The Escrow Instructions

Question 1

The probability of committing errors is fortunately reduced or eliminated through

(a) Systems and programs designed to safeguard against common error
(b) Computer software for escrow
(c) Both a and b
(d) Neither a nor b

Answer 1

(c) Both a and b

Question 2

The escrow instructions begin by addressing the basic details of the escrow including

(a) Legal descriptions of the property and its street address
(b) Vesting
(c) Conditions of title
(d) All the above

Answer 2

(d) All the above

Question 3

If the seller is a foreign person, under FIRPTA every buyer must, unless an exemption applies, deduct and withhold

(a) 10% of the gross sales price from seller’s proceeds and send to the IRS
(b) 7% of the gross sales price from seller’s proceeds and send to the IRS
(c) 10% of the seller’s proceeds and send to the IRS
(d) 7% of the seller’s proceeds and send to the IRS

Answer 3

(a) 10% of the gross sales price from seller’s proceeds and send to the IRS

Question 4

An agreement between the California State Bar and escrow holders

(a) Addressed the possible illegal practice of law by escrow holders
(b) Was entered into in 1967
(c) Was ruled illegal by the FTC in 1979
(d) All the above

Answer 4

(d) All the above

Question 5

In California, a financing statement

(a) Is filed with the county clerk
(b) Is filed with the secretary of state of California
(c) Is recorded
(d) Is a security instrument for real property

Answer 5

(b) Is filed with the secretary of state of California

The financing statement, which is filed with the secretary of state of California but is not recorded, serves as public notice that a debt or security agreement exists with the specified personal property used and secured as collateral. The distinction between the financing statement and a deed of trust used for personal property is that a deed of trust is recorded by the county recorder in which the property (the collateral for a real estate loan) is located.

Question 6

The amount of taxes due as a result of a Supplemental tax bill

(a) Will be disclosed to the buyer by the escrow holder at closing
(b) May either increase or decrease the tax level imposed on the property being transferred
(c) Both a and b
(d) Neither a nor b

Answer 6

(b) May either increase or decrease the tax level imposed on the property being transferred

Question 7

In California, a customary deposit is for a purchase transaction is

(a) 3% of the sales price based on the state provisions for liquidated damages
(b) 3% of the sales price based on state-wide custom
(c) 3% of the sales price based on regulations of the California Escrow Association
(d) 3% of the sales price based on the regulations of the California Department of Corporations

Answer 7

(a) 3% of the sales price based on the state provisions for liquidated damages

Question 8

If the seller (transferor) of real property is a foreign person and therefore withholding for U.S. income taxes is required, the withholding agent is

(a) The escrow holder
(b) The title company
(c) The buyer
(d) The buyer’s agent

Answer 8

(c) The buyer

Question 9

Withholding for a foreign seller is not required if

(a) The sales price is not more than $300,000
(b) The buyer plans on occupying the property as a home
(c) Both a and b
(d) Neither a nor b

Answer 9

(c) Both a and b

Question 10

Foreign seller tax withholding for California taxes

(a) Is the same as federal FIRPTA
(b) Requires withholding 3 1/3% of the sales price or a varying percentage of seller’s gain
(c) Became effect January 1, 1987
(d) Is not required

Answer 10

(b) Requires withholding 3 1/3% of the sales price or a varying percentage of seller’s gain

Question 11

California’s Homestead Act

(a) Applies to all residential real estate
(b) Is the same as the U.S. Homestead Act of 1862
(c) Provides protection from the homeowner’s property being seized by creditors
(d) Protects equity up to $100,000 regardless of age, disability or familial status

Answer 11

(c) Provides protection from the homeowner’s property being seized by creditors

Question 12

If the home as the declared homestead is sold and a new home purchased, the new home may be selected as the declared homestead if the sale proceeds are reinvested in the new home and the homestead recorded within

(a) 90 days
(b) Three months
(c) 180 days
(d) Six months

Answer 12

(d) Six months

Question 13

The grant deed may contain a clause that provides for an easement for the grantor to use for egress and ingress to an adjoining parcel of land, considered to actually have been inherent in the future transfer of the property through the doctrine of

(a) Quasi-servient tenements
(b) Quasi-dominant tenements
(c) Both a and b
(d) Neither a nor b

Answer 13

(c) Both a and b

The grant deed may contain special provisions, such as a clause that gives all the property to the grantee (the person receiving title, such as a buyer) with the exception of portions of the complete title—for example, an easement to be created for the grantor to use for egress and ingress to an adjoining parcel of land. An easement of this type would actually have been inherent in the future transfer of the property through the doctrine of what is known as quasi-servient tenements and quasi-dominant tenements, discussed more fully in Chapter 17, Advanced Title Insurance Underwriting. Such an exception is called a reservation.

Question 14

The deed is a document which must be written as required

(a) By the statute of limitations
(b) By the Department of Corporations
(c) By the statute of frauds
(d) By the Business and Professions Code

Answer 14

(c) By the statute of frauds

Question 15

Escrow instructions begin with the basic information of the escrow, including

(a) legal description of the property.
(b) street address of the property.
(c) vesting and title.
(d) all of the above.

Answer 15

(d) all of the above.

Question 16

Allocation of costs between the buyer and the seller customarily include the

(a) buyer paying for the documentary transfer tax.
(b) buyer paying for notarizing the grant deed.
(c) seller in Southern California paying for the owner’s title insurance policy.
(d) buyer paying for the seller’s reconveyance fee.

Answer 16

(c) seller in Southern California paying for the owner’s title insurance policy.

Question 17

If the seller is a foreign person, unless exempt, the buyer must

(a) withhold and send 10% of the sale price from the seller’s proceeds to the IRS.
(b) send 10% of the sale price to the IRS toward the buyer’s income taxes.
(c) notify the seller of possible liability for taxes.
(d) authorize escrow to hold the seller’s net proceeds until the IRS determines the tax liability, if any.

Answer 17

(a) withhold and send 10% of the sale price from the seller’s proceeds to the IRS.

Question 18

The forms escrow holders prepare or “draw,” and which must be in “general use and of established form” in order to prevent them from the unauthorized practice of law, are essentially governed by the

(a) rule of “bar treaty.”
(b) Treaty of Guadalupe Hidalgo.
(c) American Escrow Association.
(d) California Bar Association.

Answer 18

(a) rule of “bar treaty.”

Question 19

If the property being acquired has a homeowners association (HOA), the buyer and buyer’s lender will acquire a homeowner’s

(a) confirmation report to be provided by the HOA.
(b) certification report to be provided by the HOA.
(c) certification report to be provided by the title company.
(d) certification report to be provided to the city.

Answer 19

(b) certification report to be provided by the HOA.

Question 20

Releasing buyer’s deposit funds to the seller during the escrow is

(a) common.
(b) illegal.
(c) can offer serious consequences if problems are encountered during escrow.
(d) usually advisable.

Answer 20

(c) can offer serious consequences if problems are encountered during escrow.

Question 21

California withholding, if the conditions apply, require the buyer to withhold

(a) 10% of the sellers’ proceeds and send to the FTB.
(b) 3 1/3% of the sale price and send to the FTB.
(c) 3 1/3% of the seller’s proceeds and send to the FTB
(d) 3 1/3% of the seller’s proceeds and send to the IRS.

Answer 21

(b) 3 1/3% of the sale price and send to the FTB.

Question 22

If a declared homestead is voluntarily sold and the proceeds from the sale are reinvested in a new residence, the new home may be selected as a declared homestead if it is

(a) selected within six months of closing.
(b) selected upon escrow closing.
(c) selected within 180 days of closing.
(d) both a and c.

Answer 22

(a) selected within six months of closing.

Question 23

FIRPTA stands for

(a) Foreign Investor Real Property Tax Act.
(b) Foreign Income Real Property Tax Act.
(c) Foreign Investment of Real Property Tax Act.
(d) Federal Investment Real Property Tax Act.

Answer 23

(c) Foreign Investment of Real Property Tax Act.

Question 24

Documents that the escrow officer may prepare do NOT include

(a) those not of an established form.
(b) deeds of trust.
(c) notes.
(d) bills of sale.

Answer 24

(a) those not of an established form.