Unit 15 Exam

Question 1

Match the following with the correct definition: Encumbrance, Priority of Liens, Subordination agreement, Voluntary Lien, Lien, Involuntary Lien, Release of Lien

A)
Charge or claim against a person’s property made to enforce monetary payment

B)
Created by law

C)
Created intentionally by a property owner’s action

D)
Any charge or claim that attaches to real property and lessens its value

E)
The holder of a superior lien agrees to permit a later lienholder’s interest to take precedence

F)
First to record, first in right

G)
Filed when lien is paid and title is cleared

Answer 1

Encumbrance = D

Priority of liens = F

Subordination agreement = E

Voluntary lien = C

Lien = A

Involuntary lien = B

Release of lien = G

Question 2

An equitable lien arises out of common law.

Answer 2

True

Question 3

An involuntary lien is created by law and is statutory (not equitable).

Answer 3

False

Involuntary Lien IS equitable

Question 4

Can there be a property tax lien if it is not filed in the public record?

Answer 4

The answer is yes. A property tax lien can be effective and take priority over other liens, even if it is not made part of the public record.

Question 5

Can property be sold for nonpayment of taxes, even if the current owner was not aware of the debt against the property?

Answer 5

The answer is yes. The property will be sold if the back taxes plus late fees are not paid.

Question 6

Place the following in the correct order from top to bottom. The process involved in imposing property taxes is generally the same for most taxing districts. Put each step in its proper order.

1)
The funds needed are appropriated by ordinance

2)
A Budget is adopted by each taxing district for the coming fiscal year

3)
Tax bills are delivered to property owners, indicating the due dates for payments

4)
A tax levy is agreed to by a vote of the taxing district’s governing body

5)
Each property owner’s tax bill is computed by applying the tax create to the assessed value of the property

Answer 6

2, 1, 4, 5

Question 7

Match the following with the correct definition:

Ad Valorem Tax
Equalizing Factor
Assessment

A)
Real property valuation process

B)
Used to achieve conformity in tax assessments

C)
A general real estate tax

Answer 7

Ad Valorem Tax = General RE Tax

Equalizing Factor = Used to achieve conformity in tax assessments

Assessment = Real Property valuation process

Question 8

Tax liens usually are given the lowest priority over all other liens against a property.

Answer 8

False

Question 9

The general real estate tax is an ad valorem tax.

Answer 9

True

Question 10

Determine whether the following Liens are either Specific, General Voluntary, or Involuntary:

Real estate tax lien

Judgment lien

Mortgage lien

Mechanic’s lien

Vendor or vendee lien

Answer 10

Real estate tax lien = Specific, Involuntary

Judgment lien = General Involuntary

Mortgage lien = Specific,
Voluntary

Mechanic’s lien = Specific, Involuntary

Vendor or vendee lien = Specific, Involuntary

Question 11

If improvements that were not ordered by the property owner have commenced, the property owner should execute a document called a notice of nonresponsibility to be relieved from possible mechanic’s liens.

Answer 11

True

Question 12

When any suit that affects title to real estate is filed, a special notice, called a lis pendens, can be recorded.

Answer 12

True

Question 13

A mechanic’s lien claim arises when a contractor has performed work or provided material to improve a parcel of real estate on the owner’s order and the work has not been paid for. Such a contractor has a right to

A)
tear out the work.
B)
record a notice of the lien and file a court suit within the time required by state law.
C)
have personal property of the owner sold to satisfy the lien.
D)
record a notice of the lien.

Answer 13

Explanation
The answer is record a notice of the lien and file a court suit within the time required by state law. In this situation, the contractor has specific, statutory rights that are limited to the real property for which the contractor performed work or supplied materials.

Question 14

A provider of construction materials may give constructive notice of his unpaid invoices by

A)
obtaining a mechanic’s lien against the subject property.
B)
placing an ad in the legal notices section of the local newspaper.
C)
advising potential buyers of the builder’s debts.
D)
filing a judgment with the court in the residential jurisdiction of the builder.

Answer 14

Explanation
The answer is obtaining a mechanic’s lien against the subject property. A mechanic’s lien is an involuntary lien that provides security for a person or company that has not been fully paid for the labor performed or material furnished to improve real property.

Question 15

A mechanic’s lien would be available to all of the following EXCEPT

A)
real estate professionals.
B)
subcontractors.
C)
surveyors.
D)
contractors.

Answer 15

Explanation
The answer is real estate professionals. Contractors, subcontractors, and surveyors all have standing to seek a mechanic’s lien. Real estate professionals typically do not have the right to place liens on property they have sold and for which they have not been paid the commission owed to them.

Question 16

A property owner’s real estate tax bill is computed by applying the tax rate to

A)
the current market value of the property.
B)
the assessed valuation of the property.
C)
the value of the owner’s equity in the property.
D)
the most recent purchase price of the property.

Answer 16

Explanation
The answer is the assessed valuation of the property. The state may base that assessment initially on the purchase price of the property, but with an allowable increase every year to account for inflation or specific assessments. Any liens on the property have no effect on its assessed value.

Question 17

An assessment equalization factor is used to achieve

A)
novation.
B)
uniformity.
C)
attachment.
D)
rescission.

Answer 17

Explanation
The answer is uniformity. If there are inequalities in statewide tax assessments, some jurisdictions might apply an equalization factor. Assessments might be raised or lowered based on the factor.

Question 18

A mechanic’s lien is properly classified as

A)
a voluntary lien.
B)
an equitable lien.
C)
a specific lien.
D)
a general lien.

Answer 18

Explanation
The answer is a specific lien. A mechanic’s lien is a specific lien because it affects a specific property and only that particular property.

Question 19

A prospective purchaser of a property that has recently been constructed, altered, or repaired should be cautious about possible unrecorded

A)
attachment liens.
B)
mortgage liens.
C)
IRS tax liens
D)
mechanics’ liens.

Answer 19

Explanation
The answer is mechanics’ liens. In most states, a mechanic’s lien takes priority from the time it attaches, even though a claimant’s notice of lien will not be filed in the public record until sometime later.

Question 20

A mortgage for the unpaid purchase price that belongs to the seller of real estate is

A)
a general lien.
B)
a statutory lien.
C)
a vendor’s lien.
D)
an equitable lien.

Answer 20

Explanation

The answer is a vendor’s lien. The lien in favor of the seller attaches to the property being purchased.

Question 21

A written agreement between lienholders to change the priority of a mortgage is

A)
a subordination agreement.
B)
a special assessment.
C)
an equitable agreement.
D)
an ad valorem agreement.

Answer 21

Explanation
The answer is a subordination agreement. Under a subordination agreement, the holder of a superior or prior lien agrees to permit a later lienholder’s interest to take precedence.

Question 22

If a property owner believes an error was made in determining the assessed property value, the owner can

A)
choose not to make any payments based on the assessment.
B)
present the objection to a local board of appeal or review.
C)
pay the amount the owner believes is correct.
D)
none of these.

Answer 22

Explanation
The answer is present the objection to a local board of appeal or review. A protest or appeal regarding a tax assessment may ultimately be taken to court.

Question 23

A homeowner considered having a new garage built and talked about the project with a contractor. In April, while the homeowner was on vacation, the contractor began building the garage according to the man’s specifications. Work was complete by the end of May. In June, the homeowner returned from vacation and refused to pay for the garage. The contractor decided to file a mechanic’s lien in July. Is the contractor entitled to a lien?

A)
Yes, because the garage is not a part of an owner-occupied residence.
B)
No, because notice of the lien should have been filed in May, when the work was completed.
C)
Yes, because the garage was constructed according to the homeowner’s specifications.
D)
No, because there was no express or implied contract between the homeowner and the contractor.

Answer 23

Explanation
The answer is no, because there was no express or implied contract between the homeowner and the contractor. Because the contractor was in no way given authority to act, the contractor has no right to file a mechanic’s lien.

Question 24

A lien that arises as a result of a judgment is which type of lien?

A)
Equitable
B)
Voluntary
C)
General
D)
Specific

Answer 24

Explanation
The answer is general. A general lien is a claim against all the personal and real property of the debtor. A general lien attaches to all real and personal property until full payment is made.

Question 25

A buyer is looking at a new construction home to purchase. What type of lien should the buyer be MOST concerned about?

A)
Attachment lien
B)
IRS tax lien
C)
Mortgage lien
D)
Mechanic’s lien

Answer 25

Explanation
The answer is mechanic’s lien. A prospective purchaser of a property that has recently been constructed, altered, or repaired should be cautious about possible unrecorded mechanics’ liens. In most states, a mechanic’s lien takes priority from the time it attaches, even though a claimant’s notice of lien will not be filed in the public record until sometime later.

Question 26

Which of the following is classified as a general lien?

A)
Mechanic's lien
B)
Real estate taxes
C)
Bail bond lien
D)
Judgment

Answer 26

Explanation

The answer is judgment. A judgment lien is not just on some specific assets but on the assets of the debtor in general.

Question 27

Which of the following is classified as a general lien?

A)
Mechanic's lien
B)
Real estate taxes
C)
Bail bond lien
D)
Judgment

Answer 27

Explanation

The answer is judgment. A judgment lien is not just on some specific assets but on the assets of the debtor in general.

Question 28

What is the annual real estate tax on a property valued at $135,000 and assessed for tax purposes at $47,250, with an equalization factor of 125%, when the tax rate is 25 mills?

A)
$1,181
B)
$945
C)
$1,477
D)
$1,418

Answer 28

Explanation
The answer is $1,477.

Tax = assessed value × equalization factor × tax rate.

The millage rate is the tax on each dollar of assessed value: 1 mill = $0.001;

25 mills = $0.025.

Therefore: $47,250 × 125% = $59,062.50, and

$59,062.50 × $0.025 = $1,476.56.

The best answer is $1,477.

Question 29

A specific parcel of real estate has a market value of $160,000 and is assessed for tax purposes at 75% of market value. The tax rate for the county in which the property is located is 40 mills. The tax bill will be

A)
$5,200.

B)
$5,000.

C)
$6,400.

D)
$4,800.

Answer 29

Explanation
The answer is $4,800. A mill is 1/1000 of a dollar: $0.001. The mill rate is the tax on every dollar of the assessed value of property. A rate of 40 mills ($0.040) is applied to 75% of the $160,000 market value of the property: $160,000 × 75% = $120,000, and $120,000 × $0.040 = $4,800.

Question 30

Property tax liens

A)
are typical on residential property.
B)
have priority over other liens.
C)
must be placed by the mortgagee.
D)
are based on market value.

Answer 30

Explanation

The answer is have priority over other liens. A property tax lien takes priority over other recorded liens.

Question 31

The current market value of a vacant lot is $35,000. For tax purposes, it is assessed at 40% of market value. The tax rate is $4 per $100 of assessed value. What is the amount of the tax due?

A)
$625

B)
$705

C)
$740

D)
$560

Answer 31

Explanation
The answer is $560. $35,000 (market value) × 40% (0.40) = $14,000 (assessed value); $14,000 ÷ 100 = 140; and 140 × $4 tax rate = $560 tax due.

Question 32

Which tax targets homeowners in particular?

A)
Luxury tax
B)
Real property tax
C)
Franchise tax
D)
Personal property tax

Answer 32

Explanation
The answer is real property tax. The real property (ad valorem) tax falls on those who own real property, such as homeowners.

Question 33

A local attorney was appointed guardian of a property owner with no known relatives, who required care in a nursing home. The property owner has no will or any money available for expenses and hasn’t paid any property taxes in the past four years. What would the state file to eventually collect the unpaid back taxes?

A)
Mortgage lien
B)
Mechanic’s lien
C)
Real estate probate lien
D)
Tax lien

Answer 33

Explanation
The answer is tax lien. The tax lien would then take first priority and would be paid first from the proceeds of a court-ordered sale of the property.

Question 34

Which statement MOST accurately describes special assessment liens?

A)
They are general liens.
B)
They are paid on a monthly basis.
C)
They cannot be prepaid in full without penalty.
D)
They take priority over mechanics' liens.

Answer 34

Explanation
The answer is they take priority over mechanic’s liens. Real estate taxes and special assessments take priority over all other liens.

Question 35

Priority of liens refers to which of the following?

A)
Dates liens are filed for record
B)
Fact that specific liens have greater priority than general liens
C)
Order in which a debtor assumes responsibility for payment of obligations
D)
Order in which liens will be paid if property is sold to satisfy a debt

Answer 35

Explanation
The answer is order in which liens will be paid if property is sold to satisfy a debt. Priority of liens refers to the order in which claims against a property will be paid off. In general, the rule for priority of liens is “first come, first served,” but there are some exceptions, such as taxes and assessments.

Question 36

In February, a homeowner contracted with a general contractor to have a basement storage space converted to a sauna, but never paid for the work. The homeowner stopped making mortgage payments in June. The owner is two years delinquent in property taxes to the county. The state gives mechanics’ liens priority. If all of these creditors obtain judgments against the owner in November, what will be the priority of their liens (first to last)?

A)
Contractor → county → mortgage company

B)
Contractor → mortgage company → county

C)
County → mortgage company → contractor

D)
County → contractor → mortgage company

Answer 36

Explanation
The answer is county → contractor → mortgage company. The priority is taxes, mechanic’s lien, and then first mortgage. Although the mortgage was filed first, property taxes always have first priority, and the state has given second priority to mechanic’s liens.

Question 37

Which of these would permit a law enforcement officer to seize and sell a debtor’s property?

A)
Lis pendens
B)
Writ of execution
C)
Satisfaction of judgment
D)
Writ of attachment

Answer 37

Explanation
The answer is writ of execution. A writ of execution directs the sheriff to seize and sell as much of the debtor’s property as necessary to pay both the debt and the expenses of the sale.

Question 38

A lien is created in which of the following ways?

A)
Involuntary
B)
All of these
C)
Voluntary
D)
Equitable

Answer 38

Explanation

The answer is all of these. There are four ways to create a lien: voluntary, involuntary, statutory, and equitable.

Question 39

The priority of liens means

A)
first to create, first to record.
B)
first to create, first in right.
C)
first to record, first in right.
D)
first to publish, first to create.

Answer 39

Explanation
The answer is first to record, first in right. As specified by the state, the priority of liens refers to the order in which claims against the property will be satisfied if the property is sold by the debtor. Typically, the priority of payment is established by the date the liens are placed in the public record of the county in which the property is located.

Question 40

Priority of liens refers to which of the following?

A)
Dates liens are filed for record
B)
Order in which liens will be paid if property is sold to satisfy a debt
C)
Fact that specific liens have greater priority than general liens
D)
Order in which a debtor assumes responsibility for payment of obligations

Answer 40

Explanation
The answer is order in which liens will be paid if property is sold to satisfy a debt. Priority of liens refers to the order in which claims against a property will be paid off. In general, the rule for priority of liens is “first come, first served,” but there are some exceptions, such as taxes and assessments.

Question 41

Which statement is TRUE of both a mortgage lien and a judgment lien?

A)
It involves a debtor-creditor relationship.
B)
It is an involuntary lien.
C)
It must be entered by the court.
D)
It is a general lien.

Answer 41

Explanation
The answer is it involves a debtor-creditor relationship. Both involve a debtor-creditor relationship. A mortgage lien is specific, not general, and is voluntary and entered by the lender. The lien is executed by legal action upon default of the borrower.

Question 42

A real estate tax lien is

A)
a voluntary lien.
B)
an involuntary, statutory lien.
C)
a general lien.
D)
an equitable lien.

Answer 42

Explanation
The answer is an involuntary, statutory lien. A tax lien, which is made possible by state law, exists without any action by the property owner.

Question 43

When is the first installment of a special assessment generally due?

A)
Immediately after the assessment is approved
B)
Whenever the property owner can afford it
C)
The year after the assessment is approved
D)
After the interest is first paid in full

Answer 43

Explanation
The answer is in the year after the assessment is approved. Special assessments are usually paid in equal annual installments over a period of years. The first installment is usually due during the year following the approval of the assessment and the first bill includes on year’s interest.

Question 44

How might a jurisdiction raise or lower property assessments?

A)
By using an equalization factor
B)
By enforcing a premium tax
C)
By using a VA tax
D)
By applying for state aid

Answer 44

Explanation
The answer is by using an equalization factor. If there are inequalities in statewide tax assessments, some jurisdictions might apply an assessment equalization factor to achieve uniformity. Assessments might be raised or lowered based on the factor.

Question 45

Which lien usually would be given highest priority in disbursing funds from a foreclosure sale?

A)
Real estate taxes due
B)
Judgment rendered the day before foreclosure
C)
Mechanic's lien for work started before the mortgage was made
D)
Mortgage dated last year

Answer 45

Explanation
The answer is real estate taxes due. Unpaid real estate taxes take priority when property is liquidated at a foreclosure sale. They are a statutory lien with priority over liens created by contract, such as mortgages.

Question 46

A lien is an encumbrance, which means that it attaches to property and

A)
must be satisfied before ownership of the property can be transferred.
B)
cannot be satisfied by anyone other than the person who encumbered the property.
C)
transfers along with the property.
D)
requires approval of the lienholder before the property can be transferred.

Answer 46

Explanation
The answer is transfers along with the property. Liens differ from other encumbrances because they are financial in nature and attach to the property because of a debt. The debt must be paid or satisfied within a specified time before the lien will be removed from the property. If a lien is not paid in the allotted time, the lienholder may foreclose on the lien, potentially forcing the sale of the property.

Question 47

If someone fails to pay part of their federal income taxes, what type of lien results?

A)
IRS tax lien
B)
Bail bond lien
C)
Estate tax lien
D)
Attachment lien

Answer 47

Explanation
The answer is IRS tax lien. This type of lien, also known as a federal tax lien, results from a person’s failure to pay any portion of federal taxes, such as income and withholding taxes.

Question 48

Which lien affects all real and personal property of a debtor?

A)
Voluntary
B)
Involuntary
C)
General
D)
Specific

Answer 48

Explanation
The answer is general. A general lien attaches to all of a debtor’s property as opposed to a specific lien, which affects only a specific property.

Question 49

Ad valorem taxes are based on the value of the property taxes and create liens that are

A)
general, voluntary, and equitable.
B)
specific, involuntary, and statutory.
C)
statutory, involuntary, and general.
D)
specific, voluntary, and equitable.

Answer 49

Explanation
The answer is specific, involuntary, and statutory. The lien is placed on the specific property taxes, occurs without the consent of the property owner, and is created by state law.

Question 50

What type of judgment establishes the amount a debtor owes and provides for money to be awarded?

A)
Debt judgment
B)
Deed judgment
C)
Permission judgment
D)
Money judgment

Answer 50

Explanation
The answer is money judgment. These often result from damages caused to one person by another person through a wrongful act, breach of contract, or nonpayment of debt.

Question 51

A special assessment is generally paid

A)
in equal annual installments over a period of years.
B)
whenever the property owner can afford it.
C)
in a lump-sum payment at the beginning of the project.
D)
as an interest-only payment.

Answer 51

Explanation
The answer is in equal annual installments over a period of years. The first installment is usually due during the year following the approval of the assessment and the first bill includes on year’s interest.

Question 52

If there are inequalities in statewide tax assessments, some jurisdictions might apply

A)
a VA tax.
B)
for state aid.
C)
an equalization factor.
D)
a premium tax.

Answer 52

Explanation
The answer is an equalization factor. An assessment equalization factor is used to achieve uniformity. Assessments might be raised or lowered based on the factor.