Quick Quiz 1

Question 1

Businesses operating in California can take the form of an individual proprietorship, partnership, or corporation. Each form has its advantages and disadvantages. One of the advantages of operating as a general partnership is that

Answer 1

each partner has the use of the assets of the other partners.
Since a general partner can be held personally liable for the partnership debts, the partner wants to make every effort to help manage the business. He or she has the advantage of using the other partners’ assets in developing the business.

Question 2

What is an advantage to the seller of real property in using a conditional sales contract in the sale of property instead of giving a grant deed and taking back a large trust deed?
A) A deficiency judgment can be obtained in the event of default.
B) Foreclosure proceedings are faster thereby permitting the vendor to recover possession quickly from the buyer.
C) None of these
D) The seller can prohibit the vendor from recording the contract if the contract includes a clause prohibiting such recording.

Answer 2

CORRECT C) None of these
The other three choices do not offer a benefit to a seller using a land contract. There are probably no advantages since law changes in 1985.

Question 3

The quickness with which assets can be converted into cash is known as

Answer 3

liquidity.
Liquidity is the ability to convert assets into cash at a price close to true value. Stocks that are traded publicly are a relatively liquid investment. Real estate is considered to be a longer-term investment as it is not highly liquid.

Question 4

Which type of financing would LEAST likely create a need for a cash down payment from a borrower?

Answer 4

VA (NOT CONVENTIONAL, FHA OR CAL-VET)
A down payment is not a requirement of a Veterans Administration guaranteed loan (unless the certificate of reasonable value is less than the purchase price). However, the lender may require one. Conventional loans nearly always require some down payment, and FHA and Cal-Vet loans do require down payments.

Question 5

Which is a freehold estate?

Answer 5

Estate in fee
Freehold estates are either (1) fee simple estates or (2) life estates. The wrong answer choices here are all less-than-freehold estates: (1) estates for years; (2) periodic tenancies; (3) estates at will; and (4) estates at sufferance.

Question 6

A contract signed under duress would be

Answer 6

voidable.
When the mutual consent to a contract is induced by fraud, duress, menace, or undue influence, the contract is voidable at the option of the wronged party.

Question 7

To determine the square footage of a house, measure the

Answer 7

outside of house.
The outside dimensions of a house are used to determine its square footage. The garage is not considered when determining square footage of a house and is measured separately because a garage can be replaced at a lower cost per square foot.

Question 8

Mr. Sharp lists his house with Agent Long, who finds a buyer and induces Mr. Sharp to accept the buyer’s offer by making a verbal promise to find Sharp another suitable residence before escrow closes on the sale. Escrow closed, and Long was unable to perform. It is most likely that

Answer 8

Sharp will initiate civil court action.
The seller cannot rescind his contract with the buyer, but may institute civil action for damages sustained for the unfulfilled promise of the broker that induced him to enter the purchase contract.

Question 9

Annual property taxes for a personal residence are

Answer 9

1% of the assessed value plus additional cost for bond indebtedness.
Proposition 13 limits the annual property tax rate to 1% of assessed value plus an additional amount to pay for voter-approved bond indebtedness.

Question 10

Davidson has an easement on Parkins’s property. If Davidson is not a property owner, her easement is a(n)

Answer 10

easement in gross.
Davidson has a personal right to use Parkins’s property (servient tenement). Since Davidson does not own property, and therefore there is no dominant tenement, it is an easement in gross.

Question 11

The federal Fair Housing Law was enacted for the purpose of

Answer 11

providing fair housing opportunity for all persons throughout the United States.
This is the law’s basic purpose: to provide all persons in the United States with fair housing opportunities.

Question 12

The trustee will deliver to the trustor a

Answer 12

reconveyance deed.
In a deed of trust arrangement, the trustor is the owner-borrower who has placed bare legal title in trust with a third neutral party called the trustee. When the debt to the lender (beneficiary) is satisfied, the trustee reconveys the title back to the trustor by using a reconveyance deed. A trustee’s deed would be used in case of foreclosure and would not be delivered to the trustor.

Question 13

A salesperson unlawfully takes kickbacks in connection with licensed real estate activities. The employing broker finds out about the kickbacks, fires the salesperson, and warns others in the office not to do this. Under these circumstances

Answer 13

both the salesperson and the broker could be disciplined by the real estate commissioner.
A broker is responsible for supervision of employed salespersons. A failure to supervise salespersons which might contribute to the salesperson’s violation of laws could lead to disciplinary action against the broker as well as against the salesperson. Only the real estate commissioner can revoke a real estate license, never the court.

Question 14

Which is NOT essential in the creation of an agency?

Answer 14

Payment of consideration
While it can be created by actions, words, and conduct, an agency relationship is typically created by a listing contract or buyer representation agreement. All parties are required to have capacity and the object of the relationship must be that which is considered lawful. A broker owes a fiduciary duty to the principal. Payment of consideration is not essential to create an agency.

Question 15

On FHA loans, mutual mortgage insurance

Answer 15

insures the mortgagee against loss through foreclosure.
FHA mutual mortgage insurance insures the lender (mortgagee) against loss in the event a foreclosure sale fails to satisfy the debt obligation. The mortgage insurance premium (MIP) is paid by the borrower (mortgagor).

Question 16

The term potable refers to

Answer 16

water.

Potable means suitable for drinking and would refer to water.

Question 17

To achieve planning goals, local, state, and federal governments have the authority to regulate the use of or to purchase private property. In its broadest definition the source of this authority is known as

Answer 17

police power.
To achieve planning goals, local, state, and federal government have the authority to regulate the use of private property provided such right is used only to promote the public health, safety, and general welfare. Government also can negotiate to purchase private property for public use. The source of this authority is the police power of the state. Note: The three other powers inherent in the state are (1) eminent domain: Taking (not purchase) of private property for a public use, with compensation; (2) escheat: reversion of property to the state upon death of an owner without heirs; and (3) taxation.

Question 18

What essential element is necessary between a broker and a principal when dealing with the title, right, or interest in real property?

Answer 18

Written contract of employment
The statute of frauds requires that a listing for the sale of real property, or for the negotiation of a lease for more than a year, must be in writing to be enforceable for the payment of a commission.

Question 19

In real estate financing, lenders will sometimes refer to “nominal rate” when granting a loan. This means

Answer 19

the rate of interest specified in the promissory note.

The word nominal stems from the word “name” and is the rate named in the note.

Question 20

In determining the value of income-producing property, an appraiser may use which appraisal technique?

Answer 20

A Land residual technique
B) Building residual technique
CORRECT C) All of these
D) Property residual technique

Question 21

Since land is unique in character and often cannot be substituted for another parcel, the courts have made available the right to request specific performance. Who would least likely request such an action?

Answer 21

A broker acting as an agent of the seller.
The broker is not a party to the contract and therefore cannot sue for specific performance.
NOT:
A) The buyer of a single-family residence
C) The seller of a single-family residence
D) The seller of a large tract of land

Question 22

All of these are characteristics of a fee simple estate EXCEPT that it is
A) freely transferable.
B) free of all encumbrances.
C) freely inheritable.
D) of indefinite duration.

Answer 22

B) free of all encumbrances.
Due to taxes and special assessments, privately owned real property is never free from all encumbrances. It is possible to own property in fee simple and still have many encumbrances on it (such as a mortgage). The three characteristics of a fee simple estate are: freely inheritable, freely transferable, and of indefinite duration.

Question 23

A money judgment of the court when recorded is always a(n)

Answer 23

involuntary lien.

Judgment liens are recorded against the wishes of the judgment debtor and therefore are considered involuntary.

Question 24

With regards to blind advertising, it is

Answer 24

not permitted. In an advertisement, a licensee must reveal licensed status.
Blind advertising refers to not revealing the licensed status of a salesperson or broker, and is never permitted. It is not a requirement that an ad include the address of the property for sale.

Question 25

An appraiser using the replacement cost approach on an older residential property would use all of these EXCEPT
A) land value.
B) capitalization of income.
C) depreciation.
D) cost of improvements new.

Answer 25

B) capitalization of income.

Capitalization of net income is unrelated to the cost approach to appraisal.

Question 26

The loan-to-value ratio in a mortgage is defined as

Answer 26

amount of a loan as a percentage of the appraised value.
The loan-to-value ratio is the amount of the loan as a percentage of the appraised value. Example: An $80,000 loan on a property appraised at $100,000 would have a loan-to-value ratio of 80%.

Question 27

The federal Fair Housing Law contains provisions to prevent discrimination due to race, color, religion, sex, or national origin. A violation of this law would be considered: 
A) unlawful.
B) illegal.
C) All of these.
D) against public policy.

Answer 27

C) All of these.

Discrimination is illegal, unlawful, and against public policy.

Question 28

Which transaction requires the Real Estate Transfer Disclosure Statement?
A) All of these
B) Foreclosure of one to four residential units
C) Sales transaction of one to four residential units
D) Transfer of one to four residential units in bankruptcy

Answer 28

C) Sales transaction of one to four residential units
Civil Code Section 1102, which requires the Real Transfer Disclosure Statement, applies to any sale of real property with up to four dwelling units. Transfers in foreclosure and in bankruptcy are specifically exempt.

Question 29

Berg sells Mann a property, using a conditional sales contract. The contract is recorded and a deposit is made. Mann continues to live on the property but stops making payments and avoids Berg. He then abandons the property one night. In this situation

Answer 29

there is a cloud on the title.
The recording of the contract or taking possession of the property gives constructive notice and therefore creates a cloud on the title under the circumstances outlined. Unless the vendee could be found and persuaded to deliver a valid quitclaim deed to the vendor, a successful quiet title court action would be necessary to make the title marketable.

Question 30

A broker was intentionally renting only to members of the Caucasian race. Under the Unruh Civil Rights Act, he or she would be
A) liable to pay the aggrieved person $250 in penalties.
B) all of these.
C) held liable for actual damages incurred by the aggrieved party.
D) subject to suspension or revocation of his real estate license.

Answer 30

B) all of these.
The Unruh Act covers the civil rights of persons in business establishments. By renting only to members of the Caucasian race, the broker is in violation of this act and is liable for actual damages plus $250. The broker also would be subject to suspension or revocation of his or her real estate license.

Question 31

Franklin offered to perform all of the obligations in a purchase contract. This act is considered a
A) tender.
B) demand.
C) covenant.
D) condition.

Answer 31

A) tender.

Tender is the act by which one offers to perform under a contract. It is not the actual performance.

Question 32

Jones signed a listing agreement with Broker Brown stating that he would pay 6% commission to Brown upon the sale of his house. Broker Brown promised to use diligence in attempting to find a buyer. This 
A) unilateral executory.
B) bilateral executory.
C) unilateral executed.
D) bilateral executed.contract is

Answer 32

B) bilateral executory.
An exchange of promises creates a bilateral contract. Since a listing is for a period of time, the contract is executory during the listing term.

Question 33

A recorded notice of lis pendens
A) can be removed from the records only by an order of the court.
B) can be filed on any type of lawsuit.
C) would make it difficult to convey title.
D) does not directly affect the title to property of a person not directly a party to the court action.

Answer 33

C) would make it difficult to convey title.
A notice of lis pendens is a notice recorded for the purpose of warning all persons that the title or right to the possession of certain real property is in litigation, giving constructive notice to the world and thus preserving rights pending litigation. Property identified in a lis pendens would be difficult to sell. Although the general rule is that a person who is not a party to a court action is not affected by any judgment, that is not the case with a lis pendens: a buyer of a property with a lis pendens could lose title depending on the results of the lawsuit. A lis pendens is applicable only to lawsuits affecting the title or possession of real property. A notice of withdrawal of pendency of an action may be recorded by the person who recorded the lis pendens.

Question 34

A tenant who transfers an entire leasehold interest does so by
A) transfer.
B) alienation.
C) assignment.
D) sublease.

Answer 34

C) assignment.
Assignment of leasehold means the entire interest is transferred and includes the remaining term and the entire premises. Subleasing is transferring part of the premises or less than the entire term.

Question 35

In accordance with the Real Estate Settlement Procedures Act, the lender must supply the borrower with a Uniform Settlement Statement
A) at or before closing.
B) 1 day prior to settlement.
C) 3 days prior to settlement.
D) 10 days after loan commitment.

Answer 35

A) at or before closing.
Under RESPA, the lender must deliver to the borrower a Uniform Settlement Statement at or before settlement. If requested by the borrower the Uniform Settlement Statement may be “inspected” during the business day immediately preceding the date of settlement. Settlement is another word for closing.

Question 36

"Duress" is most closely associated with matters of
A) adverse possession.
B) easements.
C) contracts.
D) commissions.

Answer 36

C) contracts.
Duress is defined as unlawful constraint exercised upon a person who is forced to do some act, such as sign a contract, against his will.

Question 37

A prospective buyer pays $2,000 for a four-month option to purchase a $300,000 property. All of these statements are true EXCEPT
A) the optionee has acquired a legal interest in the property.
B) the optionor’s temporary surrender of the right to sell is valuable consideration.
C) a unilateral contract has been established.
D) the agreement imposes no obligation on the optionee to purchase the property.

Answer 37

A) the optionee has acquired a legal interest in the property.
An optionee acquires a contractual right but acquires no legal interest in the property until after the optionee exercises the option.

Question 38

A real estate licensee went into a neighborhood and attempted to solicit a listing by stating to the property owner that "non-whites" would be moving into the neighborhood and that property values would thereby go down. Such conduct would be considered all of these things EXCEPT
A) panic selling.
B) illegal conduct.
C) legal but unethical.
D) blockbusting.

Answer 38

C) legal but unethical.

Blockbusting and panic selling are terms to describe the illegal conduct of the licensee’s activities in this question.

Question 39

What best describes an attorney-in-fact?

Answer 39

A legally competent person appointed to represent another person through a power of attorney
A power of attorney is a written instrument giving authority to an agent, called an attorney-in-fact. Don’t confuse with attorney-at-law.

Question 40

All of these are secondary benefits of the Federal Housing Administration as established by the National Housing Act of 1934 EXCEPT
A) elimination of short-term financing.
B) mortgage guarantee insurance with low premiums to protect the borrower.
C) establishment of improved building standards.
D) a loan amount appropriate for the borrower’s income.

Answer 40

B) mortgage guarantee insurance with low premiums to protect the borrower.
FHA insurance is for the benefit of lenders, not borrowers. A loan amount appropriate for the borrower’s income, elimination of short-term financing, and establishment of improved building standards are all advantages developed by the FHA plan.

Question 41

Which "runs with the land"?
A) All of these
B) Covenants
C) Appurtenant easements
D) Stock in a mutual water company

Answer 41

All three of the choices given “run with the land.” Covenants are encumbrances that remain on the land when the property is transferred. Stock in a mutual water company and appurtenant easements name real property rights that are transferred with the land when property is transferred.

Question 42

A buyer of a piece of property fails to examine public records on the property. The buyer is considered to have
A) assumed notice.
B) constructive notice.
C) conditional notice.
D) actual notice.

Answer 42

B) constructive notice.
Recording gives constructive notice “to the world,” and anyone dealing with the property has constructive notice even though the public records have not been inspected.

Question 43

When there is a gradual build-up of land as the result of action of water, it is termed

Answer 43

accretion.
Accretion is the gradual build-up of land as the result of the action of water. Avulsion (opposite) is the sudden tearing away of land by the violent action of a water course. Erosion is gradual wearing away of land by current, wind, or tide. Dereliction is land left uncovered by the receding of water from its former bed. This process also called reliction.

Question 44

A man listed a property for $760,000 and was willing to take back a trust deed and note for $20,000. FHA appraised the property for $700,000 and the broker secured a buyer who wanted to secure an FHA loan for $700,000, pay $40,000 cash and execute a second trust deed and note in favor of the seller. The broker should counsel the seller to
A) write up the offer “subject to better financing.”
B) write up the offer subject to a $70,000 FHA loan and a personal loan for $6,000.
C) refuse to accept the offer.
D) write up the offer subject to FHA loan and second trust deed.

Answer 44

C) refuse to accept the offer.
FHA will not permit secondary financing on the initial purchase of the home. Since the buyer does not have enough cash to use FHA financing, it will be impossible to secure FHA financing and the broker should counsel the seller to refuse to accept this offer.

Question 45

The approach in which income is projected to a future date and discounted to today's rates to attract investors relates to a technique known as
A) capitalization of income.
B) equity formulation.
C) unearned increment.
D) income projection.

Answer 45

A) capitalization of income.
Capitalization of (net) income is an appraisal approach in which net income is projected to a future date and discounted to today's rates to attract investors.

Question 46

When property tax increases and all other items remain the same, an income property
A) decreases in value by more than the amount of the taxes.
B) increases in value by more than the amount of the taxes.
C) decreases in value by the amount of the taxes.
D) increases in value by the amount of the taxes.

Answer 46

A) decreases in value by more than the amount of the taxes.
The property will decrease in value by more than the amount of the taxes based on the reduced annual net income (assume a $500 tax increase and a 10% capitalization rate; loss of value would be $5,000).

Question 47

To alienate title to real property, an individual
A) clouds a title.
B) records a homestead.
C) secures an ALTA policy of title insurance.
D) conveys title.

Answer 47

D) conveys title.

To alienate means title is conveyed from one owner to another. Alienation is the opposite of acquisition.

Question 48

RESPA applies to certain federally related loans secured by liens on owner-occupied one- to four-unit dwellings. Who is federally related under RESPA?
A) A seller taking back a note and deed of trust
B) None of these
C) A lender whose deposits are insured by a federal agency
D) A private lender making a loan

Answer 48

C) A lender whose deposits are insured by a federal agency
Coverage through RESPA is applicable only if financing is with federally related mortgages. This includes FHA, VA, or other government-assisted loans and loans made by institutions with federally insured deposits.

Question 49

How much can a lender legally charge a borrower for the preparation of the Closing Disclosure form?
A) 1%
B) Nothing
C) $25
D) ½ of 1%

Answer 49

B) Nothing
Under TILA-RESPA rules, the lender is not permitted to charge for the preparation of either the Closing Disclosure form or the Loan Estimate form.

Question 50

When an existing contract is replaced by an entirely new contract, this is an act of
A) rescission.
B) novation.
C) hypothecation.
D) subrogation.

Answer 50

B) novation.

The word novation comes from the Latin words meaning to make new.