Transfer of Property Flashcards
(126 cards)
1
Q
A qualified California war veteran who is totally disabled is entitled to a veteran’s exemption of:
A) - $4,000.
B) - $5,000.
C) - $7,000.
D) - $150,000.
A
D) - $150,000.
Answer: D—The principal residence of a veteran who is totally disabled is exempt up to $150,000.
2
Q
A man appointed by the court to settle the estate of a person who died intestate is called a(n):
A) - devisee.
B) - testator.
C) - executor.
D) - administrator.
A
D) - administrator.
Answer: D—An administrator (male, administratix-female) is appointed by the court when the deceased died without leaving a will (intestate). A devisee is one who receives a gift or real property by will. A testator (male, testatrix-female) is one who makes a will. An executor (male, executrix-female) is the one appointed by the deceased to execute (carry out the terms of) a will.
3
Q
Which of the following would be true about a lis pendens:
A) - It can only be removed by court action
B) - It can be recorded no matter what type of lawsuit it is
C) - It may affect title to real property based on the results of the lawsuit
D) - None of the above
A
C) - It may affect title to real property based on the results of the lawsuit
Answer: C—A lis pendens is recorded to warn anyone interested in the property, that it is subject to a lawsuit. The property can be sold with the lis pendens filed against it, but the sale may be set aside and the property may be used for execution depending on the results of the lawsuit.
4
Q
A valid deed must contain:
A) - evidence of recordation.
B) - a date.
C) - a granting clause.
D) - the signature of the grantee.
A
C) - a granting clause.
Answer: C—A valid deed must have a granting clause or some words to indicate that the grantor wishes to transfer the property to the grantee (“I hereby grant”).
5
Q
Mr. Johnson deeds a parcel of land to Mr. Smith, but the deed is never recorded. How can Mr. Smith transfer title back to Mr. Johnson?
A) - tear up the deed.
B) - simply hand the deed back to Mr. Johnson.
C) - write “void” across the deed, have it notarized, then give it back to Mr. Johnson.
D) - None of the above
A
D) - None of the above
Answer: D—Once there is a valid delivery and acceptance, the act of the grantee in surrendering the property or destroying the deed will not put title back to the original grantor. To accomplish this, the grantee must execute a new deed back to the original grantor.
6
Q
How much of a broker’s personal funds may be contributed to a client’s trust fund bank account to offset any bank service charges?
A) - $25.00
B) - $100.00
C) - $200.00
D) - Nothing
A
C) - $200.00
Answer: C—Since banks sometimes have service charges; out of necesssity, the broker is allowed to maintain up to $200 of personal funds in a trust account to cover these type of bank charges.
7
Q
An ALTA policy of title insurance protects the:
A) - buyer.
B) - seller.
C) - lender.
D) - All of the above
A
C) - lender.
Answer: C—The ALTA policy is used to protect lenders and usually requires a survey. It expands the standard policy to include:
Rights of parties in possession; Unrecorded liens; Easements; Claims that a correct survey or inspection would show; Mining claims and water rights.
8
Q
An exception in a grant deed:
A) - makes the deed invalid to future grantees.
B) - gives the grantee special privileges.
C) - has no effect on the property value.
D) - withdraws a portion of the property from the grant.
A
D) - withdraws a portion of the property from the grant.
Answer: D—An exception in a grant deed means the grantor is holding back part of the estate being granted. This would withdraw part of the property from the grant deed and reduce the property or rights given to the grantee.
9
Q
An escrow prorates based on a:
A) - 300 day year.
B) - 360 day year.
C) - 365 day year.
D) - None of the above
A
B) - 360 day year.
Answer: B—Escrow prorates using a 360 day year and a 30 day month.
10
Q
A title officer of a title insurance company is familiar with an “Abstract of Title” and would know that it is:
A) - where the legal description of the property is found in the title policy.
B) - a written summary of the various recorded documents relating to the title of the subject property.
C) - a standard form of title insurance that is used by most title companies.
D) - an opinion of the title officer as to the condition of the title.
A
B) - a written summary of the various recorded documents relating to the title of the subject property.
Answer: B—An abstract of title is a written summary of the recorded documents relating to a particular property. It is no longer used today in favor of a policy of title insurance.
11
Q
A lender uses an impound account to protect against non-payment of all of the following EXCEPT:
A) - assessments.
B) - property taxes.
C) - insurance premiums.
D) - mortgage interest payments.
A
D) - mortgage interest payments.
Answer: D—Mortgage interest is part of the loan payment. The others are held by the lender in a reserve account called impounds. Lender pays these bills as they become due.
12
Q
Which of the following can a property owner expect after sewer lines are installed in front of his/her property?
A) - supplemental assessment
B) - general assessment
C) - special assessment
D) - All of the above
A
C) - special assessment
Answer: C—A special assessment is a tax imposed against only those specific parcels of realty that will benefit from a proposed public improvement, as opposed to a general tax on the entire community.
13
Q
Which of the following is considered an ad valorem tax?
A) - real property tax
B) - sales tax
C) - use tax
D) - death tax
A
A) - real property tax
Answer: A—Real estate taxes are assessed according to value.
14
Q
Which of the following would protect a buyer against a right of a party in possession?
A) - Extended-coverage policy
B) - Standard policy
C) - either (a) or (b)
D) - neither (a) nor (b)
A
A) - Extended-coverage policy
Answer: A—An extended-coverage policy insures the title against matters that might be discovered by an inspection of the premises. Its coverage includes mechanics’ liens, tax liens, miscellaneous liens, encumbrances, easements, rights of parties in possession and encroachments which may not be disclosed by the public records.
15
Q
A deed is recorded and indexed:
A) - by location.
B) - by recording day and time.
C) - by grantor and grantee names alphabetically.
D) - All of the above
A
C) - by grantor and grantee names alphabetically.
Answer: C—The County Recorders Office must keep an adequate index system by grantee and grantor names alphabetically.
16
Q
When using a grant deed, title transfers at the time of:
A) - signing.
B) - acknowledgment.
C) - recording.
D) - delivery.
A
D) - delivery.
Answer: D—Technically, delivery is the legal act of transferring ownership.
17
Q
A deed would contain all of the following EXCEPT:
A) - a description of the property.
B) - a date.
C) - the signature of the grantee.
D) - a granting clause.
A
C) - the signature of the grantee.
Answer: C—A valid grant deed requires the signature of the grantor, not the grantee.
18
Q
When a real estate broker speaks of “tax shelter”, he/she is referring to:
A) - principal payments.
B) - net income.
C) - income tax.
D) - real property taxes.
A
C) - income tax.
Answer: C—”Tax Shelter” refers to income tax shelter.
19
Q
When a real estate licensee accepts trust funds from his/her client in connection with the purchase of real property, the licensee must place these funds in: 1) a neutral escrow depository; 2) the hands of the offeree or owner; or 3) a trust account. The licensee must place these funds into one of these three authorized places:
A) - by the next working day following receipt.
B) - within three business days following receipt.
C) - by midnight of the current day.
D) - by midnight of the second business day following receipt.
A
B) - within three business days following receipt.
Answer: B—If the broker or broker’s salesperson fails to place the funds into one of these three authorized places within three business days following receipt, he/she is liable for commingling the funds.
20
Q
Mr. and Mrs. Homeowner realized a $600,000 profit by selling the home they had lived in for three years. What amount is subject to taxes?
A) - $600,000
B) - $100,000
C) - $20,000
D) - Nothing
A
B) - $100,000
Answer: B—Universal Exclusion (two year rule): In 1997, the old 24 month trade up and 55 year old rules changed. The new law states that there will be no tax on gains up to $250,000 for single people and $500,000 for married people who file joint returns. To qualify, the home must have been your principal residence for at least 2 years during the preceding 5 years prior to sale. Both spouses must have lived there for the 2 year period to get the maximum exemption of $500,000 with joint filing. The full exclusion can only be used once every 2 years.
Solution: $600,000 - 500,000 exclusion = $100,000 taxable amount.
21
Q
Street assessments are distributed to those that benefit by which method?
A) - equally distributed
B) - by front foot
C) - by square foot
D) - according to benefits received
A
B) - by front foot
Answer: B—Street assessments are levied according to the front footage of the lot benefited.
22
Q
When a person dies intestate and no heirs claim his/her property, it reverts to the state by:
A) - patent.
B) - escheat.
C) - deed.
D) - will.
A
B) - escheat.
Answer: B—In cases where a decedent dies intestate and there are no heirs capable of inheriting, the property escheats to the state.
23
Q
When the first party agrees to pay for a financial loss arising from a specific event, and the second party agrees to make periodic payments to the first party, the agreement is known as:
A) - A fidelity bond
B) - A surety bond
C) - An insurance policy
D) - A mortgage
A
C) - An insurance policy
Answer: C—This is a good definition of an insurance policy.
24
Q
Holographic wills cannot be:
A) - written with colored ink.
B) - signed with an “X.”
C) - written in anything other than ink.
D) - All of the above
A
B) - signed with an “X.”
Answer: B—Since a holographic will is handwritten, it is assumed that the person is capable of signing his/her full name.
25
The second property tax installment is due and delinquent on:
A) - February 1st - April 10th
B) - November 1st - December 10th
C) - December 31st - June 30th
D) - March 1st - July 1st
A) - February 1st - April 10th
Answer: A—You must know the fiscal tax year for the state exam.
Memorization Aid: No, Darn, Foolin, Around:
November 1st: First installment due,
December 10th: Delinquent date for 1st installment,
February 1st: Second installment due,
April 10th: Delinquent date for 2nd installment
26
A home was purchased on February 1st with the understanding that property taxes had been paid for the fiscal tax year. The buyer received a tax bill anyway known as a:
A) - new homeowner tax bill.
B) - delinquent tax bill.
C) - reassessment tax bill.
D) - supplemental tax bill.
D) - supplemental tax bill.
Answer: D—The supplemental tax bill would adjust for an increase in tax liability for the balance of the tax year.
27
Tax delinquent real property not redeemed by the owner during the five year statutory redemption period is deeded to the:
A) - city.
B) - county.
C) - state.
D) - school district.
C) - state.
Answer: C—If the property is not redeemed by the owner during this statutory redemption period, the property is deeded to the state.
28
An exception in a grant deed:
A) - cancels the deed.
B) - is identical to a reservation.
C) - excludes part of the property from the grant.
D) - prevents the transfer.
C) - excludes part of the property from the grant.
Answer: C—An exception in a grant deed excludes some part of the property granted. The title to that withdrawn part remains in the grantor by virtue of the original title rights. For example, a conveyance by Grant Park to Bob Lee of a 10-acre parcel "exception of a strip of land 10 feet wide running along the northerly boundary" constitutes a legal exception.
29
The California sales tax is a(n):
A) - ad valorem tax.
B) - tax paid on real estate.
C) - tax paid on tangible personal property.
D) - tax paid on all personal property.
C) - tax paid on tangible personal property.
Answer: C—The California State Sales Tax is imposed on retailers for the privilege of selling tangible personal property at retail.
30
How would a taxpayer adjust the tax basis of his/her personal residence for Federal tax purposes?
A) - property taxes
B) - accrued depreciation
C) - addition of a concrete patio
D) - None of the above
C) - addition of a concrete patio
Answer: C—The tax basis on a personal residence consists of the cost of the property plus capital improvements like the addition of a concrete patio.
31
If a property owner believes that the assessed value on his or her property has been set too high, the owner could file a request to seek a reduction from the:
A) - County Board of Supervisors.
B) - Assessment Appeals Board.
C) - Tax Collector.
D) - State Board of Equalization.
B) - Assessment Appeals Board.
Answer: B—Each county has an Assessment Appeals Board to which an individual can question their property's value set by the assessor.
32
In the sale of a business, bulk transfer laws pertain to:
A) - fixtures.
B) - good will.
C) - stock-in-trade.
D) - All of the above
C) - stock-in-trade.
Answer: C—A "bulk transfer" is any transfer in bulk (not in the ordinary course of the seller's business), of a major part of the materials, inventory, or supplies of the business. The main purpose of the bulk transfer law is to afford a merchant's creditors an opportunity to satisfy their claims against a merchant who owes them money before the merchant can sell assets and vanish with the proceeds.
33
Boot refers:
A) - leases.
B) - foreclosure.
C) - exchanges.
D) - business sales.
C) - exchanges.
Answer: C—Boot is money or other property that is not like-kind, which is given to make up any difference between exchanged properties.
34
Which of the following may NOT engage in the escrow business?
A) - An individual who is not a real estate broker or attorney
B) - Bank
C) - Domestic corporation
D) - Foreign corporation
A) - An individual who is not a real estate broker or attorney
Answer: A—An individual who is NOT an attorney may not engage in the escrow business.
35
The unadjusted basis of a taxpayer's residence would be:
A) - cost.
B) - cost minus improvements.
C) - cost plus improvements.
D) - cost plus improvements minus depreciation.
A) - cost.
Answer: A—For federal income tax purposes in determining gain or loss on real property, the term "unadjusted basis" most nearly means "original cost."
36
The adjusted basis of a taxpayer's residence would be:
A) - cost plus improvements minus depreciation.
B) - cost plus improvements.
C) - cost.
D) - cost minus improvements.
B) - cost plus improvements.
Answer: B—Since you cannot depreciate your personal residence, the adjusted basis would be cost plus capital improvements.
37
A standard policy of title insurance covers all of the following EXCEPT:
A) - unrecorded liens.
B) - incorrectly given marital status.
C) - incompetent grantor.
D) - forged deed.
A) - unrecorded liens.
Answer: A—Generally, a standard policy of title insurance will protect the insured against losses arising from such title defects as:
Forged documents such as deeds, releases of dower, mortgages;
Undisclosed heirs; lack of capacity (minors);
Mistaken legal interpretation of wills;
Misfiled documents, unauthorized acknowledgments;
Confusion arising from similarity of names;
Incorrectly given marital status; mental incompetence.
38
A quitclaim deed conveys only the present right, title and interest of the:
A) - grantor.
B) - servient tenement.
C) - grantee.
D) - property.
A) - grantor.
Answer: A—The quitclaim deed transfers only whatever right, title and interest the grantor had in the property at the time of the execution of the deed and does not pass to the grantee any title or interest subsequently acquired by the grantor (after-acquired title).
39
The term impounds refers to:
A) - personal property.
B) - clarity of title.
C) - reserves.
D) - trust funds.
C) - reserves.
Answer: C—Impounds are monies set aside (reserves) to cover future payments of recurring costs such as taxes and insurance.
40
What type of title insurance policy covers all risks?
A) - extended policy
B) - ALTA policy
C) - standard policy
D) - no policy covers all risks
D) - no policy covers all risks
Answer: D—No title insurance policy covers all risks. It is a good idea to familiarize yourself with the various types of title insurance policies and their coverage.
41
Buyers' and sellers' closing statements are:
A) - always the same.
B) - always executed.
C) - always different.
D) - always equal.
C) - always different.
Answer: C—Separate closing statements are prepared for the buyer and seller showing debits and/or credits at closing. Buyers and sellers always have different closing statements.
42
On an escrow closing statement, due and unpaid taxes are listed as:
A) - a credit to the buyer only.
B) - a debit to the seller always.
C) - either a debit or credit to the buyer or seller depending on the situation.
D) - None of the above
C) - either a debit or credit to the buyer or seller depending on the situation.
Answer: C—Due and unpaid taxes are prorated and can either be debits or credits for the buyer or seller since the buyer must pay the seller's tax obligation.
43
Under the Street Improvements Act of 1911, how long does an owner have to pay the bill?
A) - 90 days after completion
B) - 60 days after completion
C) - 30 days after receipt
D) - 60 days after receipt
C) - 30 days after receipt
Answer: C—Street improvements assessments must be paid off within 30 days after receipt.
44
Probate proceedings are conducted by:
A) - the probate referee.
B) - superior court.
C) - municipal court.
D) - federal court.
B) - superior court.
Answer: B—Most real estate matters including probate are handled by the superior court.
45
A resident of Nevada dies in Nevada but owns property in California. The probate proceedings for this property would be held in:
A) - California.
B) - Nevada.
C) - federal court.
D) - Nevada state court.
A) - California.
Answer: A—The probate proceedings are held in the state where the property is located.
46
An investor with an adjusted gross income of $125,000, suffered a passive real estate loss of $100,000. How much of his loss can be used to shelter active income?
A) - $125,000
B) - $100,000
C) - $25,000
D) - $12,500
D) - $12,500
Answer: D—For taxpayers having an adjusted gross income of $100,000 to $150,000, the $25,000 that can be sheltered is reduced by one dollar for every two dollars of income over $100,000.
47
Which of the following would constitute boot in an exchange transaction?
A) - decrease in the basis
B) - net mortgage relief
C) - cost compensation
D) - appraisal fee
B) - net mortgage relief
Answer: B—In an exchange, it is rare to find two properties of equal value and equity; therefore, to balance the equities, one party usually also pays some money or assumes a larger amount of underlying debt. This mortgage relief would be treated as boot and will be taxed to the extent of the boot received.
48
The first person to make an acknowledgment on a deed is the:
A) - county recorder.
B) - maker.
C) - purchaser.
D) - notary public.
B) - maker.
Answer: B—The maker acknowledges the deed first by his/her signature before a notary public.
49
Who may obtain a copy of a termite report after it has been filed with the Structural Pest Control Board?
A) - Only the escrow agent involved in the transaction
B) - Only the buyer and seller
C) - Any agent or party involved in the transaction
D) - Anyone
D) - Anyone
Answer: D—Anyone may search the Structural Pest Control Board's system to see if a specific property has been inspected within the last two years.
50
An exact history of conveyances and encumbrances affecting the title of property is called a(n):
A) - title search.
B) - abstraction.
C) - chain of title.
D) - abstract of title.
C) - chain of title.
Answer: C—A chain of title is the recorded history of matters that affect the title to a specific parcel of real property, such as ownership, encumbrances and liens, beginning with the original recorded source of the title. The chain of title shows the successive changes of ownership, each one linked to the next so that a "chain" is formed.
51
For tax purposes, points paid by the seller would:
A) - increase the cost basis.
B) - be treated as a selling expense.
C) - both (a) and (b)
D) - neither (a) nor (b)
C) - both (a) and (b)
Answer: C—When the seller pays points, he/she may deduct this cost as a selling expense. This will increase the cost basis and reduce capital gains. Buyer points are treated as interest.
52
A will is said to be ambulatory because it can be:
A) - changed.
B) - recorded.
C) - witnessed.
D) - transferred.
A) - changed.
Answer: A—The legal definition of ambulatory is "not fixed; alterable." A will takes effect only upon the testator's death, and thus can be revoked or amended at any time during the testator's life.
53
Without any agreement on a specific date, physical possession should be given:
A) - one week prior to close of escrow.
B) - one week after close of escrow.
C) - at close of escrow.
D) - upon the buyer's request.
C) - at close of escrow.
Answer: C—In the absence of an agreement, possession would be given when all escrow instructions have been met (close of escrow).
54
The buyer and seller agree on a 60-day escrow. As the closing date approaches, it becomes obvious that it will not close on time. Which of the following is TRUE?
A) - The escrow can close as originally scheduled.
B) - The escrow is automatically terminated after 60 days.
C) - The buyer and seller must agree to extend the escrow or it is cancelled.
D) - The escrow agent has the authority to extend the escrow.
C) - The buyer and seller must agree to extend the escrow or it is cancelled.
Answer: C—If the escrow cannot be completed on time, the escrow would terminate unless both parties agreed in writing to an extension. This would be accomplished with an amendment to the escrow instructions extending the closing date.
55
The redemption period for unpaid real property taxes is:
A) - five years from the assessment date.
B) - five years from the delinquency date.
C) - five years from the sale to the state.
D) - five years from loss of possession.
C) - five years from the sale to the state.
Answer: C—The importance of a "sale to the state" by the tax collector for nonpayment of real property taxes is that it starts the five year redemption period running.
56
An escrow is said to be "perfected" when:
A) - all requirements in the escrow instructions are completely satisfied.
B) - all documents, funds, and instructions needed to close the transaction are in the hands of the escrow agent.
C) - all escrow instructions detailing the procedures necessary to close the transaction have been fully complied with.
D) - the financial settlement takes place and the documents are recorded.
C) - all escrow instructions detailing the procedures necessary to close the transaction have been fully complied with.
Answer: C—When all the title and financial requirements are met, and instructions from all parties can be fully complied with, the escrow is said to be "in perfection" and can close. Then the financial settlement takes place, the documents are recorded and the title insurance policies are issued.
57
Which of the following dates represent the final date the property owner may file for the State Homeowner's Property Tax Exemption?
A) - March 1st
B) - April 15th
C) - December 10th
D) - June 30th
C) - December 10th
Answer: C—A timely filing for the Homeowner's Property Tax Exemption is February 15th. However, if the homeowner does not file before February 15th, he/she may make a late filing up until December 10th.
58
An owner-occupied residence qualifies for a homeowner's exemption of:
A) - $1,000.
B) - $4,000.
C) - $7,000.
D) - None of the above
C) - $7,000.
Answer: C—An owner-occupied residence, including a condominium or duplex unit, qualifies for a homeowner's exemption of the first $7,000 of full cash value.
59
A reservation in a deed:
A) - cancels the deed.
B) - is a retention of an interest.
C) - prevents the transfer
D) - guarantees the transfer.
B) - is a retention of an interest.
Answer: B—A reservation in a deed is the creation on behalf of the grantor, of a new right issuing from what was granted. A reservation thus is something that did not exist as an independent right before the conveyance. For example, Smith conveys to Jones a 10-acre parcel "reserving to Smith a life estate therein."
60
A recorded deed:
A) - gives constructive notice.
B) - creates presumption of delivery.
C) - must have been acknowledged.
D) - All of the above
D) - All of the above
Answer: D—Delivery presumes acknowledgement and gives constructive notice. Recording establishes presumption of delivery.
61
An investor owned less than a 10% interest in an investment group that owns a major income producing property. If the property operates at a sizeable loss for income tax purposes and the investor's adjusted gross income is $100,000, the maximum amount of passive income loss that could be deducted by the investor is:
A) - $10,000.
B) - $25,000.
C) - $50,000.
D) - None
B) - $25,000.
Answer: B—Taxpayers having an adjusted gross income of $100,000 or less, can shelter (deduct) real estate losses up to $25,000 of active income (e.g. wages).
62
Mr. Johnson sells his personal residence for $800,000 that he purchased only 12 months ago for $900,000. For tax purposes, he has:
A) - a $100,000 loss.
B) - a tax deferred loss.
C) - a $100,000 capital gain.
D) - no loss or gain.
D) - no loss or gain.
Answer: D—A taxpayer cannot take a loss on his/her primary residence.
63
Which of the following is required for a couple to qualify for the universal exclusion?
A) - Continuous occupancy for two years
B) - Live in their permanent residence for at least two years during the preceding five years.
C) - Both (a) and (b)
D) - Neither (a) nor (b)
B) - Live in their permanent residence for at least two years during the preceding five years.
Answer: B—To qualify for the Universal Exclusion, the home must have been your principal residence for at least 2 years during the preceding 5 years prior to sale.
64
Mr. Jones, a single man age 50, sells his personal residence for $600,000. He originally purchased it 9 years ago for $550,000. If Mr. Jones does not purchase a new home after selling this one, what portion of the sales prices is taxable?
A) - $600,000.
B) - $550,000.
C) - $50,000.
D) - None
D) - None
Answer: D—The new law states that there will be no tax on gain up to $250,000 for single and $500,000 for married people who file joint returns.
65
A buyer does not have to withhold a portion of the sales price from a seller when:
A) - the property is residential.
B) - the seller refuses to pay the withholding.
C) - it will be the buyer's principal residence or the sales price does not exceed $100,000.
D) - None of the above
C) - it will be the buyer's principal residence or the sales price does not exceed $100,000.
Answer: C—California Withholding on the Sale of Real Property: Effective January 1, 2003, the buyers must withhold and transmit a portion of the sales price to the Franchise Tax Board (FTB) regardless of whether the seller is a California resident, unless an exemption applies. Buyers must withold 3 1/3 percent of the gross sales price on sales of California real property interests when:
the seller is an individual (a "natural person") (Rev. & Tax Code 18662(e)(1); or
the seller is not an individual and the funds will be transferred to a seller with a last known street address outside of California or to the seller's financial intermediary. (Rev. & Tax Code 18662(f)(1)).
The exemptions for individuals selling real property include the sale of property for less than $100,000, the sale of a principal residence, an IRC 1031 exchange, an involuntary conversion under IRC 1033, and the sale of property at a loss for California income tax purposes.
66
A broker can, without being licensed as an escrow, handle the escrow on transactions where he or she:
A) - acts as a principal.
B) - represents the buyer.
C) - represents the seller.
D) - Any of the above
D) - Any of the above
Answer: D—A broker may act as an escrow on his/her own sales or on sales in which he/she acts as a principal.
67
Who is responsible for reporting a sale to the IRS?
A) - escrow
B) - buyer
C) - seller
D) - broker
A) - escrow
Answer: A—The escrow agent (title company, escrow corporation, etc.) is responsible for reporting sales to the IRS.
68
Real property taxes become a lien on:
A) - November 1st.
B) - February 1st.
C) - January 1st.
D) - July 1st.
C) - January 1st.
Answer: C—Next year's real property taxes become a lien on January 1st.
69
To determine property taxes on a residence:
A) - assess land and improvements together, then multiply by separate tax rates.
B) - total all land and improvements, then multiply by one tax rate.
C) - assess land and improvements separately and multiply each by a different tax rate.
D) - assess land and improvements separately, then multiply the total by one tax rate.
D) - assess land and improvements separately, then multiply the total by one tax rate.
Answer: D—Land and improvements are added separately and then multiplied by one tax rate.
70
The signed escrow instructions disagree with the purchase contract. As to the disagreement, which of the following is TRUE?
A) - The true intent of the parties must first be discovered.
B) - The courts would have to decide the matter.
C) - The purchase contract prevails.
D) - The escrow instructions prevail.
D) - The escrow instructions prevail.
Answer: D—Escrow instructions are a more current and more accurate reflection of the true intent of both parties.
71
The purpose of the assessment roll, as compiled by the assessor's office is:
A) - Determination of the actual tax
B) - The equalization of the assessments among the various properties
C) - The setting of the tax rates
D) - The establishment of the tax roll
D) - The establishment of the tax roll
Answer: D—The assessment roll serves as the tax base.
72
During escrow, if an unresolved dispute should arise between the seller and buyer preventing the close of escrow, the escrow holder may legally:
A) - arbitrate the dispute as a neutral party.
B) - rescind the escrow and return all documents and monies to the respective parties.
C) - file an interpleader action in court.
D) - do any of the above.
C) - file an interpleader action in court.
Answer: C—The escrow holder does not arbitrate arguments between buyer and seller. He/she would most likely file an interpleader action in court. By filing an interpleader action, the escrow agent is asking the court to accept any money or property he or she holds and distribute it to the rightful claimant.
73
Which of the following is TRUE with respect to reserves in an escrow?
A) - The lender holding the reserves pays the same interest rate on funds that savings and loans pay on savings accounts.
B) - They benefit both the trustor and the beneficiary.
C) - The maximum amount cannot exceed five percent of the annual disbursements.
D) - Reserves are required on all homes.
B) - They benefit both the trustor and the beneficiary.
Answer: B—Reserves in escrow (impound accounts) are there for the benefit of both the trustor (borrower) and the beneficiary (lender). By impounding taxes and insurance, the lender is certain that these debts will be paid. The borrower is also certain that the payment will be made.
74
Escrow instructions should be:
A) - certified.
B) - notarized.
C) - recorded.
D) - executed.
D) - executed.
Answer: D—Escrow instructions should be executed by both parties to satisfy the requirements of the contract and complete the escrow.
75
A title plant refers to the title records of properties in a:
A) - city.
B) - state.
C) - county.
D) - town.
C) - county.
Answer: C—A title plant is an accumulation of title records in a specific county.
76
A Standard Policy of Title Insurance covers all of the following EXCEPT:
A) - forgery and matters of record.
B) - lack of signature of either husband and/or wife.
C) - zoning laws.
D) - capacity of parties.
C) - zoning laws.
Answer: C—Zoning is excluded from the coverage of title insurance. The standard policy also does not protect the policyholder against defects in title known to the holder to exist at the date of the policy and not previously disclosed to the insurance company.
77
Added improvements to an existing structure that increase the value of the property will be taxed:
A) - when completed.
B) - when completed and reassessed.
C) - as of March 1st following completion.
D) - only when the property is sold.
B) - when completed and reassessed.
Answer: B—The assessor does not wait for a new tax year to reassess the improved property. As soon as the improvements are completed, the property is reassessed and the supplemental tax bill is issued that year.
78
Homebuyers are most likely to purchase:
A) - standard insurance.
B) - extended insurance.
C) - ALTA policy.
D) - an abstract of title.
A) - standard insurance.
Answer: A—Most homebuyers purchase a standard policy of title insurance. "ALTA" stands for American Land Title Association and is an extended coverage policy.
79
The most important element of proper and effective delivery of a deed is:
A) - intent of the grantor.
B) - recording.
C) - acknowledgment of grantor's signature.
D) - knowledge of its existence by grantee.
A) - intent of the grantor.
Answer: A—The grantor must intend for a deed to be delivered or the deed is not effective. Recording and acknowledgment are not required for the effectiveness of a deed.
80
Tax consequences with respect to real estate should take place:
A) - prior to acquisition.
B) - at time of sale.
C) - at close of escrow.
D) - three months after taking possession.
A) - prior to acquisition.
Answer: A—At any other time, it may be too late.
81
What usually happens to a person's property who died intestate?
A) - It escheats to the state.
B) - It is distributed to his/her heirs.
C) - It is distributed according to his/her will.
D) - None of the above
B) - It is distributed to his/her heirs.
Answer: B—Intestate means dying without a will or leaving a defective will. The intestate decedent's property passes to his/her heirs according to the laws of descent in the state where such real property is located.
82
All of the following will terminate an escrow EXCEPT:
A) - agreement of the parties.
B) - demand of the broker.
C) - inability to meet a contingency.
D) - None of the above
B) - demand of the broker.
Answer: B—Since a broker is not a party to the transaction, he/she cannot order an escrow terminated.
83
If Johnson's intent is to accomplish a "tax-free" exchange of his apartment building, he should exchange for:
A) - an apartment building of greater value with boot paid to balance the trade.
B) - an apartment building of equal value with Johnson receiving net mortgage relief.
C) - a smaller, less expensive apartment building and take cash boot to make up the difference.
D) - an owner-occupied, single-family residence of equal or greater value.
A) - an apartment building of greater value with boot paid to balance the trade.
Answer: A—All choices except (a) would result in tax consequences.
84
An installment sale represents a tax advantage because:
A) - it reduces tax rates.
B) - it eliminates taxes all together.
C) - it is a tax exemption.
D) - it defers payment of capital gains.
D) - it defers payment of capital gains.
Answer: D—An installment sale allows the taxpayer to postpone the receipt and reporting of income tax to future years when his/her other income may be lower. Thus, a taxpayer can avoid paying the entire tax on the gain in the year of sale.
85
How often should a trust fund account be reconciled?
A) - Once-a-week
B) - Once-a-month
C) - Semi-annually
D) - Once-a-year
B) - Once-a-month
Answer: B—Similar to balancing your checkbook, reconciliation is the process of comparing two or more sets of records to determine whether their balances agree. This should reveal if the records are completed accurately. To assure the accuracy of the records, they must be reconciled at least once-a-month.
86
The Street Improvements Act of 1911 allows the issuance of bonds to raise funds for subdivision improvements on:
A) - streets and sewers.
B) - land and structures.
C) - off-site utilities.
D) - anything.
A) - streets and sewers.
Answer: A—The Street Improvements Act of 1911 is used for improvements such as streets and sewers.
87
When a deed is recorded, according to law:
A) - title always passes.
B) - presumption of delivery arises.
C) - possession is guaranteed.
D) - None of the above
B) - presumption of delivery arises.
Answer: B—It is logical to presume that the grantor intended to deliver the deed if his/her signature has been acknowledged by a notary public, which is required for the recording of a deed. A deed must be delivered to be effective, but does not have to be recorded. Recording establishes presumption of delivery.
88
The selling price on a buyer's closing statement is treated as:
A) - a credit to the buyer.
B) - a debit to the buyer.
C) - a debit to the seller.
D) - None of the above
B) - a debit to the buyer.
Answer: B—A closing statement is a detailed cash accounting of a real estate transaction prepared by a broker, escrow officer, attorney or other persons designated to process the mechanics of the sales, showing all cash received, all charges and credits made and all cash paid out in the transaction. Selling price on the buyer's closing statement is treated as a debit to the buyer.
89
Which of the following would be treated as a credit on the seller's closing statement?
A) - prepaid insurance
B) - prepaid rents of tenants
C) - both (a) and (b)
D) - neither (a) nor (b)
A) - prepaid insurance
Answer: A—Since this is prepaid insurance, it would be a credit on the seller's closing statement.
90
All of the following are usually treated as credits on the seller's closing statement EXCEPT:
A) - prepaid taxes.
B) - prepaid insurance.
C) - Standard Policy of title insurance.
D) - None of the above
C) - Standard Policy of title insurance.
Answer: C—It is important to understand that this can change based on geographic region and custom. Who pays for title insurance is ultimately a negotiable item.
91
All escrow companies must be incorporated and licensed by the:
A) - Real Estate Commissioner.
B) - Insurance Commissioner.
C) - Corporations Commissioner.
D) - Securities and Exchange Commission.
C) - Corporations Commissioner.
Answer: C—Under the provisions of the Financial Code of the State of California, all escrow companies must be incorporated and licensed by the Corporations Commissioner to operate.
92
On an escrow closing statement, an existing mortgage that is to be assumed by the buyer is treated as:
A) - a debit to the buyer.
B) - a credit to the buyer.
C) - a debit to the seller.
D) - both (b) and (c).
D) - both (b) and (c).
Answer: D—A loan being assumed by the buyer is listed as a credit to the buyer and a debit to the seller.
93
A federal income tax advantage can be realized by:
A) - depreciating income property.
B) - an installment sale.
C) - exchanging.
D) - All of the above
D) - All of the above
Answer: D—Depreciation is an expense deduction that allows for the recovery of the cost of the investment. An installment sale allows one to save on taxes by postponing the receipt and reporting of income to future years. Exchanging property of "like kind" is a popular method of deferring capital gains taxes.
94
During a sales escrow, the escrow officer receives two structural pest control reports. The escrow officer should:
A) - contact the inspection companies to determine which one is most recent.
B) - send the report that requires the most work to the buyer and obtain his/her approval.
C) - notify the broker and obtain written instruction from the buyer and seller concerning the reports.
D) - request the broker to find out from the seller which report to use.
C) - notify the broker and obtain written instruction from the buyer and seller concerning the reports.
Answer: C—The escrow agent is the agent of both the buyer and the seller, and should receive instructions from both if a conflict arises such as this.
95
With reference to an escrow, recurring costs mean:
A) - closing fees.
B) - tax calculations.
C) - impound accounts.
D) - realtor fees.
C) - impound accounts.
Answer: C—Most mortgage lenders require an impound account to cover future payments of recurring costs, such as taxes, assessments, private mortgage insurance and home insurance to protect their security from defaults and tax liens.
96
A will written in the testator's own handwriting is called a:
A) - sealed will.
B) - gift certificate.
C) - nontransferable will.
D) - holographic will.
D) - holographic will.
Answer: D—A holographic will is written, dated and signed in the testator's handwriting but not witnessed.
97
Money in an impound account belongs to the:
A) - escrow company.
B) - trustor.
C) - trustee.
D) - beneficiary.
B) - trustor.
Answer: B—Impound accounts usually contain money prepaid by the trustor (buyer).
98
When a fire insurance claim is filed which of the following is true? The claimant would:
A) - Neither gain nor lose financially
B) - Gain financially, but lose value on the property
C) - Might lose financially, but not lose value on the property
D) - Might lose financially and lose on the value of the property
A) - Neither gain nor lose financially
Answer: A—In theory, this is the correct answer.
99
The term title plant refers to:
A) - records of a title insurance company.
B) - records of lender.
C) - records of a brokerage.
D) - mortgage interest payments.
A) - records of a title insurance company.
Answer: A—A title plant is the storage facility of a title insurance company in which it has accumulated complete title records of properties in its area. Many of the larger title insurance companies maintain their own title plants containing copies of all recorded instruments.
100
To adjust for any increase in tax liability due to a reassessment after the property was purchased, the tax authority would issue a:
A) - new tax bill.
B) - property tax postponement.
C) - supplemental assessment.
D) - replacement lien notice.
C) - supplemental assessment.
Answer: C—Since few people take possession of real estate on July 1st, the first day of the tax year, supplemental assessments are made to adjust for any increase in tax liability.
101
A document that describes the property and any existing encumbrances is called a:
A) - preliminary report.
B) - abstract of title.
C) - title plant.
D) - binder.
A) - preliminary report.
Answer: A—The preliminary report describes the property and current owner of record, as well as any recorded liens or other encumbrances. The escrow holder reads the report to verify the legal description and to determine if there are any child support liens, taxes, or judgments for which a release will be required prior to the close of escrow. The buyer is required to review and sign acceptance of the preliminary report.
102
Which of the following is required for the existence of a valid escrow?
A) - A binding contract and conditional delivery
B) - The services of a licensed real estate broker
C) - A complete chain of title
D) - Complete escrow instructions
A) - A binding contract and conditional delivery
Answer: A—A valid escrow cannot exist without a binding contract between buyer and seller and the conditional delivery of transfer documents to a third party.
103
When there is a substantial discrepancy between the dates for close of escrow and the new owners occupying the property, the agent must prepare a(n):
A) - interim occupancy agreement.
B) - addendum.
C) - sale-leaseback agreement.
D) - None of the above
A) - interim occupancy agreement.
Answer: A—Closing delays can occur due to a number of reasons. For example, delays in obtaining a homeowner's insurance policy or if the funding check from the buyer's lender isn't issued in time. Sometimes work on the property needs to be completed before close of escrow. Another common reason for a delay is when two home sales are closing concurrently and a delay in one causes a delay in the other. Ideally, buyers shouldn't take possession of their new homes until the sale has closed. As a last resort, the buyer can ask the seller for permission to occupy the property before the closing and if the seller agrees, an interim occupancy agreement should be signed by the buyer and seller, and the buyer's personal and liability insurance should be in effect as of the date of occupancy.
104
Shortly after a valid escrow is established, both the buyer and seller die. What should the escrow agent do?
A) - Return all monies
B) - Cancel the escrow
C) - Let the agents decide
D) - Continue with the escrow
D) - Continue with the escrow
Answer: D—Under something called the "Doctrine of Relation-Back," death of the grantor does not terminate the escrow or revoke the agent's authority to deliver an executed deed. Delivery of the deed to the grantee relates back to the date is was originally deposited with the escrow agent, and it is considered as if the grantor made delivery to the grantee before the grantor's death.
105
An escrow agent discovers there is no specified date of closing. In this case, escrow should close:
A) - within 30 days.
B) - within 60 days.
C) - within 90 days.
D) - within a reasonable time.
D) - within a reasonable time.
Answer: D—If a specific closing date is not specified, the parties may agree in writing to a closing date, otherwise, the escrow would continue and close within a reasonable period of time.
106
Owner bob owns an apartment complex which is managed by broker X. Owner bob wants to sell his apartments and broker X is the listing broker. Who distributes the security deposit?
A) - the seller
B) - the broker
C) - the escrow company
D) - the lender
C) - the escrow company
Answer: C—Security deposits technically belong to the tenant. However, they are held by the owner until the tenant leaves and the owner inspects the unit. It is probably true that Broker X must hand the deposits to escrow, but escrow distributes everything at the close to the new buyer. This includes all proration of prepaid rent, taxes etc. The security deposits would be a credit to the buyer.
107
Which of the following automatically terminates an escrow?
A) - death of the buyer
B) - death of the seller
C) - death of the broker
D) - None of the above
D) - None of the above
Answer: D—Death of the grantor does not terminate the escrow or revoke the agent's authority to deliver an executed deed.
108
Which of the following is NOT a requirement of a valid will?
A) - signature
B) - witnesses
C) - acknowledgment
D) - testator of sound mind
C) - acknowledgment
Answer: C—The testator must be of sound mind and of adult age, and must declare the writing to be his/her last will and testament and sign it, usually in the presence of two or more credible witnesses.
109
Closing is on June 15 and rent of $2,400 has been prepaid for the current month. What amount will the seller be debited at closing if the buyer receives credit for the day of closing?
A) - $1,280
B) - $1,200
C) - $1,350
D) - $2,200
A) - $1,280
Answer: A—Rental payments are $80 per day ($2,400 / 30). The seller will be debited for 16 days or $1,280 ($80 x 16). Prorations typically assume that the buyer's rights and obligations begin on the day of closing.
110
What does the term "short rate" refer to?
A) - loan interest rate
B) - real property taxes
C) - stock portfolios
D) - homeowner's insurance
D) - homeowner's insurance
Answer: D—Short Rate: A higher periodic rate charged for a shorter term than that originally contracted. The increased premium charged by an insurance company on early cancellation of a policy to compensate the insuror for the fact that the original rate charged was calculated on the full period of the policy. This increased charge enters into a buyer's decision whether to assume the seller's existing homeowner's hazard insurance policy or to cancel it and obtain a new policy.
111
When does the broker's commission get paid?
A) - When the broker obtains an offer and communicates acceptance
B) - When the buyer's deposit is logged into escrow
C) - At close of escrow
D) - None of the above
C) - At close of escrow
Answer: C—On the state exam you may see two very similar questions, one asking when the broker's commission is paid and another asking when the broker has earned his/her commission. The broker's commission is paid at close of escrow. The broker has earned his/her commission when the buyer's offer is accepted.
112
All of the following must be recorded to have effect EXCEPT:
A) - a judgment.
B) - a grant deed.
C) - a mechanic's lien.
D) - a declaration of homestead.
B) - a grant deed.
Answer: B—A grant deed is valid without recording.
113
Which of the following best describes the period of time in which a lis pendens action is effective:
A) - Before the trial is held
B) - Unit the lawsuit is dismissed
C) - Until final judgment
D) - In any of the above situations
D) - In any of the above situations
Answer: D—The lis pendens is effective in all of these situations.
114
The marginal tax rate is the tax rate:
A) - that will be used when you enter the next higher tax bracket.
B) - which is used for the last dollar of taxable income earned.
C) - applied to the highest tax bracket.
D) - applied to the lowest tax bracket.
B) - which is used for the last dollar of taxable income earned.
Answer: B—The marginal tax rate is the ordinary rate of income tax charged on the last dollar of income, often used when making calculations for investment decisions.
115
Personal income taxes are structured using rates that are:
A) - regressive.
B) - progressive.
C) - equal.
D) - level.
B) - progressive.
Answer: B—Progressive means the more you make, the more you pay. It might also be termed "graduated."
116
The recording of an instrument gives:
A) - actual notice.
B) - constructive notice.
C) - positive notice.
D) - passive notice.
B) - constructive notice.
Answer: B—Constructive notice is knowledge the law presumes a person has about a paritcular fact regardless of whether the person knows about the fact or not. Examples of constructive notice would include the proper recording of a deed in the public records or the physical possession of property by an owner or tenant.
117
A deed is presumed to be delivered when:
A) - the seller handed the deed to the buyer, but the buyer did not record it.
B) - the escrow officer mailed the deed which had been acknowledged by the seller, but delivery was made after the seller died.
C) - the escrow company delivered the deed to the buyer prior to the buyer meeting all the terms of escrow.
D) - the deed was delivered to the grantee after the death of the grantor in accordance with instructions the grantor left with his attorney.
A) - the seller handed the deed to the buyer, but the buyer did not record it.
Answer: A—A deed need not be recorded to be considered delivered. As long as it is given to the grantee and accepted, it will be considered delivered.
118
A property sold for a total of $100,000. An existing loan of $60,000 was assumed. What would the Documentary Transfer Tax be?
A) - $110.00
B) - $66.00
C) - $44.00
D) - $22.00
C) - $44.00
Answer: C—Documentary Transfer Tax is calculated at a rate of 55 cents for each $500 of consideration or fraction thereof. A portion of the total price paid for the property may be exempt because a lien remains on the property.
$100,000 - $60,000 (assumed loan) = $40,000
$40,000 ÷ $500 = 80
80 x .55 = $44.00
119
Which type of deed has no express or implied covenants or warranties?
A) - tax deed
B) - grant deed
C) - quitclaim deed
D) - warranty deed
C) - quitclaim deed
Answer: C—A quitclaim deed transfers only whatever right, title and interest the grantor had in the land at the time of its execution, without any implied covenants or warranty.
120
The doctrine of "first in time, first in right" refers to:
A) - First right of refusal.
B) - Recording rights.
C) - Date and time one signs a contract.
D) - First right in judgment lien.
B) - Recording rights.
Answer: B—In California, lien priority (and, therefore, right to payment) is determined by the maxim "first in time, first in right" (Civil Code 2897). Thus, liens that are recorded first have priority over later-recorded liens. The recording statutes were enacted for the purpose of establishing priorities among claims upon property and provide adequate means by which those with an interest in property may protect their rights. Moreover, a properly recorded lien serves as constructive notice of its contents to all subsequent purchasers and encumbrances (Civ. Code 1213).
121
A property owner builds a swimmimg pool at his apartment building in order to attract more tenants. For tax purposes, he can:
A) - deduct the cost of the pool, dollar-for-dollar, from his income tax.
B) - deduct the cost of the pool from his vacancy losses.
C) - add the cost of the pool to his book value and depreciate it.
D) - None of the above
C) - add the cost of the pool to his book value and depreciate it.
Answer: C—The cost of the pool may be added to the book value (cost basis) and then be depreciated.
122
Suzie has a home but decides to buy a new house. She keeps the old house to rent. She moves out of the old house and into the new house in late January. For the upcoming fiscal year, starting July 1, on which home may she claim the California Homeowner's Property Tax Exemption?
A) - The older home
B) - The new home
C) - Neither home
D) - Both homes
B) - The new home
Answer: B—To claim the Homeoowner's exemption you must live in the house as of April 15th prior to the fiscal tax year.
123
When a valid grant deed is prepared, title passes when:
A) - acknowledged.
B) - delivered.
C) - signed.
D) - recorded.
B) - delivered.
Answer: B—A deed must always be signed by the party or parties making the conveyance or grant of the premises, and it must be delivered to the party to whom the property rights are to be transferred. A deed is of no effect unless delivered.
124
Which of the following represents one of the essentials of a grant deed:
A) - Parties capable of receiving the grant
B) - Offer and acceptance
C) - Acknowledgement
D) - Recordation
A) - Parties capable of receiving the grant
Answer: A—There are several different essentials to a valid deed, namely:
It must be in writing.
The parties must be properly described.
The parties must be competent to convey and be capable of receiving the grant.
The property conveyed must be adequately described.
There must be a granting clause, operative words or conveyance ("I hereby grant").
The deed must be signed by the party or parties making the conveyance or grant.
Delivery and acceptance is required.
125
Ad valorem is best defined as:
A) - added value.
B) - fixed value.
C) - according to value.
D) - at replacement value.
C) - according to value.
Answer: C—Ad valorem means according to value.
126
To be recorded, a deed must have:
A) - the signature of the grantee.
B) - a mention of consideration.
C) - a seal.
D) - an address where tax bills should be mailed.
D) - an address where tax bills should be mailed.
Answer: D—To be recorded, a grant deed must have an address where tax bills should be mailed. A valid grant deed requires the signature of the grantor not the grantee.
