Unit 4 Exam: Ownership Interests in Real Property

Question 1

Automatic survivorship is intrinsic in which of the following forms of realty ownership?

a. sole and separate
b. tenancy in common
c. tenancy by the entirety
d. community property

Answer 1

c. tenancy by the entirety (p. 27)

Tenancy by the entirety is limited to married couples that includes the automatic right of survivorship, and is not available in community property/common law states.
-AZ, CA, ID, LA, NV, NM, UT, WA

Question 2

An S corporation:

a. requires 100 or more shareholders
b. is subject to double taxation
c. is available to foreign investors
d. limits the personal liability of its shareholders

Answer 2

d. limits the personal liability of its shareholders (p. 35)

S corporations:

• must have NOT MORE than 100 shareholders
• offsets the onerous double tax
• do not include foreign investors and participation of nonresident aliens

Question 3

Tenancy in common includes which of the following?

a. automatic survivorship
b. married persons only
c. inheritability by will
d. equal ownership shares only

Answer 3

c. inheritability by will (p. 27-28)

Tenancy in common:

• each of several participants controls and has an interest in an undivided portion of the entire property
• basic components include inheritability and undivided interest
• partners might agree on an equal ownership arrangement of one-quarter interest each, however, any proportion is allowable
• can be established by any two or more people

Question 4

Participants in a general partnership usually take title as which of the following?

a. joint tenants
b. tenants in common
c. tenants by the entirety
d. tenants in severalty

Answer 4

b. tenants in common (p. 36)

“Many general partnerships, also called full partnerships, are relatively informal arrangements wherein some friends or family members join to purchase an investment property as tenants in common.”

Question 5

Corporations are formed to own real estate for all of the following reasons EXCEPT:

a. to avoid double tax on profits
b. for broad-based capital accumulation
c. to limit shareholder personal liability
d. to develop continuity of ownership

Answer 5

a. to avoid double tax on profits (p. 33)

corporations:

• designed primarily as capital-accumulating vehicles
• have four general characteristics: continual life, centralized management, limited personal liability, and easy transferability

Question 6

Which of the following is NOT an attribute of a limited partnership?

a. the personal liability of the limited partners is limited to their investment
b. taxes on profits are imposed at the investor’s level
c. each partner takes an active role in management
d. operating losses are passed through to the partners

Answer 6

c. each partner takes an active role in management (passive role, p. 37)

Limited partners take on a PASSIVE role in management and enjoy the security of protecting their other personal assets from liabilities incurred by the partnership.

Question 7

Foreign investment in the United States represents:

a. less than 1% of home sales
b. more than 50% of commercial real estate
c. around 8% of home sales
d. an expensive investment because of the Foreign Investment Real Property Tax Act (FIRPTA), which imposes a 25% surcharge on property taxes for foreign owners

Answer 7

c. around 8% of home sales (p. 48)

“According to the NAR 2018 Profile of International Activity in U.S. Residential Markets for the 12 months ending March 2018, foreign investors purchased $150.3 billion worth of U.S. residences–approximately 8% of the total existing home sales dollar volume.”

Question 8

Sole ownership of real estate is described as ownership in:

a. vivos
b. singularity
c. sole seisin
d. severalty

Answer 8

b. singularity (p. 32)

singularity = sole

Question 9

A living trust usually evolves into:

a. an inter vivos trust
b. a testamentary trust
c. a collapsible trust
d. a limited partnership

Answer 9

b. a testamentary trust (p. 44)

“Living trusts that are established to become testamentary trusts and control property over several generations eliminate the costs of repetitive probate proceedings because the secondary beneficiaries automatically advance each time the primary beneficiary dies.”

Question 10

Blue-sky laws cover all of the following disclosures EXCEPT:

a. the experience of the syndicators
b. an indication of the potential risk of the investment
c. a guaranteed return on the investment
d. a description of the property, terms, and conditions of the investment

Answer 10

c. a guaranteed return on the investment (p. 38)

Blue-sky laws require:

• every syndicator or general partner to prepare a comprehensive prospectus to distribute to potential investors
• a description of physical property and terms and conditions of the investment is required
• full disclosure of the names and experience histories of each syndicator
• clear indication of all the risks inherent in the proposition