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Law of Contracts > Unit 9 - 11 > Flashcards

Unit 9 - 11 Flashcards

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1
Q

Question: A 15-year-old boy recently inherited several parcels of real estate from his late father and has decided to sell one of them. If the boy entered into a deed conveying his interest in the property to a purchaser, such a conveyance is:

A. valid.
B. void.
C. voidable.
D. invalid.

A

Correct Answer: C. Voidable
Explanation: A conveyance of title can be made by a minor, but the contract could be rescinded by the minor seller when the minor reaches legal age (18 in most cases). This makes the contract voidable.

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2
Q

Question: Every deed must be executed by:

A. the grantee.
B. both the grantee and grantor.
C. the grantor.
D. the mortgagor.

A

Correct Answer: C. The grantor
Explanation: The grantor is the only one who has to sign (execute) for the deed to be valid.

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3
Q

Question: The words of conveyance are found in which clause?
A. Habendum clause
B. Acceleration clause
C. Reservations clause
D. Granting clause

A

Correct Answer: D. Granting clause
Explanation: For a deed to be valid, it must contain words of conveyance, which are in the granting clause.

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4
Q

Question: Where is it necessary to define or explain in the deed the ownership to be enjoyed by the grantee?
A. Legal description
B. Habendum clause
C. Exceptions and reservations
D. Considerations

A

Correct Answer: B. Habendum clause
Explanation: A habendum clause may follow the granting clause. It begins with the words “to have and to hold.”

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5
Q

Question: Land is considered adequately described when the:
A. professional surveyor can locate the property.
B. seller discloses the address.
C. buyer stipulates how the buyer wants the description to read.
D. broker gives the description to the title company for the Closing Disclosure.

A

Correct Answer: A. Professional surveyor can locate the property
Explanation: Land is adequately described if a professional surveyor can locate the property using the description. The address is not sufficient.

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6
Q

A homeowner signed a deed transferring ownership of his house to a friend. To provide evidence that his signature was genuine, he executed a declaration before a notary. This declaration is called an

A. Affidavit
B. Affirmation
C. Estoppel
D. Acknowledgment

A

Correct Answer: D. Acknowledgment
Explanation: An acknowledgment is designed to prevent forged and fraudulently induced documents from taking effect.

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7
Q

Question: What type of deed provides the grantee with the least protection?
A. Bargain and sale deed
B. General warranty deed
C. Quitclaim deed
D. Special warranty deed

A

Correct Answer: C. Quitclaim deed
Explanation: The quitclaim deed carries no covenants or warranties and generally conveys only whatever interest the grantor may have when the deed is delivered.

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8
Q

Question: A deed contains a guarantee that the grantor will compensate the grantee. This is an example of which type of covenant?
A. Further assurance
B. Quiet enjoyment
C. Seisin
D. Warranty forever

A

Correct Answer: D. Warranty forever
Explanation: The grantor promises to compensate the grantee for the loss sustained if the title fails at any time in the future.

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9
Q

Question: A deed contains a promise that the title conveyed is good and that the grantor will obtain and deliver any documents necessary to ensure good title. This promise is an example of which covenant?
A. Seisin
B. Quiet enjoyment
C. Warranty forever
D. Further assurance

A

Correct Answer: D. Further assurance
Explanation: If the grantor’s spouse failed to sign away dower rights, the grantor must deliver a quitclaim deed to clear the title.

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10
Q

Question: Which type of deed is used by a trustee?
A. Reconveyance deed
B. Quitclaim deed
C. Deed of trust
D. Trustee’s deed

A

Correct Answer: D. Trustee’s deed
Explanation: This deed is executed by a trustee and used when a trustee conveys real estate held in the trust to anyone other than the trustor. It must state that the trustee is executing the instrument in accordance with the trust instrument.

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11
Q

Question: Which type of deed is used by a trustor?
A. Reconveyance deed
B. Deed of trust
C. Quitclaim deed
D. Trustor’s deed

A

Correct Answer: B. Deed of trust
Explanation: A deed of trust is the means by which a trustor conveys real estate to a trustee for the benefit of a beneficiary. The real estate is held by the trustee to fulfill the purpose of the trust.

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12
Q

Question: Which type of deed is used to transfer property by a court order or will?
A. Special warranty deed
B. Reconveyance deed
C. General warranty deed
D. Executors’ deed

A

Correct Answer: D. Executors’ deed
Explanation: Executors’ and administrators’ deeds, master’s deeds, and sheriffs’ deeds are used to convey property transferred by court order or will, as established by state statute.

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13
Q

Question: Which of the following is TRUE regarding a transfer tax in Texas?
A. Texas does not have a transfer tax.
B. The tax is payable at the time the deed is recorded.
C. The taxpayer purchases tax stamps from the county clerk’s office.
D. The transfer tax may be paid by either the buyer or seller.

A

Correct Answer: A. Texas does not have a transfer tax.
Explanation: Texas does not impose a transfer tax, although many other states do. In those states, the tax is typically payable when the deed is recorded.

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14
Q

Question: Title to property may be transferred without the owner’s consent by:
A. Voluntary alienation
B. Involuntary alienation
C. Sales contract
D. Gift

A

Correct Answer: B. Involuntary alienation
Explanation: Involuntary alienation occurs when property is transferred without the owner’s consent, such as through foreclosure or eminent domain.

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15
Q

Question: The buyer and seller go under a sales contract. At closing, the seller has consented by:
A. Gifting the property
B. Involuntary alienation
C. Voluntary alienation
D. Hostility

A

Correct Answer: C. Voluntary alienation
Explanation: When the seller signs the contract and closing documents, they are voluntarily transferring the property.

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16
Q

Question: An owner of real estate was declared legally incompetent and was committed to a state mental institution. While institutionalized, the owner wrote and executed a will. The owner later died and was survived by a spouse and three children. The real estate will pass:
A. To the owner’s spouse
B. To the heirs mentioned in the owner’s will
C. According to the state laws of descent
D. To the state

A

Correct Answer: C. According to the state laws of descent
Explanation: A testator must be of sound mind to create a valid will. Since the owner was legally incompetent, the will is invalid, and the property will pass according to state laws of descent.

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16
Q

Question: A person who dies testate can transfer title to their real estate upon their death through which type of document?
A. Warranty deed
B. Will
C. Special warranty deed
D. Quitclaim deed

A

Correct Answer: B. Will
Explanation: A will allows an owner to convey title to real property after their death.

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17
Q

Question: When a person dies testate, title to real property transfers to the:
A. Testator
B. Deceased person’s heirs
C. Devisee
D. Descendant

A

Correct Answer: C. Devisee
Explanation: The gift of real property by will is called a devise, and the recipient is known as the devisee.

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18
Q

Question: A person who has died without a will has died:
A. Testate
B. In valid conveyance
C. Intestate
D. Under the acknowledgment clause

A

Correct Answer: C. Intestate
Explanation: When a property owner dies intestate, title to the property passes to the decedent’s heirs as provided by state laws of descent.

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19
Q

Question: When a person dies, ownership of real estate:
A. Passes immediately
B. Must go through probate
C. Passes via the laws of descent and distribution
D. Passes upon notice to all the devisees in a will

A

Correct Answer: A. Passes immediately
Explanation: Ownership of real estate passes immediately upon death, either to the heirs by descent or to those named in a will. Full title and possession may require probate.

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20
Q

Question: The process of probate is:
A. The reading of the will
B. A formal judicial process
C. The due diligence of the executor
D. Able to be bypassed if the person died testate

A

Correct Answer: B. A formal judicial process
Explanation: Probate is a legal procedure for verifying the validity of a will and accounting for the decedent’s assets. It typically involves a court-supervised process to settle the estate.

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21
Q

Question: What type of will is conveyed by orally dictating the individual’s desires?
A. Curtsey
B. Nuncupative
C. Probate
D. Codicil

A

Correct Answer: B. Nuncupative
Explanation: A nuncupative will is an oral will, typically valid only in certain circumstances. Some states do not allow real property to be conveyed through oral wills.

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22
Q

Question: The date and time a document was recorded helps to establish:
A. Abstract of title
B. Priority
C. Subrogation
D. Marketable title

A

Correct Answer: B. Priority
Explanation: The recording date and time determine the priority of a claim or lien under the “first in time, first in right” principle.

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23
Q

Question: The recordation of a warranty deed:
A. Gives actual notice of the grantee’s rights
B. Prevents claims of parties in possession
C. Provides defense against adverse possession
D. Gives constructive notice of an individual’s interest

A

Correct Answer: D. Gives constructive notice of an individual’s interest
Explanation: Recording a deed serves as constructive notice to the public, indicating the individual’s rights or interest in the property.

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23
Q

Question: Public records are:
A. Viewable only to persons that can establish rights of interest
B. Private information unless a court order is made
C. Documents that contain personal information
D. Viewable to anyone

A

Correct Answer: D. Viewable to anyone
Explanation: Public records are accessible to anyone interested in reviewing documents related to property ownership or liens.

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24
Q

Question: Constructive notice is:
A. Properly recording documents in the public record
B. When someone has been given the information and actually knows it
C. Real estate taxes and special liens
D. Unrecorded liens

A

Correct Answer: A. Properly recording documents in the public record
Explanation: Constructive notice occurs when documents are publicly recorded, making the information available to anyone interested.

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25
Q

Question: A buyer took delivery of the deed to a new house, but neither recorded the deed nor took possession of the property. Under these circumstances, the:
A. Transfer of the property from the seller is ineffective
B. Buyer’s interest is not fully protected against third parties
C. Deed is invalid after six months
D. Deed is invalid after 90 days

A

Correct Answer: B. Buyer’s interest is not fully protected against third parties
Explanation: Without recording the deed or taking possession, the buyer’s interest could be challenged by third parties.

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26
Q

Question: Actual notice is:
A. The order of when documents or liens were recorded
B. When the information is available and someone has been given it and actually knows it
C. All unrecorded documentation
D. Inheritance taxes

A

Correct Answer: B. When the information is available and someone has been given it and actually knows it
Explanation: Actual notice occurs when a person has direct knowledge of a property claim through inspection or review of public records.

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27
Q

Question: An examination of all of the public records to determine whether any defects exist in the chain of title is:
A. An abstract of title
B. A title search
C. A title report
D. An attorney’s opinion of title

A

Correct Answer: B. A title search
Explanation: A title search involves reviewing public records to identify any defects in the chain of title or claims against the property.

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28
Q

Question: A title search in the public records may be conducted by:
A. Attorneys and abstractors only
B. Attorneys, abstractors, and real estate license holders only
C. Anyone who obtains a court order under the Freedom of Information Act
D. Anyone

A

Correct Answer: D. Anyone
Explanation: Public records are open to everyone, allowing anyone to conduct a title search.

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29
Q

Question: Which of the following is NOT proof of ownership?
A. Torrens title
B. Deed
C. Certificate of title
D. Title insurance

A

Correct Answer: B. Deed
Explanation: A deed conveys ownership but does not prove the condition of the grantor’s title. Evidence of ownership typically includes a certificate of title, title insurance, or a Torrens title.

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30
Q

Question: All of the following may be used to prove ownership EXCEPT:
A. A certificate of title
B. A deed
C. Title insurance
D. A Torrens certificate

A

Correct Answer: B. A deed
Explanation: A deed alone is not sufficient evidence of ownership since it does not guarantee the title’s marketability. Certificates of title, title insurance, or Torrens certificates provide assurance of ownership.

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31
Q

Question: All of the following would be considered evidence of marketable title EXCEPT:
A. An abstract of title with a legal opinion
B. A title commitment or title insurance policy
C. A certificate of title by a real estate attorney
D. A certificate of title by a real estate broker

A

Correct Answer: D. A certificate of title by a real estate broker
Explanation: Certificates of title may only be prepared by title companies, licensed abstractors, or attorneys—not real estate brokers.

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32
Q

Question: A document that protects against hidden risks, such as forgeries and loss due to defects in the title, and is subject to specific exceptions is called:
A. A chain of title
B. A title insurance policy
C. An abstract of title
D. A certificate of title

A

Correct Answer: B. A title insurance policy
Explanation: Title insurance provides coverage against defects not uncovered by a title search, such as forgery or hidden liens.

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33
Q

Question: A certificate of title may be prepared by all of the following EXCEPT:
A. A real estate broker
B. A title company
C. A licensed abstractor
D. An attorney

A

Correct Answer: A. A real estate broker
Explanation: Only title companies, licensed abstractors, or attorneys may prepare certificates of title.

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34
Q

Question: The commitment to issue a title policy includes all of the following EXCEPT:
A. Name of the insured party
B. Legal description
C. Estate or interest covered
D. Full sale price of the property

A

Correct Answer: D. Full sale price of the property
Explanation: Title commitments include information such as the legal description and conditions of the policy but do not disclose the property’s sale price.

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35
Q

Question: Standard coverage in an owner’s title insurance policy would cover all of the following EXCEPT:
A. Defects found in public records
B. Forged documents
C. Incompetent grantors
D. Changes in land use brought about by zoning ordinances

A

Correct Answer: D. Changes in land use brought about by zoning ordinances
Explanation: Zoning changes are not covered by title insurance. Coverage includes defects in public records, forgery, and issues with grantor competency.

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36
Q

Question: Standard coverage in an owner’s title insurance policy would cover:
A. Defects found in public records
B. Forged documents
C. Incompetent grantors
D. All of these

A

Correct Answer: D. All of these
Explanation: Standard title insurance policies cover defects in public records, forgery, incompetent grantors, and improperly delivered deeds.

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37
Q

Question: Extended coverage in an owner’s title insurance policy would NOT cover:
A. Forged documents
B. Defects found in public records
C. Unrecorded liens not known by the policyholder
D. Changes in land use brought about by zoning ordinances

A

Correct Answer: D. Changes in land use brought about by zoning ordinances
Explanation: Extended coverage includes unrecorded liens and survey defects but does not cover zoning changes.

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38
Q

Question: Which of the following is NOT covered by a standard title insurance policy?
A. Forged documents
B. Incorrect marital statements
C. Incompetent grantors
D. Unrecorded rights of parties

A

Correct Answer: D. Unrecorded rights of parties
Explanation: Unrecorded rights of parties are only covered by extended coverage policies, not standard title insurance.

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39
Q

Question: Which of the following steps must occur to make an offer a contract?
A. Any contingencies must be agreed upon
B. Changes agreed upon
C. Signatures have been received from all parties
D. All of these

A

Correct Answer: D. All of these
Explanation: An offer becomes a contract only after all contingencies have been addressed, changes agreed upon, and signatures received from all parties.

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40
Q

Question: Which of the following should an agent do after an offer becomes a contract?
A. Give copies of all documents signed to both the buyer and seller
B. Request payment
C. Disclose the terms of the contract to any other buyer thinking of submitting a backup offer
D. All of these

A

Correct Answer: A. Give copies of all documents signed to both the buyer and seller
Explanation: It is the agent’s responsibility to ensure both buyer and seller receive copies of all signed documents after a contract is formed.

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41
Q

Question: What items should NOT be deposited with the escrow officer?
A. Earnest money
B. Offer to purchase
C. Personal items
D. None of these

A

Correct Answer: C. Personal items
Explanation: Personal items should never be left with the escrow officer. Only relevant financial and contractual documents should be deposited.

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42
Q

Question: Where would earnest money never be held?
A. The broker’s personal or business account
B. The title officer
C. The title attorney
D. None of these

A

Correct Answer: A. The broker’s personal or business account
Explanation: Brokers are prohibited from holding earnest money in personal or business accounts. It must be kept in a trust account or handled by a title company.

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43
Q

Question: For how many years must a broker maintaining a trust account retain a documentary record of each deposit or withdrawal from the account?
A. 1
B. 4
C. 10
D. 20

A

Correct Answer: B. 4
Explanation: Brokers are required to retain records of all trust account transactions for a minimum of four years.

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44
Q

Question: If a TREC-promulgated contract form is used, who is responsible for depositing the earnest money with the escrow agent?
A. Buyer
B. Seller
C. Seller’s agent
D. Buyer’s agent

A

Correct Answer: A. Buyer
Explanation: Under TREC contracts, the buyer is responsible for depositing the earnest money with the escrow agent.

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45
Q

Question: When does a title company start the title work?
A. At the time the listing agreement is executed
B. At the time the contract is executed
C. At the time the contract is sent to the title company
D. At the time the seller’s broker instructs them to do so

A

Correct Answer: C. At the time the contract is sent to the title company
Explanation: Title work begins when the contract is sent to the title company by the buyer’s or seller’s agent.

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46
Q

Question: Which of the following must be done by the buyer before closing?
A. Pay the taxing authority taxes for the current year
B. Review the owner’s policy of title insurance
C. Transfer utilities to the buyer’s name
D. All of these

A

Correct Answer: C. Transfer utilities to the buyer’s name
Explanation: Before closing, the buyer must arrange for utilities to be transferred to their name.

47
Q

Question: Which of the following needs to be filed by the buyer?
A. A change of address
B. Transfer of cable
C. Transfer of security systems
D. All of these

A

Correct Answer: D. All of these
Explanation: The buyer is responsible for filing a change of address and transferring services such as cable and security systems.

48
Q

Question: What is the purpose of a final walk-through?
A. Verify that all necessary repairs have been made
B. Verify that the property has been well maintained
C. Verify that all systems and fixtures are in substantially the same condition that they were in at the time the contract was finalized
D. All of these

A

Correct Answer: D. All of these
Explanation: The final walk-through ensures repairs are completed, the property is maintained, and systems and fixtures are in the agreed condition before closing.

49
Q

Question: Prior to closing, what should the buyer do with the Loan Estimate?
A. Review it and compare it to the Closing Disclosure
B. File it with the county registrar
C. Write it
D. Present it to the seller

A

Correct Answer: A. Review it and compare it to the Closing Disclosure
Explanation: The Loan Estimate should be reviewed and compared to the Closing Disclosure to ensure consistency and accuracy.

50
Q

Question: Prior to closing, what should the buyer do with the Closing Disclosure?
A. File it with the county registrar
B. Write it
C. Review it and compare it to the Loan Estimate
D. Present it to the seller

A

Correct Answer: C. Review it and compare it to the Loan Estimate
Explanation: Comparing the Closing Disclosure to the Loan Estimate ensures there are no unexpected changes or discrepancies.

51
Q

Question: What must the buyer bring to closing to pay for closing costs?
A. Certified funds
B. Personal check
C. Cash
D. All of these

A

Correct Answer: A. Certified funds
Explanation: Buyers are required to bring certified funds, such as a cashier’s check, to cover closing costs.

52
Q

Question: Which of the following is acceptable for the buyer to pay at closing for closing costs?
A. Personal check
B. Cashier’s check
C. Cash
D. All of these

A

Correct Answer: B. Cashier’s check
Explanation: Cashier’s checks or certified funds are required for closing to ensure the funds are secure.

53
Q

Question: Face-to-face closings
A. must be held at the office of the title company.
B. cannot be held at the lending institution.
C. cannot be held at the office of the broker.
D. may be held at the office of the title company, the lending institution, or the broker.

A

Correct Answer: D. May be held at the office of the title company, the lending institution, or the broker.
Explanation: Closings can occur in various locations, including the title company, lending institution, or broker’s office.

54
Q

Question: The buyers and sellers have not gotten along during the buying process. What might be the best way to handle this situation?
A. The two parties might be seated in separate rooms in the settlement agent’s office and papers passed back and forth through an intermediary.
B. Terminate the transaction because this might escalate.
C. Have the agents sign for their clients.
D. None of these are the best way.

A

Correct Answer: A. The two parties might be seated in separate rooms in the settlement agent’s office and papers passed back and forth through an intermediary.
Explanation: Separating the parties and using an intermediary reduces the potential for conflict during closing.

55
Q

Question: Where might a face-to-face closing be held?
A. The lender’s office
B. The broker’s office
C. The county recorder’s office
D. Any of these

A

Correct Answer: D. Any of these
Explanation: Face-to-face closings can be held at various locations, including the lender’s office, broker’s office, or county recorder’s office.

56
Q

Question: Who might attend a closing?
A. Real estate agents
B. Buyer’s attorney
C. Mortgage officer
D. All of these

A

Correct Answer: D. All of these
Explanation: Closings are attended by various parties, including real estate agents, attorneys, and representatives from the lending institution.

57
Q

Question: In an escrow closing, the seller deposits which of the following?
A. Any personal property that will remain with the property
B. Title evidence
C. Any loan documents
D. IABS

A

Correct Answer: B. Title evidence
Explanation: The seller provides title evidence such as abstracts, attorney opinions, or title insurance during an escrow closing.

58
Q

Question: In an escrow closing, which of the following will the seller NOT deposit?
A. Existing hazard or homeowner insurance policies
B. A letter or mortgage reduction certificate from the lender stating the exact principal remaining (if the buyer is assuming the seller’s loan)
C. Affidavits of estoppel (if required)
D. A payoff statement (if the seller’s loan is to be paid off)

A

Correct Answer: C. Affidavits of estoppel (if required)
Explanation: Sellers typically deposit documents related to title and loan payoff but do not deposit affidavits of estoppel, which are not required.

59
Q

Question: In an escrow closing, which of the following items is typically deposited by the buyer?
A. The balance of the cash needed to complete the purchase
B. The title policy
C. Proof of residency in Texas
D. All of these

A

Correct Answer: A. The balance of the cash needed to complete the purchase
Explanation: The buyer deposits the balance of the cash needed, usually in certified funds, to finalize the purchase.

60
Q

Question: The buyer deposits which of the following in an escrow closing?
A. Loan documents (if the buyer secures a new loan)
B. Any personal property that will remain with the property
C. Any title documents necessary to clear title
D. IABS

A

Correct Answer: A. Loan documents (if the buyer secures a new loan)
Explanation: Buyers deposit loan documents required for securing a new loan as part of the escrow process.

61
Q

Question: Due to the Taxpayer Relief Act of 1997, it may not be necessary to file with the IRS if the capital gain is less than which of the following amounts?
A. $100,000 for an individual or $250,000 for a couple
B. $250,000 for an individual or $500,000 for a couple
C. $500,000 for an individual or $1,000,000 for a couple
D. $1,000,000 for an individual or unlimited for a couple

A

Correct Answer: B. $250,000 for an individual or $500,000 for a couple
Explanation: Capital gains under these limits are excluded from IRS reporting requirements per the Taxpayer Relief Act of 1997.

62
Q

Question: Which of the following is part of the use test used to exclude any capital gain from the sale of a home?
A. The seller lived in the home as her main home for at least two years.
B. The prescribed period for living in the home must be continuous.
C. The seller owned the property for at least two years.
D. The prescribed period for owning the property need not be continuous.

A

Correct Answer: A. The seller lived in the home as her main home for at least two years.
Explanation: The use test requires the seller to have used the home as their primary residence for at least two years.

63
Q

Question: How many business days does a lender have to provide the Loan Estimate after the borrower signs the loan application?
A. One day
B. Two days
C. Three days
D. Five days

A

Correct Answer: C. Three days
Explanation: Lenders must provide the Loan Estimate within three business days after receiving the loan application.

64
Q

Question: How many business days before a scheduled closing on a loan must the lender deliver the Closing Disclosure?
A. One day
B. Three days
C. Five days
D. Seven days

A

Correct Answer: B. Three days
Explanation: The Closing Disclosure must be provided to the borrower at least three business days prior to the closing.

65
Q

Question: How many days must the closing wait if the APR has changed 0.125% from the original Closing Disclosure?
A. One day
B. Three days
C. Five days
D. Seven days

A

Correct Answer: B. Three days
Explanation: If the APR changes by more than 0.125%, a new Closing Disclosure must be issued, and the closing must wait three days.

66
Q

Question: For non-exempt closings, the sales price, property tax reimbursed to the seller, and the seller’s Social Security number must be reported to the:
A. Texas Real Estate Commission
B. Department of Housing and Urban Development
C. Federal Trade Commission
D. Internal Revenue Service

A

Correct Answer: D. Internal Revenue Service
Explanation: Non-exempt closings require specific transaction details to be reported to the IRS, including the seller’s Social Security number.

67
Q

Question: The Consumer Financial Protection Bureau requires which of the following?
A. The lender must provide the borrower the Loan Estimate within three business days of application.
B. The lender must have given the borrower notice of final loan approval within 21 days or refund the borrower the loan application fee.
C. The lender must limit loan application fees not to exceed 1% of the loan amount.
D. The lender must not discriminate against a borrower’s familial status.

A

Correct Answer: A. The lender must provide the borrower the Loan Estimate within three business days of application.
Explanation: The CFPB mandates that the Loan Estimate be provided promptly within three business days to ensure transparency.

68
Q

Question: Which of the following laws is intended to prevent consumers from receiving an enticing low rate at the initial application and then learning at settlement that the lender is charging more in fees?
A. Dodd-Frank Wall Street Reform and Consumer Protection Act
B. Real Estate License Act
C. Lenders Full Disclosure Act
D. Mortgage Reduction and Responsibility Act

A

Correct Answer: A. Dodd-Frank Wall Street Reform and Consumer Protection Act
Explanation: This act ensures lenders maintain transparency to protect consumers from unexpected fee increases at settlement.

69
Q

Question: Which law requires certain disclosures about the mortgage and settlement process and prohibits certain practices that increase the costs of settlement services?
A. Deceptive Trade Practices Act
B. Truth in Lending Act
C. Real Estate Settlement Procedures Act
D. Mortgage Reduction Act

A

Correct Answer: C. Real Estate Settlement Procedures Act
Explanation: The Real Estate Settlement Procedures Act (RESPA) mandates disclosures about the settlement process and prohibits practices like kickbacks that increase settlement costs.

70
Q

Question: The Real Estate Settlement Procedures Act prohibits all of the following EXCEPT:
A. Kickbacks
B. Unearned fees for services not actually performed
C. Fee-splitting for referrals of settlement services
D. Referral fees to out-of-state brokers

A

Correct Answer: D. Referral fees to out-of-state brokers
Explanation: While RESPA prohibits kickbacks, unearned fees, and fee-splitting for settlement service referrals, it does not prohibit referral fees paid to licensed out-of-state brokers.

71
Q

Question: The Real Estate Settlement Procedures Act prohibits:
A. Buyers from disclosing information relating to race or color
B. Sellers from requiring buyers to buy title insurance from a particular company
C. Escrow officers from failing to identify if the seller is not a U.S. citizen
D. Property flipping

A

Correct Answer: B. Sellers from requiring buyers to buy title insurance from a particular company
Explanation: RESPA Section 9 prohibits sellers from mandating that buyers purchase title insurance from a specific company.

72
Q

Question: The Real Estate Settlement Procedures Act prohibits:
A. Escrow officers from recording customers’ Social Security numbers without a valid purpose
B. Lenders from requiring excessive escrow account deposits
C. Escrow officers from failing to disclose the actual identity of the buyers or sellers in a real estate transaction
D. Redlining

A

Correct Answer: B. Lenders from requiring excessive escrow account deposits
Explanation: RESPA Section 10 restricts lenders from demanding excessive escrow account deposits to protect buyers.

73
Q

Question: Which of the following disclosures do lenders need to make if the lender denies the loan within three days of application?
A. Loan Estimate
B. Closing Disclosure
C. RESPA settlement booklet
D. None of these

A

Correct Answer: D. None of these
Explanation: If a loan application is denied within three days, RESPA does not require lenders to provide Loan Estimates or other disclosures.

74
Q

Question: What required disclosure provides the borrower with preliminary approximations about settlement costs?
A. The CFPB’s Loan Estimate form
B. RESPA’s Special Information Booklet
C. Settlement Statement
D. Information About Buyer’s Settlement (IABS)

A

Correct Answer: A. The CFPB’s Loan Estimate form
Explanation: The Loan Estimate form, provided within three days of application, offers preliminary settlement cost estimates.

75
Q

Question: Which of the following is TRUE about the good-faith estimate of settlement costs?
A. The language in the estimate can be of the lender’s choice as long as the content is legally congruent
B. The estimate must be at least five pages in length
C. The estimate must be provided within three days of the loan application
D. There is no requirement to use a good-faith estimate whenever the transaction involves government financing

A

Correct Answer: C. The estimate must be provided within three days of the loan application
Explanation: The Loan Estimate must follow CFPB guidelines and be delivered within three business days of loan application.

76
Q

Question: Most closings involve the division of financial responsibility between the buyer and seller for which of the following items?
A. Mediation fees
B. Credit life insurance
C. Condominium fees
D. Cable bill

A

Correct Answer: C. Condominium fees
Explanation: Financial responsibilities like loan interest, taxes, rents, and condominium or homeowners association fees are commonly prorated.

77
Q

Question: Which of the following items would be prorated at closing?
A. Warranty deed fees
B. Furnace fuel bills
C. Provisional fees
D. Option fees

A

Correct Answer: B. Furnace fuel bills
Explanation: Items like loan interest, taxes, rents, fuel, and HOA fees are prorated between the buyer and seller at closing.

78
Q

Question: Which of the following statements about filling the “Parties” blanks in the TREC-promulgated contracts is TRUE?
A. The agent should use the full legal names of the parties
B. The agent should never fill in the name; the buyers and sellers should fill in their own names
C. The agent should have a preliminary title search completed and use the legal names listed in the search
D. Filling in those paragraphs would be a “per se” violation of the practice of law

A

Correct Answer: A. The agent should use the full legal names of the parties
Explanation: Using full legal names ensures clarity and consistency with the property’s title.

79
Q

Question: In a contract, the agent recorded that the buyer was “Nathan Henderson and Amber Henderson.” Which of the following observations is MOST correct?
A. The agent should never fill in the name; the buyers and sellers should fill in their own names
B. The agent should include the relationship between Nathan and Amber
C. The agent would need to check with the State Attorney General’s office to be sure of the legal status of the buyer before proceeding
D. The agent has done the best at this point

A

Correct Answer: B. The agent should include the relationship between Nathan and Amber
Explanation: Texas is a community property state, requiring the marital status of parties to be included in contracts.

80
Q

Question: In a contract, the agent recorded that the buyer was “Nathan Henderson and wife Amber.” Which of the following statements is TRUE?
A. The buyers are listed correctly.
B. The buyer’s children should also be listed if they are going to live with Nathan and Amber.
C. Amber’s last name does not need to be listed because it is assumed as Nathan’s wife that her last name is also Henderson.
D. Amber’s last name must also be listed.

A

Correct Answer: D. Amber’s last name must also be listed.
Explanation: Legal names must be used for all parties in contracts. Do not assume that a spouse has the same last name.

81
Q

Question: In a contract, the agent recorded that the buyer was “Nathan Henderson and wife Amber Henderson.” Which of the following is TRUE?
A. The buyer’s children should also be listed if they are going to live with Nathan and Amber.
B. The buyers are listed correctly, but the agent should also include their ages.
C. The buyers are listed correctly.
D. Amber’s last name does not need to be listed because it is assumed as Nathan’s wife that her last name is also Henderson.

A

Correct Answer: C. The buyers are listed correctly.
Explanation: Contracts must include legal names and marital status, which are correctly stated in this example.

82
Q

Question: In a contract, the agent recorded the seller as “Nathan James Henderson,” which is how his name appears on the property’s title and on his driver’s license. Which of the following is FALSE?
A. This is all the information needed to identify Nathan in the contract.
B. Nathan’s marital status should be included (e.g., Nathan James Henderson, a single person).
C. Nathan James Henderson is probably his full legal name.
D. All of these are false.

A

Correct Answer: A. This is all the information needed to identify Nathan in the contract.
Explanation: The contract must include Nathan’s full legal name and marital status for completeness.

83
Q

Question: A buyer wanted to purchase this property and remain anonymous. On the contract, the agent recorded the buyer as “Withheld.” Which of the following is TRUE?
A. The principal directed it, so it is valid.
B. The person’s actual name would need to be filled in, but that can be done just prior to closing.
C. This is done quite frequently, and “Withheld” is considered a valid name in Texas.
D. “Withheld” does not correctly name the party.

A

Correct Answer: D. “Withheld” does not correctly name the party.
Explanation: Contracts must specify the legal name of the party, including marital status, to be valid.

84
Q

Question: Which of the following is the BEST way to identify the buyers on a contract?
A. Dorothy Hamilton and Robert Hamilton
B. The Hamiltons
C. Robert and Dorothy Hamilton
D. Robert Hamilton and spouse Dorothy Hamilton

A

Correct Answer: D. Robert Hamilton and spouse Dorothy Hamilton.
Explanation: This format includes both legal names and clearly describes the couple’s relationship.

85
Q

Question: Which of the following should NOT be used to identify the seller on a contract?
A. Dorothy Hamilton and spouse Robert Hamilton
B. Robert Hamilton and spouse Dorothy
C. Ryan Elliot Hamilton, a single person
D. Robert Hamilton and spouse Dorothy Jacobs

A

Correct Answer: B. Robert Hamilton and spouse Dorothy.
Explanation: Dorothy’s last name must be fully stated on the contract for legal clarity.

86
Q

Question: A single man is purchasing a home. How would his name be BEST recorded on the contract?
A. Mr. Fitzgerald
B. D. Fitzgerald
C. Daniel Fitzgerald
D. Daniel Scott Fitzgerald, a single person

A

Correct Answer: D. Daniel Scott Fitzgerald, a single person.
Explanation: This provides the buyer’s full legal name and indicates that he is unmarried.

87
Q

Question: Which of the following is FALSE about TREC-promulgated contracts?
A. Signatures, initials, and an effective date are required on the contract. Only initials are required on all addenda and amendments.
B. The contracts are long, so an agent must be prudent in filling them in.
C. The contracts contain checkboxes that can easily be overlooked.
D. All of these are false.

A

Correct Answer: A. Signatures, initials, and an effective date are required on the contract. Only initials are required on all addenda and amendments.
Explanation: Both signatures and initials are required on contracts, addenda, and amendments to be valid.

88
Q

Question: How should the Possession paragraph be completed in TREC-promulgated forms?
A. The license holder should never fill in any part of the contract; the buyer and the seller must fill in the contract.
B. The license holder must use the TREC temporary lease if the checkbox is marked “according to a temporary residential lease form.”
C. The license holder must use whichever checkbox is directed by the client, regardless of circumstance.
D. Possession is always at closing and funding; there is no checkbox.

A

Correct Answer: B. The license holder must use the TREC temporary lease if the checkbox is marked “according to a temporary residential lease form.”
Explanation: If possession is not “upon closing and funding,” the license holder must use the appropriate TREC lease and indicate that in the Agreement of Parties paragraph.

89
Q

Question: Who fills in the effective date on TREC-promulgated forms?
A. Buyer
B. Seller
C. Title officer
D. Broker

A

Correct Answer: D. Broker
Explanation: All TREC sales contracts include a space for the effective date, which is completed by the broker after all parties sign the agreement.

90
Q

Question: According to the default provision of the contract, if the buyer fails to comply with the terms of the contract, the seller may
A. Enforce specific performance.
B. Seek such other relief as may be provided by law.
C. Terminate the contract and receive the earnest money as liquidated damages.
D. Do all of these.

A

Correct Answer: D. Do all of these
Explanation: If the buyer defaults, the seller can enforce specific performance, seek legal relief, or terminate the contract and receive the earnest money as liquidated damages.

91
Q

Question: Failing to mark all the appropriate boxes in a TREC-promulgated contract form could likely lead to all of the following EXCEPT
A. Delays in the transaction.
B. Contention between the parties.
C. Looking incompetent.
D. A commission bonus.

A

Correct Answer: D. A commission bonus
Explanation: Missing checkboxes can delay the transaction, cause contention, and reflect poorly on the agent’s professionalism. It does not result in a commission bonus.

92
Q

Question: In Texas, which of the following is TRUE regarding electronic signatures?
A. Electronic signatures are not binding.
B. Only hand-written signatures are binding.
C. Both parties must agree to electronic signatures being binding in a consent form.
D. Electronic signatures can never be used in real estate transactions.

A

Correct Answer: C. Both parties must agree to electronic signatures being binding in a consent form.
Explanation: Electronic signatures are legally binding if both parties consent to their use via an electronic consent form under the ESIGN and UETA acts.

93
Q

Question: What is the best way to “attach” an addendum to a TREC-promulgated contract?
A. Add it after both parties have signed the contract.
B. Bind the contract to it.
C. Indicate it in the special provisions paragraph of the contract.
D. Indicate it in the Agreement of Parties paragraph of the main contract.

A

Correct Answer: D. Indicate it in the Agreement of Parties paragraph of the main contract.
Explanation: Addenda must be referenced in the Agreement of Parties paragraph and attached to the contract for clarity and enforceability.

94
Q

Question: What should not be written into special provisions?
A. Rights and remedies
B. A single personal property item
C. Factual statements
D. Business details

A

Correct Answer: A. Rights and remedies
Explanation: Rights and remedies should be handled by legal professionals, not agents. Agents are prohibited from drafting such language in the Special Provisions paragraph.

95
Q

Question: Which of the following items should NOT be in the Special Provisions paragraph of the TREC-promulgated contracts?
A. The buyer is to do a final walk-through.
B. The buyer wants the refrigerator left.
C. The contract is contingent upon the buyers selling their current house.
D. All of these should be in special provisions.

A

Correct Answer: C. The contract is contingent upon the buyers selling their current house.
Explanation: TREC provides a promulgated addendum for transactions contingent upon the sale of another property.

96
Q

Question: Which of the following could be written in Special Provisions?
A. The buyer’s legal rights if the seller does not leave the bookcase in the living room.
B. Factual statements for which a contract addendum has been promulgated by TREC.
C. Business details for which a form has been promulgated by TREC.
D. Factual statements for which no contract addendum has been promulgated by TREC.

A

Correct Answer: D. Factual statements for which no contract addendum has been promulgated by TREC.
Explanation: Special Provisions should only contain factual statements or business details not covered by existing TREC-promulgated forms.

97
Q

Question: A statement written into Special Provisions that states what will happen if someone does or does not do a particular act is considered
A. A factual statement.
B. A legal right or remedy.
C. A business detail.
D. None of these.

A

Correct Answer: B. A legal right or remedy.
Explanation: Statements regarding legal rights or remedies belong to attorneys and should not be included in the Special Provisions paragraph by agents.

98
Q

Question: The sellers want to stay in the house for 48 hours after closing and funding. The agent writes this request in the Special Provisions paragraph of the TREC-promulgated contract, and the seller accepts the offer. Which of the following is TRUE?
A. The agent violated TREC rules because TREC promulgates a form for this purpose.
B. The contract is voidable.
C. This is a business detail and should be written out completely in Special Provisions.
D. The seller would never stay in the house after closing and funding.

A

Correct Answer: A. The agent violated TREC rules because TREC promulgates a form for this purpose.
Explanation: Agents must use the TREC-promulgated forms for such agreements, as required by TREC rules.

99
Q

Question: Which of the following should happen when an agent writes in special provisions?
A. The agent should make sure that there is not a TREC-promulgated addendum that addresses what the principal is attempting.
B. The agent should make sure that there is not a TREC-promulgated lease or form that addresses what the principal is attempting.
C. The agent should make sure that it is a factual statement or business detail and not a legal right or remedy that the agent is writing.
D. All of these should happen.

A

Correct Answer: D. All of these should happen.
Explanation: TREC rules prohibit license holders from adding factual statements or business details for which a contract addendum, lease, or other form has been promulgated by TREC for mandatory use.

100
Q

Question: Which of the following statements is not allowable in special provisions?
A. The buyer is to do a final walkthrough three hours prior to closing.
B. The seller is to leave the refrigerator located in the kitchen: Hamilton brand, model number 679808, beige in color.
C. Buyer has the right to terminate this contract if the property has termites.
D. The seller is a licensed real estate sales agent.

A

Correct Answer: C. Buyer has the right to terminate this contract if the property has termites.
Explanation: This clause is addressed in the Earnest Money and Option Fee paragraph of the contract and should not be written into special provisions.

101
Q

Question: Personal property generally does not convey in the sale of real property; however, sometimes the parties to the transaction agree to include some items of personal property in the sale. In an instance like this, the agent
A. Doesn’t need to do anything; the buyers and sellers can just orally negotiate over these items.
B. Should identify in the contract which personal property items are to be included in the sale.
C. Is required by TREC to consult an attorney to deal with the personal property concerns.
D. Should refuse to involve herself in the negotiations.

A

Correct Answer: B. Should identify in the contract which personal property items are to be included in the sale.
Explanation: Including personal property in the contract ensures clarity and prevents disputes about what will be conveyed with the real property.

102
Q

Question: Which of the following is TRUE regarding real and personal property?
A. The distinction between the two is not easy to make for buyers, sellers, and agents; care should be taken to negotiate for and document decisions regarding personal property in the sale of real property.
B. The distinction between the two is easy to make for buyers, sellers, and agents.
C. Agents should only concern themselves with matters of real property; personal property matters are for buyers/sellers to deal with.
D. All of these are true.

A

Correct Answer: A. The distinction between the two is not easy to make for buyers, sellers, and agents; care should be taken to negotiate for and document decisions regarding personal property in the sale of real property.
Explanation: Documenting personal property in the contract helps avoid disputes or delays in the sale of real property.

103
Q

Question: Matters regarding personal property in a real estate transaction
A. Are rare and generally not a problem.
B. Are nonexistent because personal property cannot be conveyed in the sale of real estate.
C. Are of concern only to the buyers and sellers and their attorneys; agents need not concern themselves with these matters.
D. Can lead to problems with the transaction and possibly even litigation if not handled correctly.

A

Correct Answer: D. Can lead to problems with the transaction and possibly even litigation if not handled correctly.
Explanation: Agents should address issues regarding personal property with their principals and document them appropriately in the contract to prevent disputes.

104
Q

Question: Personal property that is not addressed in the contract will
A. Convey with the property if it is worth more than $5,000.
B. Convey with the property if it exceeds the weight limit for personal property as set forth by TREC.
C. Be worked out by the parties at closing.
D. Generally not convey with the property.

A

Correct Answer: D. Generally not convey with the property.
Explanation: Personal property must be explicitly included in the contract to be conveyed with the real estate.

105
Q

Question: Real property generally includes
A. Kitchen items like refrigerators and waste baskets.
B. Trees and shrubs planted in the ground.
C. Items valued at over $1,000.
D. All of these.

A

Correct Answer: B. Trees and shrubs planted in the ground.
Explanation: Trees and shrubs planted in the ground are considered part of the real property, whereas movable items are personal property.

106
Q

Question: Which of the following is TRUE regarding real and personal property?
A. The distinction between the two is not easy to make for buyers, sellers, and agents.
B. Care should be taken to negotiate for and to document decisions regarding personal property in the sale of real property.
C. Issues regarding real and personal property in real estate transactions can lead to frustration, arguments, and possibly litigation if not handled properly.
D. All of these are true.

A

Correct Answer: D. All of these are true.
Explanation: Agents need to carefully address and document decisions about real and personal property to avoid disputes.

107
Q

Question: Which of the following is FALSE regarding real and personal property?
A. Items of real and personal property are of concern only to the buyers and sellers and their attorneys; agents need not concern themselves with these matters.
B. The distinction between the two is not easy to make for buyers, sellers, and agents.
C. Care should be taken to negotiate for and to document decisions regarding personal property in the sale of real property.
D. Issues regarding real and personal property in real estate transactions can lead to frustration, arguments, and possibly litigation if not handled properly.

A

Correct Answer: A. Items of real and personal property are of concern only to the buyers and sellers and their attorneys; agents need not concern themselves with these matters.
Explanation: Agents must actively address issues involving real and personal property to ensure smooth transactions and avoid litigation.

108
Q

Question: Which of the following would create a cloud on title?
A. Misspelling of a grantor’s name
B. An incorrect date
C. A slight error in the legal description
D. All of these

A

Correct Answer: D. All of these
Explanation: A cloud on title can be caused by various minor errors, such as a misspelling, incorrect date, or errors in the legal description, potentially affecting the title’s validity.

109
Q

Question: Which of the following would cause a cloud on title?
A. Missing the name of the grantor
B. Gap in the chain of title
C. A recorded lien that was paid off but not released
D. All of these

A

Correct Answer: D. All of these
Explanation: Missing information or unresolved liens can create a cloud on title, potentially requiring legal action to clear.

110
Q

Question: An owner decides to sell his property and discovers that there is a lien on his title for a swimming pool he paid off ten years ago. The pool company is out of business. What is the owner to do?
A. He will not be able to sell his property.
B. The buyer will have to pay off the lien.
C. The seller could seek a suit for quiet title.
D. None of these will happen.

A

Correct Answer: C. The seller could seek a suit for quiet title.
Explanation: A suit for quiet title is a legal process to resolve disputes and clear any defects on a property title.

111
Q

Question: Most contracts state that the seller is responsible for providing what type of title to the property?
A. Marketable
B. Clear
C. Absolute
D. Indefeasible

A

Correct Answer: A. Marketable
Explanation: A marketable title is free from significant defects and ensures that the buyer can sell or use the property without issues.

112
Q

Question: What does marketable title mean?
A. The title is free of defects.
B. The title contains only minor issues, like the misspelling of a grantor’s name.
C. The title guarantees that the property will be sold easily in the future.
D. The title has been certified by the title company.

A

Correct Answer: A. The title is free of defects.
Explanation: Marketable title indicates a title without defects that could impede future transactions or ownership.

113
Q

Question: Which of the following statements is TRUE regarding using the TREC One to Four Family Residential Contract form in a 1031 exchange?
A. The agent should suggest that the seller ask an attorney to draft language for the special provisions paragraph.
B. The agent may draft language to be inserted in the special provisions paragraph.
C. The agent may suggest language for the seller to insert in the special provisions paragraph.
D. None of these are true.

A

Correct Answer: A. The agent should suggest that the seller ask an attorney to draft language for the special provisions paragraph.
Explanation: Agents are prohibited from drafting legal language and should advise clients to seek legal assistance for matters like a 1031 exchange.

114
Q

Question: In a real estate transaction, who must consent to using electronic signatures in the transaction?
A. Only one party to the contract
B. The parties and their agents
C. Each party’s attorney
D. Both the buyer and the seller

A

Correct Answer: D. Both the buyer and the seller
Explanation: Electronic signatures are valid under the Electronic Signatures in Global and National Commerce Act (ESIGN), but both parties must agree to their use in a consent form.

115
Q

Question: A buyer wants her agent to add a simple sentence to the contract to allow the buyer to terminate the contract if she cannot sell her existing home. What should the agent do?
A. Agree to write the sentence in special provisions since it is an easy fix.
B. Suggest language for the buyer to write into special provisions since the buyer can draft a contingency.
C. Use the Addendum for Sale of Other Property by Buyer.
D. Suggest that the buyer get an attorney to draft the clause.

A

Correct Answer: C. Use the Addendum for Sale of Other Property by Buyer.
Explanation: TREC provides a promulgated addendum for this purpose, which must be used instead of drafting new language.

116
Q

Question: The seller asks her agent to add a clause to the contract that allows her to terminate the contract if she can’t find and purchase another home. What should the agent do?
A. Offer to write the clause for the seller in special provisions.
B. Suggest that the seller have an attorney draft the clause.
C. Use boilerplate language found in a legal advice blog on the internet.
D. Get a lawyer to help the agent write the clause for the seller.

A

Correct Answer: B. Suggest that the seller have an attorney draft the clause.
Explanation: Legal rights and remedies require legal expertise, and agents must direct their clients to seek legal advice for such matters.

117
Q

Question: Which of the following forms should be used if the sale closes, but possession does not occur at closing?
A. TREC Temporary Residential Lease form
B. TREC Amendment Form
C. An appropriate addendum
D. Notice of Buyers Termination of Contract form

A

Correct Answer: A. TREC Temporary Residential Lease form
Explanation: If possession does not occur upon closing and funding, the appropriate TREC lease form must be used and noted in the Agreement of Parties paragraph of the contract.

Law of Contracts (3 decks)

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