Unit 2 - Overview

Question 1

A construction firm builds an office center over a railroad right-of-way. This means that

A. The developer must purchase from the railroad all land under the office center.
B. Trains can no longer operate on the tracks under the building during business hours if the noise disturbs the occupants of the office center.
C. The construction firm has built the office center using the subsurface rights to the property.
D. The developer must purchase or lease some land and air rights from the railroad.

Answer 1

Answer: D. The developer must purchase or lease some land and air rights from the railroad.

Reasoning for the answer: The developer must acquire air rights to build over the railroad, as these can be sold or leased separately from surface rights. The land beneath still belongs to the railroad, but the developer gains rights to the airspace above, commonly practiced in urban settings to maximize space use.

Question 2

The term fructus naturales refers to which of the following?

A. Annual crops
B. Real estate
C. Fruits of industry
D. Emblements

Answer 2

Answer: B. Real estate.

Reasoning for the answer: Fructus naturales refers to plants that grow naturally without annual cultivation, such as trees and shrubs. These are part of the land and thus are classified as real estate, unlike crops that are cultivated annually (fructus industriales), which are personal property.

Question 3

John purchases a parcel of land and sells the rights to any oil, gas, and minerals located in the ground to an exploration company. This means that he owns all rights to this property EXCEPT

A. Air rights.
B. Surface rights.
C. Subsurface rights.
D. Water rights.

Answer 3

Answer: C. Subsurface rights.

Reasoning for the answer: By selling the oil, gas, and mineral rights, John relinquishes subsurface rights, which pertain to natural resources below the earth’s surface. Surface and air rights remain with him unless he sells them separately.

Question 4

A store tenant firmly attaches appropriate appliances for his restaurant business on leased premises. Which statement is TRUE?

A. The appliances are trade fixtures and will be sold as part of the building if the building is sold during the lease term.
B. The appliances are trade fixtures and must be removed before the lease expires.
C. The appliances may not be removed without the landlord’s permission.
D. The appliances become the landlord’s property on installation.

Answer 4

Answer: B. The appliances are trade fixtures and must be removed before the lease expires.

Reasoning for the answer: Trade fixtures are personal property installed by a tenant for business purposes and must be removed before the lease expires. If they are not removed, they may become part of the real estate and revert to the landlord through accession.

Question 5

Manufactured housing

A. Is generally considered real property.
B. May be considered real property if it is permanently attached to land.
C. May be considered real property even if it is not permanently attached to land.
D. May not be considered real property if it is attached to leased land.

Answer 5

Answer: B. May be considered real property if it is permanently attached to land.

Reasoning for the answer: In Texas, manufactured housing is usually personal property unless permanently attached to land and properly documented with the county. For a manufactured home to be treated as real property, it must meet certain criteria like being on a permanent foundation and registered with the appropriate authorities.

Question 6

Real estate by definition includes many elements and parts. Which items would be a part of real estate?

A. Chattel
B. Patio furniture
C. Farm equipment
D. Growing trees

Answer 6

Answer: D. Growing trees.

Reasoning for the answer: Growing trees are considered fructus naturales, which are classified as real estate. This is because they are naturally growing and permanently attached to the land, making them part of the real property.

Question 7

Which BEST defines real property?

A. Land and the air above it and the subsurface below it.
B. Land and all that there is above or below the surface, including all things permanently attached to it and legal rights associated with it.
C. Land and the buildings permanently affixed to it.
D. Land and all the legal rights associated with it.

Answer 7

Answer: B. Land and all that there is above or below the surface, including all things permanently attached to it and legal rights associated with it.

Reasoning for the answer: Real property encompasses not only the land itself but also anything permanently attached (like buildings) and the legal rights associated with ownership, known as the bundle of legal rights. It includes surface, subsurface, and air rights.

Question 8

A fixture is

A. Any item that is not a permanent part of the building.
B. Real property that at one time was personal property.
C. An item installed by a tenant for temporary use.
D. Not included in the sale or mortgage of real estate.

Answer 8

Answer: B. Real property that at one time was personal property.

Reasoning for the answer: A fixture is an item that was initially personal property but becomes real property when it is permanently attached to land or a building. Examples include lighting fixtures or built-in appliances that have been installed and affixed to the property.

Question 9

The definition of land includes all EXCEPT

A. Minerals in the earth.
B. The air above the ground up to infinity.
C. Buildings.
D. Trees.

Answer 9

Answer: C. Buildings.

Reasoning for the answer: The definition of land includes the earth’s surface, the subsurface, and the airspace above it, as well as natural attachments like trees. Buildings are considered improvements to the land but are not part of the definition of land itself.

Question 10

Miguel and Celia are adding an enclosed front porch to their home. The lumber dealer with whom they are contracting has just unloaded a truckload of lumber in front of their house that will be used to build the porch. At this point the lumber is considered

A. A fixture.
B. Real property.
C. Personal property.
D. Real estate.

Answer 10

Answer: C. Personal property.

Reasoning for the answer: The lumber is still considered personal property because it has not yet been attached to the land. Personal property consists of movable items, and until it is used in construction and attached, it remains personal property.

Question 11

When the new front porch as described in question 10 is completed, the lumber that the dealer originally delivered will be considered

A. Personal property.
B. Real estate.
C. Chattel.
D. Emblements.

Answer 11

Answer: B. Real estate.

Reasoning for the answer: Once the lumber is used to construct the porch and is permanently affixed to the house, it becomes part of the real estate. This conversion from personal property to real property occurs when the materials are attached to the land or structure.

Question 12

Suppose that halfway through the construction of the new front porch as described in question 10, work is delayed indefinitely because of unforeseen difficulties. At this point, the lumber the dealer originally delivered would be considered

A. Personal property if it has been used in the construction of the porch.
B. Real estate if it has been used in the construction of the porch.
C. Real property of the contractor.
D. Real property of the dealer.

Answer 12

Answer: B. Real estate if it has been used in the construction of the porch.

Reasoning for the answer: If the lumber has already been incorporated into the structure, it is considered real estate, even if construction is incomplete. Once it is attached to the property, it becomes part of the real property.

Question 13

Man-made permanent additions to land are called

A. Chattels.
B. Emblements.
C. Improvements.
D. Fructus naturales.

Answer 13

Answer: C. Improvements.

Reasoning for the answer: Improvements refer to any man-made additions to the land, such as buildings, roads, or utilities. These are considered part of the real estate and add value to the land, making them permanent features.

Question 14

Real estate may be converted into personal property by

A. Severance.
B. Accession.
C. A bill of sale.
D. Inference.

Answer 14

Answer: A. Severance.

Reasoning for the answer: Severance is the process of converting real estate into personal property by detaching it from the land. For example, cutting down a tree turns it from real property (as part of the land) into personal property (as movable lumber).

Question 15

Steven rents a detached single-family home under a one-year lease. Two months into the rental period, Steven installs permanent awnings over the building’s front windows to keep the sun away from some delicate hanging plants. Which statement is TRUE?

A. Because of their permanent nature, the awnings are considered personal property.
B. The awnings are considered fixtures and may not be removed by the tenant.
C. The awnings are now the personal property of the owner.
D. The awnings are considered trade fixtures and may be removed by the tenant.

Answer 15

Answer: B. The awnings are considered fixtures and may not be removed by the tenant.

Reasoning for the answer: Once Steven installs the awnings permanently, they become fixtures and part of the real estate. Fixtures are typically considered part of the property and cannot be removed by tenants unless specified otherwise in the lease.

Question 16

Real estate is often referred to as a bundle of legal rights. Which is NOT among these rights?

A. Right of exclusion
B. Right to use the property for illegal purposes
C. Right of enjoyment
D. Right to sell or otherwise convey the property

Answer 16

Answer: B. Right to use the property for illegal purposes.

Reasoning for the answer: The bundle of legal rights includes possession, control, exclusion, enjoyment, and disposition, but it does not include the right to use the property for illegal purposes. All property rights are subject to legal and regulatory limitations.

Question 17

When purchasing real estate from a seller

A. The buyer is actually buying the legal rights to the property that were previously held by the seller.
B. The seller cannot legally retain any rights of ownership.
C. The mineral rights remain with the original owner of the property.
D. The buyer must buy subsurface, air, and surface rights.

Answer 17

Answer: A. The buyer is actually buying the legal rights to the property that were previously held by the seller.

Reasoning for the answer: When real estate is transferred, the buyer acquires the bundle of legal rights that the seller previously held, including rights to possession, control, and use of the property. These rights are transferred through the sale along with the property itself.

Question 18

Key Term: Accession

Answer 18

Definition: The process by which trade fixtures become the property of the landlord if not removed by the tenant before the lease expires. The tenant loses the right to remove the fixture, and it becomes part of the landlord’s real estate.

Question 19

Key Term: Air rights

Answer 19

Definition: The rights to use the space above the land. Air rights can be sold or leased independently of surface rights. They are particularly valuable in urban areas where land for development is scarce. Air rights extend vertically upward, but courts allow reasonable interference, such as for aircraft.

Question 20

Key Term: Attachment

Answer 20

Definition: The process of turning personal property into real estate by affixing it to the land or a building. For example, a heating system installed in a house becomes part of the real estate. Attachment is significant because it changes the item’s legal status from movable (personal property) to immovable (real property).

Question 21

Key Term: Bundle of legal rights

Answer 21

Definition: Refers to the complete set of rights associated with real property ownership. These rights include:

Right of possession: The right to occupy and use the property.
Right of control: The right to control the property’s use within the boundaries of the law.
Right of exclusion: The right to prevent others from entering or using the property.
Right of enjoyment: The right to use the property in any legal manner.
Right of disposition: The right to sell, lease, or transfer the property as desired.

Question 22

Key Term: Chattel

Answer 22

Definition: Personal property that is movable and not attached to land. Examples include furniture, money, or vehicles. Chattel remains personal property unless it becomes affixed to the land, at which point it may become a fixture.

Question 23

Key Term: Emblements

Answer 23

Definition: Also known as fructus industriales, these are annual crops grown through human labor. They are considered personal property because they require regular cultivation. Even if the land is sold, the person who planted the crops has the right to harvest them.

Question 24

Key Term: Exception

Answer 24

Definition: A term used in real estate contracts to indicate a right or interest that is excluded from the sale. For instance, a seller may reserve mineral rights in a sale. The exception clarifies what the buyer is not receiving in the transaction.

Question 25

Key Term: Fixture

Answer 25

Definition: An item that was originally personal property but becomes real property when it is permanently attached to the land or a building. Examples include light fixtures, plumbing, or kitchen cabinets. Fixtures are generally included in the sale of the property unless otherwise noted in the sales contract.

Question 26

Key Term: Fructus industriales

Answer 26

Definition: Annual crops that require planting and cultivation, such as wheat or corn. These are considered personal property and can be harvested by the person who planted them, even after the land is sold.

Question 27

Key Term: Fructus naturales

Answer 27

Definition: Plants that grow naturally and do not require annual cultivation, such as trees and shrubs. These are considered real property because they are part of the land and transfer with its ownership.

Question 28

Key Term: Improvement

Answer 28

Definition: Man-made additions to land, such as buildings, roads, or utility systems. Improvements increase the value of the land and are considered part of the real estate because they are permanently attached.

Question 29

Key Term: Land

Answer 29

Definition: Includes not only the surface of the earth but also the subsurface (minerals and natural resources below the ground) and the airspace above. Land ownership extends vertically downward and upward, making it a comprehensive term

Question 30

Key Term: Personal property

Answer 30

Definition: Also known as personalty or chattel, it refers to movable property that is not permanently attached to the land or a building. This includes items like furniture, cars, or jewelry. Personal property can be transferred without affecting the real estate.

Question 31

Key Term: Personalty

Answer 31

Definition: Another term for personal property. It refers to movable items that do not fit the definition of real estate. Personalty is governed by different legal rules from real estate, making the distinction important in property transactions.

Question 32

Key Term: Real estate

Answer 32

Definition: Refers to land and any permanent improvements made to it, such as buildings, roads, or utility systems. Real estate includes both natural aspects (like trees) and man-made structures, and it is immovable.

Question 33

Key Term: Real property

Answer 33

Definition: A broader term that includes real estate and the bundle of legal rights associated with ownership. Real property not only includes the physical land and improvements but also the legal rights to control, use, and dispose of the property.

Question 34

Key Term: Reservation

Answer 34

Definition: A term used in a real estate contract when the seller retains some rights to the property after the sale, such as mineral rights or access easements. A reservation ensures the seller’s retained rights are clearly defined in the agreement.

Question 35

Key Term: Severance

Answer 35

Definition: The process of converting real property into personal property. For example, cutting down a tree converts it from real estate (part of the land) to personal property (movable). This change occurs when the item is detached from the land.

Question 36

Key Term: Subsurface rights

Answer 36

Definition: These are the rights to the minerals, oil, gas, and other natural resources below the earth’s surface. Subsurface rights can be sold separately from surface rights, and they are often a valuable part of real estate transactions.

Question 37

Key Term: Surface rights

Answer 37

Definition: The rights to use the surface of the land for activities like farming, building, or developing. Surface rights do not automatically include subsurface or air rights, which can be owned or transferred separately.

Question 38

Key Term: Trade fixture

Answer 38

Definition: Personal property that a tenant installs for business purposes on leased premises, such as shelving or restaurant equipment. Trade fixtures remain the tenant’s property and must be removed before the lease expires. If left behind, they become part of the real estate through accession.

Question 39

Learning Objective: Identify the various types of housing choices available to homebuyers.

Answer 39

Explanation: Homebuyers have several housing options to choose from, including single-family homes, condominiums, cooperatives, townhouses, and multifamily homes. Each type offers distinct advantages and potential drawbacks, depending on the buyer’s lifestyle, financial situation, and long-term goals. Understanding these options helps buyers select a property that best suits their needs.

Question 40

Learning Objective: Discuss the primary considerations for determining housing affordability.

Answer 40

Explanation: Housing affordability is determined by several factors, including a homebuyer’s income, available savings, credit score, and current debt levels. Additionally, the costs associated with home ownership, such as mortgage payments, property taxes, insurance, and maintenance, play an essential role in determining whether a property is within a buyer’s financial reach. Lenders use ratios like the debt-to-income ratio to assess affordability.

Question 41

Learning Objective: Explain the tax benefits of homeownership.

Answer 41

Explanation: Homeownership provides several tax advantages, such as the ability to deduct mortgage interest, property taxes, and some closing costs from taxable income. In addition, capital gains on the sale of a primary residence may be excluded from income taxes, up to certain limits, if the homeowner meets specific residency requirements. These tax benefits can make homeownership more financially attractive compared to renting.

Question 42

Learning Objective: Distinguish the various types of homeowners insurance policies and relate them to property-damage claims and CLUE reports.

Answer 42

Explanation: Homeowners insurance policies, such as HO-1 through HO-8, offer different levels of coverage, from basic to comprehensive protection against property damage, liability, and loss of use. Property-damage claims made on these policies are recorded in CLUE (Comprehensive Loss Underwriting Exchange) reports, which provide insurers with a history of insurance claims on a property. CLUE reports can influence insurance premiums and the insurability of a home.

Question 43

Learning Objective: Describe the requirement for and the coverage provided by a flood insurance policy.

Answer 43

Explanation: Flood insurance is required for properties located in high-risk flood zones, as determined by FEMA (Federal Emergency Management Agency). Standard homeowners insurance policies typically do not cover flood damage, so a separate flood insurance policy is necessary. Flood insurance provides coverage for damage to a property and its contents caused by flooding, which can result from heavy rains, storm surges, or overflowing bodies of water.