question 13

34. Two similar locations are leased on a long term basis, one for a government building and
    the other for a used car lot. Using the capitalization approach to appraise the properties, the
    government building would demand a capitalization rate (cap rate).
    a. lower c. higher
    b. similar d. Cannot be determined.

Answer 13

34. Two similar locations are leased on a long term basis, one for a government building and
    the other for a used car lot. Using the capitalization approach to appraise the properties, the
    government building would demand a capitalization rate (cap rate).
    a. lower

A government building would demand a lower capitalization rate (cap rate) then a used car lot. Cap REITs move in the same direction as risk and create a change of value opposite to their Direction. Thus, a higher risk, such as in the case of a used car lot, will require a greater return on investment (IE a higher cap rate) and a lower value.

Question 14

35. Which of the following does not contribute to obsolescence?
    a. Outdated appliances.
    b. Changes in flight pattern from local airport.
    c. Misplaced improvements.
    d. Physical deterioration.

Answer 14

35. Which of the following does not contribute to obsolescence?
    d. Physical deterioration.

This is a not question. Physical deterioration (wear-and-tear) is not obsolescence. Obsolescence is most often seen as items that are out of style or out of date. In a neighborhood it is something that reduces value, such as a changed flight pattern.

Question 15

39. An agent is an individual who represents another, called the:
    a. cooperating broker. c. appraiser.
    b. principal. d. trustee.

Answer 15

39. An agent is an individual who represents another, called the:
    b. principal

An agent is an individual who represents another, called the principal. Both salespersons and Brokers are agents. However, the representation of a salesperson is in direct since they represent their employee broker who then represents the principle.

Question 16

40. Agency, whatever the type, is created by:
    a. membership in a real estate trade union.
    b. the conduct of each broker and their agents when interacting with a buyer or seller in a
    transaction.
    c. membership in a multiple listing service (MLS).
    d. acquisition of a real estate license from the Department of Real Estate (DRE).

Answer 16

40. Agency, whatever the type, is created by:
    b. the conduct of each broker and their agents when interacting with a buyer or seller in a
    transaction.

This is an opportunity to be reminded that agency is something agreed to between a broker and a principal. The membership in a trade group or Union has nothing to do with it.

Question 17

42. The Energy Efficient Ratio (EER) rating concerns:
    a. air conditioning and heating units.
    b. environmental conservation requirements.
    c. electrical energy usage.
    d. utility efficiency of an income-producing property

Answer 17

42. The Energy Efficient Ratio (EER) rating concerns:
    a. air conditioning and heating units.

The energy efficient ratio (ER are) rating is listed on newer heating and air conditioning units. Superior ratings on the product and energy star label.

Question 18

45. If an appraiser finds the interior walls and the inside of the exterior walls have a similar
    temperature, this indicates:
    a. the doors and windows are well sealed.
    b. the insulation is sufficient.
    c. more ventilation is needed on the property.
    d. the heater is sufficient.

Answer 18

45. If an appraiser finds the interior walls and the inside of the exterior walls have a similar
    temperature, this indicates:
    b. the insulation is sufficient.

If interior walls and the inside of the exterior walls have a similar temperature, this indicates the insulation is sufficient. When reading the question carefully, notice nothing is said about Windows and Doors, precluding answer selection a. Answer Choice C and D are possible, but the intent of the question is to recognize the value of insulation.

Question 19

56. A resident of Nebraska who owns property in California dies while in Vermont. The probate
    procedures for this property are handled in:
    a. Nebraska. c. California or Nebraska.
    b. California. d. federal court.

Answer 19

56. A resident of Nebraska who owns property in California dies while in Vermont. The probate
    procedures for this property are handled in:
    b. California

The property is probated in the state where it is located regardless of the owners residency or place of death.

Question 20

58. Who is primarily responsible for disclosing to a buyer the existence of a Mello Roos tax
    assessment on a parcel of real property?
    a. The escrow officer. c. The selling agent.
    b. The listing agent. d. The seller.

Answer 20

58. Who is primarily responsible for disclosing to a buyer the existence of a Mello Roos tax
    assessment on a parcel of real property?
    d. The seller.

All property disclosures are ultimately the responsibility of the seller.

Question 21

61. A land sales contract clause which prohibits any prepayment at any time after the year of the
    sale:
    a. is not enforceable.
    b. voids the contract.
    c. needs to be complied with by the vendee.
    d. is voidable at the discretion of the vendee after five years.

Answer 21

61. A land sales contract clause which prohibits any prepayment at any time after the year of the
    sale:
    a. is not enforceable.

Prohibiting prepayment under a land sales contract is unenforceable after the first 12 months following the sale. With both land sales contracts and Trust deed loans, there are limits on how long A lender can penalize a borrower for prepayment of the loan.

Question 22

Hard Money Loans

Answer 22

The amount of the fee a hard money lender May charge is controlled by the business and professions code. The total fee is limited based on the length of the loan term, whether it is a First Trust deed or Junior mortgage, and the amount of the loan.

A commission on First Trust Deeds: with a term:
less than 3 years is 5%.
3 years or greater is 10%

On a junior trust deed and note, the maximum commission for a term:
less than 2 years is 5%,
2 years but less than 3 years is 10%
3 years or greater, the maximum is 15%.

Question 23

80. A property owner suffers a loss due to the fraudulent misrepresentation of their broker. The
    owner’s first action is to:
    a. immediately file a claim with the Real Estate Commissioner.
    b. immediately seek damages from the Real Estate Recovery Fund.
    c. sue the broker for damages.
    d. Report their broker’s misconduct to the buyer’s broker.

Answer 23

80. A property owner suffers a loss due to the fraudulent misrepresentation of their broker. The
    owner’s first action is to:
    c. sue the broker for damages.

If an owner suffers a loss due to fraudulent misrepresentation by their broker, the owners first action is to sue the broker. Money losses can only be recovered from the real estate Recovery Fund after successfully winning a judgement against the broker and being unable to collect from them.

Question 24

81. Under the Agency Law, all of the following duties are required of an agent, except:
    a. preparing a five-year pro forma for any income property greater than four residential
    units.
    b. recording all deeds or delivering them to the appropriate party.
    c. disclosing all material facts about a listed property.
    d. treating all parties to a transaction fairly.

Answer 24

81. Under the Agency Law, all of the following duties are required of an agent, except:
    a. preparing a five-year pro forma for any income property greater than four residential units.

This is an except question. Answer selection a preparing a pro forma is optional and up to the discretion of the agent. It is not a stated requirement under agency law.

Further, the agency law disclosure does not apply to residential income property containing more than four units. This question offers an opportunity to note some of the duties of an agent while also recognizing the limits of responsibility.

Question 25

89. Chuck wills the family estate to Matt with the provision that title will transfer when he marries.
    This is an example of a(n):
    a. covenant. c. condition precedent.
    b. restriction. d. condition subsequent.

Answer 25

89. Chuck wills the family estate to Matt with the provision that title will transfer when he marries.
    This is an example of a(n):
    c. condition precedent.

A condition precedent is a provision in an agreement calling for the occurrence of an event or performance of an act before a person is required to further perform or an act is to occur. In the context of this question, the condition precedent is that Matt marries before title to the Family Estate will transfer to him. A condition subsequent is the opposite, such as a reversionary transfer after a divorce occurs.

Question 26

91. Failure to provide the Agency Law Disclosure in targeted transactions:
    a. puts the agent’s fee at risk of loss.
    b. renders the transaction invalid.
    c. affects only the listing half of a commission.
    d. affects only the salesperson’s share of the commission.

Answer 26

91. Failure to provide the Agency Law Disclosure in targeted transactions:
    a. puts the agent’s fee at risk of loss.

The failure to disclose the agency relationship at the earliest available opportunity puts the agent’s fee at risk.

Question 27

102. A residential buyer needs to be notified about the proximity of a military establishment that
     contains explosives if the establishment is within ____ mile(s) of the property.
     a. one c. five
     b. two d. eight

Answer 27

102. A residential buyer needs to be notified about the proximity of a military establishment that
     contains explosives if the establishment is within ____ mile(s) of the property.
     a. one

The existence of a military installation needs to be disclosed if it is located within 1 mile of the subject property.

Question 28

107. In order to be enforceable, a land sales contract needs to:
     a. be in writing.
     b. include a mediation clause.
     c. state the appropriate vesting for the vendee.
     d. have a term no greater than 10 years.

Answer 28

107. In order to be enforceable, a land sales contract needs to:
     a. be in writing.

Under the statute of frauds, a real estate contract, such as a land sales contract or listing, needs to be written to be enforceable.

Question 29

117. Which of the following are classified as finance charges under the federal Truth-in-Lending
     Act (TILA)?
     a. Document preparation fees. c. Title insurance costs.
     b. Loan assumption fees. d. Appraisal fees.

Answer 29

117. Which of the following are classified as finance charges under the federal Truth-in-Lending
     Act (TILA)?
     b. Loan assumption fees.

Only answer selection B loan assumption fees are classified as finance charges. The key words in the question are finance charges. All the alternate answer selections are expenses involved in originating a loan..

Question 30

118. What does “discounting” refer to in the context of real estate finance?
     a. The process of calculating the annual percentage rate (APR) of a given loan.
     b. Liquidating real property that secures a debt in default.
     c. The loan proceeds disbursed to the lender when reselling a note and trust deed.
     d. Subordinating a debt.

Answer 30

118. What does “discounting” refer to in the context of real estate finance?
     c. The loan proceeds disbursed to the lender when reselling a note and trust deed.

A mortgage can be resold to an investor after it is originated. In order to convert a future income stream Into Cash, the lender needs to Discount its value. In other words, a dollar in the future may be worth $0.80 cash today.

Question 31

120. The Franchise Investment Law exists to protect:
     a. sub-franchisors who have an exclusive geographic territory.
     b. prospective franchisees prior to the purchase of a franchise.
     c. investors in franchisor corporations.
     d. the general public.

Answer 31

120. The Franchise Investment Law exists to protect:
     b. prospective franchisees prior to the purchase of a franchise.

The franchise investment law is a public protection for a franchisee, the buyer of the franchise. Laws such as this are designed to protect the buying public.

Question 32

124. Which of these documents provides the most protection to a property owner in default?
     a. A first trust deed. c. A land sales contract.
     b. A mortgage. d. A fixed-term lease with an option to buy

Answer 32

124. Which of these documents provides the most protection to a property owner in default?
     b. A mortgage.

A mortgage requires a Judicial foreclosure and thus offers the greatest protection as the owner is provided a longer. Of time to cure the default. A trust deed is generally foreclosed through a non-judicial trustee sale, which can occur more quickly and provide little opportunity for the owner to cure the default. A land sales contract is a quiet title court process, and a default on a fixed term lease with an option to buy is remedied with an unlawful detainer action, both of which are relatively short and simple legal processes.

In the case of a mortgage, if a borrower does not pay the associated loan, the property must be foreclosed on in court so that the lender can sell it. A deed of trust, on the other hand, does not require a court process. The trustee can sell the property without a court order if the trustor does not pay.

Whether you have a deed of trust or a mortgage, they both serve to assure that a loan is repaid, either to a lender or an individual person. A mortgage only involves two parties – the borrower and the lender. A deed of trust adds an additional party, a trustee, who holds the home’s title until the loan is repaid.

A deed of trust has a crucial advantage over a mortgage from the lender’s point of view. If the borrower defaults on the loan, the trustee has the power to foreclose on the property on behalf of the beneficiary.

Question 33

129. When a lease is for a period greater than one year, the contract does not require:
     a. signatures of both the owner and tenant.
     b. that the lease agreement be in writing.
     c. a specific termination date.
     d. a description of the rental and its location

Answer 33

129. When a lease is for a period greater than one year, the contract does not require:
     a. signatures of both the owner and tenant.

This is a not question. A lease does not require the signature of the owner, only the tenant. Regardless of the length of time, a lease needs to have a termination date (unlike a rental agreement) and a description of the property. Further, the lease needs to be in writing to be enforceable if it is for a term greater than one year.

Question 34

134. Frank leased a property to Chester. Chester gave Mark an easement over the property. At the
     end of the lease term:
     a. Frank regains the property subject to the rights of Mark.
     b. the easement may not extend beyond the term of Chester’s lease.
     c. Mark has an equitable right to use the land.
     d. Frank regains control of the property since a tenant cannot grant an easement, only an
     owner.

Answer 34

134. Frank leased a property to Chester. Chester gave Mark an easement over the property. At the
     end of the lease term:
     b. the easement may not extend beyond the term of Chester’s lease.

If an easement is given by a lessee, it ends when the lease is terminated.

Question 35

135. When a real estate broker fails to address all lawful instructions given by their principal, the
     broker could:
     a. face criminal charges.
     b. have their driver’s license suspended.
     c. be liable for the principal’s financial losses resulting from their actions.
     d. be compelled to retake the state licensing exam.

Answer 35

135. When a real estate broker fails to address all lawful instructions given by their principal, the
     broker could:
     c. be liable for the principal’s financial losses resulting from their actions.

If a broker fails to abide by the lawful instruction of the principal they represent, they may be liable for the principal’s Financial loss. The failure to follow instructions would rarely rise to a level Warrenton criminal charges.

Question 36

145. Based on the principle of leverage, an investor will:
     a. use their own funds whenever possible.
     b. use borrowed money only to the degree deemed safe and reasonable.
     c. buy income property with a minimum down payment.
     d. invest in rental properties with declining values.

Answer 36

145. Based on the principle of leverage, an investor will:
     c. buy income property with a minimum down payment.

Leverage, in the financial sense, requires using as little equity investment as possible. Answer selection
A is the reverse of this
B suggests moderation and
D is contrary to and investors Financial objectives.

Question 37

148. When two brokers make a verbal agreement to split a commission, the agreement is:
     a. void. c. unenforceable.
     b. voidable. d. enforceable.

Answer 37

148. When two brokers make a verbal agreement to split a commission, the agreement is:
     d. enforceable.

Oral agreements between Brokers to split commissions are valid and enforceable.

Question 38

Deed vs. Note vs. Mortgage: What’s the Difference?

Answer 38

People tend to throw around the terms “Deed” and “Mortgage,” and use them interchangeably when they’re talking about owning property. But what really is the difference?

Well, there is actually a distinct difference between a Deed and a Mortgage, and in fact, there’s is one additional document that often goes unmentioned but is most important. It’s called the Note.

Here’s what you need to know about all three:

Deed: This is the document that proves ownership of a property. It transfers ownership of the property to the grantee, also known as the buyer. That means, anyone identified as the grantee in a Deed is an owner of the property. The Deed is recorded in the Courthouse and the original is returned to the buyer a few weeks later.

Note: This is the “IOU” between a lender and a borrower. So whoever is a borrower on the Note is personally liable for paying back the debt to the lender. The Note is not recorded in the Courthouse, so the original Note is returned to the lender upon closing.

Mortgage: This is the document that gives the lender a security interest in the property until the Note is paid in full. If the debt is not paid, then the lender can enforce its security interest by foreclosing on the property. Anyone who is on the Deed of the property being used as collateral must be on the Mortgage. However, just because someone is on the Mortgage, doesn’t mean that they are personally liable for the debt. Only the person that signs the Note is personally liable for the debt.

So, as a rule of thumb, if someone is on the Deed, they must be on the Mortgage. But just because they are on the Mortgage, doesn’t mean they are on the Note. For example, often times one spouse may have bad credit so they are not on the Note (lenders sometimes say “they are not on the loan”), but both spouses are on the Deed, so both spouses have to be on the Mortgage. It is important to recognize the difference between a Deed, a Note and a Mortgage, because they definitely have different legal implications.