California Real Estate Broker Exam — All Questions

Compared with a CLTA standard coverage policy, an ALTA extended coverage policy in California typically adds protection against:

• a.Liens recorded against the property after the policy date by the insured owner
• b.Losses caused by a future change in the zoning ordinance affecting the insured parcel
• c.A decline in the market value of the property during the buyer's period of ownership
• d.Rights of parties in possession and encroachments that an inspection would reveal✓

A CLTA standard policy insures matters of public record plus certain off-record risks such as forgery, lack of capacity and improper delivery. An ALTA extended policy adds an inspection and a survey and therefore reaches unrecorded risks a physical examination would disclose, including the rights of parties in possession, encroachments and unrecorded easements. Title insurance is not zoning insurance, and future government action is a standard exclusion. It does not insure market value. And it insures the state of title at the policy date, so liens the insured later creates are not covered.

A California preliminary report issued before closing is best described as:

• a.A survey of the property boundaries prepared by a licensed California land surveyor
• b.A binding warranty by the title company that title is free of the exceptions it lists
• c.An abstract of title summarizing every recorded instrument affecting the property
• d.An offer to issue a policy on stated terms, not a representation about the condition of title✓

A preliminary report is an offer to issue a policy of title insurance subject to the stated exceptions, exclusions and conditions. It is not a representation about the condition of title and cannot be relied on as one, which is why a buyer who wants a statement of title must ask for a condition of title report instead. It is not a warranty; the policy, once issued, is the contract of indemnity. An abstract of title is a separate historical summary prepared by an abstractor. And boundary work is the province of a licensed surveyor.

Which risk is covered by a standard California owner's title policy even though nothing about it appears in the public record?

• a.A forged deed in the chain of title that purported to convey the property✓
• b.An unrecorded easement being used openly by an adjoining property owner
• c.A boundary encroachment that a survey of the parcel would have revealed
• d.A mechanics lien for work the buyer orders after the close of escrow

Forgery is one of the classic off-record risks a standard policy insures, along with lack of capacity of a grantor, improper delivery and instruments executed under an expired power of attorney. Unrecorded easements in visible use and encroachments discoverable by survey are the very risks a standard policy excludes and an extended policy is bought to cover. And a lien arising from work the insured orders after the policy date concerns a later state of title, which no policy issued at closing insures.

Which element is NOT required for a valid California deed?

• a.The signature of the grantee accepting the conveyance✓
• b.A granting clause showing the grantor's intent to convey
• c.A description of the property sufficient to identify it
• d.Delivery of the executed instrument during the grantor's lifetime

A California deed must be in writing, identify a grantor with capacity and a grantee capable of holding title, contain words of grant, describe the property adequately, and be signed by the grantor and delivered and accepted. The grantee does not sign. Civil Code section 1054 makes delivery the moment the interest vests, so a deed found in a drawer after death conveys nothing. Consideration need not be recited, and recording is not required for validity, although an unrecorded deed leaves the grantee exposed to a later purchaser who records first.

Under Civil Code section 1113, the use of the word 'grant' in a California conveyance implies which covenants by the grantor?

• a.That the grantor will defend the title against every claim asserted by any person whatsoever
• b.That the grantor has not already conveyed the estate to anyone else✓
• c.That the improvements are free of construction defects and comply with the building code
• d.That the grantor holds marketable record title insurable by any California title company

Section 1113 implies two covenants and expressly says none other: that before executing the conveyance the grantor had not conveyed the same estate to anyone else, and that the estate is free from encumbrances done, made or suffered by the grantor or someone claiming under the grantor. A general warranty defending against all claims is the hallmark of a warranty deed used in other states; California relies on the grant deed plus title insurance. The section says nothing about physical condition or code compliance, and it does not warrant insurability.

A grantor signs a quitclaim deed to a parcel in which the grantor turns out to have held no interest at all. The grantee receives:

• a.Fee simple title, because a recorded deed is conclusive as to the interest it describes
• b.Nothing, because a quitclaim conveys only whatever interest the grantor actually had✓
• c.A life estate, because the deed operated on the grantor's possessory rights
• d.A claim against the grantor for breach of the implied covenants of a grant

A quitclaim deed releases whatever right, title or interest the grantor has, without any warranty that the grantor has any. If the grantor held nothing, the grantee takes nothing. Recording gives constructive notice and fixes priority but cannot manufacture an interest that never existed. No life estate arises from a deed that conveyed no estate. And the implied covenants of Civil Code section 1113 attach to the word grant, so a quitclaim carries them not at all, which is exactly why quitclaims are used to clear clouds rather than to convey marketable title.

Under Financial Code section 17006, a California real estate broker may perform escrow services without an escrow agent license when the broker:

• a.Charges no fee for the escrow work and completes fewer than twenty escrows each year
• b.Holds the funds in a separate account at a bank located outside the State of California
• c.Is acting as an agent or a party and performing acts requiring a real estate license✓
• d.Obtains the written consent of the Commissioner of Financial Protection and Innovation

Section 17006(a)(4) exempts a broker licensed by the Real Estate Commissioner while performing acts in the course of or incidental to a real estate transaction in which the broker is an agent or a party and is performing an act for which a real estate license is required. Subdivision (b) makes the exemption personal and forbids using it to run escrows for more than one business. The location of the bank is irrelevant. There is no fee-free or volume test in the exemption, although Business and Professions Code section 10141.6 requires a report once a broker reaches five escrows or a million dollars in a year.

Before the conditions of a California escrow have been satisfied, the escrow holder is best described as:

• a.A trustee for the listing broker, who is entitled to direct the disbursement of the commission
• b.The exclusive agent of the buyer, since the buyer's funds are on deposit in the escrow
• c.The exclusive agent of the lender, since the loan proceeds are the largest single deposit
• d.A limited dual agent of both parties, bound to follow their joint written instructions✓

Until the escrow conditions are performed, the escrow holder is a limited or dual agent of both parties, with authority strictly bounded by the escrow instructions; once the conditions are met, the escrow holder becomes the separate agent of each party as to the items each is entitled to receive. The holder is not the agent of the buyer alone, and the presence of loan funds does not make the holder the lender's agent. The listing broker is not a principal to the escrow, so the broker cannot unilaterally direct disbursement.

An escrow holder receives instructions from the buyer alone to release the deposit before closing. The escrow holder should:

• a.Decline, because the instructions can be changed only by mutual written agreement✓
• b.Comply, because the deposit belongs to the buyer until title has actually been transferred
• c.Comply, provided the listing broker approves the release in writing on behalf of the seller
• d.Interplead the funds with the county recorder pending a decision by the parties

Escrow instructions are the joint contract of the parties, and the escrow holder has no authority to act on a unilateral instruction; amendment requires the mutual written agreement of buyer and seller. Ownership of the deposit is precisely what is in dispute in such situations, so the buyer's claim to it does not settle the question. A broker is an agent, not a principal, and cannot supply the seller's consent to release. And where the parties genuinely deadlock, the remedy is an interpleader action in court, not a filing with the county recorder.

The county documentary transfer tax authorized by Revenue and Taxation Code section 11911 is imposed at the rate of:

• a.55 cents for each $100 of consideration, including any lien remaining at the time of sale
• b.55 cents for each $500 of consideration, exclusive of any lien remaining✓
• c.1 percent of the full purchase price, payable by the buyer at the time of recording
• d.2 percent of the assessed value shown on the most recent county property tax bill

Section 11911 lets a county impose a tax of 55 cents for each $500 of consideration or value, or fractional part of it, when the consideration exceeds $100, computed exclusive of the value of any lien or encumbrance remaining on the property at the time of sale. A city inside such a county may impose half that rate, with a credit against the county tax. The rate is per $500, not per $100. It is not a percentage of the full price, and it is not computed from the assessed value, which under Proposition 13 often bears little relation to the sale price.

Under Revenue and Taxation Code section 218, California's homeowners' property tax exemption reduces the assessed value of a qualifying owner-occupied dwelling by:

• a.$70,000 of full value, and it applies to every parcel the owner holds in the county
• b.$7,000 of full value, and it does not apply to a rental, vacant or vacation property✓
• c.2 percent of full value each year, compounding for as long as the owner remains
• d.Half of full value, matching the veterans' exemption available to eligible veterans

Section 218 sets the homeowners' exemption at $7,000 of the full value of the dwelling, and subdivision (b) withholds it from property that is rented, vacant, under construction on the lien date, or held as a vacation or secondary home, and from property receiving the veterans' exemption. The exemption is modest in dollar terms and is claimed on a single principal residence, not on every parcel owned. The 2 percent figure is the Proposition 13 cap on annual increases in assessed value, which is a different rule entirely.

A California owner transfers title but records nothing. A later buyer purchases the same property in good faith, pays value, has no notice of the earlier deed, and records first. Under Civil Code section 1214:

• a.Both take an undivided one-half interest as tenants in common by operation of law
• b.The earlier grantee prevails, because the first deed delivered is the first in right
• c.The later buyer prevails, because California follows a race-notice recording rule✓
• d.Neither prevails, and title reverts to the original grantor free of both conveyances

Section 1214 makes an unrecorded conveyance void as against a subsequent purchaser or mortgagee in good faith and for valuable consideration whose conveyance is first duly recorded. California is therefore a race-notice state: the later purchaser must both lack notice and record first, and here both conditions are met. Pure priority of delivery would be a race-nothing rule California does not follow. The statute allocates the whole estate rather than splitting it. And nothing in the statute revests title in the grantor.

A California owner records a deed conveying property to a named grantee, but the grantee is never told and the deed is retrieved from the recorder and destroyed. On these facts:

• a.The conveyance is conclusively valid, because recording is itself an irrebuttable act of delivery
• b.Delivery is presumed from recording, but the presumption can be rebutted by evidence of contrary intent✓
• c.The conveyance is void, because no California deed can be effective until the grantee signs it
• d.The conveyance takes effect only when the grantee later learns of it and pays consideration

Civil Code section 1054 makes delivery the operative act, and recording raises a rebuttable presumption that the grantor delivered the deed with the intent to pass title. Because it is a presumption, evidence that the grantor never intended a present transfer can overcome it. Recording is not conclusive. A grantee's signature is never required on a California deed. And while acceptance by the grantee is an element, acceptance is presumed when the conveyance is beneficial, and consideration is not required at all.

A probate sale of California real property is returned to court for confirmation at an original bid of $300,000. Under Probate Code section 10311, the minimum acceptable overbid at the hearing is:

• a.$345,000
• b.$330,000
• c.$310,000
• d.$315,500✓

Section 10311(a)(1) requires an overbid of at least 10 percent more on the first $10,000 of the original bid and 5 percent more on the amount above $10,000. Ten percent of $10,000 is $1,000, and 5 percent of the remaining $290,000 is $14,500, so the minimum overbid is $300,000 plus $15,500, or $315,500. Applying 10 percent to the whole bid gives $330,000, and applying 5 percent to the whole bid gives $315,000; $310,000 and $345,000 come from flat percentage guesses. The court then confirms to the highest qualifying offer, subject to its discretion to order a new sale.

Two joint tenants own a California property. One conveys an undivided half interest to a stranger. After the conveyance the parties hold as:

• a.Tenants in partnership, because two or more owners of an undivided interest form a partnership
• b.Joint tenants, because the survivorship right runs with the property rather than the owner
• c.Community property, because a transfer to a third party creates a statutory community
• d.Tenants in common, because the transfer severed the joint tenancy as to that interest✓

A joint tenancy depends on the four unities of time, title, interest and possession. A conveyance by one joint tenant destroys the unities of time and title as to the transferred share, so the transferee takes as a tenant in common with the remaining owner and the survivorship right is lost as between them. The right of survivorship does not run with the land. Community property is a form of ownership between spouses and cannot be created by a transfer to a stranger. And a tenancy in partnership requires an actual partnership holding the property for partnership purposes.

A California grant deed vests title in 'Ana Reyes and Luis Reyes, spouses, as community property with right of survivorship.' On the death of one spouse the property:

• a.Becomes the separate property of the decedent's estate until the probate court orders otherwise
• b.Passes half to the survivor and half through probate to the decedent's named beneficiaries
• c.Passes to the surviving spouse without administration, as provided by Civil Code section 682.1✓
• d.Must be sold and the proceeds divided equally between the survivor and the decedent's estate

Civil Code section 682.1 provides that community property expressly declared in the transfer document to be community property with right of survivorship passes to the surviving spouse on the death of the other without administration, subject to the same procedures as property held in joint tenancy. That is the vesting's whole purpose: it keeps the community property character while adding survivorship. Ordinary community property without that declaration would pass half by the decedent's will or by intestate succession, which is the outcome described in the second option.