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Practice Exam 9
Terms in this set (50)
A person invested $5,000 in a limited partnership. One of his concerns was the amount of his liability. Since he is one of the limited partners, can he be held liable for more than his initial investment?
A: No, because he is only liable for his initial investment.
One of the attractions of a limited partnership in a real estate investment is that it allows the person to participate in real estate development deals without risking more than his or her initial investment. (It's the general partners who have more than their initial stake at risk.)
A city took a property through eminent domain so they could build a sports complex and then lease it to four private sports franchises. Would this be allowed?
A: Yes, as long as the homeowners were paid compensation for the properties.
So long as fair compensation is paid, how "the public good" is defined is left largely up to individual communities.
A subdivision has a deed restriction that does not allow tree houses. An architect moves into the subdivision and builds a tree house in the back yard. How many neighbors will it take to enforce the deed restriction and what action should be taken?
A: Only 1 neighbor needs to take action through a court action.
As practical matter, a complaint to the community association is often enough to convince the owner to remove the tree house. Failing that, however, the court will enforce the requires on a single complaint.
Which best describes ownership in severalty?
A: ownership of one property by one single person
The root of "severality" in legal terms has to do with the state of being separate and distinct, thus representing sole ownership.
In an appurtenant easement, the party that benefits is known as the:
A: dominant tenement
The person whose land is benefited by the easement, and therefore is the DOMINATING PARTY, is considered the dominant tenement. The servient tenement is the opposite of this. Leaser and lessee involve lease agreements, and have nothing to do with easements.
An encumbrance that affects the title, usually related to money, is known as:
A: a lien.
A lien is a charge against a property--a financial encumbrance. The other easements listed here do not deal with finances, but are considered usage encumbrances and affect the way in which the land may be USED.
A recorded legal document that gives constructive notice that an action affecting a certain property has been filed in court is called:
A: a lis pendens.
Lis pendens is Latin for "litigation pending," which will help you to remember that while a lis pendens isn't a lien, it is notice that litigation (a possible lien) is pending. The other terms listed deal with deeds (habendum clause and general warranty deed), or mortgages (estoppel certificate).
The document that defines the relationship between the real estate firm and the seller is the:
A: listing agreement.
While disclosure statements, purchase contracts, and even exclusive agency contracts are also legal documents that the broker or salesperson enters into with the clients, it is the listing agreement that clearly defines the relationships and agreements between the broker and principal.
The rights of a landowner to use waters of an adjacent stream or river are known as:
A: riparian rights.
While both riparian and littoral rights have to do with water, remember that riparian rights have to do with FLOWING bodies of water, such as rivers. (You might keep in mind that River and Riparian both begin the same way.) Zoning and seisin both deal with land control.
The absolute ownership of an apartment or a unit, plus an undivided interest in the ownership of the common elements, which are owned jointly with the other unit owners, is called:
Said another way, it means a condominium owner owns his own unit plus a share (usually based on the square footage of his or her unit) of all the common property in the complex.
A condominium homeowners' association would have the right to do all EXCEPT:
A: Interview potential buyers.
Just as neighbors in a single-family neighborhood do not get to interview potential buyers, neither do homeowners' associations in a condominium development.
What can a person NOT do with his/her complete bundle of rights?
Condemning property is the exclusive right of government. Usually that means local municipalities under eminent domain, though it can also include state as well as federal action, especially for national defense or hazardous waste conditions.
Which of the following liens is highest in priority?
A: special assessment
Special assessments are usually additional property taxes levied for things such as road and sewer repairs. A special assessment lien is filed when those taxes go unpaid and does take priority (is paid first) over all other liens, including mortgages in the event of foreclosure.
Which of the following does NOT accurately describe an encroachment?
A: Encroachments are normally revealed in the chain of title.
Encroachments are accidental by nature and so are usually discovered only by inspection or survey.
A woman bought a house and wanted to bring along her pet cougar to keep in the backyard. Which would most likely keep her from doing this?
A: Zoning ordinances, because sometimes these contain which animals may be kept.
It's common for zoning ordinances to regulate the kinds of animals that may be kept. For example, in urban and heavily populated suburban areas, housepets only may be allowed. In more country-like settings, only housepets may be allowed in one zoning category, while housepets and horses in another. Other than zoos and wilderness areas, cougars are out of luck when it comes to being welcomed into the community.
A sale-leaseback converts a fee simple estate to a(n):
A: less than freehold estate.
A person who enters into a sale-leaseback transaction becomes a tenant on property he used to own. It's typically done to improve cash-flow in a business situation.
Which of the following would constitute a judgment?
A: the official decision of a court on the respective rights and claims of the parties to an action or lawsuit
"Judgments" refer specifically to court actions, such as suing to enforce a lien and divide property after a bankruptcy.
A buyer and seller entered into a contract for the purchase of a house. The seller purposely did not disclose the fact that the roof leaked. The buyer has recourse under which of the following concepts?
A: latent defects
"Latent defects" refer to hidden structural flaws that are both known to the owner and not readily obvious to the buyer. Further, they are "material facts" which both the owner and, especially, the broker or salesperson are obligated to disclose.
A loan company was referring loan applicants to a particular insurance company, which in turn paid the loan company a referral fee. This is:
A: illegal, since the Real Estate Settlement Procedures Act prohibits kickbacks.
Under RESPA guidelines, "referral fees" are considered illegal kickbacks.
Which of the following must be disclosed to be in compliance with Regulation Z (Truth in Lending)?
A: the cost of credit
Regulation Z (Truth In Lending) creates a disclosure device only, and does not establish any set interest rates or required charges for credit such as closing costs or broker's commissions.
Which is NOT a purpose of the Truth in Lending Laws (Regulation Z)?
A: to set the interest rate
Regulation Z is concerned with interest rates only to the extent that its "sunshine" provisions force lenders to fully disclose all costs, thus providing a degree more competition.
Which of the following is NOT a purpose of the Federal Reserve System ("The Fed")?
A: to buy loans in a depressed area or in times of a tight money market
The Fed provides loan mechanisms and helps maintain an orderly marketplace, but it does not make, buy or sell actual loan instruments.
If a builder wanted to obtain a mortgage for several pieces of property with a release clause, which type would be best?
A: blanket mortgage
A blanket mortgage, as the name implies, is a single loan for a number of properties. The release clause allows the builder to make additional or accelerated payments and thus release or partially release some of those properties as security on the loan.
How would a construction loan differ from a VA or FHA loan on an existing home?
A: A construction loan is generally a higher risk than a residential loan.
From the lender's perspective, construction loans are higher risk on two counts. First, they carry no guarantees, as is the case with VA and FHA loans. Second, a house under construction is riskier than a completed one since any number of events, including material shortages, delivery issues, unexpected financial difficulties for the builder or owner and many others, can impact its completion.
What is the BEST definition of interest?
A: the fee a borrower pays to a lender for the use of the money
Said another way, interest is the profit on money in the same way mark-up is the profit stores make on the goods they sell.
In a repayment of a mortgage loan, which type of interest is used?
Compound interest is the interest paid depositors for their savings while "discount" and "floating" are associated with the business-to-business financial markets.
Which would NOT fall under a blanket mortgage?
A: single unit in a condominium
Blanket mortgages, by definition, are for multiple properties--usually within a business context, such as a land or housing developer.
Which of the following items protects a lender from having the loan assumed by another party?
A:due on sale
By declaring the entire balance due on the transfer of property, lenders control who owns the note because homeowners can't sell or transfer the mortgage without first selling the property.
A borrower obtained a $10,000 term loan with 16 1/2% interest paid yearly. A $1,000 principal reduction was to be paid with each yearly installment. What would be the amount of the principal and interest payment for the second year?
Since a $1,000 principal balance was paid in year one, the balance on which the 16.5% interest would be based for year two is $9,000, or $1,485. Adding in the additional $1,000, the principal payment equals $2,485.
A property had an area of 920 square yards with a 40-foot frontage. What was the depth of the lot?
A: 207 feet
We know the total square yardage as well as the frontage expressed in feet. Since area is a function of length times width, and since there are 9 square feet in each square yard, we know that 40 times X divided by 9 will give us our answer. To make the calculation, multiplying 920 yards by 9 will allow us to divide the result by 40 to find the depth, which is 207 feet.
A seller netted $55,350 after closing expenses of $450 and a 7% commission. What was the sale price?
Anytime you see the words, "Seller wants to net" or "After paying a commission" the problem must be done in the following order: 1. Add expenses (closing costs, mortgage) to what the seller wants to net. 2. Subtract any refunds (prepaid rents, insurance assumption) due to the seller. 3. Divide the amount above by the aggregate of the commission. (100% minus 7% =93%) So in this problem $55,350 + 450.00 =$55,800 divided by 93% = $60,000.00 Using your % key will be a big help if you do not like to convert % to decimals, the process is done for you internally in the calculator.
A 50-unit apartment building rented units for $200 per month. The annual gross income multiplier is 10. What is the value?
At $200 per unit, 50 units generate $10,000 per month or $120,000 per year in rental revenue. Since the gross rent multiplier is 10, the value is $1,200,000.
An appraiser determined that a property needed painting and a new roof. It also lacked adequate sidewall insulation. It was located next to a busy highway, thereby lowering the value $900. He assigned the following values to the needs: painting--$600; roof--$800; and insulation--$850. What was the total physical and economic depreciation?
Depreciation" is a loss in value due to any cause. Any condition that adversely affects the value of an improvement. Depreciation falls into three classifications which are physical deterioration, functional obsolescence, and external (economic) obsolescence. Painting and the roof are physical, the highway is external (economic), and the insulation is functional. Since the question is asking for only physical and economic (external) you should not have included the insulation (functional) in your answer.
How does subdividing differ from real estate development?
A: A developer constructs improvements to the land; a subdivider separates it into sections.
Subdividers divide large parcels of land into smaller, buildable lots in preparation for subdivision development. Developers manage the process of completing the improvements to the subdivision lots.
All comparable properties had a fireplace and the subject property did not. The appraiser would:
A:Subtract from the comparable property
It's more precise to subtract the estimate value of a feature from a known price than to add it to a speculative one. Thus, price adjustments for features are always made to the comparable properties, never the subject property.
A salesperson, when doing a comparative market analysis (CMA), would be LEAST concerned with which of the following sets of information?
A: the original price the owner paid for the property
Real estate markets always operate in the present tense. Thus, while the original price paid may be of interest, it ranks way below the other variables in importance.
Which of the following is NEVER used in the market data approach?
Taxes, within the relatively narrow area in which market data analyses take place, are somewhat of a constant in terms of rate. Thus, any variation would only serve to cloud the important points of comparison.
A person was considering buying a house. She looked at two houses that were very comparable to each other. She would not pay more for one house than the other based upon the principle of:
Substitution is one of the guiding principles of real estate valuation. Simply stated, it means the most someone will pay for one property is the highest price for which one may purchase an equally desirable property.
A metes and bounds description is given as follows: "A piece of property beginning at the cross section of highways 32 and 7, thence South 355 feet, thence West 280 feet, thence North 260 feet, thence East 315 feet." Is this a valid description?
A: No, it is imperfect, as it does not end at the point of beginning.
Metes and bounds descriptions always begin and end at the same point. Had the last entry read, ". . . thence East 315 feet to the cross section of highways 32 and 7," it would have been a valid description.
An owner of a 12-unit apartment building lived in one of the apartments. The owner refused to rent to a person because of his national origin. Based on Federal Fair Housing Laws, does the person have a valid complaint?
A: Yes, because it was a 12-unit apartment building.
Although some provisions are made regarding owner-occupied buildngs of 4 units or less, a 12-unit apartment building is subject to all the rules and regulations of the Federal Fair Housing laws.
Franco is an affiliate broker, but he wants to sell his own house without listing it with his broker. In advertising, Franco:
A: must include "owner/agent" in all ads.
A broker may sell his own home, but the term "owner/agent" must appear in all advertisements to rent or sell that are owned by licensees. Employing firm information is not to appear in advertisements for property that is being sold as a private citizen.
What does a broker need to include in a website developed to advertise the broker's office?
A: Name and telephone number of the office
The name and telephone number of the company must appear on all advertising whether it is through the local media or the internet. However Tennessee laws do not specifically address website requirements.
An affiliate broker must turn over earnest money to the broker:
A: immediately on receipt.
Earnest money is turned over to the broker immediately upon receipt. It then must be deposited into a trust or escrow account.
If a broker manages several properties for the same client and needs to borrow funds from the escrow account of one property to pay for repairs at another property, which is true?
A: The broker violated regulations on handling escrow funds.
Even though the broker may believe it is in the client's best interest, it is a violation of regulations to use funds from one property for repairs on another property, even when all properties have the same owner.
If a broker opens an interest-bearing escrow account, the broker:
A: If a broker opens an interest-bearing escrow account, the broker:
It is the broker's duty to be sure the contract stipulates whether the buyer or the seller receives any interest earned from an escrow account. The broker is not entitled to the earnest money or any interest earned from that money.
Bob owns TriCounty Realty and is not licensed in real estate. However he has Fred, a licensed broker to be the managing broker, and the two share signing rights to the firm's escrow account. Periodically Bob writes checks on the escrow account for personal use, but he always replaces the funds within a week. If no seller or buyer has ever been damaged as a result of this practice, which of the following is correct?
A: The broker can have is license revoked by the TREC for this activity.
Taking money from an escrow account and using it for personal reasons is called conversion and is against license law. Both the owner and the broker can have access to the account as long as the funds are used properly.
Brokers and salespeople who are not lawyers are legally allowed to:
A:fill in blanks on the preprinted contract forms normally used in the community.
Brokers and salespeople in Tennessee who are not lawyers have the authority to fill in the blanks on preprinted contract forms as directed by the buyer or seller. Licensees who are not lawyers need to avoid any actions that create the appearance of the unauthorized practice of law.
The following document must be given to the affiliate broker by the seller completely filled out and signed.
A: Property disclaimer or disclosure notice
An affiliate broker must receive from the seller a completed and signed property disclaimer or property disclosure form to be made available to potential buyers. A subagency agreement would not be given to the broker by the seller, a radon disclosure statement is not a requirement, and sellers and their agents are not required to submit any statements regarding homicides, etc. on the property.
A broker and a seller fill out a listing agreement with the following clause: "If the property has not been sold after three months from the date of signing, this agreement will automatically continue for additional three-month periods until the property is sold." Based on these facts, this listing agreement:
A: is illegal in Tennessee.
Under Tennessee license law a listing agreement must have a specific termination date. This agreement contains rollover extensions, a practice that is illegal in Tennessee.
Jill lists her house for sale with Gomez on February 1 with a listing agreement that is to last five months. Jill changes her mind about selling the house in April and calls Gomez to tell him to cancel the listing agreement. Jill:
A: has withdrawn the broker's authority to sell the house and may owe the broker compensation.
A listing agreement may be cancelled by either party, but the canceling party may be in breach of contract, depending on terms of the agreement, and may be liable for expenses or damages. The TREC does not have judicial decree over the seller.
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