Mini Course Answers

8/9/2019 Mini Course Answers

1/25

1

Unique Mini-Course ANSWERS

1. c. 10% of 36 miles (a township) = 3.6 square miles.a. 5280 feet (1 mile) by 5280 feet (1 mile) = 1 square mileb. 1 mile by 1 mile = 1 square miled. 2 sections (1 square mile per section) = 2 square miles

2. d. Two sections square would be two sections by two sections, which would equal four sections (1 mile square persection) = 4 square miles.a, b, and c (see answers in number 1 for areas)

3. c. Process to work-out answer: =-|

MARKET VALUE $285,000 $259,000LIENS -0- -0-EQUITY $285,000 $259,000 AMOUNT NEEDED TO BALANCE $ 26,000 (Boot)

Determine Mr. Able's profit!

MARKET VALUE $285,000 (Value)- -$198,000 (Basis)

$ 87,000 (Realized Gain)

Determine taxable amount of Mr. Able's profit….$87,000 REALIZED GAIN$26,000 (BOOT) RECOGNIZED GAIN$61,000 EQUITY TRADED IN PROPERTY

EQUITY TRADED…………………………..………………… $61,000

BOOT received is taxable……………………………………. $26,000 ($17,000 in cash and $9.000 in some other form of compensation)

4. c. Process to work-out answer…..

TOTAL AMOUNT RECEIVED ON NOTE…12 monthly payments x $122 per month (includes principal and interest) = $1464 total amount received

COST TO INVESTOR$1400 NOTE X 15% (discount) = $210 $1400 - $210 = $1190

TOTAL AMOUNT RECEIVED BY INVESTOR $1464COST TO INVESTOR $1190PROFIT MADE $ 274

$274 profit on an $1190 investment = 274/1190$274 is what percent of $1190?$274 divided by $1190 = .23 (23%)

5. c. Determine the total amount of cash the owner needed to receive…

$18,600 CASH (net to owner after all expenses)200 CASH (to cover cost of escrow fee)

$18,800 Total needed except for the cash needed to pay the 6% commission+6% Of the selling price needed to pay broker's commission

SELLING PRICE

We know the selling price minus the 6% commission (after paying the 6%) is equal to $18,800. Therefore 18,800must represent 94% of the selling price.

Question…$18,800 is 94% of what?

Solution…$18,800 divided by 94% = $20,000


2/25

2

6. b. Statement of fact. TOWNSHIP LINES are always 6 miles apart as are Range Lines.

7. c. The trick is getting the NET INCOME. The net income is determined by recognizing that the property nets its presentowner 6% of $200,000 which is $12,000 ($200,000 x 6% = $12,000). Now knowing the net income is $12,000 andthat the investor wants an 8% return on a property with a $12,000 net…you divide the $12,000 (net income) by 8%(the cap rate) to get $150,000 (the appraised value).

8. a. Process to work out answer…

DETERMINING BALANCE OF FIRST LOAN$90 (1 months interest) x 12 months = $1080 interest that would have been due for one full years worth of interest.$1080 interest for one-year divided by 9% yearly interest rate equals loan balance of $12,000 ($1080 divided by 9% = $12,000)FIRST LOAN IS $12,000

FINDING PURCHASE PRICEThe first loan equals 80% of the purchase price. Therefore the math question here is $12,000 (first loan) equals80% of what?($12,000 divided by 80% = $15,000)PURCHASE PRICE $15,000

FINDING AMOUNT OF THE SECOND LOANPurchase Price $15,000Down payment - 1,000Balance $14,000

First Loan -$12,000SECOND LOAN $ 2,000

9. a The trick to working out this problem is that when adding the 6-inch walls to both sides of a building it would increasethe overall width by (2 x 6-inches) 12 inches and the depth by (2 x 6-inches) 12 inches. Thus making the outsidemeasurements 31 feet by 25 feet (31 x 25 = 775) or 775 SQUARE FEET.

10. a. Information: We have a rectangular figure which is 5280 feet in length and contains 3 acres

Solution: Change the 3 acres into square feet. 43,560 sq. ft.( in 1 acre) x 3 acres = 130,680 sq. ft.Then divide the area of the road 130,680 sq. ft. by 5280 ft. to arrive at the road width.Which is 24.75 feet Wide

5280Feet (1Mile)

11. b. Information: The road is 40 ft. wide. 20 ft. of the width is in Section 6. The road is 20 FEET WIDE.

Solution: 20 FEET X 5280 FEET = 105,600 SQUARE FEET105,600 SQUARE FEET (area of road in the square) is then divided by 43 ,560SQUARE FEET (sq. ft. in one acre of land) equals 2.42 ACRES

20' 20'

12. b. A whole section contains 640 ACRES

WHOLE SECTION 640 Acres(NW1/4) A 1/4 of 640 acres is 160 Acres(NW1/4) A 1/4 of 160 acres is 40 Acres(NW1/4) a 1/4 of 40 acres is 10 ACRES

The trick is the answer is looking to find the AREA described, not where the described parcel is located. Therefore the locationsdescribed such as Northwest 1/4 are not pertinent. All that is necessary to find the answer is determining the fractional portion ofthe section (640 acres). The fractional portion of the section is 1/4 of a 1/4 of a 1/4 of 640 acres. 1/4 x 1/4 = 1/16. 1/16 x 1/4 =1/64. Therefore we're looking for how many acres i n 1/64 of 640. 640 Acres divided by 64 (1/64) = 10 ACRES

13. a. BUILDING COST $160,000

GROSS INCOME 2,400 per month x 12 months = $28,800 Annual Gross Income

ANNUAL GROSS $ 28,800 ANNUAL EXPENSES 6,000 ANNUAL NET $ 22,800

Divide the NET INCOME OF $22,800 by the CAP RATE (Capitalization Rate) of 12%, which equals an APPRAISED VALUE of $190,000.

If the investor will pay $190,000 for the entire property (which includes land and improvements) and the improvements bythemselves will cost $160,000, then the most they would pay for the LAND would be $30,000.

ONE SECTION

3 Acres

SECTION 7

SECTION 6


3/25


4/25

4

20. d. STEPS: Mr. Green - $10,000 divided by 10% = $100,000.00 Value

Mr. Brown - $10,000 divided by 11% = $ 90,909.09 Value$ 9,090.91 DIFFERENCE (More than Brown)

21. b. STEPS: $85 x 10 = $850 monthly income x 12 = $10,200 ANNUAL INCOME

Raise rent by 10% ($85 x 10% = $8.50) $85 + $8.50 = $93.50$93.50 x 10 = $935 Monthly Income$935 x 12 Months = $11,220 ANNUAL INCOMELose 10% of the income ($11,220 x 10% = $1122)

$11,220 - $1122 = $10,098OUTCOME: $10,200 - $10,098 = $102 Loss$102 divided by $10,200 = 1% LOSS

22. b. STEPS: $85,000 Market Value x 6% = $5,100 Net Income$ 5,100 Net Income equals the yearly gross minus15%.Therefore $5,100 equals15% less than the annual gross income.$5,100 is 15% less or 85% of the yearly gross. $5,100 divided by 85% = $6,000 yearly gross income$6,000 annual gross income divided by 12 months = $500 Monthly Gross.

23. c. FORMULA for the area of a TRIANGLE

WIDTH x DEPTH----------------------- = AREA

2

STEPS: 1320 feet x 2640 feet = 3,484,800 square feet3,484,800 divided by 2 = 1,742,400 square feet

Determining Acres. 1,742,400 divided by 43,560 (sq. ft. per acre) = 40 ACRES

24. b. STEPS: $35,000 listing Price and sells for 10% LESS$35,000 by 10% (less) = $3,500 LESS$35,000 minus $3,500 = $31,500 SELLING PRICE

To arrive at the amount of the commission…$31,5000 x 6% commission = $1,890 Agreed to reduce commission by 20%…$1,890 x 20% = $378 Reduction$1,890 - $378 = $1,512 COMMISSION

25. a. STEPS: $6,500 Purchase Price, property listed 30% Higher

$6,500 x 30% =$1,950 Higher or listing price is $6,500 + $1,950 = $8,450 LISTING PRICEOffer is for 25% Less than the Listing Price$8,450 x 25% = $2112.50 Less$8450 minus $2,112.50 = $6337.50 SELLING PRICE

Commission is 6% of the selling Price$6337.50 x 6% = $380.25

Net Amount to the Seller$6337.50 - $380.25 = $5,957.25 NET AMOUNT TO THE SELLER

Determining the Loss$6,500 (Purchase Price) minimum $5,957.25 (Net from Sale) = $542.75 LOSS

26. d. STEPS: Determining Total Gross Income from Rents$250 per month x 10 units = $2,500 Gross Income per month$2,500 per month x 12 months = $30,000 Gross Income per year

Determining Lost Income10% reduction in rents$30,000 annual gross x 10% reduction = $3,000 Reduction$30,000 annual gross - minus $3,000 =$27,000 ANNUAL GROSS

Determining ValueCapitalized value before reduction…$30,000 divided by 10% Cap Rate = $300,000 ValueCapitalized value after reduction……$27,000 divided by 10% Cap Rate = $270,000 Value

$30,000 LOSS IN VALUE

27. b. The Department of Real Estate gives a person who has successfully passed the qualification examination ONEYEAR from the date of TAKING THEIR STATE EXAM to apply for the license.


5/25

5

28. d. According to the Real Estate Commissioner's Regulations a real estate broker must have a written agreement witheach salesperson. The broker and salesperson both must sign the agreement and each is required to retain a copyfor a minimum of 3-Years from the date the agreement terminates between them.

29. c. Upon a real estate license expiring the person holding the expired license cannot do anything for which a license isrequired. However the State allows up to two years additional time for the late renewal of a license before the holderwould forfeit all rights to the license. The late penalty for renewing is not double the normal fee, but currently a 50%penalty.

30. d. There are no legal nor regulatory requirements that a real estate broker maintain a trust account. Although a broker's

records may be audited there is no requirement that they must be. The broker does not have to open a separateaccount for each client's funds, but would make a separate entry in the trust account ledger for each transaction offunds.

31. a. Quoting of prices and terms for a fee or compensation or in the expectation of a fee or compensation requires a realestate license. Therefore the hostess is in violation by doing so and the broker has also violated the law bycompensating an unlicensed person.

32. d. More than likely a subdivision final public report would be necessary, but not a permit. Answers "a," "b" and "c" areall considered securities under Article 6 of the Real Estate Law. In order to offer a security for sale in California onemust first acquire a PERMIT to do so from the real estate commissioner.

33. a. An exchange agreement involves two exchangers (sellers) both normally willing to pay a fee to an agent to set-up theexchange. Generally only the lessor or owner of a business pays the agent a compensation not the lessee or buyerof the business also.

34. d. Misrepresentation could be grounds for a criminal action, a civil suit for recovery of damages and possiblesuspension or revocation of a license by the Real Estate Commissioner.

35. d. This answer identifies the purpose of the Recovery Fund and of the four is the most complete. The currentprotections are $20,000 per claim and $100,000 coverage per licensee. The claimant must have filed an actionagainst the licensee, have been rendered a judgment, had attempted to collect and then had proven the judgmentwas uncollectable due to insolvency of the licensee. Then the claimant must have filed a proper claim with the properdepartment.

36. b. A LEASE (an estate for years) is a type of LESS-THAN-FREEHOLD ESTATE. An EASEMENT is a RIGHT in realproperty. A TRUST DEED creates a lien interest not an estate. A BILL OF SALE evidences the conveyance ofpersonal property.

37. b. The question is looking for an alternate name to describe a FEE SIMPLE ESTATE. Should the question haveread…”A fee simple estate is?” The answer would have been an “Estate of Inheritance” (an estate capable of beingpassed by will).

38. c. Logically follow the situation described….

“A” receives a LIFE ESTATE for the life of “X” (the estate exists until “X” dies). As “X” did not die, the estate stil l vestsin “A” or “A’s” heirs.

Answer (a) is incorrect as “X” was granted no property rights. “X’s” only purpose is to determine the length of timethe life estate will exist.

Answers (b) and (d) are incorrect due to the fact that the estate has not terminated therefore there could be noREVERSION (the estate going or revert ing back to the original grantor) and there could for the same reason be noREMAINDER (the estate vesting in someone named to receive it other than the original grantor or the original

grantors heirs).

39. c. An “Estate of Inheritance’ is another way of identifying a FEE ESTATE, which is a type of FREEHOLD ESTATE. Oneof the characteristics of a Freehold Estate is “Indefinite Durat ion.” Answers (a), (b) and (d) a ll describe LESS-THAN-FREEHOLD ESTATES.

40. c. “X” receives the estate (is the holder of the estate) for as long as “C” is alive. If “X” (the holder of the estate) dies andnot “C,” then the estate goes on existing.

41. a. A Lessor is the only party required to sign a written lease agreement. Should the lessee not sign the agreement it ispresumed that the lessee has accepted the terms of the lease if they either “Pay the Rent” or “Take Possession of thePremises. ” Leases do not have to be recorded to be valid or enforceable. If the lease is recorded, prior to therecording, the Lessors signature would have to be acknowledged.


6/25

6

42. c. QUIET ENJOYMENT AND POSSESSION is an implied (existing even though not written or spoken) covenant(promise) granted by State Law to anyone who leases or rents property from another, which would relate to a“Leasehold” also known as a “Less Than Freehold Estate.”

43. c. A SUBLEASE is created, which is a form of “Less-Than-Freehold Estate.” FEE SIMPLE is a type of “FreeholdEstate.”

44. a. Although one would commonly associate the word “Demise” with a deceased party, which is one of the definedmeanings of this word, the word itself is very seldom found in a will. One of it’s most common uses is in leaseagreements where it may state: “I, the Lessor, hereby let and DEMISE (pass on these rights) the following describedproperty to the following described person.

45. b. In analyzing the question, the seller (GRANTOR) sells the property to a buyer (GRANTEE). Then the seller (grantor)leases it back thus becoming a LESSEE and the buyer (grantee) becomes the LESSOR/LANDLORD. What has thentransacted is described as a “SALE-LEASEBACK.”

(c) is incorrect, as it would vest a “FEE SIMPLE TITLE” in the Grantee, not the Grantor as stated in the answer. (d) isincorrect, as it would create a “LESS-THAN-FREEHOLD ESTATE” interest in the Lessee, not the Lessor as stated inthe answer.

46. b. A “PERCENTAGE LEASE,” bases the rent to be paid on GROSS SALES.

(a) A “NET LEASE” is where the landlord receives a NET SUM and the tenant pays all the expenses. (c) GROSSLEASE is another way of describing a “Straight,” “Fixed” or “Flat” Lease. (d) A “STRAIGHT, FIXED or FLAT LEASEis where the tenant pays a fixed amount for rent and the landlord pays all the expenses.

47. d. This is the definition of a SURRENDER. A Surrender describes where each party to the agreement gives up(surrenders) their rights. This action is accomplished through a mutual rescission.

48. b. The key to this answer is the word “ASSIGN” - An ASSIGNMENT is the transferring of the “entire rights, obligationsand duties to another party.” A SUBLEASE is the “passing on to another party of anything less than the entire rights,obligations and duties.” Therefore we can eliminate answers (a), (c) and (d).

49. c. An EASEMENT is not an ESTATE in real property, it is a “RIGHT” held in real property. LEASEHOLDS, OIL in theground (unextracted) and TREES attached by roots identify Estates held in REAL PROPERTY.

50. d. It is possible to have, for example, an ESTATE FOR YEARS (leasehold estate) in a property owned by another thatholds a FEE ESTATE interest. (a) is incorrect as leases and periodic tenancies do not run on in to perpetuity

(indefinitely). (b) is incorrect as leases are not created by a grant and (c) is incorrect as immediate possession is notnecessary to create an estate in real property.

Estates in real property can be either FREEHOLD (Fee Estates or Life Estates, which are deeded interests) or LESS-THAN-FREEHOLD ESTATES (leasehold interests).

51. d. STOCK IN A MUTUAL WATER COMPANY refers to the “RIGHT to the water and water rights are considered REALPROPERTY. The STOCK CERTIFICATE (a piece of paper) in the Mutual Water Company would itself beconsidered PERSONAL PROPERTY but the rights it would convey would be that of Real Property.

52. d. This is the best description of the four answers. None are complete. Prior to the invention of the airplane, thedefinition included indefinite ownership of the airspace into infinity. The airways are now a public domain. Thereforetoday’s ownership of airspace has limited the use to “A Reasonable and Enjoyable Height.” Also owned as part ofthe real property is the surface of the earth and the material beneath the surface to the center of the earth.

53. d. LEASES are PERSONAL PROPERTY. Property is either PERSONAL or REAL. Therefore, if it is not PERSONAL it

must be REAL. FIXTURES were property that had been personal but that have become so attached to the realproperty as to now become a part of that real property. FIXTURES ARE REAL PROPERTY.

54. d. A child that is a ward of the court will have appointed by the court a Guardian or Trustee to act for, and to signcontract agreements on the minors behalf (the minor child would not sign). A FELON if not incarcerated (imprisoned)may sign binding contract agreements. An ALIEN can sign a binding agreement as long as they are considered anadult according to California Law. An EMANCIPATED MINOR is treated as an adult for the purpose of contracting.

55. b. APPROPRIATION – A right granted through governmental action allowing the taking or diversion of water from thepublic domain for personal and private use. PERCOLATION – The ability of water to enter the ground. ACCRETION – The depositing or build-up of soil. ALLUVIUM – The name for the soi l buil t-up or deposited through accretion.


7/25

7

56. a. RIPARIAN RIGHTS refer to rights of persons or entities that own property on non-navigable RIVERS and/orSTREAMS. Littoral relates to rights on lakes or ocean shorelines.

57. d. AVULSION is the sudden ripping or tearing away of the land. EROSION is the gradual wearing away of the land. ACCRETION is the process of depositing or building-up of soil that has been moved through erosion, and ALLUVIUMis the name of the soil that is deposited or built-up during the process of accretion.

58. c. This is the definition of a FIXTURE. An ATTACHMENT relates to a type of “Lien.” An APPURTENCE is a realproperty right (such as an easement or water rights). A TRADE FIXURE is always considered to be personalproperty.

59. b. METES (measurements) around the outside BOUNDS (boundaries) of the property. It is not essential that the areaof the parcel be shown for it to be considered a legal description.

60. b. The question is looking for the “Incorrect Answer.” All of the answers are true except (b), which is INCORRECT.

61. a. Minutes, degrees and seconds are measure either EAST or WEST from a North/South Line.

62. a. BASE LINES run EAST and WEST. Meridian lines run NORTH and SOUTH.

63. c. METES and BOUNDS is a method of describing land as opposed to SQUARE FOOT, ACRE and FRONT FOOT,which are methods of measuring land.

64. b. COMMUNITY PROPERTY may be willed by either spouse (their 1/2 interest only). However, if no will is left their halfinterest, as a result of intestate succession (dying leaving no will), based now on the State’s will, which would then

prevail, will automatically go to the surviving spouse.

65. b. This answer is a statement of fact. Answers (a), (c) and (d) all describe separate property.

66. d. This is the most accurate answer of the four. (a) is incorrect as half would go to the surviving spouse, but the heirsare entitled to the other half. (b) is incorrect as if there were more than one child it would be divided 1/3 of the estateto the surviving spouse and 2/3 to the children. (c) is incorrect as the spouse is entitled to either ½ or 2/3 of theestate depending on how many children there are. DEPOSITION OF SEPARATE PROPERTY, IF NO WILL: (if nochildren) 1/2 to the spouse, 1/2 to the heirs…(if one child) 1/2 to the spouse-1/2 to the child…(if two or more children)1/3 to the spouse , 2/3 to the children.

67. c. Initially “A,” “B” and “C” hold 1/3 interests as Joint Tenants. After “B” sells to “W,” “A” and “C” still hold 1/3 interestsas Joint Tenants between each other, as the four unities of Joint Tenancy still exist between them and “W” becomesa Tenant in Common between themselves and “A” and “C.” (as “W” took title on a different deed at a different time).When “A” dies their 1/3 interest goes to the surviving Joint Tenant “C” who now holds a 2/3 interest. Therefore “W”holds a 1/3 interest and “C” holds a 2/3 interest, and as the interests are unequal, and taken on different deeds atdifferent dates they would hold title between each other as TENANTS IN COMMON.

68. c. Due to the fact that a corporation is a LEGAL PERSON and not a real or natural person (living/breathing) it CANNOTDIE. As Joint Tenancy ownership carries with it the “Right of Survivorship,” there could be no survivor if one cannotdie. Corporations also would not be capable of holding title as Community Property.

69. d. The brother and sister originally shared a ½ interest each as Joint Tenants. The sister deeded half of her ½ interest(a ¼ interest in the property) to her husband. Therefore she retained a ¼ interest in the property. The division of theinterests after this took place would be: The Brother ½ interest, the sister ¼ interest and the sister’s husband ¼interest all holding title as TENANTS IN COMMON. The Tenancy in Common was created due to the fact that allparties did not appear on the SAME DEED, drawn on the SAME DATE and they do not all hold EQUAL INTERESTS.(a) Is incorrect as they all do not hold equal interests and therefore a Joint Tenancy could not exist between ALLtenants. (b) Is incorrect as a Joint Tenancy is a co-tenancy, which means there must be at least two persons holding

as Joint Tenants in order for it to exist. (c) Is incorrect as this is not an example of a PARTITION ACTION (a courtaction instituted to sever the tenancy of disputing co-tenants).

70. a. Equal rights of POSSESSION is necessary in a Tenancy in Common. However (b) EQUAL INTERESTS are notnecessary to create a Tenancy in Common, nor is (c) Taking title at the same time (UNITY OF TIME) nor (d) Beingshown on the same document (UNITY OF TITLE).

71. d. All are considered MECHANICS for the purpose of being able to file a MECHANIC’S LIEN.

72. c. The type of lien created would be a Mechanic’s Lien, which is also considered to be a “SPECIFIC LIEN.”


8/25

8

73. c. Obviously the lenders feel it is more important to wait until all lien rights of mechanics have passed on the projectprior to releasing the final payment. (a), (b) and (d) would still allow the mechanics time to file their liens as they have30 DAYS FOR SUBCONTRACTORS and 60 DAYS FOR GENERAL CONTRACTORS if a NOTICE OFCOMPLETION were filed and 90 DAYS for ALL CONTRACTORS AND SUPPLY PERSONS if no Notice ofCompletion were filed.

74. b. A MECHANIC’S LIEN would be filed, which is a type of “SPECIFIC LIEN” not a General Lien.

75. d. ATTACHMENT LIEN – Holds property for a pending judgment.LIS PENDENS - Is recorded to notify the public of a pending litigation against the property regarding an ownership

interest.SUPEONA - Calls for an appearance at a court hearing

All of the above occur before a final judgment is rendered.

76. a. ABSTRACTS OF JUDGMENT rendered in personal injury suits give the Plaintiff a “GENERAL LIEN” not a specif iclien. Obviously the lien created would be an “INVOLUNTARY LIEN” not a voluntary lien.

77. b. Statement of Fact. A CERTIFICATE OF SALE is issued to the highest bidder at a Mortgage Foreclosure. A WRITOF POSSESSION is issued to the landlord after successfully obtaining judgment through an Unlawful Detainer Action. A TRUSTEE’S SALE is an out-of-court foreclosure.

78. c. The least likely action would be to simply forget the whole thing, which would describe a “UNILATERALRESCISSION.” The most likely actions would be through court for relief, which would require a suit for either“Specific Performance” or for “Actual Damages.”

79. b. A property when subjected to an easement (SERVIENT TENEMENT) is ENCUMBERED. The easement is APPURTENANT to the property that benefits from the use of the easement (DOMINENT TENEMENT).EASEMENTS are not liens (encumbered for money) nor are they considered to be ENCROACHMENTS (a trespasson the property of another).

80. b. (a), (c) and (d) are all correct statements regarding easements. The question is looking for the incorrect answer. (b)is incorrect as parcels do not necessarily have to actually touch or adjoin to create an APPURTENANT EAS EMENT.

As shown in this example “A” has An APPURTENANT EASEMENT acrossParcels “B” and “C.” However, parcel “A”does not touch nor adjoin parcel “C”

Street

81. b. An easement is an ENCUMBRANCE. But because it was not created to lien real property do to the owing of money,it is considered a NON-MONEY ENCUMBRANCE. (a), (c) and (d) are all MONEY ENCUMBRANCES known asLIENS.

82. a. A LICENSE grants PERMISSION to the licensee to do certain things. As an example; A License grants permission tocross another’s land. A license that grants permissive use may be REVOKED by the person granting it. AnEASEMENT grants a PERMENENT RIGHT to use or cross the land of another and is IRREVOCABLE. (b), (c) and(d) are incorrect, as if permission had been granted, then ADVERSE POSSESSION could not be acquired. One ofthe elements to acquire Adverse Possession is “Hostile to the true owner.” There is no hostility if permission hasbeen granted.

83. b. PRESCRIPTION relates to an EASEMENT (a real property right) acquired through court action providing for the

RIGHT TO USE the land of another, not to OWN the land of another. Because there is no actual ownership of theland itself and there is no agreement to acquire future ownership, there would be no LEGAL TITLE and noEQUITABLE TITLE (contract of sale). Remember that PRESCRIPTION provides one with a RIGHT and not anESTATE in real property and as a result there would be no GRANT.

84. c. An EASEMENT is not an ESTATE in real property, but a real property RIGHT. Answers (a), (b) and (d) are allFREEHOLD and LESS-THAN-FREEHOLD ESTATES in real property.

85. c. It is not necessary that parcels adjoin to create an APPURTENANT EASEMENT. (a), (b) and (d) are all truestatements. See explanation to question 80.

A

C

BEasement


9/25

9

86. a. An EASEMENT (created by other than prescription) is an APPURTENANT RIGHT, which exists indefinitely until theDOMINENT TENEMENT terminates it. Once an easement is created it is not necessary that it be specificallymentioned in the deed that is used to transfer the title. A deed by its nature conveys all real property within theboundaries of the described parcel, which includes the REAL PROPERTY, ALL IMPROVEMENTS THEREON and ALL APPURTENANCES THERETO. The easement being an APPURTENANCE automatically transfers even thoughit is not specifically mentioned in the deed. Therefore, in the situation presented in this problem, “A” was theDOMINENT TENEMENT and when “C” purchases “A,” “C” takes over the same DOMINENT position that “A” heldand “B” remains SERVIENT as before.

87. b. In regards to RESTRICTIONS relating to real property…The RULE is: WHEN IN CONFLICT, THE MOST

STRINGENT RESTRICTION PREVAILS! Therefore the DEED RESTRICTION, which prohibited the use would bethe most stringent.

88. a. This is the correct answer. Age 65 or older and disabled persons are granted a $100,000 homestead exemption.

89. c. Either spouse may file a homestead on a property as a MARRIED PERSON and it is not essential that they havetheir spouses CONSENT nor SIGNATURE to do so. If there were an existing homestead that had already been filedon another property, then answer ( c) would have been incorrect.

90. c. The value of the property being homesteaded is only necessary when establishing the value at the time a foreclosureis pending by an unpaid creditor. There is no need to establish this in advance, as it makes no difference what theproperty is worth when it is homesteaded. It is important to establish when a creditor is asking for an execution saleof the property to determine whether or not there is sufficient equity to force the sale.

91. b. The first five words are the key to this answer…”A man sells his home” Sale of a property automatically terminates a

homestead created on that property. (a) would be incorrect as you can have MORE THAN ONE HOMESTEAD, butONLY ONE AT A TIME. (c) is incorrect as the first homestead automatically terminated, which allowed for recordingon the new property to be valid. (d) is incorrect as the old homestead would not have to be formerly cleared by arecorded DECLARATION OF ABANDONMENT as the recording of the deed in the name of the new owner or otherevidence of title transfer would AUTOMATICALLY TERMINATE the first homestead.

92. b. It is not necessary to have your spouse’s signature nor consent to record a valid homestead as a married person.Therefore, the homestead is VALID. However a homestead, although valid, will not protect a property against aSECURED LIEN such as a MECHANIC’S LIEN.

93. d. Only one property at a time can be homesteaded! A prior homestead would invalidate a second one recorded,unless the first one should be released prior through a DECLARATION OF ABANDONMENT. Moving from theproperty does not terminate a homestead as long as you have the intention of returning to the property to use it sometime in the future. Destruction of the improvements also does not terminate a homestead. However, selling (transferof ownership) DOES TERMINATE THE HOMESTEAD.

94. a. Once a property has a valid homestead properly recorded in the county where the property is located, the claimantmay move from the premises and as long as they have the intention of returning in the future the homestead wouldremain effective.

95. c. ALL OFFERS must be SUBMITTED to the agent’s principal (Seller) IMMEDIATELY. The Seller must also be advisedif other offers have been made or are being drawn-up. The agent MUST DISCLOSE ALL INFORMATION regardingthe transaction to their principal.

96. c. An agent must disclose all information, other than information that would be considered “discriminatory” in nature (aviolation of the law) to the principal. The agent is also charged with a responsibility to disclose to third parties (on theexam the buyer or prospective buyers) ALL KNOWN MATERIAL FACTS regarding the property being purchased.

97. c. The authority from the owner that allows the broker to accept a deposit simply establishes if the owner is willing to

take the liability for the money taken. If the seller authorizes the acceptance of a deposit the deposit is then tied tothe contract performance. At that point the money cannot be released without the mutual consent of both the buyerand the seller. Therefore if the broker receives the authority to accept the deposit by the seller, when taking thedeposit, the broker would be holding the buyer’s money under the authority of the seller. As such, the broker and theseller would have the liability if anything should happen to the money. If the authority is not granted to the broker toaccept a deposit, then the broker may still take a deposit, but would then be holding the buyer’s money for and onbehalf of the buyer and the seller would then have no liability for any mishandling of those funds by the broker.


10/25

10

98. c. An agent is not liable for representations accepted from the principal in good faith and passed on to the buyer as longas the defect is not one that would be obvious to the broker upon making a due diligent “visual inspection” of theprincipal’s property.

99. d. State of Fact. (c) is incorrect as an agent must disclose all information that would affect the buyer’s decision topurchase, even if not questioned or asked about that information by the buyer. (a) is a good answer, but not ascomplete as answer (d).

100. c. Due to the fact that the broker and the seller were not aware of the encroachment, there would be no apparent casefor non-disclosure or misrepresentat ion. The buyer should sue the neighbor who is currently trespassing on their

property (encroaching).

101. c. The action of employing an agent creates an “Agency Relationship.” Within the agency relationship that has beencreated the agent owes the principal a FIDUCIARY RESPONSIBILITY (Trust). Therefore, both relationships arecreated as a result of this employment agreement.

102. d. This action would be considered a ETHICAL VIOLATION by the broker in accordance with the Department of RealEstate and the Nat ional Association of Realtors. It would also be a violation of the agent’s Fiduciary Responsibilitiesin accordance with the Laws of Agency.

103. c. Should the buyer who is a party to an accepted contract to purchase, which was presented through a broker,DEFAULT on their obligation to carry-out the purchas e, then in accordance with the stated LISING AGREEMENT thebroker would not be entitled to a commission. Generally it is stated in the Deposit Receipt that in the event of a buyerdefault that “The broker would be entitled to half of any forfeited deposit or damages received by the seller, but not toexceed the amount of the commission contracted for. However, it stated that this agreement had no such stipulation.

104. c. The broker is acting as an agent of the seller, and as regards the deposit could not release it without the mutualconsent of the buyer and seller. As a result of the buyer and seller mutually agreeing to RESCIND THE CONTRACT(return it to the point that the contract never existed), the broker would have to return the deposit in full back to thebuyer. However, the broker would still be entitled to the commission as the broker had still lived-up to the terms ofthe agreement with the seller and had procured a “Ready, Willing and Able Buyer,” and after a binding agreementwas made, acted voluntarily to released the buyer from that agreement. (a) is incorrect as the buyer did not breach(there was a mutual rescission) and therefore there would be no deposit forfeiture to be split. (b) is incorrect as thedeposit does not belong to the broker, it was the buyer’s money and as a result must have been returned to thebuyer. (d) is incorrect for the same reason as (b).

105. a. Both the broker and the owner would be liable due to the lack of disclosure of material facts to the buyer. The lawregarding “Caveat Emptor” (Let the Buyer Beware) where the seller would not be liable for undisclosed defects if theproperty were sold in an “AS IS” condition is no longer legally applicable in California. Even if the property is todaysold in an “AS IS” condition, the seller or their agent must disclose all known “material facts .” If not, they are heldliable for those not disclosed.

106. c. Although an offer is signed by both the buyer and seller, the acceptance of the offer MUST BE COMMUNICATEDback to the party that made the offer in order to create a “Binding Agreement.” In this question it would have to becommunicated to the buyer. Because the buyer died prior to the communication, the contract was VOID as it lackedthe essential of “Mutual Consent.” Should the acceptance have been communicated in the stipulated manner andthen the buyer had died, the contract would have been binding and the buyer’s estate could be petitioned requestingfull performance of the contract.

107. c. The buyer has the legal right to withdraw an offer ANYTIME BEFORE THE ACCEPTANCE IS MADE ANDCOMMUNICATED to them. Although the contract stated the buyer’s offer was IRREVOCABLE FOR 5 DAYS, whichwould lead you to believe that they could not withdraw for the 5 day period, the 5 day clause means “nothing (isunenforceable) due to the fact that a contract where there is an agreement to hold an offer open is known as anOPTION. The 5-day right of the seller to be able to accept the buyer’s offer would then constitute an “Option.” The

key to this answer is that in order for an option right to be binding and enforceable it is required that aCONSIDERATION be paid for that right and must have passed to the OPTIONOR, which in this question was thebuyer. As the seller did not pay the buyer to hold the offer open, there was no option right created and therefore thebuyer had the right to withdraw anytime before the acceptance had been made and properly communicated to them.

108. d. Conditions or contingencies should be as complete as possible and should have time limitations for performance.Without a limitation the seller may have to wait an undetermined period of time, which could be short or unreasonablylong. With the 20-Day stipulation, the seller will be released from their obligation to sell and would have the options ofextending or granting additional time to the buyers Mr. and Mrs. “A” or to find another buyer. (a), (b) and (c) are notsatisfactory as they do not show a time limitation.


11/25


12/25

12

NOTE: Occasionally on the exam a Deposit Receipt is shown and under the acceptance clause, the clause indicating “Thebroker would be entitled to half of the forfeited deposit,” is not shown. In this event the answer to the question wouldbe broker would then receive “Nothing!” The Deposit Receipt is an agreement between the buyer and the seller.Should there be a forfeiture of the deposit, the seller only would be entitled to it unless there were a stipulation that itwould be split with the broker (which there would not be in this instance).

Regarding the LISTING AGREEMENT (Employment Contract). In neither situation above would it have entitled thebroker to any commission if the buyer had defaulted, as the broker would not have procured a READY, WILLING AND ABLE BUYER.

118. b. EXCLUSIVE RIGHT TO SELL LISTING specify that the owner agrees not to REVOKE (withdraw). However, if owner

does, which is an action they may elect to take, it would be considered a BREACH OF CONTRACT. The broker’srecourses would then be…UNITATERAL RESCISSION – Releasing them with no liability. SUIT FOR DAMAGES –Legal action requesting reimbursement for any costs sustained in performance of their duties or SPECIFICPERFORMANCE. (a) is incorrect as liability for damages is a possible remedy. (c) is incorrect as anyone canbreach a contract. (d) is incorrect as even though it specifies it is Irrevocable, that is only a promise not to revoke, theowner simply “Breaks their promise (revokes).”

119. d. “ALL OFFERS MUST BE SUBMITTD TO THE PRINCIPAL!” It would be up to the owner to accept or reject this offer.If owner rejects the broker would not be entitled to the commission, as it was not an offer under the “Exact terms ofthe listing agreement.” Should the owner accept the offer, and the buyer not default, the broker would be entitled tothe commission.

REGARDING THE LIABILITY FOR THE DEPOSITShould the offer be rejected, only the broker would be responsible for any damages arising from the mishandling ofthe deposit, as the broker would have been acting outside of the authority granted them by the owner under the terms

of the Listing Agreement. However, should the owner accept the offer, the acceptance is viewed a ratification of theowner by allowing the acceptance of the deposit in their behalf and in the event of any mishandling of the depositBOTH the OWNER and the BROKER could be held liable.

120. b. A “BILATERAL AGREEMENT” is one in which a “Promise or promises are made in exchange for another person’spromise or promises.” In the Listing Agreement an owner promise s to pay a commission….the broker doesn’t haveto promise to make a diligent effort to procure a purchaser, but if they do, it creates a promise now also made by thebroker, which would then create a BILATERAL AGREEMENT.

121. d. On longer term leases the agent is entitled to their compensation on the total or full amount of the lease, but thecompensation is usually paid each month over the life of the lease on shorter term agreements and for the first fewyears on longer term leases.

122. b. The Statute of Frauds requires that any agreement to "Purchase," "Sell," "Transfer" or Sell real property MUST BE INWRITING to be ENFORCEABLE. Leases for 1-YEAR OR LESS CAN BE VERBAL (Oral). Therefore according to

the Statute of Frauds the agent’s authority can equally be verbal/oral. The authority to solicit a purchaser for personalproperty may be verbal/oral.

123. c. Both the Principals and Agent’s name must appear on an agreement signed under the provisions of a valid POWEROF ATTORNEY (an agreement authorizing another person to sign or act in one’s place). The Principal’s name wouldbe written-in and the ATTORNEY-IN-FACT’S name (Agent named by the Principal to act as them) would be signed(signature necessary).

124. b. One who receives a written authority under the instrument known as a Power of Attorney is identified as an“ATTORNEY IN FACT.”

125. d. (Update) Answer (d) should be changed to read: Both (a) and (b) are correct. (c) has been changed by a recent law. A homesteaded property may now be transferred through use of a Power of Attorney, therefore (c) is now anincorrect statement instead of being correct.

126. a. A smaller or lower loan amount compared to the appraised value would indicate a larger down payment would beneeded, thus a higher or larger equity ! This also means a lesser degree of risk, a lower interest rate and a lower orsmaller loan being made.

127. b. The terms “Construction Loan,” “Interim Loan” and “Short-term Loan” all have the same meaning. The terms “Long-Term Loan” and “Take-out Loan” have the same meanings. Words with the same meaning are described as beingSynonymous (meaning the same).

128. c. Terms used in CONJUNCTION (used together) with each other would be INTERIM (Short-Term Loan) and TAKE-OUT LOAN (Long-Term Loan).


13/25

13

129. d. LOAN POINTS were originally created to allow for the equalizing of the return to the lenders on Government-BackedLoans where the interest rates were Fixed/Set by government agencies and which were slow to change, whereasConventional rates, which were Non-fixed rates could change daily, if necessary, to reflect changes in the moneymarkets. To allow for the adjustment “Loan Points” (an additional charge or cost) were created so that lenders couldcharge this additional fee (points) and a lthough the government-backed interest rates were lower, the lenders coulduse this additional charge to make-up the difference in the returns between the Conventional Loans and theGovernment-Backed Loans.

130. b. A Statement of Fact. The vast majority of loans made by institutional lenders are on a SIMPLE INTEREST basis(interest paid on the declining loan balance).

131. b. The SECONDARY MORTGAGE (or Money Market) is described as “Where loans are bought and sold by lenders(Mortgagees)." Answer (a) leads you to believe they are discussing second priority mortgage loans. In answer (c)you would have to recognize that a “Mortgagor” is a borrower. Answer (d) is the definition of the Primary Money orPrimary Mortgage Market ( the marketplace where loans are created/originated).

132. b. A “SEASONED LOAN” is defined as “A loan showing a past record of good or prompt payments.”

133. b. This is a clear example of a DISCOUNTED NOTE (a note sold for less than the amount currently owed).LEVERAGING is the act of “Borrowing other peoples money (OPM) to finance the purchase of property.” The MOREBORROWERED the GREATER THE LEVERAGE. Selling a note for less than owed (discounted note) is not Illegal,nor is it Usurious (charging more than the current legal rate of interest as there is no mention of the rate beingchanged.

134. d. (d) is correct as answers (a), (b) and (c) all relate to the alternatives the buyer’s would have if they should not acquire

the 100% financing. The key to this problem is the CONTINGENCY CLAUSE that allows the buyer’s to be releasedfrom the contractual obligations if the contingency is not met within the time specified in the agreement. The questionshowed no time limit. However, the contract was based on the 100% financing, which could not be obtained by thebuyers.

135. d. A “LOAN-TO-VALUE RATIO” describes the “Maximum Loan Amount” a lender will loan based on a percentage of thelender’s Appraised Value of the property. For example: Buyer has contracted to purchase a property for $50,000 andis looking to acquire 90% financing, meaning they are looking for a $45,000 loan. The lender however, arrives at anappraised value of $40,000 (also known as the loan value). Therefore the lender will loan, not 90% of the $50,000price the borrower is willing to pay, but 90% of the $40,000 ($36,000), the value the lender feels the property is worth.

136. c. Buyers and borrowers almost without exception acquire for their own financial protection a CLTA Standard CoveragePolicy of Title Insurance. This provides them the protection normally needed and is less costly than CLTA Extendedor ALTA Lenders Policy or Homeowner’s Policy. CLTA Extended Coverage is used generally for specialcircumstances and ALTA Homeowners is basically the same as CLTA Extended. ALTA is used where a lender isinvolved in the purchase as a result of loaning money for the purchase and wants coverage for their loan in whichcase ALTA Lender’s Policy would provide them with the most complete coverage.

137. d. An “OPEN-END LOAN” is one in which the lender can under the terms of the note advance additional money at alater date. Without this clause, if the borrower wanted to borrower additional money, the borrower would have to pay-off the current loan and the lender would have to re-write a new loan (refinance). The benefit of advancing additionalsums rather than a pay-off and writing a new loan is that on the advance the lender’s lien priority remains in the sameposition. On a re-write the old loan is paid-off and the lien is released (cleared from the record) and a new loan isrecorded. If any additional loans existed on the property, then the re-write would become junior (of a lesser pr iority)to them and the lender would have lost the priority they previously had.

EXAMPLE: Borrower wants to borrower an additional $10,000

CURRENT FINANCING If OPEN-END LOAN If REFINANCED (Re-write)

Deed of Reconveyance clearing $40,000Loan

1ST

Priority Loan $40,000 $50,000 (after $10,000 advance) $ 5,000 (junior loan moves into 1st position)

2nd

Priority Loan $ 5,000 $ 5,000 $50,000 (being a new loan takes 2nd

position)

An “Open-End Loan” is a benefit to the borrower by making it easier to acquire a dditional money. In most cases thelender will allow the borrower to borrow up to the original amount of the loan.

138. b. Transferring ownership of a "Negotiable Instrument" to a lender to be held as security for a loan, describes aPLEDGE!


14/25

14

139. a. A note is not security for a mortgage. A mortgage secures payment on the note. A “STRAIGHT NOTE” identifies anote where the terms require payments of interest only, not principal only.

140. a. An ALIENATION CLAUSE (legal name of the clause) commonly known as a "Due on Sale Clause (not the legalname) has no effect on the negotiability of the note. Whoever holds the note has the right to collect under the termsof the note. The Alienation Clause calls the note due and payable on the transfer or conveyance of the title(ownership) of the property. Should this clause exist in the note, then the borrower would have to pay the lender theentire balance due on the note should they sell the property on which the loan is held. (c) is incorrect as an Alienation Clause is beneficial to the holder of the note, in that they would know the note would be due and payable ifthe borrower named in the note transferred the title It would be a disadvantage to the borrower as the property could

not be sold by allowing the new purchaser to assume the existing loan balance. (d) is incorrect as the note becomesunassumable, NOT readily assumable.

141. d. All three (a), (b) and (c) are all different names to describe the same financing technique.

EXAMPLE OF NORMAL METHOD OF SELLING AND FINANCINGSelling Price $70,000Buyer Assumes Existing First Loan $40,000 @ 8% InterestSeller carries back a Second Loan $30,000 @ 12% Interest

EXAMPLE OF SAME SALE WITH A WRAPAROUNDSelling Price $70,000Seller carries a Second Loan for full price $70,000 @ 12%Seller keeps existing first loan of $40,000 in their name (buyer does not assume this loan)

In the second example the seller has the buyer owe them the entire purchase price of $70,000, however the sellerkeeps the note and the lien for the $40,000 in their name still on the public record which continues to remain a lien

against the property. After the sale, the seller then records the $70,000 carry-back loan given them by the buyer,which now takes a second position on the public record behind the $40,000 existing loan. As a result the sellercontinues to make the payments on the $40,000 loan at 8% interest, which costs them $3,200 in interest, yet they arecharging the buyer 12% interest on the additional $40,000 they have carried-back. As result of carrying-back$70,000 rather than $30,000, this generates for the seller 12% interest on the additional $40,000 amount which is$4,800….If the seller is receiving $4,800 in interest from the buyer ($40,000@12%) and paying only $3,200 for theuse of the money ($40,000@8%), the seller then earns the difference, which in this example is $1,600.

142. d. The "Request for Notice of Default" allows the holder of a JUNIOR LIEN (any lien other than a first lien) to be notifiedin the event a lien holder with a higher priority files a default notice. This allows junior lien holders to protectthemselves by bringing the defaulted liens current through paying them personally and therefore stops the senior lienholder(s) from foreclosing. The junior lien holder then adds these amounts they've paid to bring the senior loanscurrent to amount the borrower owes them, and if the borrower cannot bring that total amount current, the junior lienholder may file their own Notice of Default and proceed with a foreclosure. (explanation to the answer continued onthe next page)

(a) is incorrect as a promissory note itself cannot be recorded on the public record unless it is recorded along with arecorded trust deed or mortgage that secures the payment on the note (as only documents that affect the title orownership of real property may be accepted for recording). (b) is incorrect as the trust deed only creates a lien, butdoes not allow for notification in case of default automatically. (c) is incorrect as recording of both the trust deed andthe note does nothing more than create a lien.

143. b. A complete Deed of Trust (a blank master copy) usually two pages or more, with the back page(s) containing thelegal clauses and the front page with the agreement is recorded on the public record in selected counties. This isknown as a FICTITIOUS DEED OF TRUST. To simplify the recording process…A SHORT FORM DEED OF TRUSTis used. The Short Form contains all the pages, but only the front page (naming the parties) is then recorded tocreate the lien and it refers to where the FICTITIOUS DEED OF TRUST can be found which contains the remainingstandard clauses.

144. c. The property held as collateral under the terms of the deed of trust secures the promissory note. A trust deed byitself has no value. It is the promissory note that is the negotiable instrument. A note cannot be recorded by itself,however a t rust deed can be recorded, which perfects the lien. If the trust deed is recorded the note may be recordedalong with it as the trust deed secures the payment on the note.

145. b. Lee will pay-off the existing loan, which is most likely secured by a deed of trust. Upon payment in full, a DEED OFRECONVEYANCE would be issued to Lee, which when recorded would release the lien. If Gary paid all cash therewould be no trust deed as there would be no lien created. A BILL OF SALE is used to evidence the conveyance ofpersonal property, therefore would not be involved in this situation.

146. b. The MORTGAGOR (buyer/borrower) would sign the NOTE (evidence of the debt) and MORTGAGE (instrumentcreating the lien) in favor of the lender. (a) The seller/owner/grantor SELLS A PROPERTY. (c) The TRUSTEE holdsthe title in trust, and (d) The MORTGAGEE (lender) takes the mortgage and holds the note.

143ab.


15/25

15

147. c. In an inflationary economy the value of residential real property tends to increase. If the value increases the

TURSTOR (owner/borrower) benefits from the increased equity growth. The BENEFICIARY (Lender) actually lossesas they would probably be carrying a fixed interest rate note at a low interest rate (they are entitled to be paid on thenote, but, not being the owner of the property, do not benefit from the equity growth). The TRUSTEE (party to whomthe trustor has conveyed the legal title and power of sale) who acts for and on behalf of the lender, has no interest inthe property whatsoever and therefore would have no equity interest

148. b. A trust deed's total purpose is to secure the payment on the note. It is used to place real property as security in theevent of nonpayment on the note. The Note is the "incident" of the debt. A trust deed is not held by the Trustor

(borrower) it is given by the Trustor and held by the lender (Beneficiary).

149. d. The MORTGAGOR is the borrower. The BORROWER signs the note. The MORTGAGEE is the LENDER. Thelender as a result of lending the money, receives and holds the note.

150. b. All written instruments are personal property. Should they relate to an interest in real property they would be alsoknown as CHATTELS REAL (instruments relating to title or ownership in real property). Although a Mortgage wouldbe known as a Chattel Real not all lien instruments would be. As an example: A Security Agreement holds onlypersonal property as security for a loan. Mortgages do not create an estate in real property, they create liens only.

151. c. This is the incorrect answer as an owner carried-back loan is a PURCHASE MONEY LOAN (a loan created for thepurpose of purchasing real property). The laws specify that there shall be no DEFICIENCY JUDGMENTS (a judgment for the difference if a property when foreclosed brings in less than what is owed the lender at the ti me) onPURCHASE MONEY LOANS. (a), (b) and (d) are all correct statements. Foreclosing out of court through aTrustee's Sale also precludes the benefit of acquiring a Deficiency Judgment, as there are also no Deficiency

Judgments if foreclosing out of court. However, the Beneficiary may decide not to have the Trustee take action in theevent of a default, and may elect to bring their action instead through the court (a judicial foreclosure). In the event itis brought through court the borrower is allowed the ONE-YEAR EQUITY OF REDEMPTION PERIOD in which to payback the successful bidder at the foreclosure sale. In this instance as this is a Purchase Money Loan (no deficiency judgment allowed) this alternative of filing a court action would sti ll not allow the lender the remedy of a "Deficiency."

152. b. The TRUSTEE receives from the Trustor the BARE/NAKED TITLE, which creates the lien when the Deed of Trust isrecorded on the public record. When the loan is paid-in-full , the Trustee RECONVEYS the title back to the Trustor(borrower) through the issuance and subsequent recording of the Deed of Reconveyance. If instead of repaymentthere was a default on the loan, then after the publication period the Trustee would then acting under the "Power ofSale" Clause convey the title to the successful bidder using a TRUSTEE'S DEED (deed issued by a Trustee, from aresulting Trustee's Sale).

153. a. Smith's selling of the note secured by the mortgage to Jones makes Jones the owner of the note with all rightsgranted under the terms of the note and mortgage. The "QUALIFIED ENFORSEMENT (without recourse)" by Smithsimply means if a foreclosure should take place and Jones had not received the full loan balance, that Smith wouldnot be responsible for any loss.

THE OBLIGATION OF THE BORROWER IS TO JONES (the new owner of the note and mortgage). In the event thenote is defaulted on, which is secured by the mortgage, the ultimate recourse is FORECLOSURE under the terms ofthe mortgage contract JONES WOULD HAVE TO FORECLOSE TO COLLECT THE OUTSTANDING BALANCE.

(a) is incorrect due to the "Qualified Endorsement."(b) Is incorrect as the significance of a purchase money mortgage is that it does not in any way affect the court

foreclosure sale. It would prohibit the possibility of the holder of the note and mortgage from receiving a"Deficiency Judgment" should the sale of the property not bring in enough to satisfy the balance due on the note.

(c) Is incorrect as Smith has no rights in the property once the note and mortgage were sold to Jones.

154. a. "SUBJECT TO: means that rather than assuming a loan by signing papers agreeing to be responsible for thepayments, the property is bought and the deed received (now owning the property), however the loan is still in theprevious owners name with a Mortgage holding the property as security for the loan in the event of non-payment on

the note. As the loan has not been ASSUMED the property has been bought SUBJECT TO THE LOANS. Shouldthe payments not be made and the property subsequently be foreclosed on, and should it be determined that thelender is entitled to a DEFICIENCY JUDGMENT -(if selling for less that owed), the judgment could only be renderedagainst the maker of the note. Therefore because the buyer had not ASSUMED the liability (assumed the loan), theywould not be held responsible for the amount due on the judgment.

155. a The PREPAYMENT PENALTY BENEFITS THE LENDER (the beneficiary). Should the BORROWER (trustor) pay-offthe note in advance of the due date, the lender would receive an additional amount of cash over and above thebalance due on the loan as a penalty charge to the borrower. This clause also benefits the lender in the event theysell the note, in that the note is more desirable (more saleable) because of this clause.


16/25

16

156. b. FEDERALLY CHARTERED Savings and Loans are required to provide their depositors with deposit insurance(formerly FSLIC, not FDIC). State chartered Savings and Loan Associations are not required to acquire thisinsurance, however most do.

157. d. CONVENTIONAL and FHA Lenders may be paid their loan fees from anyone who agrees to pay for them. However,FHA being less risky would have less points charged. VA (GI Loan) limits the borrower to paying a maximum of a"One Point" Loan Origination Fee and a 3% Funding Fee. CAL-VET has no LOAN POINTS, although a fee ischarged for processing the loan.

158. d. (a), (b) and (c) are all important factors a lender considers when granting a loan approval.

159. b. PARTNERS have personal liability in the partnership for the debts relating to the business incurred by themselvesand or other partners. (a) only corporate assets are held accountable and (c) Limited Partners are limited in liabilityto their investment only. The GENERAL PARTNER(S) hold all of the personal liabilities for the debts of the LimitedPartnership.

160. a. The vast majority of money loaned-out through banks and savings and loan associations is the depositor's moneyplaced with their institutions. Therefore the source of the money is individual's savings.

161. a. The vast majority of JUNIOR MONEY (loans other than first loans) is procured from PRIVATE LENDERS andINVESTORS generally through the services of loan brokers (mortgage companies). (b) and (c) are both incorrect asbanks and savings and loan associations generally make first priority loans and only a very small amount of juniorloans. (d) is incorrect as credit unions can make both first and junior loans, but are not currently a major source ofthese funds.

162. b. An INSURANCE COMPANY is the only organization considered to be an INSTITUTIONAL LENDER of the fourchoices shown. PENSION FUNDS, UNIVERSITIES and MORTGAGE COMPANIES are classified as NON-INSTITUTIONAL LENDERS.

163. c. Insurance companies prefer to make large loans on commercial and/or industrial complexes. Banks, savings andloan associations and mortgage companies are the more common sources of home loans.

164. d. MORTGAGE COMPANIES are a service oriented business, which negotiates loans for client borrowers by solic itingfunds for these loans from institutional or non-institutional lending sources. The loans that are made are most oftenthose types that are readily saleable in the SECONDARY MORTGAGE MARKET also known as the SECONDARYMONEY MARKET. (a) Banks and savings and loan associations are thrift organizations where people areencouraged to deposit and save their money. (b) Banks generally make quick turnover business and constructionloans. (c) Investment groups generally purchase second or junior loans.

165. a. The MORTGAGE INSURANCE PREMIUM is not a form of life insurance. It is a fund set up with money charged andcollected from the borrower at the time the loan is made and paid to FHA. The money is then used to reimburse thelender in the event the borrower defaults on the loan.

166. b. This is the answer being looked for as neither type of loan allows for a DEFICIENCY JUDGMENT. FHA Insurancecovers losses on those types of loans and almost all conventional loans in California use the Deed of Trust ascollateral and Deeds of Trust do not allow for Deficiency Judgments as they are foreclosed out of court. Therefore,as neither allow for a Deficiency Judgment, the characteristics are the same and not different.

167. b. MORTGAGE INSURANCE PREMIUM (MIP) is paid by the borrower (an expense). The purpose of the insurance isto reimburse the lender for losses in the event the borrower defaults on the loan. This insures the lender against loss.FHA does make a higher loan compared to the appraised value than on conventional financing. One of the purposesof FHA was to create long-term financing. As FHA compared to conventional loans generally has a LOWERINTEREST RATE and a LONGER PAY-OFF TERM, the monthly payments are lower than those on the same amount

of money borrowed through the conventional sources.

168. a. Because of the lower interest rate and the longer loan pay-off term allowed on a GI loan as compared to the usualhigher interest rate and shorter pay-off term on the conventional loan, the GI Loan would have smaller or lowerpayments compared to the conventional loan. (b) is incorrect as VA has a HIGHER Loan-to-value-ratio. (c) isincorrect as conventional loans have a LOWER loan-to-value-ratio, and (d) is incorrect as conventional loans wouldhave a higher monthly payment.

169. a. Under the regulations of the Department of Veterans Affairs, the lender can loan up to 100% of the CERTIFICATEOF REASONABLE VALUE (CRV). Should the agreed upon purchase price exceed the CRV, then the veteran hasthe option of paying the cash difference and still be able to purchase the property.


17/25

17

170. c. The DEPARTMENT OF VETERAN AFFAIRS is the California State Agency that is in charge of operating the CAL-VET Program. Under this program money is procured through State approved bond issues. This money is thenloaned to qualified California Veterans through the Department of Veterans Affairs. The legal title (the deededinterest) does not pass to the veteran, but to the Department of Veterans Affairs. The Department then createsbetween themselves and the veteran a LAND CONTRACT, which allows the veteran to use the property andguarantees the veteran that the Department will deed it over to them when they pay-back the borrowed money in-full.Therefore the Department of Veterans Affairs (vendor) holds the LEGAL TITLE and the veteran (vendee) holds theEQUITABLE TITLE.

171. b. Relating to the above answer #170, under the terms of the Contract of Sale (land contract) the State retained the

LEGAL TITLE and the veteran (purchaser) acquired the EQUITABLE TITLE.

172. d. In accordance with the CAL-VET Program, the money that is loaned to the veteran is obtained from investors througha bond issue approved by the voters of the State of California. The monies obtained are then lent directly to theCalifornia Veteran (who must qualify for the loan) by the Department of Veterans Affairs. The Department chargesNO LOAN POINTS when making the loan (although they do have associated fees that are charged).

173. d. (a), (b) and (c) are all correct statements regarding the REAL ESTATE SETTLEMENTS PROCEDURE ACT.

174. a. (Update)Under the terms of Article 7 of the Real Estate Law regarding junior loans of less than $20,000 (this is anupdated figure). - The maximum commission allowed on loans with payoff terms of LESS THAN 2 YEARS is 5%….2YEARS, BUT LESS THAN 3 YEARS is 10%…and…3 YEARS OF MORE is 15%. Therefore 15% of $4,000 is $600.

175. d. The one area that is not covered by any policy of title insurance (CLTA Standard, CLTA Extended or ALTA Lendersor owner's policies) are losses sustained as a result of governmental regulations.

176. d. CLTA STANDARD covers: Matters of public record, forgery and incompetency in the chain of title and court defensecosts to defend the title for the coverage provided. EXTENDED COVERAGE would include physical aspects, whichthe standard does not cover. Neither policy will cover losses caused by governmental regulations.

177. c. A contract offer becomes binding and enforceable (if valid), only after the acceptance has been made and thenCOMMUNICATED to the person(s) who made the offer and then by the means specified in the contract agreement or, if no method is specified, then by whatever the usual method or mode would be. The signed acceptance alone isnot enough to bind the parties to the contract agreement.

178. c. VENDOR/VENDEE relationship (parties to a contract of sale) is not related to anything regarding TRUST DEEDS orMORTGAGES as the buyer/borrower actually receives a deeded title to the property and the Trust Deed or Mortgage,whichever happens to be used, simply holds the property as security for repayment of the loan debt. Whereas underthe terms of the CONTRACT OF SALE the VENDEE merely has the right of possession and use of the property (nota deeded ownership), which is more closely related to a LANDLORD/TENANT RELATIONSHIP. NOTE: If thequestion asked what the financial relationship was most closely related to, the answer would be aBORROWER/LENDER Relationship.

179. c. ET UX is a Latin term that means "And Wife." Occasionally the term "ET AL" is also asked which means "AndOthers."

180. a. The first key area in this question is the recording of the Contract of Sale by the Vendee, which if not clearedCLOUDS THE TITLE for later title transfers. The second key area is that the new buyer is to receive a deededinterest, which means that they would want the Contract of Sale interest cleared in order to receive a clear title. Theclearing of the recorded Contract of Sale can be accomplished either in or out of court. The out of court procedure ishaving the Vendee sign a QUIT CLAIM DEED, whereby releasing their contract interest in the property back to theowner (Vendor). Should they not do this, then the court procedure is known as a QUIET TITLE ACTION.

181. c. The answer that best describes the four essentials to create a VALID CONTRACT are more completely described inthis answer. (a) could be eliminated as it states "two parties," but doesn't specify that they must be competent. (b)specifies two competent parties, however there can be more than "two parties." Therefore (c) best describes thisessential specifying COMPETENT PARTIES. (c) is also a better answer than (d), as (d) specified consideration, and(c) specified a LEGAL CONSIDERATION. THE FOUR ESSENTIALS ARE…Mutual Consent, Consideration (legal),Legal Objective and Competent Parties.

182. a. Relating to the four essentials to create a valid contract. We need…Competent Parties (capacity), Mutual Consent,Legal Objective (lawful Object) and the fourth essential is CONSIDERATION, not Proper Writing.

183. d. An agreement to perform an act that cannot be fully performed within one-year from the date of the making of theagreement MUST BE IN WRITING TO BE ENFORCEABLE in a court of law. Stock (inventory), fixtures and goodwillare personal property and a verbal agreement may be used to employ the agent.


18/25

18

184. c. A minor signing a contract has no competency and therefore would make the contract VOID. However, if the

question had shown that it was signed while a minor, but the person is now an adult (18 years of age or older) thecontract would be VOIDABLE. A minor who signed a contract has a right to ratify or void the agreement when theyobtain their majority age of 18 or older.

185. d. The contract would be signed "Mary Johnson" or it could also have read "Mary Johnson, a married woman" or "MaryJohnson as sole and separate property" depending on whether it is being purchased with community funds orseparate money. The indication in the question is that it would be purchased as community property. A spousebuying in their name only indicates (implies) COMMUNITY PROPERTY should there be no indication of separate

property.Either spouse can enter into a binding contractual agreement to purchase real property on behalf of the community(property mutually owned by the husband and wife equally). Should the contract be breached the spouse that signedcould be sued and a judgment rendered against the community funds of both husband and wife.

ADDITIONAL INFORMATION REGARDING COMMUNITY PROPERTY HOLDINGS. A contract could be enteredinto by either spouse to either BUY or LIST for Sale and would be binding as either spouse has co-management andcontrol of the community property. Either signature then could bind the community funds of both in the event of a judgment as result of a breach of contract regarding listing or buying on behalf of the community. The spouse thatsigns could be sued, but the judgment rendered against the entire community funds.

186. c. Violation of a CONDITION carries a REMEDY of REVERSION OF TITLE to the GRANTOR who created thecondition (or their heirs). Answers (a) and (b) both describe the alternate remedies available to property owners in adevelopment where COVENANTS (promises made) have been violated.

187. c. Although the Executor (named in a will) or Administrator (court appointed) would solicit offers, generally through areal estate broker, the offers must be confirmed by the COURT and the COURT would SET THE BROKER'SCOMMISSION.

188. b. As there was no will (intestate) to designate the disposition of the estate, the heirs would be allowed by CaliforniaLaw five-years to make their claims to the property. Should no heirs lay their claims within the designated time, theproperty would eventually ESCHEAT TO THE STATE OF CALIFORNIA.

189. c. ESSENTIALS TO ACQUIRE AN EASEMENT BY PRESCRIPTION: Continual "Use of the Property" for five years,which is: (1) Open and Notorious, (2) Hostile to the true owner (without owner's permission) and (3) Through a Claimof Right or Color of Title. NOTE: If one were attempting to acquire title through ADVERSE POSSESSION payment ofproperty taxes would be additionally needed.

190. a. A judgment by the court which orders the forced sale of property is known as a WRIT OF EXECUTION. (b) An ATTACHMENT holds property for the outcome of a court judgment. (c) An ABSTRACT OF JUDGMENT is a written

decision of the court and when recorded in the county where real property is owned would create a lien. (d) ASHERIFF'S DEED is issued to the holder of a CERTIFICATE OF SALE after the one-year redemption period haspassed under the terms of the mortgage foreclosure proceeding.

191. b. Trust Deeds, contract commission rights and Sales Contracts may have their rights assigned. However, a deed not being a contract, but a conveyance instrument, is used to convey ownership from a Grantor to a Grantee, is usedonce only and therefore cannot be assigned.

192. a. The total purpose of a DEED is to CONVEY OWNERSHIP from the Grantor to the Grantee.

193. a. ACKNOWLEDGEMENT is only necessary if the deed is to be recorded. IN WRITING, SIGNED BY THE GRANTORand a COMPETENT GRANTOR are all essentials elements to create a VALID DEED.

194. b. Recording of a deed simply PRESUMES A DELIVERY has occurred. As example: If a deed were not valid, yetrecorded, on the public record, which is quite possible, it would (d) obviously not make it VALID, although recorded.(c) If the deed was not VALID, then it would not transfer the title. And (a), recording of the deed would do nothingmore than make the document (deed) a matter of public record. Mere recording of the deed could not guarantee thegrantee ownership. A Guarantee of Title or Title Insurance could not provide this type of assurance, as if the titlewere defective they would only financially compensate the policy holder for their losses.

195. b. A FICTITIOUS PERSON by definition "Does Not Exist." (a) Grantor does not have to sign their real name as theycould have a fictitious name…i.e., California School of Real Estate. (c) Misspelling of the grantor's name may cloudthe title regarding future transfer, but the conveyance to the grantee would be considered legally valid. (d) Granteemay be described as Mary and John Johnson's oldest living son (properly described, but not named).

196. a. Also identified as a "Land Patent, a "Sovereign Patent," an "Original Patent" or a "Government Patent."


19/25

19

197. a. Even if all requirements of creating a valid deed are met, the act that actually conveys the title is the DELIEVERY OFTHE DEED. Recording only gives protection against conflicting claims of deeded ownership's as "FIRST TORECORD IS FIRST IN RIGHT." The issuance of a TITLE POLICY cannot actually guarantee the title or assure theconveyance is valid, it simply agrees to pay you the losses suffered if the title is not good. A buyer in possessionwould be incidental if the buyer did not have a properly delivered deed.

198. b. A 'QUIT CLAIM DEED" warrants NOTHING! A Quit Claim Deed is used to transfer, convey, give-up, release andpass-on to another person or entity any right(s) or interest(s) held by the person signing the Quit Claim Deed. It doesnot warrant that they even have any interest or rights, only that if they do they are giving them up to the personnamed in the deed to receive them. Answer (c) is incorrect as the grantor is only giving up the rights and interests

they hold at the time of signing the Quit Claim Deed. Should they acquire any interests in the property as a result oftheir previous interest in the property at a later date (after acquired title) this would be theirs and not a right passed onthrough the Quit Claim Deed.

199. c. She should have signed the deed as Mary Jones "a married woman" previously known as "Mary Dorr." This wouldhave prevented the clouding of the title for future transfers.

200. a. The GRANTOR would appear before a Notary Public or other duly authorized party and would in their presenceacknowledge (swear to the fact) that the signature that appears on the deed is, in fact, theirs (the grantor's). Theauthorized party would then sign verifying that the grantor is, in fact, the person(s) they acknowledged themselves tobe.

201. d. These are the two implied warranties (legally a part of the deed even though not found printed in the deed itself). (a)appears to be the correct answer, except that it reads there are NO ENCUMBRANCES. The implied warranty is notthere are NO ENCUMBRANCES, it is "NO ENCUMBRANCES OTHER THAN THOSE REVEALED," which means if

there are encumbrances that would have to be revealed.

202. a. (a) is an example of FUNCTIONAL OBSOLESCENCE, (b), ( c ) and (d) all examples of Economic Obsolescence.

203. b. Change of flight patterns are an off-site form of obsolescence. Therefore would relate to "Economic Obsolescence."

204. a. QUANTITY SURVEY is the most detailed and difficult method of determining the cost of replacement. However, ithappens to be also the most accurate.

205. b. All are methods of determining the cost of replacing improvements at today's costs. They all relate to the"Reproduction Approach (Cost Approach)" to appraising real property.

206. b. DEPRECIATION is the most difficult to determine in older properties. Historic costs are not necessary as thereproduction or cost approach determines the cost to reproduce at today's costs, not what it would have cost in thepast to replace. Determining inflation on the land would not relate to this question as it is looking for the cost toreplace the structure. Determining replacement cost would be relatively easy to accomplish. It is determiningdepreciation suffered from the cost new that would pose the major problem.

207. a. A Postal Department, which is government subsidized has a lower risk factor than a hardware store. The LOWERTHE RISK the LESSER THE RETURN EXPECTED. The GREATER THE RISK the HIGHER THE RETURNEXPECTED.

208. d. "VALUE" also means the "WORTH." COST or PRICE identifies the original amount paid. UTILITY is one of the fouressentials that create value (Utility, Scarcity, Demand and Transferability).

209. a. An appraisal is meant to show the maximum or CEILING VALUE of the property being evaluated not the lowest(floor) value. It has nothing to do with other homes in the neighborhood, only the one currently being appraised. Andit only indicates the maximum value of this particular property, not the average price of the other properties in the

neighborhood.

210. d. This principal of appraisal specifies that one should determine how a major improvement if added to an incomeproperty would contribute to its overall value. This obviously should be determined prior to the possible addit ion ofthe improvement.

211. b. Steps (a), (c) and (d) then would follow.

212. c. CASH FLOW is calculated by DEDUCTING payments of "PRINCIPAL AND INTEREST" from the NET INCOME.Depreciation is not considered a cash item and therefore not deducted.

213. b. One of the first steps in the Reproduction (cost) Approach is to determine the current value of the land. The value ofland is most often determined through means of the Market Data (Comparison Approach) approach to appraising.


20/25

20

214. b. ECONOMIC LIFE - The period of time the improvements used for their present use are Cost Productive to the owner.

PHYSICAL LIFE - Ends upon the complete deterioration of the improvements.

215. a. Past performance or experience is least important as we are appraising for the PRESENT WORTH of FUTUREBENEFITS. (b), ( c ) and (d) are all important factors in determining the value of income producing properties.

216. c. Statement of fact. The Income Approach bases the value of income property on what one is willing to pay today toacquire the property's future benefits.

217. b. One can ask as much for rent as they choose, however, you realistically can only get what the market is currentlywilling to pay. This can be determined by a Market Comparison of rents from similar properties.

218. a. Loss of the physical life would refer to the total deterioration of the improvements. (b), ( c ) and (d) would all relate toa loss in value (depreciation), which may be great or small. The loss of the physical life would be a complete or totalloss.

219. a. Statement of Fact

220. c. Functional Obsolescence relates to poor or outdated design, style or construction techniques. (a) is an example ofEconomic Obsolescence. (b) an example of Physical Deterioration. (d) an example of Economic Obsolescence.

221. d. Statement of fact. TRANSFERBILITY is the LEAST IMPORTANT of the four characteristics of value. (a) UTILITY isthe MOST IMPORTANT of the four. (c) DEMAND is the characteristic that must be backed or implemented by"Purchasing Power" to be effective.

222. c. ECONOMIC OBSOLESCENCE relating to outside factors causing loss of value, such as a freeway built in back of aresidential property are generally out of the personal control of the owner and would be too costly to remedy(INCURABLE). Both DETERIORATION and FUNCTIONAL OBSOLESCENCE are "Inherent (found within theproperty) and the owner has a substantial amount of control over making changes (if cost effective), which couldremedy the causes of depreciation (CURABLE).

223. c. REHABILITATION means to RESTORE property to its original condition. (d) REPLACEMENT is a term used inappraising, meaning to use today's design, style and techniques. (b) RE-MODEL means to "change the architecturaldesign or style. (a) REPRODUCTION means to "Rebuild" the property exactly AS IT WAS, Not changing the designor style.

224. d. Equity in real property does not earn interest. If the property were sold, then the equity could be taken and placedinto a loan or savings account where it could earn interest. (a) Land does not DEPRECIATE. (b) AMENITIES"increase" the value of the property. (c) APPRECIATION (Unearned Increment) indicates an increase in value.

225. d. A statement of fact. This is the definition of a COMERCIAL ACRE. It simply describes the useable area of astandard acre of land after the square footage for the areas set aside for public use have been deducted (streets,sidewalks, alleyways, etc.). The alternate answers lead you to believe these words relate somehow to commerciallyzoned property.

226. a. INDUSTRIAL PRPERTY is evaluated by either the "Acre" or by the "Square Foot." WATERFORNT andCOMMERCIAL PROPERTY is valued generally on a FRONT FOOT basis and RESIDENTIAL PROPERTY by theSQUARE FOOT.

227. b. ECONOMIC OBSOLESCENCE (Social Obsolescence) - An outside factor causing a property to lose value.

228. c. The (Comparison of) MARKET DATA APPROACH has proven to be the most accurate means of determining thevalue of raw land.

229. d. This is the actual definition of EFFECTIVE (adjusted) GROSS INCOME. Deducting from the "Effective Gross" theallowable expenses in operating the property would give us the NET INCOME (used to determine the appraisedvalue in the Income Approach to appraising). Deducting from the Net Income the Loan Payments (Principal andInterest), we arrive at the CASH FLOW.

230. c. Statement of fact. This is a common technique to determine the capitalization rate that is so important to arriving atan appraised value using the Income Approach to appraising. It is not necessary to understand how it works for theState Examination. Just know that "Band of Investment Theory" is a way of arriving at a capitalization rate.


21/25

21

231. a. (Update) New tax laws eliminate age limitations and exempted larger amounts from taxation when selling a personalresidence. Personal residences may be sold every two-years and may qualify for a $250,000 exemption againstprofits if filing single and $500,000 if filing as married. To qualify, must have resided in the residence for a least 2 ofthe past 5 years prior to the sale.

232. b. Capital improvements added to an income, trade or business property are to be depreciated over the life of theimprovement.

233. a. Capital improvements added to a residence are added to the cost basis. However they may be additionallydepreciated over their life if they are added instead to properties held for the production of income, trade or business.

234. d. (Update) Newest federal tax laws for long-term capital gains benefits requires a minimum holding period of 12months before sale. Maximum tax rate was lowered to 20% of the profit.

235. d. Fruit and nut trees can be depreciated as property held for the production of INCOME , TRADE or BUSINESS.Owner-occupied property as indicated in answers (b) and (c) and raw land answer (a) CANNOT BE DEPRECIATED.

236. a. TAX and TAX ASSESSMENT LIENS take PRIORITY over ALL OTHER LIENS (recorded or unrecorded).

237. c. Statement of fact. Prepaid rents are taxable in the year they are received. However, security deposits would not betaxable.

238. c. A commission paid by the seller is considered for income tax purposes to be an expense of the sale and TAXDEDUCTIBLE.

Example:Sale price $50,000 Net to Seller $47,000Commission -3,000 Cost Basis $30,000Net to Seller $47,000 PROFIT $17,000

(a) and (d) are incorrect as the commission is an expense, NOT AN INCOME. (b) is incorrect as commissions vary inamount based on the mutual agreement of the broker and owner and therefore could not indicate a standard or setdeduction.

239. d. A patio is a capital improvement and for tax purposes on a residence it would be added to the cost basis.DEPRECIATION cannot be taken on a residence and therefore would not be used in adjusting the basis (it would beused if this were an income, trade or business property). PREMIUMS ON INSURANCE are a cost of homeownership and have no effect on the cost basis. INTEREST ON THE LOAN is a tax deduction allowed each year,but has no effect on the basis.

240. d. (Update) A residence is eligible for CAPITAL GAINS treatment. LONG-TERM CAPITAL GAINS are available forinvestment and residential properties held over 12 MONTHS before reselling.

241. a. The MORE YOU EARN, THE MORE YOU PAY. The percentage rates you pay are based on the premise that thegreater your income, the higher the tax bracket you would fall into. Each segment of income shown would fallprogressively into a higher and higher bracket.

242. b. The TAX ASSESSOR BILL shows an assessors number, not a legal description. (a) a PRELIMINARY TITLEREPORT and (c) a TITLE INSURANCE POLICY would both show a legal description. (d) a DEED usually wouldshow a legal description, but it is not necessary.

243. b. BOOT is the word used in exchanges to describe anything received in the exchange other than equity that is tradedin the property. Boot is the taxable part of the exchange.

244. a. BOOT as indicated above is considered the TAXABLE part of the exchange.

245. b. SEPTIC TANKS may be unacceptable for use due to health or safety reasons. Items such as ROADS, SIDEWALKS AND STREET LIGHTS are not as important.

246. b. This is the definition of a CONDOMINIUM. The key wording is "Separate Interest in the Unit" as a COMMUNITY APARTMENT PROJECT allows only for use or occupation of the unit.

247. c. Street, sewers, etc. are under the direct cont

Mini Course Answers

Documents

Transcript of Mini Course Answers