1.
Mortgage yield is best described as:
Correct Answer
C. The effective interest return obtained from a first trust deed by an investor
Explanation
Mortgage yield refers to the effective interest return obtained by an investor from a first trust deed. This means that it represents the rate of return or profit that an investor receives from investing in a mortgage-backed security. It takes into account the interest payments received from the borrower, as well as any fees or costs associated with the loan. Therefore, the correct answer is "The effective interest return obtained from a first trust deed by an investor."
2.
Which of the following items could not be used by the owner of a hardware store as securityfor a loan, under the provisions of the Uniform Commercial Code?
Correct Answer
C. Stock for sale
Explanation
As the stock will be sold, it cannot be used to secure a loan.
3.
A valid escrow requires which of the following:
Correct Answer
B. A binding contract between the buyer and seller and the conditional delivery of transfer
instruments to a third party
Explanation
These are required for a valid escrow.
4.
If the loan-to-value ratio is low:
Correct Answer
A. The equity in property is high
Explanation
Loan to value ratio is the ratio of the loan to the appraised value. If a 90% loan to value
ratio is given by a lender, that indicates a 10% down payment, and a beginning equity of
10%. If the loan to value ratio is only 60%, the down payment is 40% and the beginning
equity is 40%. The lower the loan, the higher the equity.
5.
The Real Estate Commissioner would be prevented from proceeding with a formal actionagainst the license of a real estate broker by the:
Correct Answer
C. Lapse of three years from the occurrence of the grounds of complaint
Explanation
The accusation must be filed within three years of the occurrence of the act which is
considered grounds for revocation or suspension of the license.
6.
Sellers are usually reluctant to cancel an existing transferable fire insurance policy in theevent of a cash sale, due to the fact that:
Correct Answer
B. The higher short term cancellation rate will apply
Explanation
A seller on a cash sale would be reluctant to cancel an existing transferable fire insurance
policy because the seller would receive a short term cancellation rate. Therefore, the seller
would prefer to transfer the existing policy to the buyer.
7.
To minimize risk, a lender looks at:
Correct Answer
A. Loan-to-value ratio
Explanation
A lender looks at the loan-to-value ratio to minimize risk. This ratio compares the amount of the loan to the appraised value of the collateral (usually a property). A higher loan-to-value ratio indicates a higher risk for the lender, as the borrower has less equity in the collateral. By considering this ratio, the lender can assess the level of risk associated with the loan and make an informed decision on whether to approve it or not.
8.
A minority purchaser enters your office and states they are looking for, and interested in,purchasing a particular property in a minority neighborhood. You could legally assume that:
Correct Answer
B. They are interested in that particular property
Explanation
Should any prospective purchaser enter your office requesting to see a particular property,
you would assume they were interested in that particular property.
9.
A subdivider and developer purchased considerable acreage and now plans to construct atract of 40 homes. In arranging the financing for the new construction, the lender has agreedto advance part of the funds immediately and will release a set amount of additional money aseach home is completed. The funds that will be forthcoming as construction progresses areknown as:
Correct Answer
A. Obligatory advances
Explanation
This type of construction financing is referred to as obligatory advances or fixed
disbursement schedule.
10.
The lender’s first line of defense in making a loan is:
Correct Answer
A. Loan-to-value ratio
Explanation
The lender's first line of defense in making a loan is the loan-to-value ratio. This is a financial ratio that compares the amount of the loan to the appraised value of the property being used as collateral. It helps the lender assess the risk associated with the loan and determine the amount of financing that can be provided. A lower loan-to-value ratio indicates a lower risk for the lender, as there is more equity in the property to cover potential losses. Therefore, the loan-to-value ratio is an important factor in the lender's decision-making process.
11.
All of the statements below are true, except:
Correct Answer
D. A reconveyance deed is used to convey title to a new purchaser in connection with a “trust
deed sale”
Explanation
A reconveyance deed is given by a trustee to the borrower (trustor) after a loan has been
paid in full. The borrower records his deed of reconveyance to clear the loan lien from
the record.
12.
Which of the following is not a necessary element in the formation of a contract:
Correct Answer
D. Performance
Explanation
Two parties may enter into a contract, but they might not fulfill (perform) their obligations.
13.
Lender’s use the term “debt-income ratio” to refer to a:
Correct Answer
B. Loan qualifying tool
Explanation
Debt income ratio indicates the fraction that your loan payment on the property is in
relation to the net income from the property. This is used by lenders when qualifying a
person for an income property loan and measuring their margin of safety.
14.
A prospective client calls you and asks you to take a listing on his property. In review hispapers you discover he is purchasing the property on a contract of sale that has no accelerationclause, and that has no provision in the contract prohibiting a resale or an assignment. Whichof the following is the most nearly correct statement? Your client could:
Correct Answer
B. Sell or assign his rights but not his duties under the original contract unless the contract seller’s
approval was obtained
Explanation
A party purchasing property under a land contract of sale may sell their interest without
difficulty by assigning the contract, provided there is no prohibition on the agreement.
The assignee would still be secondarily liable for some of the terms of the contract unless
the seller’s approval was obtained.
15.
Many real estate contracts are in writing on forms. Parts of these contracts are written and parts are printed. In the interpretation of such contracts:
Correct Answer
C. The written parts take preference over the printed parts
Explanation
As regards to contracts, the written takes preference over the printed parts and oral agreements take preference only when the written contract is incomplete or ambiguous.
16.
A lender possessing a chattel mortgage may:
Correct Answer
D. All of the above
Explanation
Re-emphasizing a prior question concerning the terms: alienate, hypothecate and assess. A
chattel mortgage is a mortgage secured by personal property. Such a mortgage may be
used as security for an additional loan. When the property is put up as security for a loan
and one retains possession, it is said to be hypothecated. Personal property may be
assessed for personal property taxes and/or federal estate taxes.
17.
Certain charges are prohibited by the Real Estate Settlement Procedures Act in selling ahouse. Buyer or seller may legally be charged for all of the following except:
Correct Answer
A. Disclosure settlement statements
Explanation
Disclosure statements required by RESPA must be provided the borrower at no cost.
18.
A real estate broker is usually:
Correct Answer
D. None of the above
Explanation
The broker is usually the agent (fiduciary) of the seller and usually does not have a powerofattorney.
19.
The best definition of a straight note is:
Correct Answer
C. Principle is all due at one time
Explanation
A straight note has no principal payments and principal is due all at one time.
20.
Where a broker show a client’s property to a prospective buyer that is listed with the brokerunder an open listing, the broker should:
Correct Answer
C. Notify the seller as to the prospect’s identity
Explanation
Notifying the seller establishes the broker’s right to collect a commission as “procuring
cause”. Answer “c” provides the only effective way of establishing that right.
21.
A contract which, according to the Statute of Frauds, must be in writing in order tomaintain a court action for enforcement is:
Correct Answer
D. Any agreement which is not to be performed within one year
Explanation
Statement of fact.
22.
A loan for which interest-only payments are made is:
Correct Answer
A. A straight note
Explanation
A straight note has no payment of principal on the installment basis and principal is due at
maturity. When interest only is paid, the no principal is paid until maturity.
23.
Concerning business opportunities:
Correct Answer
D. All are true statements
Explanation
All are true.
24.
A licensed real estate broker working under a typical exclusive listing incurs several expenses. He is not entitled to be reimbursed for these expenditures, unless:
Correct Answer
B. Such expenditures were authorized by the principal
Explanation
A seller is not obligated to reimburse the expenses of the broker unless those expenses are
authorized by the seller.
25.
Comparing an installment note to a straight note, the straight note will have:
Correct Answer
C. No principal payments during the term of the loan except on the last payment
Explanation
The correct answer is "No principal payments during the term of the loan except on the last payment." This means that with a straight note, the borrower does not make any principal payments throughout the term of the loan, except for the final payment. In contrast, an installment note would require the borrower to make equal annual principal reduction payments, meaning that they would be paying off a portion of the principal amount each year. Additionally, the straight note will have a higher total effective interest rate compared to an installment loan.
26.
A primary justification for zoning ordinances is to:
Correct Answer
C. Promote public health, safety, morals and general welfare
Explanation
Zoning laws are exercise of the police powers which are for the public health, safety,
morals and general welfare. No compensation need be paid in exercise of police power,
as they are for public protection.
27.
Which of the following phrases will best describe the nature of a broker’s duty to keep hisprincipal informed:
Correct Answer
C. Fiduciary obligation
Explanation
A fiduciary obligation is a relationship of trust and confidence. The broker has loyalty to
his principal and must keep him fully informed.
28.
A salesman receives a deposit together with a written offer to purchase and delivers them tothe employing broker who presents it to the seller. The seller signs and accepts the offer.Without the consent of the salesman and through no fault of his own, the buyer and sellerinstruct the salesman’s employing broker to return the deposit. Which of the following is true?
Correct Answer
B. The broker may sue the seller but must return the deposit
Explanation
Once the offer has been accepted, the deposit money belongs to the seller. If the seller
instructs the broker to return the deposit, the broker must do so. The broker has probably
earned a commission and may sue the seller for the amount but may not hold the deposit
money.
29.
An attorney drew up a contract between a buyer and a seller for the purchase of a property.The agreement included a liquidated damages clause calling for the payment of $500 in theevent the buyer should default. Prior to the close of escrow, the buyer decided that the homewould not suit his family and canceled the purchase. If the seller were to sue for specificperformance, he would most likely be:
Correct Answer
C. Unsuccessful because the seller agreed to accept the $500 as liquidated damages in the contract
Explanation
Since both buyer and seller agreed to the liquidated damages, the seller has agreed that if
the buyer defaults, his sole claim will be to the $500.
30.
A second offer received on a property prior to the seller’s decision on the first offer shouldbe:
Correct Answer
B. Submitted immediately
Explanation
All offers must be submitted immediately.
31.
In portfolio risk management, a lender considers:
Correct Answer
D. All of the above
Explanation
In portfolio risk management, a lender determines what type of loans to have in his
portfolio. Factors are: How quickly can I sell these loans? What are my reserves? How
diversified are these loans? Are they all business? Are they all residential? Are they a
mixture of business and residential?
32.
You sell a note with a face value of $12,000 for $10,000. You are:
Correct Answer
A. Discounting the note
Explanation
Any time you sign a note or sell a note and the amount you receive is less than the account
stated on the face of the note you are ‘discounting the note’.
33.
An “able buyer” means one:
Correct Answer
D. Any of the above
Explanation
Any of these would indicate an ‘able’ buyer.
34.
In appraisal practice, all of the following are accepted methods of computing the estimateof a building cost, except:
Correct Answer
A. The development method
Explanation
Choices “b”, “c” and “d” are all methods of estimating the building cost; “a” is the method
used to estimate value of vacant land.
35.
The right to foreclose a trust deed, under a trustee’s power of sale, outlaws:
Correct Answer
D. Never
Explanation
A trust deed is not a contract, but rather a conveyance of the naked legal title with the
power of sale from the trustor to the trustee. Therefore, the trustee retains the right to sell
the property under the trust deed at any time for the benefit of the beneficiary. The
conveyance has been performed and thus is not under the Statute of Limitations;
therefore, it never ‘outlaws’.
36.
Broker Stiles took a listing from a seller using the standard listing form. One week beforethe listing expired, the broker informed the seller that he had a prospective buyer namedBennett. After the listing expired, the seller listed with Broker Johnson. Johnson showed theproperty to Mr. Bennett and obtained an offer that was accepted. Under these circumstances:
Correct Answer
B. Broker Johnson gets a 6% commission
Explanation
In the safety clause of the standard listing form, Broker Stiles would agree to relinquish
his safety period if the property were listed with another broker.
37.
A loan created with more than one borrower is usually added to the promissory note for theprotection of the lender:
Correct Answer
B. Jointly and severally
Explanation
When there is more than one borrower on the note, the promise and obligation to pay that
balance is the responsibility jointly of all the co-borrowers, and also each individual is
severally liable for the full debt. Severally, in law, means individually.
38.
Mr. and Mrs. Johnson who had been shopping for a new home found one that they likedvery much but because they felt the property was overpriced, they decided not to buy it. Theirreason for not buying was probably based upon the Principle of:
Correct Answer
B. Substitution
Explanation
It must be assumed that our buyer has found another home that was equally desirable but
at a much lower price. This is the idea behind the Principle of Substitution.
39.
When a broker misrepresents his principal’s property to a buyer, he could cause hisprincipal to be subject to:
Correct Answer
D. Any of the above
Explanation
The principal is responsible for his agent’s actions. If misrepresentation occurs, there
should be a rescission of the sale or civil court action for damages.
40.
An owner of a 5 unit apartment building that is located within the city limits intends tocovert the building into 5 condominium units and offer them for sale to the public. Under thesecircumstances, the developer:
Correct Answer
B. Must file a map with the city under the provisions of the Subdivided Map Act
Explanation
Any type of subdivision located within the city limits is exempt under the Subdivided
Lands Act but a condominium conversion of 5 units or more is covered under the Map
Act and must be filed with the local authorities.
41.
Option to renew a lease is a:
Correct Answer
A. Covenant
Explanation
An option to renew a lease is a promise by the lessor to do so in the event the lessee
desires it. A promise in a contract is a ‘covenant’.
42.
Which of the following is a legal term used to describe the entire parcel of real property andall structures on such property?
Correct Answer
C. Condominium project
Explanation
When you consider the condominium units as well as the common areas, you have a
condominium project.
43.
After acquired title is conveyed in any trust deed for the benefit of the beneficiary. Itconveys:
Correct Answer
D. All of the above
Explanation
‘After acquired title’ refers to title to fixtures or other real property items, that become
part of the land that is securing the existing trust deed. If a lot serving as security for a
loan made ten years ago has land affixed to it, that land becomes encumbered with the
lien made ten years ago. If additional improvements, such as a swimming pool, added
bedroom or new landscaping are added to the real property, they to become encumbered
with a trust deed lien made ten years ago.
44.
RESPA requires delivery of the uniform settlement statement not later than:
Correct Answer
D. At or before the date of settlement
Explanation
Upon request, the lender must allow the borrower to inspect the uniform settlement
statement one day prior to the close of the transaction but the statement must be delivered
only at or before the date of settlement.
45.
During Broker Shaw’s preparation of the Exclusive Authorization and right to Sell onSeller Norman’s property, Norman asked that a clause be included which would require thebuyer to accept primary liability in connection with the existing loan is transferred to the buyer.Shaw should enter with of the following in Paragraph 2 of the Exclusive Authorization andRight to Sell from:
Correct Answer
B. Buyer to “assume” existing loan
Explanation
If a buyer assumes an existing loan, he accepts primary liability for that loan.
46.
A third party who takes a promissory note that is complete and regular and has noknowledge of any defects is known as a/an:
Correct Answer
D. Holder in due course
Explanation
The party that accepts the endorsed note from the original payee,without knowledge of
any defects is known as the holder in due course.
47.
The owner of a single family residence plans to sell and wants to obtain an FHA appraisalto permit a sale with FHA financing. He should:
Correct Answer
C. Have a lender apply for a conditional commitment
Explanation
The recommended process for the lender to contact FHA for a ‘conditional’ commitment;
that is; for advance assurance that an FHA loan will be made, establishing the loan value
for the house.
48.
In regards to real estate brokerage, which of the following statements is correct:
Correct Answer
B. In an exclusive agency listing, a seller may sell without being liable for a commission
Explanation
An exclusive agency listing, a seller agrees to pay a commission to the listing broker. It is
the listing broker’s responsibility to pay any other agent who sell the property.
49.
A buyer defaults in making payments on a loan, therefore the lender’s action probablywould result in:
Correct Answer
C. Acceleration
Explanation
Acceleration indicates the right to declare the entire sum of a note to be due and payable
immediately. Most trust deeds contains several acceleration clauses. Most common states: “if you become delinquent in the payment on this note, the entire sum of the note
becomes due and payable immediately. Another states: “The entire sum of the note is due
upon the sale or transfer of the property”. – triggered by the sale of the property and
therefore is a specific “acceleration clause”. The rule is: alienation clauses are types of
acceleration clauses but not all acceleration clauses are alienation clauses.
50.
Which of the following is the classic definition of the boundaries of real property?
Correct Answer
B. A reasonable use of airspace and extended to the center or the earth
Explanation
The surface of the earth and the material beneath the surface to the center of the earth is
part of the real property. Since airways are now public domain, the ownership of airspace
is ‘use to an enjoyable and reasonable height’.