Ch 12.3

Question 1

When does a buyer hold equitable title

Answer 1

Once the purchase agreement has been signed

Question 2

According to the Risk Act, if real property subject to a sales agreement is destroyed or taken by eminent domain, who can enforce the contract

Answer 2

The seller

The seller can’t enforce the contract, and the buyer gets any deposits back.

Question 3

When is the buyer responsible for the purchase price of a real property destroyed or taken by eminent domain?

Answer 3

If title or possession was transferred before the loss occurred

Question 4

The Risk Act does not address the issue of the loss of monetary deposits but, under California common law, the risk of loss is on which party?

Answer 4

whichever party holds title to a particular deposited item until closing

Question 5

T/F: if a valid deed has been deposited into escrow, and the seller loses the ability to convey property or the buyer loses the ability to accept it, then the transfer of title is considered to have happened on what date?

Answer 5

The day the deed was deposited

Question 6

A seller deposits a deed into escrow, and then dies the next day, before closing occurs. The transfer of title is considered to have happened as of the day the deed was deposited into escrow, under the:

Answer 6

Relation back doctrine

Question 7

Which of the following loans is not exempt from RESPA?

• Agricultural loan
• Loan to purchase four-unit residential building
• Loan to purchase 30 acres
• seller financing

Answer 7

Loan to purchase four-unit residential building

Question 8

A transaction collapses, and the buyer and seller dispute ownership of funds placed into escrow. The escrow agent deposits the funds with a court and files a suit to determine the funds’ owner. This action is known as a/an _____

Answer 8

Interpleader action

Question 9

(T/F) Once a depositor puts funds into escrow, he no longer owns those funds

Answer 9

False

The general rule is that the depositor still owns the deposit, until all escrow conditions have been satisfied.

Question 10

(T/F) The Uniform Vendor and Purchaser Risk Act states that if possession transferred before the property was destroyed, the buyer must pay the full purchase price.

Answer 10

True

Under the Risk Act, if title or possession were transferred before the loss occurred, then the buyer remains responsible for the purchase price.

Question 11

(T/F) The parties should enter into an interim occupancy agreement if a buyer takes possession before closing

Answer 11

True

An interim occupancy agreement is advisable if a buyer takes possession prior to closing, regardless of how the parties allocate the ris

Question 12

(T/F) A seller deposits a valid deed into escrow, and then dies the next day. The transaction must be called off

Answer 12

False

Under the relation back doctrine, the date of title transfer ‘relates back’ to the date of the deposit into escrow, if the seller dies or becomes incompetent.

Question 13

(T/F) Escrow agents must report gross proceeds from a sale of real property on a 1099-S form unless the sales price is below a specified amount.

Answer 13

True

An escrow agent will report sales proceeds to the IRS using a 1099-S form.

Question 14

(T/F) A buyer must withhold 15% of the seller’s net proceeds and send them to the IRS, if the seller is a non-resident alien

Answer 14

True

Question 15

Under ____, the buyer is responsible for withholding 15% of the proceeds if the seller is a non-resident alien. These conditions are typically performed by the escrow agent.

Answer 15

FIRPTA

Question 16

(T/F) If one party breaches a purchase agreement, the escrow will terminate through default.

Answer 16

True

An escrow may terminate because of one party’s default. The escrow instructions should contain procedures for handling funds held in escrow in the event of default

Question 17

RESPA applies only to this type of loan

Answer 17

Federally related loan.

RESPA applies to federally related loans. These involve lenders who are federally regulated, have federally insured accounts, sell loans on the secondary market, or make more than $1 million in loans per year.

Question 18

_____ doctrine applies in any of the following situations:
the seller becomes incompetent,
the seller dies, or
the buyer dies.

Answer 18

Relation back

Question 19

Does wrongful delivery convey title?

Answer 19

No

Question 20

If the escrow agent delivers the purchase money before the appropriate conditions have been met, and the seller won’t return the money, who has to reimburse the buyer ?

Answer 20

The escrow agent

Question 21

The IRS requires escrow agents to report the gross proceeds from every sale of real property on a ____ form

Answer 21

1099-S

Question 22

Form ____ is unnecessary for the sale of a principal residence if the seller certifies in writing that none of the gain is taxable, and the sale is for $_____ or less ($____ for married couples filing jointly).

Answer 22

1099-S
$250,000
$500,000

Question 23

The IRS also requires an escrow agent who receives more than $10,000 in cash to report the payment using Form _____, in order to help prevent money laundering and tax evasion

Answer 23

8300

Question 24

Form 8300 must be filed within __ days of receiving the cash, and the escrow agent must keep a copy for five years.

Answer 24

15

Question 25

____ is aimed at preventing foreign investors from selling property in the U.S. without paying income tax on their capital gains.

Answer 25

The Foreign Investment in Real Property Tax Act (FIRPTA)

Question 26

The funds withheld for FIRTPA must be paid to the IRS no more than __ days after closing.

Answer 26

20

Question 27

FIRPTA exempts sales of homes under $_____ that will be occupied by the buyer. And if the amount realized on the sale of a residence to be owner-occupied is between $300,000 and $1 million, only 10% need be withheld.

Answer 27

$300,000

Question 28

Under FIRTPA, if the amount realized on the sale of a residence to be owner-occupied is between $300,000 and $1 million, only __% need be withheld.

Answer 28

10%

Question 29

____ helps prevent out-of-state sellers from avoiding state income or franchise taxes.

Answer 29

Cal-FIRPTA

Question 30

Buyers must withhold ___% of the sales price from sellers who live out-of-state but who are selling California real estate.

Answer 30

3.33%

Alternatively, the seller may choose a withholding amount based on her estimated gain from the sale.

Question 31

Re: FIRTPA, the funds must be sent to the state’s Franchise Tax Board by the 20th day of the month after ____

Answer 31

the month of closing

Question 32

There are three ways in which an escrow can terminate:
1)
2)
3)

Answer 32

1) the transaction closes
2) the parties agree to terminate, or
3) a party defaults by breaching the purchase agreement.

Question 33

T/F: escrow terminates automatically

Answer 33

True

Question 34

T/F: even if the parties mutually decide to rescind the sale and terminate the escrow, the seller may still be liable for the broker’s commission.

Answer 34

True

Question 35

Why should the purchase agreement be expressly rescinded?

Answer 35

a party could try to enforce it despite the termination of escrow.

Question 36

When the parties agree to terminate the two agreements, the escrow agent has the parties sign a ____ agreement

Answer 36

Cancellation

Question 37

The cancellation agreement should contain:
1)
2)

Answer 37

1) what happens to funds already in escrow, and

2) who pays for the escrow costs already incurred

Question 38

If an escrow ends automatically because of a failed contingency, the parties should still sign a cancellation agreement because ____

Answer 38

The purchase agreement automatically terminate but doesnt

Question 39

Escrow terminates through _____ when a party to a purchase agreement wants to complete the transaction, but the other side breaches the agreement having changed her mind about the sale or because she can’t meet a particular contractual requirement

Answer 39

Default

Question 40

Notice of breach must be provided within __ days

Answer 40

3

Question 41

procedures for handling a default by a party—such as how the nonbreaching party gives notice of any time period to cure the default - should be stated in the ____

Answer 41

Escrow instructions

Question 42

escrow instructions usually require the escrow agent to turn over the good faith deposit to ____

Answer 42

The seller

Question 43

If one party refuses in bad faith to release escrowed funds to which the other party is entitled, the one who acted in bad faith is liable to the other party for
1)
2)
3)

Answer 43

1) the amount in escrow,
2) attorney’s fees and
3) a penalty equal to triple the escrowed amount (up to a maximum of $1,000).

Question 44

T/F: No release is required in the event of a good faith dispute over funds

Answer 44

True