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Law of Contracts > Unit 5 - 8 > Flashcards

Unit 5 - 8 Flashcards

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1
Q

A buyer has given her right under a sales contract to a third party but has not been released of the liability under the contract. This is called

Answer Choices:
A. Novation
B. Transference
C. Assignment
D. Fraud

A

Correct Answer: C. Assignment

Response Feedback:
The answer is assignment. Assignment refers to a transfer of rights or duties under a contract. The obligations may be delegated to a third party, but the original party remains primarily liable unless specifically released. Learning Objective 5.1

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2
Q

Substitution of a new contract for an existing contract is called

Answer Choices:
A. Substitution
B. Assignment
C. Transfer by proxy
D. Novation

A

Correct Answer: D. Novation

Response Feedback:
The answer is novation. The new agreement may be between the same parties, or a new party may be substituted for either party. The parties’ intent must be to discharge the old obligation. Learning Objective 5.1

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3
Q

A contract may be discharged or terminated when which of the following occurs?

Answer Choices:
A. Statute of performance
B. Redemption
C. Unilateral transfer by proxy
D. Impossibility of performance

A

Correct Answer: D. Impossibility of performance

Response Feedback:
The answer is impossibility of performance. This occurs when an act required by the contract cannot be legally accomplished. Learning Objective 5.1

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4
Q

The law that requires that contracts be in writing and signed to be enforceable in a court of law is the statute of

Answer Choices:
A. Contracts
B. Frauds
C. Enforceability
D. Limitations

A

Correct Answer: B. Frauds

Response Feedback:
The answer is frauds. A real estate broker cannot sue for their commissions unless the sales contract states the amount or rate of commission, is signed by both parties, and is in writing. Learning Objective 5.1

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5
Q

Contracts may be discharged or terminated whenever the parties agree, along with a written acceptance, that the work performed is close enough to completion and that the contract is discharged even if some minor elements remain unperformed. This is called

Answer Choices:
A. Partial performance
B. Substantial performance
C. Mutual agreement
D. Operation of law

A

Correct Answer: A. Partial performance

Response Feedback:
The answer is partial performance. Discharge or termination requires written acceptance by the party for whom the acts have not been done or to whom money is owed. Learning Objective 5.1

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6
Q

When all of the parties to a contract agree to terminate, it is said to be terminated by

Answer Choices:
A. Novation
B. Codicil
C. Severalty
D. Mutual agreement

A

Correct Answer: D. Mutual agreement

Response Feedback:
The answer is mutual agreement. All of the parties to an agreement may agree to terminate a contract. Learning Objective 5.1

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7
Q

One party canceling or terminating a contract as though it had never been made is

Answer Choices:
A. Revocation
B. Rescission
C. Cancellation
D. Statutory reenactment

A

Correct Answer: B. Rescission

Response Feedback:
The answer is rescission. Rescission returns the parties to their original positions before the contract, so any monies exchanged must be returned. Learning Objective 5.1

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8
Q

One party canceling or terminating a contract without a return to the original position is

Answer Choices:
A. Rescission
B. Statutory reenactment
C. Revocation
D. Cancellation

A

Correct Answer: D. Cancellation

Response Feedback:
The answer is cancellation. The parties are not returned to their original positions, so any monies exchanged do not have to be returned. Learning Objective 5.1

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9
Q

If, upon the receipt of an offer to purchase a property subject to certain conditions, the seller makes a counteroffer, the prospective buyer is

Answer Choices:
A. Relieved of the original offer
B. Bound by the original offer
C. Bound to accept the counteroffer
D. Bound by whichever offer is lower

A

Correct Answer: A. Relieved of the original offer

Response Feedback:
The answer is relieved of the original offer. An offer to purchase remains an offer until it has been delivered and accepted by the seller. Learning Objective 5.1

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10
Q

When preprinted forms promulgated or approved by TREC do not sufficiently cover special provisions in a transaction, the license holder should

Answer Choices:
A. Provide an explanation in the special provisions section of the sales contract
B. Have his attorney draft some language as a codicil to the sales contract
C. Have the parties consult their own attorneys to draft language acceptable to both
D. Have his supervising broker write a new contract to cover the special provisions

A

Correct Answer: C. Have the parties consult their own attorneys to draft language acceptable to both

Response Feedback:
The answer is to have the parties consult their own attorneys to draft language acceptable to both. Learning Objective 5.2

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10
Q

A listing under which a broker’s commission is the difference between the sales proceeds and an amount desired by the seller is

Answer Choices:
A. Net listing
B. Exclusive agency listing
C. Exclusive right to sell agreement
D. Open listing

A

Correct Answer: A. Net listing

Response Feedback:
The answer is a net listing. A “net listing” is a listing agreement in which the broker’s commission is the difference (“net”) between the sales proceeds and an amount desired by the owner of the real property. Learning Objective 5.2

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11
Q

All of the following are written agreements used by license holders EXCEPT

Answer Choices:
A. Real estate sales contracts
B. Business opportunity contracts
C. Leases
D. Property management agreements

A

Correct Answer: B. Business opportunity contracts

Response Feedback:
The answer is business opportunity contracts. The sale of a business opportunity is not regulated by the Texas Real Estate Commission. Learning Objective 5.2

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12
Q

A situation in which a seller is retaining title to the property until full payment is made by the buyer is

Answer Choices:
A. For Sale by Owner
B. Contract to own
C. Land contract
D. Owelty contract

A

Correct Answer: C. Land contract

Response Feedback:
The answer is a land contract. There is no mortgage; the buyer makes installment payments over time until the amount owed is paid. Once paid, the seller will deliver title to the buyer. Learning Objective 5.2

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13
Q

An agreement where one broker is given the exclusive right and authorization to represent the seller in marketing the seller’s property is called

Answer Choices:
A. Net listing
B. Exclusive-agency listing
C. Exclusive-right-to-sell listing
D. Commission-certain listing

A

Correct Answer: C. Exclusive-right-to-sell listing

Response Feedback:
The answer is an exclusive-right-to-sell listing. The seller would pay the broker-agent a commission regardless of who sells the property. Learning Objective 5.3

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14
Q

An agreement where the seller gives the exclusive right of representation to a broker-agent to market the seller’s property but reserves the right to sell the property, without obligation to pay the broker a commission, is called

Answer Choices:
A. Exclusive-agency listing
B. Exclusive right-to-sell listing
C. Open listing
D. Net listing

A

Correct Answer: A. Exclusive-agency listing

Response Feedback:
The answer is an exclusive-agency listing. In this type of listing, the broker-agent is authorized to act as the exclusive agent of the principal, but the seller retains the right to sell the property without obligation to the broker. Learning Objective 5.3

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15
Q

A seller listed her residence with a broker. The broker brought an offer at full price and terms of the listing from buyers who are ready, willing, and able to pay cash for the property. However, the seller rejected the buyer’s offer. In this situation, the seller

Answer Choices:
A. Must sell her property
B. Is liable to the buyers for specific performance
C. Owes a commission to the broker
D. Is liable to the buyers for compensatory damages

A

Correct Answer: C. Owes a commission to the broker

Response Feedback:
The answer is that the seller owes a commission to the broker. The broker’s obligation is to bring a “ready, willing, and able” buyer with an offer of the sales price and terms stated in the listing agreement. Learning Objective 5.3

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16
Q

The type of listing that allows the broker to offer the property at any price greater than the total amount the seller wants is the

Answer Choices:
A. Exclusive-right-to-sell listing
B. Exclusive-agency listing
C. Open listing
D. Net listing

A

Correct Answer: D. Net listing

Response Feedback:
The answer is net listing. This type of listing is prohibited in some states due to potential conflicts of interest. Learning Objective 5.3

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17
Q

Who are the parties of a listing agreement?

Answer Choices:
A. The broker, the listing agent, and the owner
B. The listing agent and the owner
C. The broker and the owner
D. All of these

A

Correct Answer: C. The broker and the owner

Response Feedback:
The answer is the broker and the owner. This agreement establishes the rights and obligations of the broker as agent and the seller (owner) as principal. Learning Objective 5.3

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18
Q

A broker should discuss all of the following issues with a buyer before signing a buyer representation agreement EXCEPT

Answer Choices:
A. The services to be provided to the buyer
B. The different forms of agency available
C. The source of compensation determines the agency relationship
D. The rights of the parties under each type of agency

A

Correct Answer: C. The source of compensation determines the agency relationship

Response Feedback:
The answer is the source of compensation does not determine the agency relationship. A buyer’s agent may be compensated by either the buyer or the seller. Learning Objective 5.4

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18
Q

A listing or buyer representation agreement is technically an employment agreement between a client (buyer or seller) and a

Answer Choices:
A. Local multiple listing service
B. Broker
C. Sales agent
D. Broker and sales agent

A

Correct Answer: B. Broker

Response Feedback:
The answer is broker. The broker has the responsibility of supervising the activities of the sales agent. Learning Objective 5.4

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19
Q

Which of the following does NOT have legal title to real property?

Answer Choices:
A. Grantee
B. Lessee
C. Devisee
D. Grantor

A

Correct Answer: B. Lessee

Response Feedback:
The answer is lessee. A lessee is a tenant and is granted the right of possession, not ownership. Learning Objective 5.5

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20
Q

All of the following are requirements of a valid lease EXCEPT

Answer Choices:
A. Contractual third-party consideration
B. Offer and acceptance
C. Legal conjecture
D. Consideration

A

Correct Answer: C. Legal conjecture

Response Feedback:
The answer is legal conjecture. The requirements of a valid lease include capacity to contract, offer and acceptance, legal objective, and consideration. Learning Objective 5.6

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21
Q

A person with a disability has signed a lease and wants to remodel the space to make it more accessible. Regarding this situation, which of the following statements is FALSE?

Answer Choices:
A. The landlord has the right to refuse any modifications if this is the landlord’s standard policy
B. The tenant must be permitted to make reasonable modifications to the property at her own expense
C. If the modifications will interfere with a future tenant’s use, the landlord may require that the premises be restored to the original condition at the end of the lease term
D. The landlord does not have to pay for the tenant’s modifications to the property

A

Correct Answer: A. The landlord has the right to refuse any modifications if this is the landlord’s standard policy

Response Feedback:
The answer is the landlord has the right to refuse any modifications if this is the landlord’s standard policy. The landlord cannot refuse modifications. Learning Objective 5.6

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21
Q

The right the lessee has to occupy the premises without interference from the owner or anyone else is the

Answer Choices:
A. Police power
B. Mandatory security provision of state law
C. Covenant of quiet enjoyment
D. Notice to quit legislation

A

Correct Answer: C. Covenant of quiet enjoyment

Response Feedback:
The answer is covenant of quiet enjoyment. The lease usually stipulates the conditions under which the landlord may enter the property to perform maintenance, make repairs, or for other stated purposes. Learning Objective 5.6

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22
Q

When a landlord leases unimproved land to a tenant who agrees to erect a building on the land, the lease is usually called a

Answer Choices:
A. Ground lease
B. Sandwich lease
C. Development lease
D. Gross lease

A

Correct Answer: A. Ground lease

Response Feedback:
The answer is ground lease. The ground lease is most often used in commercial property development and typically has long terms. Learning Objective 5.7

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23
Q

Some leases allow for increases in the rental charges during the lease periods. This type of lease is called a

Answer Choices:
A. Percentage lease
B. Net lease
C. Variable lease
D. Fixed indexed lease

A

Correct Answer: C. Variable lease

Response Feedback:
The answer is variable lease. This allows a landlord to offer a lower rate initially while allowing rent increases over time. Learning Objective 5.7

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23
Q

A lease where the rent is based on a minimum fixed rental fee plus a percentage of the gross income received by the tenant doing business on the leased property is called a

Answer Choices:
A. Gross lease
B. Percentage lease
C. Net lease
D. Fixed lease

A

Correct Answer: B. Percentage lease

Response Feedback:
The answer is percentage lease. This type of lease is generally used for retail business leases. Learning Objective 5.7

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24
Q

When a tenant has subleased their leased space to another tenant, the original lease between the original tenant and the landlord is called a

Answer Choices:
A. Sub-lessee lease
B. Variable lease
C. Net lease
D. Sandwich lease

A

Correct Answer: D. Sandwich lease

Response Feedback:
The answer is sandwich lease. This type of lease arrangement typically requires the landlord’s approval and special lease terms. Learning Objective 5.7

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25
Q

A man is interested in purchasing a home but has credit issues that prevent him from getting a mortgage. A seller decides to provide owner’s financing to allow the buyer to purchase the home now while the man cleans up his credit. Under the contract terms, the seller will deliver title to the man once the contract has been paid in full. This is a

Answer Choices:
A. Mortgage contract
B. Voidable contract
C. Land contract
D. Lease purchase contract

A

Correct Answer: C. Land contract

Response Feedback:
The answer is land contract. The buyer (vendee) takes possession and gains equitable title, while the seller (vendor) retains legal title until the contract is paid in full. Learning Objective 5.8

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26
Q

A buyer obtains possession of a property under a contract, and the seller is not obligated to execute and deliver a deed to the buyer until the terms of the contract have been satisfied. This is

Answer Choices:
A. Sales contract
B. Novation contract
C. Subrogation contract
D. Installment contract

A

Correct Answer: D. Installment contract

Response Feedback:
The answer is installment contract. An installment contract (also known as a contract for deed or land contract) withholds the title until all contract terms, such as payments, are fulfilled. Learning Objective 5.8

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27
Q

In which of the following does the seller retain legal title?

Answer Choices:
A. Land sales contract
B. Contract for deed
C. Installment contract
D. All of these

A

Correct Answer: D. All of these

Response Feedback:
The answer is all of these. Real estate can be sold under a land contract, also called a contract for deed, an installment contract, or a land sales contract, where the seller retains legal title. Learning Objective 5.8

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28
Q

What type of title does the buyer get in a land sales contract?

Answer Choices:
A. Equitable title
B. Legal title
C. Quitclaim title
D. The buyer will not receive title until the lien is paid in full

A

Correct Answer: A. Equitable title

Response Feedback:
The answer is equitable title. The buyer (vendee) takes possession and gets equitable title to the property, with responsibilities like paying taxes, insurance, and upkeep. Learning Objective 5.8

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28
Q

Which of the following is TRUE with a contract for deed?

Answer Choices:
A. The seller retains possession until the terms of the contract have been satisfied
B. The seller must execute and deliver the deed to make the agreement valid
C. Because Texas is a lien theory state, the seller must transfer the deed upon closing
D. The buyer generally could get a new mortgage loan and pay off the contract

A

Correct Answer: D. The buyer generally could get a new mortgage loan and pay off the contract

Response Feedback:
The answer is the buyer generally could get a new mortgage loan and pay off the contract. The seller is not obligated to deliver a deed until the contract terms are met. Learning Objective 5.8

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29
Q

A real estate sales contract contains the complete agreement between the

Answer Choices:
A. Buyer, the seller, and the agents
B. Buyer, the seller, the agents, the mortgage company, and the title company
C. Buyer, the seller, the agents, the mortgage company, the title company, the appraiser, and the inspector
D. Buyer and the seller

A

Correct Answer: D. Buyer and the seller

Response Feedback:
The answer is buyer and the seller. A real estate sales contract outlines the complete agreement between a buyer and a seller. Learning Objective 6.2

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30
Q

A buyer and a seller agree to all the terms of a contract EXCEPT for who the title company is going to be. What is the result of this disagreement?

Answer Choices:
A. There is no contract
B. According to TREC, this is a “minor” term and can be waived by both the buyer’s title company and the seller’s title company
C. TREC-promulgated contracts do not address this issue
D. None of these results

A

Correct Answer: A. There is no contract

Response Feedback:
The answer is there is no contract. All terms must be agreed upon by both parties; there are no “minor” terms. Learning Objective 6.2

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30
Q

The agreement of the buyer and seller in a real estate transaction is established in what document?

Answer Choices:
A. Listing agreement
B. Contract of sale
C. Buyer representation agreement
D. TREC Commercial Sales Contract

A

Correct Answer: B. Contract of sale

Response Feedback:
The answer is contract of sale. This is the primary document detailing the buyer’s and seller’s agreement and their legal rights and obligations. Learning Objective 6.2

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30
Q

Which of the following sets out in detail the agreement between the buyer and the seller and establishes the legal rights and obligations of both parties?

Answer Choices:
A. Offer
B. Contract
C. Statutory law
D. Constitutional law

A

Correct Answer: B. Contract

Response Feedback:
The answer is contract. It includes sales price, property description, title details, terms, and conditions, establishing the legal rights of both parties. Learning Objective 6.2

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31
Q

Which of the following is a purchase agreement?

Answer Choices:
A. Offer to purchase
B. Contract of purchase and sale
C. Earnest money agreement
D. All of these

A

Correct Answer: D. All of these

Response Feedback:
The answer is all of these. This agreement may be called an offer to purchase, contract of purchase and sale, or earnest money agreement depending on the state or locality. Learning Objective 6.2

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32
Q

What is the Texas Real Estate Commission real estate purchase agreement called?

Answer Choices:
A. One to Four Family Residential Contract
B. Earnest Money Contract
C. Real Estate Purchase Agreement
D. Residential Purchase Agreement

A

Correct Answer: A. One to Four Family Residential Contract

Response Feedback:
The answer is One to Four Family Residential Contract, the most common Texas sales contract for real estate, published by TREC. Learning Objective 6.2

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33
Q

Once the offer has been accepted, each of the parties are to receive

Answer Choices:
A. A congratulatory letter
B. A copy of the final signed contract
C. An escrow acceptance letter
D. A demand for earnest money from the buyer

A

Correct Answer: B. A copy of the final signed contract

Response Feedback:
The answer is a copy of the final signed contract. In some states, a contract is not fully in force until a final signed copy is delivered to both parties. Learning Objective 6.1

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33
Q

A seller has listed her home at $250,000. A couple has made an offer to purchase the property for $230,000, including the seller’s washer and dryer. The seller counters with a sales price of $240,000 without the washer and dryer. The buyers counter again with a sales price of $234,000, including the washer and dryer. The seller makes no response for five days, and the buyers find another property. The buyers should

Answer Choices:
A. Tell their agent to withdraw their offer and have the agent put in an offer on the new property
B. Change agents and make an offer on the new property
C. Keep their offer on the first property but see if they can get a better deal on the new one
D. Wait and see what happens to their existing offer first because they have been in negotiations for so long with the first party

A

Correct Answer: A. Tell their agent to withdraw their offer and have the agent put in an offer on the new property

Response Feedback:
The answer is to tell their agent to withdraw their offer and submit an offer on the new property. An offer or counteroffer can be withdrawn before acceptance. Learning Objective 6.1

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33
Q

When a listing agent receives several offers on a property within one day, the agent must present the offers to the seller as quickly as is reasonable. The agent will

Answer Choices:
A. Show the first offer to the seller first because he must make a decision on it before he can consider the next offer. If the seller accepts the first offer, the agent tells the other buyers that a contract has already been accepted.
B. Make a decision for the seller as to the best offer so as not to confuse the seller.
C. Hold the offers for a few days to see if better ones come in before taking up the seller’s time.
D. Go over all offers with the seller and discuss the merits of each to help the seller make a decision as to which offer he wishes to accept, reject, or counter, if any.

A

Correct Answer: D. Go over all offers with the seller and discuss the merits of each to help the seller make a decision as to which offer he wishes to accept, reject, or counter, if any.

Response Feedback:
The answer is to go over all offers with the seller and discuss the merits of each. All offers should be presented to the property owner as quickly as reasonably practical. Learning Objective 6.1

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34
Q

If a seller counters a buyer’s offer, what happens to the first offer?

Answer Choices:
A. The first offer is good until the buyer withdraws it
B. The first offer is no longer an offer; it terminates upon the signature of the seller on the counteroffer
C. If the buyer rejects the seller’s counter, the seller still has the right to accept the buyer’s first offer
D. If the buyer accepts the counteroffer and if the seller accepts the buyer’s first offer, then both offers are void

A

Correct Answer: B. The first offer is no longer an offer; it terminates upon the signature of the seller on the counteroffer

Response Feedback:
The answer is the first offer is no longer an offer; it terminates upon the seller’s counteroffer. Learning Objective 6.1

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34
Q

Which of the following is the BEST definition of a counteroffer?

Answer Choices:
A. An amendment to a contract
B. When a seller receives more than one offer on a property
C. When a transaction involves more than one sale
D. Any change by the seller to the terms proposed by the buyer

A

Correct Answer: D. Any change by the seller to the terms proposed by the buyer

Response Feedback:
The answer is any change by the seller to the terms proposed by the buyer. A counteroffer is a new offer that the buyer may accept or reject. Learning Objective 6.1

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35
Q

Which law requires certain types of contracts to be in writing in order to be enforceable?

Answer Choices:
A. Texas Real Estate License Act
B. Contract law
C. Statute of frauds
D. Agency law

A

Correct Answer: C. Statute of frauds

Response Feedback:
The answer is statute of frauds. This law requires specific contracts to be in writing for enforceability. Learning Objective 6.1

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36
Q

All of the following statements about contracts are true EXCEPT

Answer Choices:
A. A person cannot sue if a contract is oral, according to the statute of frauds
B. The courts hold that written contracts supersede parole evidence if there is a conflict
C. A person can sue anytime within a four-year period for a written contract
D. A contract for the sale of real property must be in writing to be enforceable

A

Correct Answer: A. A person cannot sue if a contract is oral, according to the statute of frauds

Response Feedback:
The answer is a person cannot sue if a contract is oral, according to the statute of frauds. Oral contracts may still be brought to court within a limited period. Learning Objective 6.1

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37
Q

The statute of frauds requires which of the following?

Answer Choices:
A. All contracts must be in writing to be enforceable
B. All leases must be in writing to be enforceable
C. All contracts that have fraud as an element are unenforceable
D. None of these are required

A

Correct Answer: D. None of these are required

Response Feedback:
The answer is none of these are required. The statute of frauds only mandates that certain contracts, such as real property contracts or leases over a year, be in writing to be enforceable. Learning Objective 6.1

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38
Q

Which of the following expenses are typically NOT prorated between the buyer and seller in a sales contract?

Answer Choices:
A. Real estate taxes
B. New loan payments
C. Rents
D. Maintenance fees

A

Correct Answer: B. New loan payments

Response Feedback:
The answer is new loan payments. Prorations usually cover taxes, rents, and maintenance fees, not new loan payments. Learning Objective 6.2

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39
Q

As a legal description, “the northwest ¼ of the southwest ¼ of Section 6, township 4 North, Range 7 West” is defective because it contains no reference to

Answer Choices:
A. Lot numbers
B. Boundary lines
C. A principal meridian
D. A record of survey

A

Correct Answer: C. A principal meridian

Response Feedback:
The answer is a principal meridian. A principal meridian provides a reference point to locate specific property. Learning Objective 6.2

39
Q

A broker keeps his operating funds in the same account with earnest money from the company trust account. Using escrow funds for this purpose is

Answer Choices:
A. Commingling of funds and is illegal
B. Conversion of funds and is illegal
C. Legal if paper records of the trust account are maintained by the broker
D. Legal if the seller gives consent in writing

A

Correct Answer: A. Commingling of funds and is illegal

Response Feedback:
The answer is commingling of funds and is illegal. Earnest money funds cannot be mixed with a broker’s business or personal funds. Learning Objective 6.3

40
Q

Which of the following is FALSE about earnest money?

Answer Choices:
A. It is evidence of the buyer’s intention to purchase
B. It is held in an escrow account
C. It is required on all contracts for the purchase of real estate
D. It is usually in the form of a personal check

A

Correct Answer: C. It is required on all contracts for the purchase of real estate

Response Feedback:
The answer is that it is required on all contracts for the purchase of real estate. Earnest money is customary but not mandatory. Learning Objective 6.3

40
Q

Which of the following is NOT a valid legal description?

Answer Choices:
A. Metes and bounds
B. Survey
C. Lot and block
D. Street address

A

Correct Answer: D. Street address

Response Feedback:
The answer is street address. While useful for location, street addresses are not precise enough for legal ownership purposes. Learning Objective 6.2

40
Q

Which type of legal description starts at a designated place on the parcel called the point of beginning?

Answer Choices:
A. Rectangular survey
B. Metes and bounds
C. Lot and block
D. Perimeter survey

A

Correct Answer: B. Metes and bounds

Response Feedback:
The answer is metes and bounds. This type of description starts at a designated place on the parcel, called the point of beginning (POB), and proceeds around the property’s boundaries. Learning Objective 6.2

40
Q

What is a detailed way of describing a parcel of land?

Answer Choices:
A. Legal description
B. Appraisal
C. Inspection
D. None of these

A

Correct Answer: A. Legal description

Response Feedback:
The answer is legal description. A legal description is based on information from a survey, which measures boundaries, dimensions, and area to determine the exact location of a parcel of land. Learning Objective 6.2

41
Q

How much earnest money is required when a purchaser makes an offer to purchase real estate?

Answer Choices:
A. $1.00 and other valuable consideration
B. $500.00
C. 1% of the sale price
D. None

A

Correct Answer: D. None

Response Feedback:
The answer is none. The amount of earnest money is negotiable and not required by law. Learning Objective 6.3

42
Q

If a broker mixes personal funds with business funds belonging to others it is called

Answer Choices:
A. Conversion
B. Commingling
C. Commonality
D. Contingent

A

Correct Answer: B. Commingling

Response Feedback:
The answer is commingling. Mixing personal funds with business or client funds is illegal. Learning Objective 6.3

43
Q

Which statement about earnest money is TRUE?

Answer Choices:
A. Large earnest money deposits are usually considered more favorable by a seller
B. The seller’s attorney could hold the earnest money
C. If an offer is rejected, the earnest money check is returned to the buyer
D. All of these are true

A

Correct Answer: D. All of these are true

Response Feedback:
The answer is all of these are true. Earnest money deposits can be held in escrow, returned if an offer is rejected, and may favorably influence sellers when substantial. Learning Objective 6.3

43
Q

Which of the following statements about escrow accounts is FALSE?

Answer Choices:
A. Separate accounts must be opened for new earnest money deposits
B. Brokers must maintain records of all deposits
C. Brokers may have their licenses revoked if they mismanage them
D. Escrow accounts may be interest bearing

A

Correct Answer: A. Separate accounts must be opened for new earnest money deposits

Response Feedback:
The answer is separate accounts must be opened for new earnest money deposits. Brokers can maintain one account for all earnest money deposits. Learning Objective 6.3

44
Q

A buyer deposits certain funds that should be an amount sufficient to discourage the buyer from defaulting. These funds also compensate the seller for taking the property off the market and cover any expenses the seller might incur if the buyer defaults. These funds are called

Answer Choices:
A. Earnest money
B. Down payment
C. Option money
D. Purchase money

A

Correct Answer: A. Earnest money

Response Feedback:
The answer is earnest money, which serves as a financial assurance and compensates the seller if the buyer defaults. Learning Objective 6.3

45
Q

Which of the following is NOT a recognized land surveying method?

Answer Choices:
A. Geographical data survey system
B. Metes-and-bounds system
C. Rectangular survey system
D. Lot-and-block system

A

Correct Answer: A. Geographical data survey system

Response Feedback:
The answer is geographical data survey system. Recognized methods include metes-and-bounds, rectangular survey, and lot-and-block systems. Learning Objective 6.2

46
Q

Which term is generally synonymous with breach?

Answer Choices:
A. Remedy
B. Default
C. Cure
D. Rescission

A

Correct Answer: B. Default

Response Feedback:
The answer is default. Default and breach both indicate a failure to meet contractual obligations. Learning Objective 6.4

46
Q

An inspection contingency allows for

Answer Choices:
A. Testing for the presence of lead-based paint
B. Cost of repairs
C. Final walkthrough
D. Inchoate

A

Correct Answer: A. Testing for the presence of lead-based paint

Response Feedback:
The answer is testing for the presence of lead-based paint, as well as inspections for termites, structural issues, and other hazards. Learning Objective 7.1

46
Q

What is specific performance?

Answer Choices:
A. A court forces the other party to go through with the sale as previously agreed
B. The parties agree on a certain amount of money that will compensate the non-breaching party
C. The parties are returned to their original positions before the contract was made
D. None of these

A

Correct Answer: A. A court forces the other party to go through with the sale as previously agreed

Response Feedback:
The answer is a court forces the other party to go through with the sale as previously agreed. Specific performance is a remedy rarely granted where the court requires fulfillment of the contract terms. Learning Objective 6.4

47
Q

What should the seller do in anticipation of suing the buyer for specific performance for breach of contract?

Answer Choices:
A. Immediately file a lis pendens on the property
B. Request that the buyer declare a statement of default to obtain the best evidence of breach
C. Terminate the contract
D. Proceed to settlement as scheduled to show good faith intent to carry out the terms of the contract

A

Correct Answer: D. Proceed to settlement as scheduled to show good faith intent to carry out the terms of the contract

Response Feedback:
The answer is to proceed to settlement as scheduled, showing good faith to fulfill contract terms, thus supporting a specific performance claim. Learning Objective 6.4

48
Q

For a sales contract to be enforceable, one would need to address

Answer Choices:
A. Contingencies
B. The broker’s commission
C. Lifting clause
D. Liquidated damages

A

Correct Answer: A. Contingencies

Response Feedback:
The answer is contingencies, which are additional conditions that must be satisfied for a contract to be enforceable. Learning Objective 7.1

49
Q

In general, contingencies in a sales contract create

Answer Choices:
A. An enforceable contract
B. A voidable contract
C. A binding contract
D. An optional contract

A

Correct Answer: B. A voidable contract

Response Feedback:
The answer is a voidable contract, as contingencies allow either party to withdraw if conditions aren’t met. Learning Objective 7.1

50
Q

A buyer waiving the sale contingencies creates

Answer Choices:
A. A valid contract
B. A void contract
C. An unenforceable contract
D. A voidable contract

A

Correct Answer: A. A valid contract

Response Feedback:
The answer is a valid contract. By waiving contingencies, the buyer is fully bound to the contract terms. Learning Objective 7.1

51
Q

A title contingency

Answer Choices:
A. Ensures the property condition
B. Provides the seller with unlimited title protection
C. Ensures clear title
D. Guarantees that clear title is not addressed to the standard TREC forms

A

Correct Answer: C. Ensures clear title

Response Feedback:
The answer is ensures clear title. This assures the buyer that the title is clear at the time of closing. Learning Objective 7.1

52
Q

A buyer’s risk of losing the earnest money if unable to obtain financing can be addressed with

Answer Choices:
A. An approval contingency
B. A financing contingency
C. A qualifying contingency
D. An appraisal contingency

A

Correct Answer: B. A financing contingency

Response Feedback:
The answer is a financing contingency, which helps protect the buyer’s earnest money if financing falls through. Learning Objective 7.1

52
Q

Who must sign and/or initial the addendum form for a financing contingency in Texas?

Answer Choices:
A. The seller and buyer
B. The buyer and lender
C. The seller and lender
D. Only the buyer

A

Correct Answer: A. The seller and buyer

Response Feedback:
The answer is the seller and buyer. Both must sign or initial the financing addendum for the contingency to be binding. Learning Objective 7.1

53
Q

When, if ever, is the loan contingency removed?

Answer Choices:
A. Upon closing and funding of the sale
B. When the buyer has secured financing
C. When the seller signs an obligatory release
D. It is kept in place indefinitely

A

Correct Answer: B. When the buyer has secured financing

Response Feedback:
The answer is when the buyer has secured financing. A financing contingency is removed automatically once the buyer secures financing for the property. Learning Objective 7.1

53
Q

Under a contract that includes an automatic financing contingency, when would a buyer be in default?

Answer Choices:
A. The buyer’s broker goes into bankruptcy
B. The seller goes into bankruptcy
C. The lender does not approve the loan due to LTV
D. The lender’s capability to lend no longer exists

A

Correct Answer: D. The lender’s capability to lend no longer exists

Response Feedback:
The answer is the lender’s capability to lend no longer exists. A default may occur if the original lender fails to provide financing or the buyer gives incomplete information. Learning Objective 7.1

54
Q

If the buyer cannot get buyer approval under the Third Party Financing Addendum, the buyer has

Answer Choices:
A. The opportunity to extend the time for fulfilling the loan contingency
B. The opportunity to recover three times the earnest money as liquidated damages
C. An opportunity to void the contract
D. No recourse due to the seller’s protection under the loan contingency

A

Correct Answer: C. An opportunity to void the contract

Response Feedback:
The answer is an opportunity to void the contract. If financing is not approved, the buyer can void the contract and receive the earnest money back. Learning Objective 7.1

55
Q

In order for the seller to be somewhat protected under the buyer approval contingency under the Third Party Financing Addendum,

Answer Choices:
A. The seller has a right to view the buyer’s credit
B. The buyer must have an agreed-upon time frame to acquire buyer approval
C. The buyer must provide the seller’s broker with an approval letter
D. The buyer’s lender must provide a preapproval letter to the seller

A

Correct Answer: B. The buyer must have an agreed-upon time frame to acquire buyer approval

Response Feedback:
The answer is that the buyer must have an agreed-upon time frame to obtain financing, helping the seller ensure timely action. Learning Objective 7.1

55
Q

In which type of loan would the seller have the right to void the contract?

Answer Choices:
A. FHA
B. Conventional
C. Seller financing
D. VA

A

Correct Answer: C. Seller financing

Response Feedback:
The answer is seller financing. Under the Seller Financing Addendum, the seller can terminate the contract if the buyer’s credit is unacceptable. Learning Objective 7.1

56
Q

If a sale is contingent on an appraisal, the appraisal comes in for much less than the sale price, and the buyer cannot pay the additional down payment,

Answer Choices:
A. The lender must terminate
B. The seller must terminate
C. The buyer must terminate
D. The contract will be in jeopardy

A

Correct Answer: D. The contract will be in jeopardy

Response Feedback:
The answer is the contract will be in jeopardy. If the buyer lacks funds to make up the difference, the contract is at risk unless an agreement with the seller is reached. Learning Objective 7.1

57
Q

If a property has an appraised value of $200,000 secured by an $180,000 loan, the LTV is

Answer Choices:
A. 88%
B. 90%
C. 95%
D. 98%

A

Correct Answer: B. 90%

Response Feedback:
The answer is 90%. $180,000 ÷ $200,000 = 0.9, or 90%. Learning Objective 7.1

57
Q

Information that is typically disclosed to the purchaser (depending on state law) in the required HOA restrictions includes

Answer Choices:
A. Any restrictions on the number of children allowed
B. The neighbors’ names and contact information
C. The seller’s net proceeds
D. The color of paint allowed for the exterior of the property

A

Correct Answer: D. The color of paint allowed for the exterior of the property

Response Feedback:
The answer is the color of paint allowed for the exterior of the property. HOA restrictions cover details like exterior paint color, fencing, and parking regulations. Learning Objective 7.1

58
Q

The new owner of a property has employed a landscaping company to maintain the property while the owner is out of the country for three months. During this time, the landscaping company goes bankrupt, and the property is neglected. The HOA fines the owner for failing to maintain the property and charges the owner a fee for the upkeep of the property. The owner disputes the fees and fine, stating that the landscape company is at fault. The owner decides to sue the HOA. What is the best defense for the HOA?

Answer Choices:
A. The owner is responsible because the landscape company was employed by the owner
B. The owner was made aware of the required obligations in the restriction documents prior to the purchase of the property
C. The owner should have known better than to leave town for that period of time
D. The HOA has no real legal defense

A

Correct Answer: B. The owner was made aware of the required obligations in the restriction documents prior to the purchase of the property

Response Feedback:
The answer is that the owner was made aware of the required obligations in the restriction documents prior to purchasing the property. A potential purchaser must be provided with these requirements before buying an HOA property. Learning Objective 7.1

58
Q

Property restrictions

Answer Choices:
A. Must be kept confidential
B. Can be found in the title report
C. Must be disclosed to all purchasers
D. Have no relevance to the buyer

A

Correct Answer: C. Must be disclosed to all purchasers

Response Feedback:
The answer is must be disclosed to all purchasers. Restrictions on property use must be made known to potential buyers. Learning Objective 7.1

59
Q

When is the seller to provide the required HOA restrictions to the buyer?

Answer Choices:
A. At the time of the contract
B. At the time of the offer
C. At the time of the listing
D. At a time agreed upon by both parties

A

Correct Answer: D. At a time agreed upon by both parties

Response Feedback:
The answer is at a time agreed upon by both parties. The timeline for the seller to provide HOA restrictions is mutually agreed upon. Learning Objective 7.1

60
Q

If the seller fails to provide the condominium documents to the purchaser, what can the purchaser do?

Answer Choices:
A. Sue the seller
B. Sue the condominium association
C. Cancel the contract
D. Nothing; the purchaser is bound to the contract as it is a bilateral executory contract

A

Correct Answer: C. Cancel the contract

Response Feedback:
The answer is cancel the contract. Failure to provide necessary condominium or association documents can give the purchaser legal grounds to cancel the contract. Learning Objective 7.1

61
Q

What must be in the documents regarding a homeowners’ or condominium association?

Answer Choices:
A. Interior colors of paint that are permitted
B. Association dues, repairs, and addresses of all the residents
C. Who to contact in an emergency, amount of dues, and parking regulations
D. Any fees, how high the grass can be, and the materials used for repairing a shed

A

Correct Answer: D. Any fees, how high the grass can be, and the materials used for repairing a shed

Response Feedback:
The answer is any fees, grass height requirements, and materials for repairs. HOA documents must include details on fees, dues, and maintenance requirements. Learning Objective 7.1

61
Q

Lead-based paint disclosure is

Answer Choices:
A. Required by federal law
B. Required by state law
C. A requirement of most HOAs
D. Voluntary

A

Correct Answer: A. Required by federal law

Response Feedback:
The answer is required by federal law. Properties built before 1978 require disclosure of lead-based paint hazards. Learning Objective 7.1

62
Q

For residential property, some jurisdictions may mandate

Answer Choices:
A. Acceptable carbon monoxide levels in children’s rooms
B. Comprehensive inspections for hazardous substances including asbestos, radon, carbon monoxide, mold, lead-based paint, and contaminated groundwater
C. Proper ventilation on all new buildings so that radon is not an issue
D. The placement of carbon monoxide detectors

A

Correct Answer: D. The placement of carbon monoxide detectors

Response Feedback:
The answer is the placement of carbon monoxide detectors, along with smoke detectors, as mandated in some areas. Learning Objective 7.1

63
Q

The best time frame to be given for a property sale contingency to be satisfactorily resolved when the seller receives another offer is

Answer Choices:
A. Three hours
B. 24–72 hours
C. One week
D. Two months

A

Correct Answer: B. 24–72 hours

Response Feedback:
The answer is 24–72 hours. In a kick-out clause, this time frame allows the primary buyer to either remove the contingency or terminate the contract. Learning Objective 7.1

63
Q

Inspections that are frequently mandated by state or local law include all of the following EXCEPT

Answer Choices:
A. Termite inspection
B. Lead-based paint inspection
C. Well and septic inspection
D. Underground storage tank inspection

A

Correct Answer: B. Lead-based paint inspection

Response Feedback:
The answer is lead-based paint inspection. While disclosure is required, inspection for lead-based paint is not mandated. Learning Objective 7.1

64
Q

A seller willing to accept a sales contingency might require

Answer Choices:
A. The buyer to list her property with a broker and make it available through the local MLS
B. A buyer with a ratified contract on her property to provide the sales agreement to the seller
C. That the buyer list her property for sale within a certain price range
D. All of these

A

Correct Answer: D. All of these

Response Feedback:
The answer is all of these. Sellers may require conditions to ensure the buyer’s property sells if accepting a sales contingency. Learning Objective 7.1

65
Q

Time frames in a property sale contingency mostly affect the

Answer Choices:
A. Buyer
B. Broker
C. Seller
D. Buyer’s buyer

A

Correct Answer: A. Buyer

Response Feedback:
The answer is buyer. A property sale contingency is designed to protect the buyer from holding two properties simultaneously. Learning Objective 7.1

65
Q

In a situation where the seller negotiates a contract contingent upon being able to find a new home to purchase, who needs to be protected?

Answer Choices:
A. The broker
B. The buyer
C. The seller
D. The buyer’s buyer

A

Correct Answer: B. The buyer

Response Feedback:
The answer is the buyer. If the seller delays in finding a new home, the buyer should be protected with a specific time frame for completion. Learning Objective 7.1

66
Q

The termination of the sales contingency can affect

Answer Choices:
A. The broker
B. The seller
C. The buyer
D. Both the seller and the buyer

A

Correct Answer: D. Both the seller and the buyer

Response Feedback:
The answer is both the seller and the buyer. If the contingency is not satisfied or waived by the buyer by the specified date, the contract will terminate, and the earnest money will be refunded to the buyer. Learning Objective 7.1

67
Q

A buyer and seller enter a contract for the sale of a three-bedroom residential property. Shortly after the contract is in place, the buyer has an inspection done. As a result of the inspection, the buyer wants the seller to fix the fence and replace the garage door opener. The seller agrees. How should the parties proceed?

Answer Choices:
A. The parties must document this agreement in the Special Provisions paragraph of the contract
B. The parties must use an amendment form
C. They have to proceed under the terms of the current contract; no further negotiations are allowed
D. The broker must contact his attorney for advice

A

Correct Answer: B. The parties must use an amendment form

Response Feedback:
The answer is the parties must use an amendment form. Changes made after all parties have signed require a separate amendment with all parties’ signatures. Learning Objective 7.2

67
Q

A buyer and seller enter a contract for the sale of a three-bedroom residential property. Shortly after the contract is in place, the buyer has an inspection done. As a result of the inspection, the buyer wants the seller to fix the fence and replace the garage door opener. The seller refuses. How should the parties proceed?

Answer Choices:
A. The repairs do not become part of the sales agreement
B. The brokers need to encourage the parties to seek legal counsel
C. The buyer can terminate the contract
D. The seller can terminate the contract

A

Correct Answer: A. The repairs do not become part of the sales agreement

Response Feedback:
The answer is the repairs do not become part of the sales agreement. If one party is unwilling to agree to an amendment, the original contract remains as it is. Learning Objective 7.2

68
Q

If the parties change their original promises on an amendment and decide they want to make a change to the closing date,

Answer Choices:
A. They should write this change in Paragraph 11, Special Provisions
B. The broker must rewrite the contract form after all changes for clarity
C. They can do so as long as both parties agree to the changes
D. There is nothing they can do; the amendment has already been filled out

A

Correct Answer: C. They can do so as long as both parties agree to the changes

Response Feedback:
The answer is they can make changes as long as both parties agree. Changes may continue until all parties agree, or the amendment is declared void. Learning Objective 7.2

69
Q

An amendment must include

Answer Choices:
A. Who is responsible for attorney cost, parties involved, and reference to the original contract
B. Dates of changes, names of brokers, and legal address
C. The signatures of the parties, address of the property, and the date of final acceptance of the amendment
D. Parties involved, legal address, and names of brokers

A

Correct Answer: C. The signatures of the parties, address of the property, and the date of final acceptance of the amendment

Response Feedback:
The answer is the signatures of the parties, address of the property, and the date of final acceptance of the amendment. These details ensure clarity and formalize the changes. Learning Objective 7.2

70
Q

An amendment

Answer Choices:
A. Is a change to the original agreement
B. Is a separate agreement
C. Is never attached to the original agreement
D. Needs signatures of buyers, brokers, and sellers

A

Correct Answer: A. Is a change to the original agreement

Response Feedback:
The answer is a change to the original agreement. The amendment, signed by both parties, becomes part of the original contract. Learning Objective 7.2

71
Q

What happens with earnest money and the option fee in an Addendum for Back-up Contract?

Answer Choices:
A. The option fee and earnest money are paid as if it was the first contract
B. The option fee and earnest money are not paid until it becomes the first contract
C. The earnest money is paid, but the option fee is not paid until it becomes the first contract
D. The option fee is paid, but the earnest money is not paid until it becomes the first contract

A

Correct Answer: A. The option fee and earnest money are paid as if it was the first contract

Response Feedback:
The answer is the option fee and earnest money are paid as if it was the first contract. If the primary contract terminates, the backup contract becomes primary. Learning Objective 7.3

72
Q

The Addendum for Property in a Propane Gas System Service Area is

Answer Choices:
A. A required disclosure to give information to any buyer considering buying a property serviced by a propane distribution system
B. An optional disclosure to give information to any buyer considering buying a property serviced by a propane distribution company
C. A required disclosure for any tenant considering leasing a property serviced by a propane distribution company
D. An optional disclosure for any tenant considering leasing a property serviced by a propane distribution company

A

Correct Answer: A. A required disclosure to give information to any buyer considering buying a property serviced by a propane distribution system

Response Feedback:
The answer is a required disclosure to inform buyers about properties serviced by a propane gas system. This disclosure must be provided before a binding contract is executed. Learning Objective 7.3

73
Q

Where must a mortgage document or deed of trust be recorded?

Answer Choices:
A. The federal recorder’s office
B. The state recorder’s office
C. The recorder’s office of the county in which the real estate is located
D. The license holder’s office

A

Correct Answer: C. The recorder’s office of the county in which the real estate is located

Response Feedback:
The answer is the recorder’s office of the county where the real estate is located. Recording provides constructive notice and establishes lien priority. Learning Objective 8.2

73
Q

Which of the following is specifically addressed in the TREC Amendment to Contract?

Answer Choices:
A. Additional repairs not listed in the contract
B. Extension of the closing date
C. Extension of the option period
D. All of these

A

Correct Answer: D. All of these

Response Feedback:
The answer is all of these. The TREC Amendment to Contract covers additional repairs, an extension of the closing date, and extension of the option period. Learning Objective 7.2

74
Q

What does the loan origination fee cover?

Answer Choices:
A. Broker’s commission
B. Seller’s agreed-upon repairs
C. Costs involved in generating the loan
D. Attorney’s opinion of title

A

Correct Answer: C. Costs involved in generating the loan

Response Feedback:
The answer is costs involved in generating the loan. The loan origination fee covers expenses associated with loan processing and is typically a percentage of the loan amount. Learning Objective 8.1

75
Q

The clause that requires the borrower to be penalized for any unscheduled payments is the

Answer Choices:
A. Subordination clause
B. Acceleration clause
C. Defeasance clause
D. Prepayment clause

A

Correct Answer: D. Prepayment clause

Response Feedback:
The answer is prepayment clause. This clause requires the borrower to pay a penalty for any early payments that reduce the lender’s anticipated interest. Learning Objective 8.1

76
Q

Who are the parties in a deed of trust?

Answer Choices:
A. Trustor, trustee, and third party
B. Trustor and trustee
C. Mortgagee, mortgagor, and beneficiary
D. Trustee, beneficiary, and trustor

A

Correct Answer: D. Trustee, beneficiary, and trustor

Response Feedback:
The answer is trustee, beneficiary, and trustor. The deed of trust involves three parties: the trustee (third party), beneficiary (lender), and trustor (borrower). Learning Objective 8.2

76
Q

Who are the parties in a mortgage?

Answer Choices:
A. Mortgagor and trustee
B. Mortgagee
C. Trustee and mortgagee
D. Mortgagee and mortgagor

A

Correct Answer: D. Mortgagee and mortgagor

Response Feedback:
The answer is mortgagee and mortgagor. A mortgage is between the borrower (mortgagor) and the lender (mortgagee). Learning Objective 8.2

77
Q

A buyer and seller enter into a real estate sales contract. Under the contract’s terms, the buyer will pay the seller $500 a month for ten years. The seller will continue to hold legal title while the buyer will live in the home and pay all real estate taxes, insurance premiums, and costs for regular upkeep. Which type of contract do the buyer and seller have?

Answer Choices:
A. Option contract
B. Contract for mortgage
C. Unilateral contract
D. Land contract

A

Correct Answer: D. Land contract

Response Feedback:
The answer is land contract, also called a contract for deed. The seller holds legal title while the buyer pays for the property and has equitable title. Learning Objective 8.3

77
Q

The seller agrees to sell her house to a buyer for $100,000. The buyer is unable to qualify for a mortgage loan for this amount, so the seller and buyer enter into a contract for deed. What is the interest that the buyer has in the house?

Answer Choices:
A. Equitable title
B. Legal title
C. Joint title
D. Mortgagee in possession

A

Correct Answer: A. Equitable title

Response Feedback:
The answer is equitable title. In a contract for deed, the buyer has equitable title while the seller retains legal title. Learning Objective 8.3

78
Q

Which type of property can be purchased under a land contract?

Answer Choices:
A. Unimproved acreage only
B. Farmland only
C. Unimproved acreage and residential
D. Residential only

A

Correct Answer: C. Unimproved acreage and residential

Response Feedback:
The answer is unimproved acreage and residential. Land contracts are common for unimproved land and farmland sales but can also include residential properties. Learning Objective 8.3

78
Q

If the buyer defaults on the land contract, the seller

Answer Choices:
A. Must return any money the buyer has paid and evict the buyer
B. Can evict the buyer
C. Can give the buyer two days to pay or leave
D. Can do nothing because the seller is bound by the contract

A

Correct Answer: B. Can evict the buyer

Response Feedback:
The answer is can evict the buyer. The seller may evict the buyer according to the legal requirements of the property code. Learning Objective 8.3

79
Q

The mortgagor’s right to regain the property by paying the debt after a foreclosure sale is called

Answer Choices:
A. Acceleration
B. Reversion
C. Recapture
D. Redemption

A

Correct Answer: D. Redemption

Response Feedback:
The answer is redemption. This right allows a defaulted borrower to pay the debt and reclaim property after a foreclosure sale. Learning Objective 8.4

79
Q

Under a land contract, the seller can be

Answer Choices:
A. The primary lender only
B. In a secondary position
C. A co-signer on the loan
D. The primary lender and the co-signer for the secondary loan

A

Correct Answer: B. In a secondary position

Response Feedback:
The answer is in a secondary position. The seller may sometimes act as the primary lender or hold a secondary position in financing. Learning Objective 8.3

80
Q

Under the Truth in Lending Act, which of the following is NOT a trigger term?

Answer Choices:
A. Down payment
B. Monthly payment
C. Term of the loan
D. Annual percentage rate

A

Correct Answer: D. Annual percentage rate

Response Feedback:
The answer is annual percentage rate. Trigger terms in ads include down payment, monthly payment, finance charge, or loan term; APR must be disclosed alongside them. Learning Objective 8.8

81
Q

Some lenders derive added income from

Answer Choices:
A. Related loans
B. Servicing loans
C. Assuming loans
D. Foreclosing on loans

A

Correct Answer: B. Servicing loans

Response Feedback:
The answer is servicing loans. In addition to income from loans, lenders may earn additional income by servicing loans for other lenders or investors. Learning Objective 8.5

82
Q

Loan servicing includes

Answer Choices:
A. Listing properties
B. Cold calls
C. Selling properties
D. Bookkeeping

A

Correct Answer: D. Bookkeeping

Response Feedback:
The answer is bookkeeping. Loan servicing tasks involve collecting payments, accounting, bookkeeping, preparing insurance, and maintaining tax records. Learning Objective 8.5

83
Q

Which institution is called a fiduciary lender?

Answer Choices:
A. Credit union
B. Facilitator
C. Real estate broker
D. Savings association

A

Correct Answer: D. Savings association

Response Feedback:
The answer is savings association. Savings associations, thrifts, and commercial banks are fiduciary lenders due to their responsibility to protect depositors’ funds. Learning Objective 8.5

84
Q

All of the following regulate lending practices EXCEPT

Answer Choices:
A. The Real Estate License Act
B. The Truth in Lending Act
C. The Equal Credit Opportunity Act
D. The Real Estate Settlement Procedures Act

A

Correct Answer: A. The Real Estate License Act

Response Feedback:
The answer is the Real Estate License Act. Lending practices are regulated by acts like the Truth in Lending Act, Equal Credit Opportunity Act, and RESPA. Learning Objective 8.8

85
Q

Another term for savings associations is

Answer Choices:
A. Lender
B. Thrifts
C. Processor
D. Fund raisers

A

Correct Answer: B. Thrifts

Response Feedback:
The answer is thrifts. Thrifts is a common term for savings associations, reflecting their role in safeguarding depositors’ funds. Learning Objective 8.5

85
Q

RESPA is a federal law that was enacted to protect consumers from all of the following in the settlement process EXCEPT

Answer Choices:
A. Kickbacks
B. Referral fee requirements
C. Excessive broker commissions
D. Excessive escrow account deposits

A

Correct Answer: C. Excessive broker commissions

Response Feedback:
The answer is excessive broker commissions. RESPA protects consumers by regulating settlement practices but does not address broker commissions, which are negotiable. Learning Objective 8.8

86
Q

All of the following are affected by advertising regulations in Regulation Z EXCEPT

Answer Choices:
A. Signs
B. Radio
C. Financing terms
D. Open houses

A

Correct Answer: D. Open houses

Response Feedback:
The answer is open houses. Regulation Z governs real estate advertising on financing terms across various media, excluding open houses. Learning Objective 8.8

87
Q

Which of the following is NOT a source of primary mortgage market lender?

Answer Choices:
A. Federal Home Loan Bank
B. Credit union
C. Mortgage banker
D. Mortgage broker

A

Correct Answer: A. Federal Home Loan Bank

Response Feedback:
The answer is Federal Home Loan Bank. Primary mortgage market sources include depository institutions, credit unions, mortgage bankers, and brokers. Learning Objective 8.5

88
Q

Which of the following BEST defines a reverse mortgage?

Answer Choices:
A. The seller agrees to finance all or part of the purchase price via a first or junior lien
B. A package loan
C. An older person borrows money against the equity they have built in his home
D. A way to temporarily lower the interest rate on a mortgage or deed of trust loa

A

Correct Answer: C. An older person borrows money against the equity they have built in his home

Response Feedback:
The answer is an older person borrows money against the equity they have built in his home. A reverse mortgage allows people 62 or older to access home equity for various purposes. Learning Objective 8.6

Law of Contracts (3 decks)

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