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 mile
b. 1 mile by 1 mile = 1 square mile
d. 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 per
section) = 4 square miles.
a, b, and c (see answers in number 1 for areas)

3.

c.

Process to work-out answer: =-|

MARKET VALUE
LIENS
EQUITY
AMOUNT NEEDED TO BALANCE

$285,000
-0$285,000

$259,000
-0$259,000
$ 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
$1464
COST TO INVESTOR
$1190
PROFIT MADE
$ 274
$274 profit on an $1190 investment = 274/1190
$274 is what percent o f $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 18,800
must represent 94% of the selling price.
Question$18,800 is 94% of what?
Solution$18,800 divided by 94% = $20,000

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 present
owner 6% of $200,000 which is $12,000 ($200,000 x 6% = $12,000). Now knowing the net income is $12,000 and
that the investor wants an 8% return on a property with a $12,000 netyou 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 PRICE
The first loan equals 80% of the purchase price. Therefore the math question here is $12,000 (first loan) equals
80% of what?
($12,000 divided by 80% = $15,000)
PURCHASE PRICE $15,000
FINDING AMOUNT OF THE SECOND LOAN
Purchase Price $15,000
Down payment - 1,000
Balance
$14,000
First Loan
-$12,000
SECOND LOAN $ 2,000

9.

The trick to working out this problem is that when adding the 6 -inch walls to both sides of a building it would increase
the overall width by (2 x 6-inches) 12 inches and the depth by (2 x 6-inches) 12 inches. Thus making the outside
measurements 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

ONE SECTION

3 Acres

5280 Feet (1 Mile)

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:

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

SECTION 6

SECTION 7

20 FEET X 5280 FEET = 105,600 SQUARE FEET

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 Acr es
(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 locations
described such as Northwest 1/4 are not pertinent. All that is necessary to find the answer is determining the fractional portion of
the 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 in 1/64 of 640. 640 Acres divided by 64 (1/64) = 10 ACRES

13. a.

BUILDING COST
GROSS INCOME

$160,000
2,400 per month x 12 months = $28,800 Annual Gross Income

ANNUAL GROSS
ANNUAL EXPENSES
ANNUAL NET

$ 28,800
6,000
$ 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 by
themselves will cost $160,000, then the most they would pay for the LAND would be $30,000.

14. a.

$75 per month income required x 12 months equals $900 per year. If a person requires $900 per year income and their
money invested is returning 5% yearly, then $900 must equal 5% of the amount of money that must be invested. The math
question therefore being asked is: $900 equals 5% of what amount of money?
$900 divided by 5% = $18,000
(verify: $18,000 invested at 5% annual return = $900 per year. $900 per year divided by 12 months = $75 per month)

15. b.

4
1/ 1/2
1/ 4
Section
160 Acres

/2 Mile
1/2 Mile
1 SECTION (640 ACRES)

FULL SECTION = 640 ACRES

1/2 mile x 1/2 mile = 1/4 of a section
1/4 of 640 Acres = 160 ACRES

1 Mil e

16. b.

One of the key areas in this question is that we are NOT looking for any percentage of profit just the original loan amount.
Therefore the 4-POINT FEE paid by the borrower is not pertinent to answering the question.
The important figures are the 3-1/2 POINT DISCOUNT and the $34,740 SELLING PRICE OF THE LOAN.
If the $34,740 represents 3-1/2% LESS than what the original amount was, then the $34,740 would represent the original
loan amount that we are trying to find MINUS 3-1/2% (discount). Or we could say that the $34,740 therefore represents
96-1/2% of the original loan amount. The math question being asked then is: $34,740 is or represents 96 -1/2% of the
original loan amount. $34,740 divided by 96-1/2% = $36,000.
Check Answer: $36,000 x 3-1/2% = $1260 discount. $36,000 minus $1260 discount equals $34,740

17. b.

STEPS:

ORIGNIAL BOOK VALUE (Cost Basis) - $131,000

Land cannot be depreciated therefore we must determine the value of the improvement (ALLOCATION)
$131,000 Land & Improvements
-22,500 Land Only
$108,500 Value Attributed to the Improvements Only
Determine Annual Depreciation$108,500 divided by 50 year life = $2170 per year
$2170 per year x 17 years = $36,890 which is the total (accrued) Depreciation

SOLUTION: $131,000 Original Book Value

36,890 Accrued Depreciation
$ 94,110 ADJUSTED BOOK VALUE AFTER 17 YEARS
18. a.

STEPS:

$10,000 Purchase Price

$10,000 x 8% = $800 Net Return
$ 9,000 Promissory Note costing 6% interest = $540 Annual Interest Charge
$800 Net Income
- $540 Interest Paid
- $260 CASH FLOW
If there is an existing lien or loan balance of $9,000 the equity is $1,000 ($10,000 minus the $9,000 debt)
$260 RETURN on $1,000 EQUITY
Math question posed is $260 is what % of $1,000
$260 divided by $1,000 = .26 (26%)

19. d.

STEPS:

Perpendicular means meeting at a 90% Angle.

Third Boundary added - Parallel (runs in the same direction)

Fourth Boundary

We've formed a TRAPAZOID. Formula for area of trapezoid is:

ADD THE TOP & BOTTOM WIDTHS X THE DEPTH

Divided by 2
2640 ft. + 1320 ft. = 3960 ft. 3960 ft. x 2640 ft. = 10,454,400. 10,454,400 divided by 2 = 5,227,200 square ft.

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 INCOME
Lose 10% of the income ($11,220 x 10% = $1122)
$11,220 - $1122 = $10,098
OUTCOME: $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 feet
3,484,800 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 commis sion 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 PRICE
Offer 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 Income
10% 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 Value
Capitalized value before reduction$30,000 divided by 10% Cap Rate = $300,000 Value
Capitalized value after reduction$27,000 divided by 10% Cap Rate = $270,000 Value
$30,000 LOSS IN VALUE
The Department of Real Estate gives a person who has successfully passed the qualification examination ONE
YEAR from the date of TAKING THEIR STATE EXAM to apply for the license.

27. b.

28. d.

According to the Real Estate Commissioner's Regulations a real estate broker must have a written agreement with
each salesperson. The broker and salesperson both must sign the agreement and each is required to retain a copy
for 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 is
required. However the State allows up to two years additional time for the late renewal of a license before the holder
would 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 separate
account for each client's funds, but would make a separate entry in the trust account ledger for each transaction of
funds.

31. a.

Quoting of prices and terms for a fee or compensation or in the expectation of a fee or compensation requires a real
estate license. Therefore the hostess is in violation by doing so and the broker has also violated the law by
compensating 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" are
all considered securities under Article 6 of the Real Estate Law. In order to offer a security for sale in California one
must 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 the
exchange. Generally only the lessor or owner of a business pays the agent a compensation not the lessee or buyer
of the business also.

34. d.

Misrepresentation could be grounds for a criminal action, a civil suit for recovery of damages and possible
suspension 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 current
protections are $20,000 per claim and $100,000 coverage per licensee. The claimant must have filed an action
against the licensee, have been rendered a judgment, had attempted to collect and then had proven the judgment
was uncollectable due to insolvency of the licensee. Then the claimant must have filed a proper claim with the proper
department.

36. b.

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

37. b.

The question is looking for an alternate name to describe a FEE SIMPLE ESTATE. Should the question have
readA fee simple estate is? The answer would have been an Estate of Inheritance (an estate capable of being
passed 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 still vests
in A or As heirs.
Answer (a) is incorrect as X was granted no property rights. Xs only purpose is to determine the length of time
the life estate will exist.
Answers (b) and (d) are incorrect due to the fact that the estate has not terminated therefore there could be no
REVERSION (the estate going or reverting back to the original grantor) and there could for the same reason be no
REMAINDER (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. One
of the characteristics of a Freehold Estate is Indefinite Duration. Answers (a), (b) and (d) all describe LESS-THANFREEHOLD 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 and
not 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 is
presumed that the lessee has accepted the terms of the lease if they either Pay the Rent or Take Possession of the
Premises. Leases do not have to be recorded to be valid or enforceable. If the lease is recorded, prior to the
recording, the Lessors signature would have to be acknowledged.

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 Freehold
Estate.

44. a.

Although one would commonly associate the word Demise with a deceased party, which is one of the defined
meanings of this word, the word itself is very seldom found in a will. One of its most common uses is in lease
agreements where it may state: I, the Lessor, hereby let and DEMISE (pass on these rights) the following described
property 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 then
transacted 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) is
incorrect, as it would create a LESS-THAN-FREEHOLD ESTATE interest in the Lessee, not the Lessor as stated in
the 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) GROSS
LEASE is another way of describing a Straight, Fixed or Flat Lease. (d) A STRAIGHT, FIXED or FLAT LEASE
is 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, obligations
and 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 the
ground (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 that
holds 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 not
necessary 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 LESSTHAN-FREEHOLD ESTATES (leasehold interests).

51. d.

STOCK IN A MUTUAL WATER COMPANY refers to the RIGHT to the water and water rights are considered REAL
PROPERTY. The STOCK CERTIFICATE (a piece of paper) in the Mutual Water Company would itself be
considered 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, the
definition included indefinite ownership of the airspace into infinity. The airways are now a public domain. Therefore
todays ownership of airspace has limited the use to A Reasonable and Enjoyable Height. Also owned as part of
the 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 real
property 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 sign
contract 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 an
adult 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 the
public 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 soil built-up or deposited through accretion.

56. a.

RIPARIAN RIGHTS refer to rights of persons or entities that own property on non-navigable RIVERS and/or
STREAMS. 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 b een moved through erosion, and ALLUVIUM
is 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 real
property right (such as an easement or water rights). A TRADE FIXURE is always considered to be personal
property.

59. b.

METES (measurements) around the outside BOUNDS (boundaries) of the property. It is not essential that the area
of 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 half
interest, as a result of intestate succession (dying leaving no will), based now on the States 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 heirs
are entitled to the other half. (b) is incorrect as if there were more than one child it would be divided 1/3 of the estate
to the surviving spouse and 2/3 to the children. (c) is incorrect as the spouse is entitled to either or 2/3 of the
estate depending on how many children there are. DEPOSITION OF SEPARATE PROPERTY, IF NO WILL: (if no
children) 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 interests
as Joint Tenants between each other, as the four unities of Joint Tenancy still exist between them and W becomes
a 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 a s the interests are unequal, and taken on different deeds at
different 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 CANNOT
DIE. As Joint Tenancy ownership carries with it the Right of Survivorship, there could be no survivor if one cannot
die. Corporations also would not be capable of holding title as Community Property.

69. d.

The brother and sister originally shared a interest each as Joint Tenants. The sister deeded half of her interest
(a interest in the property) to her husband. Therefore she retained a interest in the property. The division of the
interests after this took place would be: The Brother interest, the sister interest and the sisters husband
interest all holding title as TENANTS IN COMMON. The Tenancy in Common was created due to the fact that all
parties 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 ALL
tenants. (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 court
action 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 not
necessary to create a Tenancy in Common, nor is (c) Taking title at the same time (UNITY OF TIME) nor (d) Being
shown on the same document (UNITY OF TITLE).

71. d.

All are considered MECHANICS for the purpose of being able to file a MECHANICS LIEN.

72. c.

The type of lien created would be a Mechanics Lien, which is also considered to be a SPECIFIC LIEN.

73. c.

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

74. b.

A MECHANICS 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 specific
lien. 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 WRIT
OF POSSESSION is issued to the landlord after successfully obtaining judgment through an Unlawful Detainer
Action. A TRUSTEES 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 UNILATERAL
RESCISSION. 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 trespass
on 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 EASEMENT.
As shown in this example A has
An APPURTENANT EASEMENT across
Parcels B and C. However, parcel A
does not touch nor adjoin parcel C

Easement

B
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 as
LIENS.

82. a.

A LICENSE grants PERMISSION to the licensee to do certain things. As an example; A License grants permission to
cross anothers land. A license that grants permissive use may be REVOKED by the person granting it. An
EASEMENT 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 of
the elements to acquire Adverse Possession is Hostile to the true owner. There is no hostility if permission has
been 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 the
land itself and there is no agreement to acquire future ownership, there would be no LEGAL TITLE and no
EQUITABLE TITLE (contract of sale). Remember that PRESCRIPTION provides one with a RIGHT and not an
ESTATE 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 all
FREEHOLD 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 true
statements. See explanation to question 80.

86. a.

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

87. b.

In regards to RESTRICTIONS relating to real propertyThe RULE is: WHEN IN CONFLICT, THE MOST
STRINGENT RESTRICTION PREVAILS! Therefore the DEED RESTRICTION, which prohibited the use would be
the 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 have
their spouses CONSENT nor SIGNATURE to do so. If there were an existing homestead that had already been filed
on 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 foreclosure
is pending by an unpaid creditor. There is no need to establish this in advance, as it makes no difference what the
property is worth when it is homesteaded. It is important to establish when a creditor is asking for a n execution sale
of 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 answerA 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, but
ONLY ONE AT A TIME. (c) is incorrect as the first homestead automatically terminated, which allowed for recording
on the new property to be valid. (d) is incorrect as the old homestead would not have to be formerly cleared by a
recorded DECLARATION OF ABANDONMENT as the recording of the deed in the name of the new owner or other
evidence of title transfer would AUTOMATICALLY TERMINATE the first homestead.

92. b.

It is not necessary to have your spouses 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 a
SECURED LIEN such as a MECHANICS 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 the
property does not terminate a homestead as long as you have the intention of returning to the property to use it some
time in the future. Destruction of the improvements also does not terminate a homestead. However, selling (transfer
of 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 claimant
may move from the premises and as long as they have the intention of returning in the future the homestead would
remain effective.

95. c.

ALL OFFERS must be SUBMITTED to the agents principal (Seller) IMMEDIATELY. The Seller must also be advised
if other offers have been made or are being drawn-up. The agent MUST DISCLOSE ALL INFORMATION regarding
the transaction to their principal.

96. c.

An agent must disclose all information, other than information that would be considered discriminatory in nature (a
violation of the law) to the principal. The agent is also charged with a responsibility to disclose to third parties (on the
exam 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 to
the contract performance. At that point the money cannot be released without the mutual consent of both the buyer
and the seller. Therefore if the broker receives the authority to accept the deposit by the seller, when taking the
deposit, the broker would be holding the buyers money under the authority of the seller. As such, the broker and the
seller would have the liability if anything should happen to the money. If the authority is not granted to the broker to
accept a deposit, then the broker may still take a deposit, but would then be holding the buyers money for and on
behalf of the buyer and the seller would then have no liability for any mishandling of those funds by the broker.

98. c.

An agent is not liable for representations accepted from the principal in good faith and passed on to the buyer as long
as the defect is not one that would be obvious to the broker upon making a due diligent visual inspection of the
principals property.

99. d.

State of Fact. (c) is incorrect as an agent must disclose all information that would affect the buyers decision to
purchase, even if not questioned or asked about that information by the buyer. (a) is a good answer, but not as
complete 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 case
for non-disclosure or misrepresentation. 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 been
created the agent owes the principal a FIDUCIARY RESPONSIBILITY (Trust). Therefore, both relationships are
created 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 Real
Estate and the National Association of Realtors. It would also be a violation of the agents Fiduciary Responsibilities
in 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 purchase, then in accordance with the stated LISING AGREEMENT the
broker would not be entitled to a commission. Generally it is stated in the Deposit Receipt that in the event of a buyer
default that The broker would be entitled to half of any forfeited deposit or damages received by the seller, but not to
exceed 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 mutual
consent 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 the
buyer. However, the broker would still be entitled to the commission as the broker had still lived-up to the terms of
the agreement with the seller and had procured a Ready, Willing and Able Buyer, and after a binding agreement
was 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 the
deposit does not belong to the broker, it was the buyers money and as a result must have been returned to the
buyer. (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 law
regarding Caveat Emptor (Let the Buyer Beware) where the seller would not be liable for undisclosed defects if the
property were sold in an AS IS condition is no longer legally applicable in California. Even if the property is today
sold in an AS IS condition, the seller or their agent must disclose all known material facts . If not, they are held
liable for those not disclosed.
106. c. Although an offer is signed by both the buyer and seller, the acceptance of the offer MUST BE COMMUNICATED
back to the party that made the offer in order to create a Binding Agreement. In this question it would have to be
communicated to the buyer. Because the buyer died prior to the communication, the contract was VOID as it lacked
the essential of Mutual Consent. Should the acceptance have been communicated in the stipulated manner and
then the buyer had died, the contract would have been binding and the buyers estate could be petitioned requesting
full performance of the contract.
107. c. The buyer has the legal right to withdraw an offer ANYTIME BEFORE THE ACCEPTANCE IS MADE AND
COMMUNICATED to them. Although the contract stated the buyers offer was IRREVOCABLE FOR 5 DAYS, which
would lead you to believe that they could not withdraw for the 5 day period, the 5 day clause means nothing (is
unenforceable) due to the fact that a contract where there is an agreement to hold an offer open is known as an
OPTION. The 5-day right of the seller to be able to accept the buyers 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 a
CONSIDERATION be paid for that right and must have passed to the OPTIONOR, which in this question was the
buyer. As the seller did not pay the buyer to hold the offer open, there was no option right created and therefore the
buyer 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 unreasonably
long. With the 20-Day stipulation, the seller will be released from their obligation to sell and would have the options of
extending or granting additional time to the buyers Mr. and Mrs. A or to find another buyer. (a), (b) and (c) are not
satisfactory as they do not show a time limitation.

10

109. b. Representing both parties in a transaction without any violation of the law is known as a DUAL AGENCY, which is
perfectly legal as long as the agent had the FULL CONSENT AND KNOWLEDGE OF ALL PARTIES TO THE
AGENCY. Should the full consent and knowledge not be present then the broker is Representing More Than One
Party in the agency without full consent and knowledge and this is a violation of the law and is known as a DIVIDED
AGENCY. Even in an exchange agreement, where it is common for an agent to represent both parties, the agent
must be careful to see that both parties are aware of the dual agency. (d) is incorrect as it was the seller that would
have to be informed of the broker representing the buyer. The buyer is charged with the responsibility of knowing
that the broker represents the seller as an agent, which is apparent, as they (the buyer) are not buying the property
from the broker, but from the seller.
110. c. In the event the broker had no authority granted to them by the owner to accept a deposit, should the broker receive
a deposit from the buyer they would be holding the buyers deposit money for the buyer as an AGENT OF THE
BUYER, but only for handling the buyers money, not an agent for the buyer for the entire transaction. However,
should the broker have a written authority from the owner to accept a deposit, then if a deposit were taken, the
deposit would be held by the broker as an AGENT OF THE SELLER. In the event of any loss of the deposit money,
in the first case, only the broker would be liable to the buyer for the loss as they (the broker) were acting outside the
authority granted them by the owner, as the Principal/owner is only liable for actions they authorize or ratify. In the
second case both the owner and the broker could be held liable as the broker was then acting within the authority
granted by the owner. The check would not (in the example presented in the question) have to be placed in a trust
account as it would have been perfectly alright to hold per the buyers written instructions.
111. a. LISTINGS are EMPLOYMENT CONTRACTS and are regarded as PERSONAL SERVICE AGREEMENTS. The
death or incompetency of a natural person (living/breathing) would automatically terminate the contract due to
Impossibility of Performance and as a result, in order to continue to work on them, it would be necessary for the
agreements to be re-written employing, in this case, Marys daughter. Should Mary Jones have been the
Broker/Officer (natural broker responsible for the activities of the brokerage) of a real estate corporation, which was
not the case in this question, but if so, then as corporations are not living/breathing persons, but legal persons and as
a result cannot die, then the listings would not have terminated and the corporati on could have continued to work on
the listings for the balance of the contract terms.
112. d. A Valid Listing Agreement for the Sale, Purchase or Exchange of Real Property, according to the Statute of
Frauds, is ENFORCEABLE if in writingUNENFORCEABLE if verbal/oral. Answer (a) is incorrect as there is nothing
illegal about a verbal listing if it is valid and the fee has been paid. If the fee has not yet been paid the court would be
unable to render a judgment for enforcement of the payment. Answer (b) is incorrect as it is not lacking any of the
four essentials that are necessary to create a valid contract, therefore it is not Void. Answer (c) is incorrect as there
are no weaknesses in any of the four essentials that would give either party the option to cancel if proven, therefore it
is not Voidable.
112a a. This would be the correct answer if the question had read as above and the commission had been paid.
b. This would be the correct answer if the question had stated that the com mission was not paid.
113. c. According to the Statute of Frauds, not only must the contract be VALID (contain all four essential elements to create
it) but to be ENFORCEABLE (the court able to act on the agreement) it must be in WRITING.
114. a. The appraisal verified the value at $200 per acre, thusly relieving the broker of any possible accusation of taking
unfair advantage of the seller.
115. c. A property described as a Personal Residence is considered adequate even if other properties are owned on the
same street. However, this would not also be true if it were described as the owners Residential Property.
RESIDENCE Zoned for residential use and owner-occupied. RESIDENTIAL Property zoned for, and located in a
residential area.
116. c. A broker may accept a commission in any manner they choose as long as it is legal in nature.
117. b. The key words are SHOULD THE CONTRACT LATER BE DEFAULTED! Meaning it had been accepted. In the
Standard Deposit Receipt Form it specifies; If the buyer defaults, the broker is entitled to half the forfeited deposit,
but not to exceed the amount of commission contracted for and only after the owner deducts any expenses of
collecting the damages.
Although the owner only authorized acceptance of NO LESS THAN A $1,000 DEPOSIT, acceptance of the offer by
the owner ratified the procuring of the $500 deposit by the broker. Therefore in the event of a legal action by the
owner to dispute any liability for the deposit should it be lost by the broker, the owner would be ESTOPPED (legally
blocked) from using non-authorization as a defense as the act of acceptance of the offer served to ratify the procuring
of the smaller deposit.

11

NOTE: Occasionally on the exam a Deposit Receipt is shown and under the acceptance clause, the clause indicating The
broker would be entitled to half of the forfeited deposit, is not shown. In this event the answer to the question would
be 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 it
would 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 the
broker 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 brokers
recourses would then beUNITATERAL RESCISSION Releasing them with no liability. SUIT FOR DAMAGES
Legal action requesting reimbursement for any costs sustained in performance of their duties or SPECIFIC
PERFORMANCE. (a) is incorrect as liability for damages is a possible remedy. (c) is incorrect as anyone can
breach a contract. (d) is incorrect as even though it specifies it is Irrevocable, that is only a promise not to revoke, the
owner 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 of
the listing agreement. Should the owner accept the offer, and the buyer not default, the broker would be entitled to
the commission.
REGARDING THE LIABILITY FOR THE DEPOSIT
Should the offer be rejected, only the broker would be responsible for any damages arising from the mishandling of
the 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 the
owner by allowing the acceptance of the deposit in their behalf and in the event of any mishandling of the deposit
BOTH 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 persons
promise or promises. In the Listing Agreement an owner promises to pay a commission.the broker doesnt have
to promise to make a diligent effort to procure a purchaser, but if they do, it creates a promise now also made by the
broker, 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 the
compensation is usually paid each month over the life of the lease on shorter term agreements and for the first few
years on longer term leases.
122. b. The Statute of Frauds requires that any agreement to "Purchase," "Sell," "Transfer" or Sell real property MUST BE IN
WRITING to be ENFORCEABLE. Leases for 1-YEAR OR LESS CAN BE VERBAL (Oral). Therefore according to
the Statute of Frauds the agents authority can equally be verbal/oral. The authority to solicit a purchaser for personal
property may be verbal/oral.
123. c. Both the Principals and Agents name must appear on an agreement signed under the provisions of a valid POWER
OF ATTORNEY (an agreement authorizing another person to sign or act in ones place). The Principals name would
be written-in and the ATTORNEY-IN-FACTS 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 an
incorrect 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 be
needed, thus a higher or larger equity! This also means a lesser degree of risk, a lower interest rate and a lower or
smaller loan being made.
127. b. The terms Construction Loan, Interim Loan and Short-term Loan all have the same meaning. The terms LongTerm Loan and Take-out Loan have the same meanings. Words with the same meaning are described as being
Synonymous (meaning the same).
128. c. Terms used in CONJUNCTION (used together) with each other would be INTERIM (Short-Term Loan) and TAKEOUT LOAN (Long-Term Loan).

12

129. d. LOAN POINTS were originally created to allow for the equalizing of the return to the lenders on Government-Backed
Loans where the interest rates were Fixed/Set by government agencies and which were slow to change, whereas
Conventional rates, which were Non-fixed rates could change daily, if necessary, to reflect changes in the money
markets. To allow for the adjustment Loan Points (an additional charge or cost) were created so that lenders could
charge this additional fee (points) and a lthough the government-backed interest rates were lower, the lenders could
use this additional charge to make-up the difference in the returns between the Conventional Loans and the
Government-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 or
Primary 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 MORE
BORROWERED 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 being
changed.
134. d. (d) is correct as answers (a), (b) and (c) all relate to the alternatives the buyers would have if they should not acquire
the 100% financing. The key to this problem is the CONTINGENCY CLAUSE that allows the buyers to be released
from the contractual obligations if the contingency is not met within the time specified in the agreement. The question
showed no time limit. However, the contract was based on the 100% financing, which could not be obtained by the
buyers.
135. d. A LOAN-TO-VALUE RATIO describes the Maximum Loan Amount a lender will loan based on a percentage of the
lenders Appraised Value of the property. For example: Buyer has contracted to purchase a property for $50,000 and
is looking to acquire 90% financing, meaning they are looking for a $45,000 loan. The lender however, arrives at an
appraised value of $40,000 (also known as the loan value). Therefore the lender will loan, not 90% of the $50,000
price 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 Coverage
Policy of Title Insurance. This provides them the protection normally needed and is less costly than CLTA Extended
or ALTA Lenders Policy or Homeowners Policy. CLTA Extended Coverage is used generally for special
circumstances and ALTA Homeowners is basically the same as CLTA Extended. ALTA is used where a lender is
involved in the purchase as a result of loaning money for the purchase and wants coverage for their loan in which
case ALTA Lenders 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 a
later date. Without this clause, if the borrower wanted to borrower additional money, the borrower would have to payoff the current loan and the lender would have to re-write a new loan (refinance). The benefit of advancing additional
sums rather than a pay-off and writing a new loan is that on the advance the lenders lien priority remains in the same
position. On a re-write the old loan is paid-off and the lien is released (cleared from the record) and a new loan is
recorded. If any additional loans existed on the property, then the re-write would become junior (of a lesser priority)
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 $40,000

Loan
1ST Priority Loan

$40,000

$50,000 (after $10,000 advance)

$ 5,000 (junior loan moves into 1 st position)

2nd Priority Loan

position)

$ 5,000

$ 5,000

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

An Open-End Loan is a benefit to the borrower by making it easier to acquire a dditional money. In most cases the
lender 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 a
PLEDGE!

13

139. a. A note is not security for a mortgage. A mortgage secures payment on the note. A STRAIGHT NOTE identifies a
note 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 legal
name) has no effect on the negotiability of the note. Whoever holds the note has the right to collect under the terms
of 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 the
entire 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 if
the 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 becomes
unassumable, 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 FINANCING
Selling Price
$70,000
Buyer Assumes Existing First Loan $40,000 @ 8% Interest
Seller carries back a Second Loan $30,000 @ 12% Interest
EXAMPLE OF SAME SALE WITH A WRAPAROUND
Selling Price
$70,000
Seller 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 seller
keeps 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 seller
continues to make the payments on the $40,000 loan at 8% interest, which costs them $3,200 in interest, yet they are
charging 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 the
use 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 notified
in the event a lien holder with a higher priority files a default notice. This allows junior lien holders to protect
themselves by bringing the defaulted liens current through paying them personally and therefore stops the senior lien
holder(s) from foreclosing. The junior lien holder then adds these amounts they've paid to bring the senior loans
current to amount the borrower owes them, and if the borrower cannot bring that total amount current, the junior lien
holder may file their own Notice of Default and proceed with a foreclosure. (explanation to the answer continued on
the next page)
(a) is incorrect as a promissory note itself cannot be recorded on the public record unless it is recorded along with a
recorded trust deed or mortgage that secures the payment on the note (as only documents that affect the title or
ownership of real property may be accepted for recording). (b) is incorrect as the trust deed only creates a lien, but
does not allow for notification in case of default automatically. (c) is incorrect as recording of both the trust deed and
the 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 the
legal clauses and the front page with the agreement is recorded on the public record in selected counties. This is
143a
known as a FICTITIOUS DEED OF TRUST. To simplify the recording processA SHORT FORM DEED OF TRUST
b.
is used. The Short Form contains all the pages, but only the front page (naming the parties) is then recorded to
create the lien and it refers to where the FICTITIOUS DEED OF TRUST can be found which contains the remaining
standard clauses.
144. c. The property held as collateral under the terms of the deed of trust secures the promissory note. A trust deed by
itself has no value. It is the promissory note that is the negotiable instrument. A note cannot be recorded by itself,
however a trust deed can be recorded, which perfects the lien. If the trust deed is recorded the note may be recorded
along 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 OF
RECONVEYANCE would be issued to Lee, which when recorded would release the lien. If Gary paid all cash there
would be no trust deed as there would be no lien created. A BILL OF SALE is used to evidence the conveyance of
personal 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 (instrument
creating the lien) in favor of the lender. (a) The seller/owner/grantor SELLS A PROPERTY. (c) The TRUSTEE holds
the title in trust, and (d) The MORTGAGEE (lender) takes the mortgage and holds the note.

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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 losses
as they would probably be carrying a fixed interest rate note at a low interest rate (they are entitled to be paid on the
note, but, not being the owner of the property, do not benefit from the equity growth). The TRUSTEE (party to whom
the trustor has conveyed the legal title and power of sale) who acts for and on behalf of the lender, has no interest in
the 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 the
event 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. The
lender 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 also
known as CHATTELS REAL (instruments relating to title or ownership in real property). Although a Mortgage would
be known as a Chattel Real not all lien instruments would be. As an example: A Security Agreement holds only
personal 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 the
purpose 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) on
PURCHASE MONEY LOANS. (a), (b) and (d) are all correct statements. Foreclosing out of court through a
Trustee'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 the
event of a default, and may elect to bring their action instead through the court (a judicial foreclosure). In the event it
is brought through court the borrower is allowed the ONE-YEAR EQUITY OF REDEMPTION PERIOD in which to pay
back 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 still 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 is
recorded 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 repayment
there was a default on the loan, then after the publication period the Trustee would then acting under the "Power of
Sale" Clause convey the title to the successful bidder using a TRUSTEE'S DEED (deed issued by a Trustee, from a
resulting 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 rights
granted under the terms of the note and mortgage. The "QUALIFIED ENFORSEMENT (without recourse)" by Smith
simply means if a foreclosure should take place and Jones had not received the full loan balance, that Smith would
not be responsible for any loss.
THE OBLIGATION OF THE BORROWER IS TO JONES (the new owner of the note and mortgage). In the event the
note is defaulted on, which is secured by the mortgage, the ultimate recourse is FORECLOSURE under the terms of
the 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 the
payments, the property is bought and the deed received (now owning the property), however the loan is still in the
previous 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. Should
the payments not be made and the property subsequently be foreclosed on, and should it be determined that the
lender is entitled to a DEFICIENCY JUDGMENT -(if selling for less that owed), the judgment could only be rendered
against the maker of the note. Therefore because the buyer had not ASSUMED the liability (assumed the loan), they
would 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-off
the note in advance of the due date, the lender would receive an additional amount of cash over and above the
balance due on the loan as a penalty charge to the borrower. This clause also benefits the lender in the event they
sell the note, in that the note is more desirable (more saleable) because of this clause.

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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 this
insurance, 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 is
charged 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 themselves
and or other partners. (a) only corporate assets are held accountable and (c) Limited Partners are limited in liability
to their investment only. The GENERAL PARTNER(S) hold all of the personal liabilities for the debts of the Limited
Partnership.
160. a. The vast majority of money loaned-out through banks and savings and loan associations is the depositor's money
placed 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 and
INVESTORS generally through the services of loan brokers (mortgage companies). (b) and (c) are both incorrect as
banks and savings and loan associations generally make first priority loans and only a very small amount of junior
loans. (d) is incorrect as credit unions can make both first and junior loans, but are not currently a major source of
these funds.
162. b. An INSURANCE COMPANY is the only organization considered to be an INSTITUTIONAL LENDER of the four
choices shown. PENSION FUNDS, UNIVERSITIES and MORTGAGE COMPANIES are classified as NONINSTITUTIONAL LENDERS.
163. c. Insurance companies prefer to make large loans on commercial and/or industrial complexes. Banks, savings and
loan 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 soliciting
funds for these loans from institutional or non-institutional lending sources. The loans that are made are most often
those types that are readily saleable in the SECONDARY MORTGAGE MARKET also known as the SECONDARY
MONEY MARKET. (a) Banks and savings and loan associations are thrift organizations where people are
encouraged to deposit and save their money. (b) Banks generally make quick turnover business and construction
loans. (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 and
collected from the borrower at the time the loan is made and paid to FHA. The money is then used to reim burse the
lender 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 Insurance
covers losses on those types of loans and almost all conventional loans in California use the Deed of Trust as
collateral 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 is
to 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 purposes
of FHA was to create long-term financing. As FHA compared to conventional loans generally has a LOWER
INTEREST 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 usual
higher interest rate and shorter pay-off term on the conventional loan, the GI Loan would have smaller or lower
payments compared to the conventional loan. (b) is incorrect as VA has a HIGHER Loan-to-value-ratio. (c) is
incorrect as conventional loans have a LOWER loan-to-value-ratio, and (d) is incorrect as conventional loans would
have a higher monthly payment.
169. a. Under the regulations of the Department of Veterans Affairs, the lender can loan up to 100% of the CERTIFICATE
OF REASONABLE VALUE (CRV). Should the agreed upon purchase price exceed the CRV, then the veteran has
the option of paying the cash difference and still be able to purchase the property.

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170. c. The DEPARTMENT OF VETERAN AFFAIRS is the California State Agency that is in charge of operating the CALVET Program. Under this program money is procured through State approved bond issues. This money is then
loaned to qualified California Veterans through the Department of Veterans Affairs. The legal title (the deeded
interest) does not pass to the veteran, but to the Department of Veterans Affairs. The Department then creates
between themselves and the veteran a LAND CONTRACT, which allows the veteran to use the property and
guarantees 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 the
EQUITABLE 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 through
a bond issue approved by the voters of the State of California. The monies obtained are then lent directly to the
California Veteran (who must qualify for the loan) by the Department of Veterans Affairs. The Department charges
NO 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 a n
updated figure). - The maximum commission allowed on loans with payoff terms of LESS THAN 2 YEARS is 5%.2
YEARS, BUT LESS THAN 3 YEARS is 10%and3 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 Lenders
or 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 defense
costs to defend the title for the coverage provided. EXTENDED COVERAGE would include physical aspects, which
the 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 then
COMMUNICATED 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 is
not 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 or
MORTGAGES 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 under
the terms of the CONTRACT OF SALE the VENDEE merely has the right of possession and use of the property (not
a deeded ownership), which is more closely related to a LANDLORD/TENANT RELATIONSHIP. NOTE: If the
question asked what the financial relationship was most closely related to, the answer would be a
BORROWER/LENDER Relationship.

179. c. ET UX is a Latin term that means "And Wife." Occasionally the term "ET AL" is also asked which means "And
Others."
180. a. The first key area in this question is the recording of the Contract of Sale by the Vendee, which if not cleared
CLOUDS THE TITLE for later title transfers. The second key area is that the new buyer is to receive a deeded
interest, which means that they would want the Contract of Sale interest cleared in order to receive a clear title. The
clearing of the recorded Contract of Sale can be accomplished either in or out of court. The out of court procedure is
having the Vendee sign a QUIT CLAIM DEED, whereby releasing their contract interest in the property back to the
owner (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 in
this 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 this
essential specifying COMPETENT PARTIES. (c) is also a better answer than (d), as (d) specified consideration, and
(c) specified a LEGAL CONSIDERATION. THE FOUR ESSENTIALS AREMutual Consent, Consideration (legal),
Legal Objective and Competent Parties.

182. a. Relating to the four essentials to create a valid contract. We needCompetent 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 the
agreement MUST BE IN WRITING TO BE ENFORCEABLE in a court of law. Stock (inventory), fixtures and goodwill
are personal property and a verbal agreement may be used to employ the agent.

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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) the
contract would be VOIDABLE. A minor who signed a contract has a right to ratify or void the agreement when they
obtain 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 "Mary
Johnson as sole and separate property" depending on whether it is being purchased with community funds or
separate money. The indication in the question is that it would be purchased as community property. A spouse
buying 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 signed
could 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 entered
into by either spouse to either BUY or LIST for Sale and would be binding as either spouse has co-management and
control 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 that
signs 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 the
condition (or their heirs). Answers (a) and (b) both describe the alternate remedies available to property owners in a
development 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 a
real estate broker, the offers must be confirmed by the COURT and the COURT would SET THE BROKER'S
COMMISSION.
188. b. As there was no will (intestate) to designate the disposition of the estate, the heirs would be allowed by California
Law five-years to make their claims to the property. Should no heirs lay their claims within the designated time, the
property 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 Claim
of Right or Color of Title. NOTE: If one were attempting to acquire title through ADVERSE POSSESSION payment of
property 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) A
SHERIFF'S DEED is issued to the holder of a CERTIFICATE OF SALE after the one-year redemption period has
passed 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 used
once 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 GRANTOR
and 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, yet
recorded, 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 nothing
more than make the document (deed) a matter of public record. Mere recording of the deed could not guarantee the
grantee ownership. A Guarantee of Title or Title Insurance could not provide this type of assurance, as if the title
were 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 they
could have a fictitious namei.e., California School of Real Estate. (c) Misspelling of the grantor's name may cloud
the title regarding future transfer, but the conveyance to the grantee would be considered legally valid. (d) Grantee
may 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."

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197. a. Even if all requirements of creating a valid deed are met, the act that actually conveys the title is the DELIEVERY OF
THE DEED. Recording only gives protection against conflicting claims of deeded ownership's as "FIRST TO
RECORD IS FIRST IN RIGHT." The issuance of a TITLE POLICY cannot actually guarantee the title or assure the
conveyance is valid, it simply agrees to pay you the losses suffered if the title is not good. A buyer in possession
would 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 and
pass-on to another person or entity any right(s) or interest(s) held by the person signing the Quit Claim Deed. It does
not warrant that they even have any interest or rights, only that if they do they are giving them up to the person
named 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 of
their previous interest in the property at a later date (after acquired title) this would be theirs and not a right passed on
through the Quit Claim Deed.
199. c. She should have signed the deed as Mary Jones "a married woman" previously known as "Mary Dorr." This would
have 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 presence
acknowledge (swear to the fact) that the signature that appears on the deed is, in fact, theirs (the grantor's). The
authorized party would then sign verifying that the grantor is, in fact, the person(s) they acknowledged themselves to
be.
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 not
there 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, it
happens to be also the most accurate.
205. b. All are methods of determining the cost of replacing improvements at today's costs.
"Reproduction Approach (Cost Approach)" to appraising real property.

They all relate to the

206. b. DEPRECIATION is the most difficult to determine in older properties. Historic costs are not necessary as the
reproduction or cost approach determines the cost to reproduce at today's costs, not what it would have cost in the
past to replace. Determining inflation on the land would not relate to this question as it is looking for the cost to
replace the structure. Determining replacement cost would be relatively easy to accomplish. It is determining
depreciation 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 LOWER
THE RISK the LESSER THE RETURN EXPECTED. The GREATER THE RISK the HIGHER THE RETURN
EXPECTED.
208. d. "VALUE" also means the "WORTH." COST or PRICE identifies the original amount paid. UTILITY is one of the four
essentials 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. And
it 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 income
property would contribute to its overall value. This obviously should be determined prior to the possible addition of
the 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 of
land is most often determined through means of the Market Data (Comparison Approach) approach to appraising.

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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 FUTURE
BENEFITS. (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 to
acquire 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 currently
willing 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 to
a loss in value (depreciation), which may be great or small. The loss of the physical life would be a complete or total
loss.
219. a. Statement of Fact
220. c. Functional Obsolescence relates to poor or outdated design, style or construction techniques. (a) is an example of
Economic 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 is
the 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 a
residential 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 the
property) and the owner has a substantial amount of control over making changes (if cost effective), which could
remedy the causes of depreciation (CURABLE).
223. c. REHABILITATION means to RESTORE property to its original condition. (d) REPLACEMENT is a term used in
appraising, meaning to use today's design, style and techniques. (b) RE-MODEL means to "change the architectural
design or style. (a) REPRODUCTION means to "Rebuild" the property exactly AS IT WAS, Not changing the design
or style.
224. d. Equity in real property does not earn interest. If the property were sold, then the equity could be taken and placed
into 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 a
standard 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 commercially
zoned property.
226. a. INDUSTRIAL PRPERTY is evaluated by either the "Acre" or by the "Square Foot." WATERFORNT and
COMMERCIAL PROPERTY is valued generally on a FRONT FOOT basis and RESIDENTIAL PROPERTY by the
SQUARE 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 the
value of raw land.
229. d. This is the actual definition of EFFECTIVE (adjusted) GROSS INCOME. Deducting from the "Effective Gross" the
allowable expenses in operating the property would give us the NET INCOME (used to determine the appraised
value in the Income Approach to appraising). Deducting from the Net Income the Loan Payments (Principal and
Interest), 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 at
an appraised value using the Income Approach to appraising. It is not necessary to understand how it works for the
State Examination. Just know that "Band of Investment Theory" is a way of arriving at a capitalization rate.

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231. a. (Update) New tax laws eliminate age limitations and exempted larger amounts from taxation when selling a personal
residence. Personal residences may be sold every two-years and may qualify for a $250,000 exemption against
profits if filing single and $500,000 if filing as married. To qualify, must have resided in the residence for a least 2 of
the 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 the
improvement.
233. a. Capital improvements added to a residence are added to the cost basis. However they may be additionally
depreciated 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 12
months 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 be
taxable.
238. c. A commission paid by the seller is considered for income tax purposes to be an expense of the sale and TAX
DEDUCTIBLE.
Example:
Sale price
$50,000
Net to Seller
$47,000
Commission
-3,000
Cost Basis
$30,000
Net 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 in
amount based on the mutual agreement of the broker and owner and therefore could not indicate a standard or set
deduction.
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 be
used if this were an income, trade or business property). PREMIUMS ON INSURANCE are a cost of home
ownership 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 for
investment 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 the
greater your income, the higher the tax bracket you would fall into. Each segment of income shown would fall
progressively into a higher and higher bracket.
242. b. The TAX ASSESSOR BILL shows an assessors number, not a legal description. (a) a PRELIMINARY TITLE
REPORT and (c) a TITLE INSURANCE POLICY would both show a legal description. (d) a DEED usually would
show 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 traded
in 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 control of the local authorities (city or county). The Real Estate
Commissioner is interested in assuring the buyer in subdivisions under the Department of Real Estate's control
against FRAUD. Therefore requiring that all commonly owned areas such as lakes, country clubs, beaches,
swimming pools, golf courses, etc. that the developer has promised would be completed will be completed. The
money to insure the completion of these common areas must be either held in trust or a PERFORMANCE BOND
posted.

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248. d. 5-Units in a Planned Unit Development would be a subdivision not 3 units. (a), (b) and (c) are all considered
subdivisions under current subdivision laws.
249. b. Statement of fact (14 Calendar Days). An alternate question regarding Land Projects may be: "How many parcels
would be necessary to create a Land Project?" Answer would be 50 or more.
250. b. According to the Subdivided Lands Law (Real Estate Law), all material changes regarding a subdivision approved by
the Department of Real Estate must be reported to the Real Estate Commissioner immediately. The SALE or
OPTIONING of 5 or more parcels to one purchaser in a subdivision is considered a MATERIAL CHANGE.
251. d. A PRELIMINARY REPORT is issued for a MAXIMUM of 1-YEAR. However, it would terminate should the Final
Report be issued within that year or if any material change occurred where a new Preliminary Report would have to
be issued to replace the old report.
252. b. This action would indicate the creation of either a COMMUNITY APARTMENT PROJECT (CO-OP) or a
CONDOMINIUM, depending on whether the sale indicated a 1/5 undivided interest with the right of possession and
use of a designated unit (CO-OP) or a 1/5 undivided interest in the common areas with a separate ownership in a
designated unit (CONDOMINIUM). In order to divide a property into 5 or more Condominium units, Community
Apartment Project units or Stock Cooperative ownership's and to be able to legally transfer the title, a FINAL PUBLIC
REPORT from the Department of Real Estate (Subdivided Lands Law) would be necessary after approval from the
local authorities (Subdivision Map Act).
253. d. The SUBDIVIDED LANDS ACT (Real Estate Law), which is regulated by the Real Estate Commissioner is
predominantly interested in the prevention of FRAUD. Whereas the SUBDIVISION MAP ACT, which is under the
control of the local authorities (city and county) deals with physical aspects of subdividing of land. Therefore the Real
Estate Commissioner would be most interested in the purchase contract (DEPOSIT RECEIPT) being used where the
city or county would be more interested in streets, sidewalks, sewers and easements.
254. b. A DISIST AND REFRAIN ORDER would immediately halt the sale of the property when properly served. The
subdivider may then request a hearing by the Department of Real Estate. If the Real Estate Commissioner does not
commence a hearing within 30 days of the subdivider's request, then the subdivider has the right to continue the
offering of the property.
255. b. Upon the Final Subdivision Map being recorded, if the subdivider has dedicated an area(s) through a Dedication
Certificate and the dedication has been accepted by the properly authorized official, then the recording of the
approved map would be the final step in the Statutory Dedication process.
256. b. As a subdivider generally has several parcels in a development to which they are borrowing money to develop and
market, the lender would when financing the development take a BLANKET DEED OF TRUST usually holding all of
the parcels as security for their loan. So that the subdivider can sell parcels prior to paying off the entire loan a
RELEASE CLAUSE is placed in the Deed of Trust, specifying that upon the payment of a certain amount of money, a
parcel or parcels will be released (Partial Deed of Reconveyance issued) free and clear to the subdivider. Without
the Release Clause it would be necessary to pay off the entire loan amount, which would release the lien on all the
parcels held as security for the loan (Deed of Reconveyance issued.)
(a) A SUBORDINATION CLAUSE would be more important to a buyer who wishes to acquire a Construction Loan at
a future date. (c) An ALIENATION CLAUSE would be of interest to a borrower or a lender as it calls a loan due and
payable upon the transfer of title of the property to which the loan is being held. (d) An OR MORE CLAUSE is of
importance to a borrower as it allows them to pay the designated payment "Or More," which means the loan could be
paid-off in full at anytime with NO PREPAYMENT PENALTY allowed.
257. c. The SHELLY vs. MANN DECISION in 1943 established that RACE RESTRICTIONS in deeds or incorporated thereto
were ILLEGAL and that any such clauses were ruled UNENFORCEABLE, but not for all the restrictions created, only
those in violation of this law.
258. b. Should any prospective purchaser enter your office requesting to see a particular property, you would assume they
were interested in that particular property.
259. a. Under current laws an injured party may elect to file an action for a remedy with either a State or Federal Court.
Discrimination is a "Personal Damage," which is CIVIL not CRIMINAL in nature.
260. a. As stated above, discrimination is Civil, not Criminal. The Department of Real Estate can grant no person a remedy
in the event a discriminatory action has occurred. The only recourse the Department would have is to suspend or
revoke the license of any currently licensed person should it be proven that they were guilty of discrimination.

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261. c. Only the Real Estate Commissioner can institute an action to have a licensee's license suspended or revoked, and
then only after a formal hearing has been provided the licensee. (a), (b) and (d) can be accomplished by direct action
of the injured party.
262. d. All three parties, the broker, the seller and the neighbor were instrumental in an act of discrimination.
263. a. As discrimination is not a criminal act, we could eliminate answers ( c ) and (d). (b) is incorrect as the remedy
available to
the injured party is not limited to only an action through a State Court, it could take place through the Federal Courts.
264. c. Advising them to do anything would be condoning the attempt at discrimination by the owner. The broker should
simply refuse to take the listing.
265. b. This is the only answer which would indicate any reasonable excuse for refusing to show a particular property to a
MINORITY or, in that matter, any client!
266. a. This is also the only answer of the four that would be correct as according to the FAIR EMPLOYMENT AND
HOUSING ACT (Rumford Act). Recently expanded in scope by the GOVERNMENT CODE, the laws pertaining to
discrimination applies to all dwellings (no matter how financed) EXCEPT AN OWNER-OCCUPIED SINGLE FAMILY
RESIDENCE regarding a rental being made to one roomer or one boarder who will be sharing the premises with the
owner.
267. b. This symbol was created by HOUSING & URBAN DEVELOPMENT and is the EQUAL HOUSING OPPORTUNITY
SYMBOL.
268. d. Taxes are PRORATED as of the CLOSE OF ESCROW. The 3-Month period that the seller remains on the property
after the close of escrow they (the seller) will probably have to pay rent to the buyer for it's use, but it does not have
anything to do with calculating the taxes for the purpose of prorating.
The current tax year referred to in the question would be 7/1/76 through 6/30/77, which was paid in full by the seller.
Therefore the seller used all of JULY, AUGUST and SEPTEMBER3 MONTHS. The seller paid for the entire year
(12 months) and used only 3 months of the time for which they paid. Therefore the seller is entitled to a prorated
CREDIT FOR 9 MONTHS.. another correct answer would be the BUYER WOULD BE DEBITED FOR 9 MONTHS
TAXES, however this answer does not appear as one of the choices provided.
7/1/76
10/1/76
6/30/77
*-------------------------*---------------------------------------------------------------*
[ Used 3-Months ]
[ Unused 9 Months -Credited to Seller ]
269. b. Once funds and documents are placed in Escrow and instructions signed by both parties the Escrow Company
CANNOT release them unless having a mutual consent of both parties. (c) is incorrect as the Escrow Company
does not have to force the buyer and seller to arbitrate unless the buyer and seller cannot come to an agreement
between themselves. Then the Escrow Company can require a Court Order for them to release any documents.
270. c. A REAL ESTATE BROKER may perform an ESCROW in a transaction where they (the broker) are the agent of
either the buyer or seller or both parties as long as they have the consent of both parties. The broker is entitled to
any compensation the parties agree to pay for this service. The broker however could not solicit escrow business
where they are not involved as an agent of one of both parties in the transaction for which they are performing the
escrow.
271. d. (a), (b) and (c) all describe a portion of a property manager's duties.
272. a. The State Board of Equalization collects the Sales Tax. It is due on the transfer of furniture and fixtures. Stock in
Trade and Goodwill transferred are not taxable items.
273. d. The State Board of Equalization is interested in Sales Tax that is collected on their behalf and that is due and
payable. They are also interested in Sales Tax due on the sale or transfer of furniture or fixtures.

274. c. This is one of the two requirements under the Bulk Sales Law which is found in the UNIFORM COMMERCIAL CODE.
This law was created to protect the CREDITOR'S interest in any unpaid for inventory. According to the law the
TRANSFEREE (buyer) must 12 BUSINESS DAYS PRIOR TO THE "BULK TRANSFER" PUBLISH a "Notice of
Intention of Bulk Transfer" at least once in a newspaper of general circulation in the county where the transfer is to

23

take place, RECORD the notice at the County Recorder's Office and notify by certified or registered mail the County
Tax Collector's Office.
ADDITIONAL INFORMATION THAT COULD BE ASKED ABOUT THIS SUBJECT:
The Bulk Sales Laws were set-up to protect the CREDITORS not the buyers. The law however requires the BUYER
(transferee), not the seller of the merchandise to publish and record the required notices if they want to protect
themselves against claims of the seller's creditors. It is not necessary according to the law that the creditors be
individually notified as the publication and recording gives constructive notice of the transfer.
The publication and recording mus t indicate the names of the TRANSFEROR (Seller), TRANSFEREE (Buyer) and
the address of the business making the bulk transfer and the place and date of the sale. If the proper notifications
have not been made, the transfer may be considered fraudulent and give the creditors the right to have the transfer
voided.
If an auctioneer handles the bulk transfer, they would be charged with the responsibility of the publishing and
recording of the constructive notices. Should the proper notifications be made by the auctioneer, the auctioneer
would have no liability for any losses suffered by the creditors. Should they not provide proper notification the
auctioneer would be personally liable for any losses suffered by the creditors.
275. b. As stated in the above answer, it would be the buyer who would assume the liability if no notice were published or
recorded.
276. d. A BILL OF SALE is the receipt (evidences the transfer) that conveys PERSONAL PROPERTY. (a) A CHATTEL
MORTGAGE was an instrument that held personal property as security for a loan, which has been replaced by the
use of the Security Agreement. (b) A LAND CONTRACT OF SALE is a personal agreement regarding the conditions
under which a future transfer of real property may occur. (c) A DEED evidences the conveyance of real property.
277. d. The STATE BOARD OF EQUALIZATION requires both Wholesalers and Retailers to obtain a SELLER'S PERMIT.
278. a. JOISTS are the beams that run horizontal and parallel to each other and which are used to support the FLOOR and
CEILING loads. Joists are "beams," not rafters!
279. b. The supports located between the floor and ceiling are known as STUDS. Studs are generally 2 -Inches by 4-Inches
by 8-Feet in length and are normally located in most construction 16-Inches from the center of one stud to the center
of another (16-Inches on center).
280.a.

This is just another definition of JOIST. The beams do run horizontally and are parallel to each other.

281. c. The SHEATHING is found nailed to the rafters. This is done to enclose the roof. The shingles are then nailed to the
sheathing in order to keep the roof from leaking.
282. b. Statement of fact.
283. d. The use of SHORTER BLOCKS in a subdivision would utilize more land for the development of streets a nd less of
the land for the development of the lots. A better use would be more lots (to sell) and lesser street space.
284. b. The function a BEARING WALL serves in construction is to support the main loads of the floors and ceilings. They
are usually the least likely to have doors or windows and their removal without the proper re-supporting could cause
structural damage to the property. Therefore, bearing walls should be a prime concern when planning the remodeling
of a property.
285. a. The definition shown in a previous edition of the Department of Real Estate Reference Book described
ORIENTATION as: Placing a structure on its lot with regard to its exposure to the rays of the sun, prevailing winds,
privacy from streets and protection from outside noises.
286. b. This describes a PLOT PLAN - showing a house (improvement) in relation to the lot on which it is located and the lots
relationship to the streets, sidewalks and other lots in the area. (a) ORIENTATION - Placement of the improvement
on the land (see previous answer). ( c ) PLOTTAGE - An increase in value received as a result of combining several
lots into one larger parcel. (d) ELEVATION SHEET - A blueprint (plan) showing outside heights and measurements
of the improvements.
287. b. An AFFIRMATION is a verification or declaration that is not sworn to. An AFFIDAVIT is a declaration reduced to
writing, which is then sworn to under oath.
288. c. The requirement by the Alcoholic Beverage Control Board is that a PRIVATE CLUB must be in operation at least 2YEARS prior to a liquor license being issued to them. (a), (b) and (d) are businesses, not private organizations and
therefore have no waiting period to establish moral background.

24

289. b. Both spouses, if married, must make application for a liquor license to the Alcoholic Beverage Control (ABC) not to
the State Board of Equalization.
290. c. The original fee for a GENERAL ON-SALE or GENERAL OFF-SALE Liquor License is $6000. These newly issued
licenses are acquired through a lottery. The license can only be resold for the original fee paid for the first five years
after the original date of issuance. Once the license is 5 -years old or older, it can be resold for whatever a person or
entity (corporation) is willing to pay for it.
291. c. The process of EMINENT DOMAIN allows a governmental body (could be a city, county, state or federal government)
to acquire privately owned property if it is for a use that will "Benefit the General Public." This acquisition is
accomplished by negotiating to purchase the property from the owner at a "Fair Market Value." Should the owner
refuse to sell, then it can be CONDEMNED under the Eminent Domain process.
292. b. See the explanation in answer 291.
293. b. This is the definition of POLICE POWER. Eminent Domain would refer to the process by which property is taken
from private ownership to benefit the general public.
294. c. Statement of fact. Copies of the Structural Pest Control Report are sent by structural pest control companies to the
Structural Pest Control Board in Sacramento. The Board must keep copies of these reports for 2 years and they are
then of public record and a copy of any report can be acquired by anyone paying the required fee.
295. b. Statement of fact. The primary purpose of insuring oneself is to replace that which is lost, not to GAIN, nor LOSE!
296. b. Should there be a loan needed to acquire the real property, the INTEREST paid for the use of the money would be a
cost of home ownership. (a) AMENITIES create value. (c) EQUITY is created through principal build-up and
appreciation of value (unearned increment) and is beneficial to the owner. (d) PRINCIPAL is the pay-back on the
amount borrowed and is a benefit as it usually then lowers the amount of interest due each month on the loan and
brings the loan balance down.
297. d. EQUITY ASSETS such as the purchase of a home tend to increase in value in an inflationary economy and generally
at a rate of value growth that exceeds the rate of inflation. (a) SAVING ACCOUNTS tend to offer rates of return
below the inflation rates. (b) FIXED INTEREST RATE "GOVERNMENT-BACKED LOANS" also tend to offer
undesireable returns as would(c) LONG-TERM GOVERNMENT BONDS, which normally carry rates lower than
that of other investment opportunities.
298. b. Statement of fact.
299. b. ALIENATION is the act of conveying the title of real property to another.
ACQUISITION.

The opposite of CONVEYANCE is

300. b. (Update) Under current state law the landlord is given up to 21 Days (tape has 14 days, which is old law) to return
the entire amount taken or any unused amounts held for cleaning and security deposits along with an itemized list
should anything have been deducted. Failure to do so may subject the landlord to a p ossible penalty and suit for
damages suffered by the tenant.

25