Transfer of Title to Real Property

Question 1

Regarding filing a North Carolina commercial broker lien on a property, which of the following is TRUE?

A)
Liens can be filed only on sales and not on leases.
B)
The filing takes place after the closing if the commission is not paid.
C)
All of these.
D)
The property must be for commercial use.

Answer 1

D)
The property must be for commercial use

The filing must occur before closing. A lien can be filed on either a sales or a lease transaction if the property and situation meet the legal requirements.

Question 2

Which of the following liens will have top priority in the event of foreclosure on the subject property?

A)
State income tax lien recorded first
B)
Federal estate tax lien recorded second
C)
Mechanic’s lien for work commenced before any other lien was recorded
D)
Real property tax lien recorded last

Answer 2

D)
Real property tax lien recorded last

Priority typically depends on the date of recordation, except in cases of governmental (state and county) real property tax liens and special assessments. The correct order of priority is real property tax lien, mechanic’s lien, state income tax lien, and federal estate tax lien because mechanics’ liens relate to the date when work started

Question 3

In real estate transactions, all of the following documents are usually recorded EXCEPT

A)
the purchase money mortgage.
B)
the deed.
C)
the offer to purchase.
D)
the second mortgage.

Answer 3

C)
the offer to purchase

Most sales contracts involve a short-lived transaction and are not recorded.

Question 4

The recording system performs which of the following functions?

A)
Insures title against loss due to third-party claims
B)
Protects against fraud and forgeries
C)
Gives notice to all of the existence of documents
D)
Cures major defects in title

Answer 4

C)
Gives notice to all of the existence of documents

The recording system neither insures nor corrects title defects; it merely gives constructive notice of the rights of people as to certain property.

Question 5

Deeds are recorded to provide

A)
constructive notice.
B)
proof of validity.
C)
actual notice.
D)
evidence against forgery.

Answer 5

A)
constructive notice.

Anyone who deals with a property without first checking the public records does so at his own risk. Actual notice means direct knowledge of a fact.

Question 6

A person must record an instrument within what period of time after it is signed and delivered?

A)
No time limit
B)
90 days
C)
One year
D)
30 days

Answer 6

A)
No time limit

By not recording, however, the person risks losing the property.

Question 7

An unrecorded deed is valid and binding

A)
when signed by the grantee.
B)
even if not delivered.
C)
between parties to the deed.
D)
on a later bona fide purchaser for value who first records the deed.

Answer 7

C)
between parties to the deed.

The deed’s validity between the parties is not affected by failure to record. North Carolina rules that a good-faith purchaser for value who first records, without notice of the earlier unrecorded deed, will have title superior to that of a prior grantee under an unrecorded deed.

Question 8

A North Carolina excise tax, or deed transfer tax (formerly called revenue stamps), is paid by the seller at closing. If the sales price is $50,000, how much will the seller owe in excise tax?

A)
$100
B)
$50
C)
$500
D)
$10

Answer 8

A)
$100

Excise tax is $1 per $500 of price or any fraction thereof. $50,000 ÷ 500 = 100. $1 × 100 = $100.

Question 9

A couple’s North Carolina neighborhood is getting city streetlights installed and their property will be charged a special assessment for this improvement. How will this assessment MOST likely be treated?

A)
The way the couple elects it to be treated
B)
As a lien against the property until paid
C)
Like bill from a contractor
D)
It will be paid by their mortgage lender

Answer 9

B)
As a lien against the property until paid

A special assessment for improvements is treated like a real estate tax lien, a lien against the property until it is paid.

Question 10

A metes-and-bounds legal description BEST refers to which of the following?

A)
Specific monuments
B)
Directions
C)
Directions and specific monuments
D)
Measures

Answer 10

C)
Directions and specific monuments

A metes-and-bounds description starts at a well-marked point of beginning (POB) and follows the boundaries of the land by courses and metes (measures, compass direction) and bounds (landmarks, monuments) and returns to the true POB.

Question 11

Real property taxes are determined in which of the following ways?

A)
Loan-to-value ratio
B)
According to the number of occupants
C)
On an ad valorem basis
D)
Duration of ownership

Answer 11

C)
On an ad valorem basis

An ad valorem tax is one that is levied in accordance with the value of the property.

Question 12

Which is TRUE regarding mechanics’ liens in North Carolina?

A)
It may have priority over other liens.
B)
All of these.
C)
It must be paid at closing or title cannot transfer.
D)
It must be filed in advance of the work.

Answer 12

A)
It may have priority over other liens.

While no one except IRS has priority over tax liens, a properly filed mechanic’s lien may have priority over liens previously filed. While most lenders and buyers will require the seller to pay off the lien before closing, it does not prevent title from passing; the title passes with the lien attached.

Question 13

Which of the following is used as a basis for real property tax assessment?

A)
Both land and building
B)
Building only
C)
Neither land nor building
D)
Land only

Answer 13

A)
Both land and building

Real property taxes are assessed according to improvement value and land value (an ad valorem valuation).

Question 14

Which of the following is TRUE?

A)
Recording gives constructive notice.
B)
Recording protects against defects in the deed.
C)
The venue shows the place where property has been purchased.
D)
Recording a deed guarantees its validity.

Answer 14

A)
Recording gives constructive notice.

Recording an invalid deed will not make it valid. The venue refers to the jurisdiction where the notary is authorized to take acknowledgments of signatures.

Question 15

A woman bought a lot and received the deed at closing but did not record the deed. The seller discovered this and sold the lot to a buyer, who did record the deed. The buyer is now the lawful owner of the lot according to which law, or statute?

A)
North Carolina Connor Act
B)
Statue of frauds
C)
North Carolina Marketable Title Act
D)
Statute of limitations

Answer 15

A)
North Carolina Connor Act

The North Carolina Connor Act provides that many types of real estate documents must be recorded in order to be defensible against third parties claiming ownership.

Question 16

Of the following liens, which normally takes priority over all other liens?

A)
Mortgage lien
B)
Judgment lien
C)
Mechanic’s lien
D)
Real property tax lien

Answer 16

D)
Real property tax lien

Real property tax liens have priority even over prior recorded special and general liens. Do not confuse with income tax or estate tax liens whose priority is set by the date of recordation.

Question 17

A woman owns her home. Her real estate tax assessment is

A)
recomputed every three years.
B)
according to the value of her home.
C)
based on her age.
D)
fixed for her lifetime.

Answer 17

B)
according to the value of her home

North Carolina assesses real estate according to value (ad valorem) and must reappraise at least every eight years, an octennial reappraisal.

Question 18

A gift by deed

A)
is invalid because there is no consideration.
B)
must be recorded within five years.
C)
need not be recorded.
D)
must be recorded within two years.

Answer 18

D)
must be recorded within two years

If it is not recorded within two years, it is void, interpreted by the courts to be voidable.

Question 19

The closing attorney typically represents

A)
the buyer.
B)
the seller.
C)
both the buyer and seller.
D)
neither the buyer nor the seller.

Answer 19

A)
the buyer

Although everything is negotiable, the attorney typically represents the buyer, even though the attorney does some tasks for the seller, such as deed preparation.

Question 20

While everything is negotiable, in North Carolina, who typically pays for the day of closing when prorating real estate taxes at closing?

A)
A 50/50 buyer-seller split
B)
Neither one
C)
The buyer
D)
The seller

Answer 20

D)
The seller

The seller typically pays the day of closing for buyer-seller prorations in North Carolina. It is done differently in different states, and the parties’ contract can dictate otherwise.

Question 21

For a deed to be validly recorded in North Carolina, all of the following are true EXCEPT

A)
that it must be acknowledged.
B)
that it must be signed by the grantor.
C)
that it must be signed by the grantee.
D)
that it must be recorded in the proper sequence of the chain of title.

Answer 21

C)
that it must be signed by the grantee.

Acknowledgment is usually required to lessen the risk of forgery. If, for example, the document is recorded before the transferor gets title, it will not be found in a regular chain of title search of the grantor-grantee index; therefore, it is not constructive notice of the rights of the parties.

Question 22

The North Carolina Marketable Title Act provides that if a chain of title can be traced back 30 years, then

A)
title insurance is free.
B)
it becomes a marketable title.
C)
it need not be recorded to be defensible against third parties who claim ownership.
D)
all defects are extinguished.

Answer 22

B)
it becomes a marketable title

If a chain of title can be traced back for 30 years without problems, it becomes a marketable title. Conflicting claims may be extinguished. The practical effect is to extinguish obsolete defects.