California Real Estate Salesperson — All Questions

Possession under a document that appears to give title but is actually defective is known as holding under:

• a.Good title
• b.A perfected security interest in the property
• c.Equitable title held while awaiting a closing
• d.Color of title✓

Color of title exists when a person holds under a written instrument that seems valid but is legally defective, which can affect adverse possession claims. It is not the same as good title. The concept matters in disputes over ownership and prescriptive claims.

The primary purpose of recording a deed is to:

• a.Transfer title from the grantor to the grantee
• b.Guarantee that the title is free of all defects
• c.Establish the property's assessed value for taxation
• d.Give constructive notice of the interest to the public✓

Recording gives constructive notice, protecting the grantee's priority against later claimants, but it does not itself transfer title or guarantee a clear title. Delivery and acceptance transfer title; title insurance addresses defects. Recording is about notice and priority.

In California, who among the following may lawfully conduct escrow for a real estate sale?

• a.Any party to the transaction who volunteers to hold the funds
• b.The listing salesperson acting in a personal capacity
• c.A licensed escrow company or an exempt broker or attorney✓
• d.The county recorder as part of the recording process

Independent escrow companies are licensed by the Department of Financial Protection and Innovation, while banks, title companies, licensed brokers in their own transactions, and attorneys are exempt from that license. The escrow holder must be neutral. Not just anyone may conduct escrow for compensation.

Escrow instructions signed by both buyer and seller are significant because they:

• a.Automatically transfer title as soon as they are signed
• b.Replace the need for a written purchase agreement
• c.Set the property's assessed value for taxation
• d.Are binding directions the escrow holder must follow✓

Signed escrow instructions bind the escrow holder to act only as directed and reflect the parties' agreement. The escrow holder cannot deviate without amended instructions. Conflicts between the instructions and the purchase contract should be reconciled by the parties.

The escrow holder's relationship to the parties is best described as:

• a.A representative of the county tax collector's office
• b.A neutral agent of both, following mutual instructions✓
• c.An advocate for whichever party first opened the escrow
• d.A fiduciary for the lender that is providing the loan

An escrow holder is a limited, dual agent of both parties, acting neutrally to carry out their mutual written instructions, and becomes a separate agent for each once conditions are met. It must not favor either side. Impartiality is the essence of escrow.

A broker may act as the escrow holder in a transaction only when the broker:

• a.Also holds an appraisal license issued by the state
• b.Charges a lower fee than a licensed escrow company would
• c.Represents the buyer or seller in that transaction✓
• d.Obtains written approval from the Real Estate Commissioner

A broker's escrow-license exemption applies only to transactions in which the broker is performing acts requiring a real estate license, such as representing a party. The broker may not conduct escrow for unrelated parties. The escrow must still be handled neutrally with trust funds kept properly.

Escrow is generally considered complete, or perfect, when:

• a.The buyer's mortgage loan application is first submitted
• b.All conditions of the escrow instructions are met✓
• c.The listing agreement is entered into with the broker
• d.The purchase agreement is initially signed by both parties

Escrow is complete when every condition in the instructions has been satisfied and the escrow holder can carry out the exchange of deed and funds. At that point the escrow holder disburses and records as instructed. Until then, the conditions remain to be fulfilled.

Under the federal TRID rule, a borrower must receive the Closing Disclosure at least:

• a.Thirty days after the loan funds are fully disbursed
• b.One year before the purchase contract is even signed
• c.Three business days before consummation✓
• d.On the day of closing at the signing table itself

The TILA-RESPA Integrated Disclosure rule requires delivery of the Closing Disclosure at least three business days before loan consummation, giving borrowers time to review final terms. Certain changes restart the waiting period. The rule promotes informed borrowing.

How are escrow fees and other closing costs typically allocated between buyer and seller?

• a.By agreement or local custom✓
• b.Always paid entirely by the seller in every case
• c.Set by a fixed schedule written into state law
• d.Always paid entirely by the buyer in every case

Who pays escrow and closing costs is negotiable and often follows local custom, which varies by region within California. The purchase agreement specifies the allocation. There is no statewide law fixing exactly who pays each cost.

Canceling an escrow before closing generally requires:

• a.Mutual written instructions from the parties✓
• b.A unilateral written demand by either party alone
• c.A court order in every single instance
• d.Approval from the Department of Real Estate

Because escrow instructions are mutual, canceling escrow typically requires both parties' written agreement, and disputed deposits may be held until the dispute is resolved. One party generally cannot force cancellation and release of funds alone. Escrow holders often require mutual cancellation instructions.

A valid, binding escrow requires an enforceable underlying contract and:

• a.Approval of the escrow by the county assessor's office
• b.Full payment of the purchase price in cash upfront
• c.Conditional delivery of documents to a neutral holder✓
• d.Immediate recording of the grant deed at opening

The two essentials of a binding escrow are a valid, enforceable contract between the parties and the conditional delivery of the transfer instruments to a neutral escrow holder. The holder releases them only when conditions are met. These elements distinguish escrow from an ordinary transfer.

California property taxes are prorated at closing based on a fiscal year that runs:

• a.July 1 to June 30✓
• b.Oct 1 to Sept 30
• c.January 1 to December 31 of each calendar year
• d.April 15 to April 14 of the following tax year

California's property tax fiscal year runs from July 1 through June 30, with taxes due in two installments. Prorations at closing allocate taxes between buyer and seller using this period. Knowing the fiscal year is essential for accurate proration.

Under FIRPTA, a buyer purchasing from a foreign seller may be required to:

• a.Withhold part of the sales price for the IRS✓
• b.Report the transaction to the Department of Real Estate
• c.Obtain the seller's foreign passport for the deed
• d.Pay the seller's entire capital gains tax at closing

The Foreign Investment in Real Property Tax Act requires withholding a percentage of the amount realized when the seller is a foreign person, remitted to the IRS unless an exemption applies. It ensures collection of U.S. tax on the gain. Escrow often handles the withholding.

California may require state withholding on a real property sale (reported on Form 593) when the seller:

• a.Uses a licensed real estate broker to handle the sale
• b.Chooses to close the escrow at the end of the year
• c.Sells the property for more than the original purchase price
• d.Does not qualify for an exemption such as a principal residence✓

California requires state income tax withholding on certain real estate sales unless an exemption, such as the seller's principal residence or a loss, applies, documented on Form 593. Escrow typically calculates and remits it. The withholding is a prepayment against the seller's state tax.

A supplemental property tax bill in California is typically triggered by:

• a.The buyer's decision to pay the taxes on an annual basis
• b.A reassessment after a change in ownership or new construction✓
• c.A drop in the property's current market value
• d.The recording of a deed of reconveyance after payoff

Under Proposition 13, a change in ownership or completed new construction triggers reassessment to current market value, producing a supplemental tax bill for the difference. Buyers should anticipate this after closing. It is separate from the regular annual tax bill.

If the Transfer Disclosure Statement is delivered to the buyer after the purchase offer is signed, the buyer generally has a right to:

• a.Demand a reduction of the agreed purchase price
• b.Require the seller to make all of the listed repairs
• c.Cancel within a few days of delivery✓
• d.Extend the escrow period by an additional thirty days

When the TDS is delivered after the purchase contract is signed, the buyer has a statutory right to terminate within three days if delivered in person, or five days if delivered by mail. This protects the buyer's chance to review disclosures. The right to cancel is limited to the statutory window.

Which seller is generally exempt from providing a Transfer Disclosure Statement?

• a.An investor selling a rented duplex that they own
• b.A trustee in a foreclosure or probate sale✓
• c.A landlord selling a triplex on the open market
• d.An owner selling a single-family residence they occupied

Transfers by a trustee in bankruptcy, by a fiduciary in probate, or by foreclosure are among the statutory TDS exemptions, because such sellers lack personal knowledge of the property. Most ordinary sales of one-to-four residential units require the TDS. Exemptions are narrowly defined.

California law requires that residential property being transferred have operable:

• a.Solar panels installed on the roof of the dwelling
• b.Smoke and carbon monoxide detectors✓
• c.A home warranty policy fully paid by the seller
• d.A newly resurfaced driveway and front walkway

Sellers of residential dwellings must ensure required smoke and carbon monoxide detectors are installed and operable, and water heaters must be properly braced against earthquakes. These safety requirements protect occupants. Compliance is commonly confirmed during the transfer process.

Actual notice differs from constructive notice in that actual notice is:

• a.Notice the law presumes from a properly recorded document
• b.Notice given only by publication in a local newspaper
• c.Knowledge a person genuinely has✓
• d.Notice created automatically when a deed is delivered to escrow

Actual notice is real, direct knowledge a person actually possesses, while constructive notice is knowledge the law presumes because a document is recorded or facts are observable. Recording gives constructive notice to everyone. Both forms can defeat a later claimant's good-faith status.

In a California home loan, the document that serves as the borrower's written promise to repay the debt is the:

• a.Deed of trust
• b.Promissory note✓
• c.Deed of reconveyance
• d.Grant deed

The promissory note is the borrower's personal promise to repay the money, while the deed of trust is the security instrument that pledges the property as collateral. The note is the evidence of the debt; the deed of trust makes the property answerable if the note is not paid. In California the two are used together.CA Civil Code

Pledging real property as security for a loan while keeping possession and use of it is called:

• a.Acceleration of the balance
• b.Hypothecation✓
• c.Subrogation of the lender's rights
• d.Novation of the underlying obligation

Hypothecation is pledging property as collateral without surrendering possession, which is exactly what a borrower does under a deed of trust. The borrower keeps living in the home while the lender holds a security interest. If the debt is unpaid, the lender may foreclose on the pledged property.

California is a lien-theory (title-in-borrower) state, which means that under a deed of trust the borrower:

• a.Keeps title while the trustee holds bare legal title as security✓
• b.Holds legal title jointly with the county recorder until payoff
• c.Loses all ownership to the lender until the debt is completely repaid
• d.Must surrender physical possession of the home to the beneficiary

In a lien or title-in-borrower framework the borrower keeps ownership and possession, and the trustee holds only bare or naked legal title as security under the power of sale. Full title is reconveyed to the borrower when the loan is paid. This differs from a strict title-theory approach where the lender holds title.

When a borrower fully repays a loan secured by a California deed of trust, the trustee executes a:

• a.Grant deed transferring title to the lender
• b.Deed of reconveyance releasing the lien✓
• c.Notice of default and election to sell
• d.Trustee's deed upon sale

Upon full repayment the beneficiary directs the trustee to record a deed of reconveyance, which clears the deed of trust from the title. This returns clear title to the borrower. Failure to reconvey can cloud the borrower's title.

In a California nonjudicial foreclosure, the trustee begins the process by recording a:

• a.Lis pendens with the court
• b.Notice of Default✓
• c.Writ of execution
• d.Notice of Sale

The nonjudicial process starts when the trustee records a Notice of Default after the borrower defaults, opening a reinstatement period. After roughly three months a Notice of Sale is recorded and published, and the sale occurs at least 21 days later. Lis pendens and writs of execution belong to judicial actions.

After a Notice of Default is recorded in California, the borrower generally has a reinstatement period of at least how long before a Notice of Sale may be recorded?

• a.Forty-five days
• b.One full year
• c.Three months✓
• d.Ten days

California law provides a three-month reinstatement period after the Notice of Default before the trustee may record a Notice of Sale. During reinstatement the borrower can cure the default by paying the missed amounts plus costs. The right to reinstate continues until five business days before the sale.

In a California trustee's sale, after the Notice of Sale is posted and published, the auction may be held no sooner than:

• a.7 days later
• b.21 days later✓
• c.3 business days later
• d.90 days later

After the three-month reinstatement period, the trustee records and publishes a Notice of Sale, and the auction may occur no sooner than 21 days after that notice. The notice must be posted on the property, published, and mailed to the borrower. This gives the borrower final time to reinstate or pay off.

A major consequence of choosing a nonjudicial trustee's sale rather than judicial foreclosure in California is that the lender:

• a.Waives the right to any deficiency judgment against the borrower✓
• b.Keeps legal title to the property held in escrow for a full year
• c.May still pursue the borrower for a full deficiency judgment afterward
• d.Must also grant the borrower a one-year statutory redemption period

By foreclosing nonjudicially under the power of sale, the lender gives up the right to pursue the borrower for any deficiency, meaning the shortfall between the debt and the sale proceeds. Judicial foreclosure can preserve a deficiency claim on non-purchase-money loans but is slower and allows redemption. The trade-off is speed versus a possible deficiency recovery.

Following a completed nonjudicial trustee's sale in California, the borrower's post-sale right of redemption is:

• a.Nonexistent, because there is no redemption after a trustee's sale✓
• b.A full one-year statutory redemption period that runs after the sale
• c.A ninety-day redemption window that opens once the sale is completed
• d.A three-month statutory redemption period following the trustee's sale

A nonjudicial trustee's sale is final; there is no statutory right of redemption after the gavel falls. The borrower's last chance is to reinstate up to five business days before the sale, or to pay the loan in full before the sale. Post-sale redemption rights exist only in judicial foreclosures.

Under California's purchase-money anti-deficiency rule, a lender generally cannot pursue a deficiency judgment on a loan used to buy:

• a.A large multi-tenant commercial office tower held for investment income
• b.Raw undeveloped land purchased purely for long-term speculation
• c.An owner-occupied dwelling of one to four units✓
• d.A cash-out refinanced single-family rental held by an investor

California Code of Civil Procedure section 580b bars deficiency judgments on purchase-money loans for owner-occupied dwellings of one to four units, and on seller carryback financing. The borrower's liability is effectively limited to the property itself. Refinances and many investment loans do not receive this protection.CA Code of Civil Procedure

California's 'one-action rule' generally requires a secured lender to:

• a.Exhaust the security in a single action before pursuing the borrower personally✓
• b.Bring any lawsuit on the outstanding debt within one calendar year of default
• c.Accept only one specified form of payment from the defaulting borrower
• d.Rely on the written opinion of only one state-licensed appraiser

The one-action rule requires a lender to look first to the secured property in a single action rather than suing the borrower personally while ignoring the collateral. It prevents multiple suits on the same debt. Violating it can cost the lender its security.CA Code of Civil Procedure

On a conventional loan, private mortgage insurance (PMI) is typically required when the loan-to-value ratio exceeds:

• a.50%
• b.60%
• c.95%
• d.80%✓

Conventional lenders generally require PMI when the LTV is above 80 percent, that is, when the borrower puts down less than 20 percent. PMI protects the lender against loss on the higher-risk portion of the loan. Under federal law PMI is generally cancellable as the balance amortizes toward 78 to 80 percent of original value.

Under the federal Homeowners Protection Act, PMI on a conventional loan must automatically terminate when the balance is scheduled to reach what share of the original value?

• a.95%
• b.78%✓
• c.50%
• d.90%

The Homeowners Protection Act requires automatic PMI termination once the loan balance is scheduled to reach 78 percent of the original value, assuming payments are current. Borrowers may also request cancellation at 80 percent. This prevents paying PMI longer than necessary.

A common minimum down payment on an FHA-insured purchase loan for a well-qualified borrower is about:

• a.3.5% of the purchase price✓
• b.A minimum of 10% of the purchase price for every borrower
• c.A full 20% of the purchase price is required for FHA financing
• d.No down payment at all is required on an FHA-insured loan

FHA loans allow down payments as low as 3.5 percent for borrowers meeting the credit threshold, making them popular with first-time buyers. In exchange, borrowers pay an upfront and an annual mortgage insurance premium. The FHA insures the loan while approved lenders fund it.

The mortgage insurance that protects the lender on an FHA loan is called the:

• a.Title insurance premium
• b.Mortgage insurance premium (MIP)✓
• c.VA funding fee
• d.Private mortgage insurance (PMI)

FHA borrowers pay a mortgage insurance premium, including an upfront premium and an annual premium, whereas conventional borrowers pay private mortgage insurance. Both protect the lender, not the borrower. The FHA uses MIP revenue to cover losses on defaulted insured loans.

A VA-guaranteed loan differs from a low-down-payment conventional loan in that the VA loan:

• a.Is funded and disbursed directly by the federal Veterans Affairs
• b.Carries no one-time funding fee under any circumstance at all
• c.Requires a full 20 percent down payment from the eligible veteran
• d.Requires no monthly private mortgage insurance✓

VA loans carry no monthly mortgage insurance, unlike low-down conventional loans that require PMI, though most borrowers pay a one-time VA funding fee. The Department of Veterans Affairs guarantees a portion of the loan, reducing lender risk. Eligible veterans can often buy with no down payment.

Before a veteran can obtain a VA-guaranteed loan, the lender generally requires a:

• a.Notice of Default
• b.Recorded homestead declaration
• c.Cal-Vet purchase contract
• d.Certificate of Eligibility✓

The Certificate of Eligibility confirms the veteran's entitlement to the VA loan guaranty based on qualifying service. The lender uses it to determine the guaranty amount available. Without a valid certificate, the loan cannot be processed as a VA loan.

The Cal-Vet home loan program is funded primarily through:

• a.Private mortgage insurers
• b.County property tax revenue
• c.Federal FHA insurance funds
• d.State general obligation bonds✓

Cal-Vet financing is funded by the sale of state general obligation bonds approved by California voters, not federal money. The Department of Veterans Affairs buys the home and resells it to the veteran, usually by a contract of sale. This structure lets the state offer competitive terms to eligible veterans.

The Cal-Vet loan program is administered by the:

• a.California Department of Veterans Affairs✓
• b.Federal Housing Administration
• c.California Department of Real Estate
• d.United States Department of Veterans Affairs

The California Department of Veterans Affairs administers the Cal-Vet program, distinct from the federal VA that guarantees VA loans. It purchases the property and sells it to the veteran under a land contract, keeping legal title as security. Eligibility is based on qualifying military service.

Fannie Mae and Freddie Mac operate primarily in the:

• a.The title insurance market, underwriting owner and lender policies
• b.Secondary mortgage market, buying loans from lenders✓
• c.The primary market, lending mortgage funds directly to home buyers
• d.The property tax collection and county assessment system

Fannie Mae and Freddie Mac buy existing loans from primary lenders in the secondary market, replenishing lenders' funds so they can make more loans. They do not lend directly to consumers. By purchasing and securitizing loans they add liquidity to the mortgage system.

The primary mortgage market is where:

• a.Lenders originate loans directly with borrowers✓
• b.The federal government directly sets consumer interest rates
• c.Existing loans are bundled together and resold as securities
• d.Real estate appraisers obtain and renew their state licenses

The primary market is where borrowers obtain loans directly from originating lenders such as banks, credit unions, and mortgage companies. Those lenders may then sell the loans into the secondary market. The two markets together keep mortgage credit flowing.

Ginnie Mae (GNMA) differs from Fannie Mae and Freddie Mac in that Ginnie Mae:

• a.Is a government corporation that guarantees securities backed by FHA and VA loans✓
• b.Sets the maximum usury interest limits applied across California
• c.Licenses and disciplines mortgage loan officers statewide
• d.Lends mortgage funds directly to qualifying first-time home buyers

Ginnie Mae is a wholly government-owned corporation within HUD that guarantees mortgage-backed securities backed by government loans such as FHA and VA. It does not buy loans or lend directly. Its guarantee carries the full faith and credit of the United States government.

Under the TILA-RESPA Integrated Disclosure (TRID) rule, a lender must deliver the Loan Estimate within how many business days of receiving a loan application?

• a.10 business days
• b.30 calendar days
• c.3 business days✓
• d.1 business day

TRID requires the lender to provide the Loan Estimate within three business days of application. The Loan Estimate discloses the estimated interest rate, payments, and closing costs so the borrower can shop lenders. It replaced the older Good Faith Estimate for most loans.Truth in Lending Act

TRID requires the borrower to receive the Closing Disclosure at least how long before loan consummation?

• a.30 days before consummation
• b.3 business days before consummation✓
• c.At the closing table itself
• d.7 calendar days after closing

The Closing Disclosure must reach the borrower at least three business days before consummation, giving time to compare final terms with the Loan Estimate. Certain significant changes restart the three-day waiting period. It replaced the HUD-1 settlement statement for most consumer mortgages.Truth in Lending Act

The TRID rule combined and replaced which earlier disclosure forms?

• a.The Transfer Disclosure Statement and Natural Hazard Disclosure
• b.The recorded grant deed and the quitclaim deed used at transfer
• c.The signed promissory note and the recorded deed of trust
• d.The Good Faith Estimate and the HUD-1 Settlement Statement✓

TRID merged the Good Faith Estimate and early TILA disclosure into the Loan Estimate, and the HUD-1 and final TILA into the Closing Disclosure. The goal was clearer, more comparable disclosures for consumers. It applies to most closed-end consumer mortgage loans.Truth in Lending Act

RESPA Section 8 specifically prohibits:

• a.Charging the borrower any loan origination fee at settlement
• b.Requiring the borrower to purchase a lender's title policy
• c.Paying or receiving kickbacks or unearned fees for referring settlement business✓
• d.Maintaining an escrow impound account for taxes and insurance

RESPA Section 8 bars kickbacks, referral fees, and unearned fee-splitting among settlement service providers. Fees must be for services actually performed. Violations carry significant civil and criminal penalties.RESPA

RESPA generally applies to:

• a.Purely business-purpose loans made to a commercial enterprise
• b.Federally related mortgage loans on one-to-four residential properties✓
• c.All-cash commercial purchases with no institutional financing
• d.Private seller carryback promissory notes used exclusively

RESPA covers federally related mortgage loans secured by one-to-four family residential property, which includes most home purchase and refinance loans. It requires settlement cost disclosures and regulates escrow accounts and servicing. Purely commercial or business-purpose loans are generally exempt.RESPA

The TILA right of rescission gives a borrower three business days to cancel a:

• a.A purchase-money loan used to buy or build a brand-new home
• b.A short-term commercial construction loan on a large project
• c.An automobile purchase loan secured only by the vehicle
• d.Refinance or home equity loan on a principal residence✓

Under TILA the three-day right of rescission applies to certain non-purchase loans secured by the borrower's principal residence, such as refinances and home equity lines. It does not apply to loans used to purchase or build the borrower's home. The borrower may cancel until midnight of the third business day.Truth in Lending Act

The annual percentage rate (APR) disclosed under TILA reflects:

• a.The local county and city combined property tax rate applied
• b.Only the note's stated interest rate, excluding any added fees
• c.The effective yearly cost of credit including certain finance charges and fees✓
• d.The listing and selling brokers' negotiated commission rate

The APR expresses the total yearly cost of credit, folding in the note rate plus certain finance charges such as points and some fees. It usually exceeds the stated note rate, letting consumers compare loans on a common basis. TILA requires its disclosure.Truth in Lending Act

Under Regulation Z, stating a specific monthly payment or down payment amount in a credit advertisement is a 'trigger term' that requires the ad to also disclose:

• a.The listing agent's real estate license identification number
• b.The property's exact measured interior square footage figure
• c.The seller's full legal name and current mailing address
• d.Other key credit terms such as the APR and repayment terms✓

Regulation Z provides that if an ad states a trigger term, such as a specific down payment, payment amount, or number of payments, it must also disclose additional terms including the APR and repayment schedule. This prevents misleading partial disclosures. General statements without specific numbers do not trigger the rule.Truth in Lending Act

For a non-exempt private consumer loan, California's usury law generally caps interest at:

• a.25% per year
• b.18% per year
• c.10% per year✓
• d.5% per year

California's constitution generally limits interest on non-exempt personal, family, or household loans to 10 percent per year. For other non-exempt loans the cap is 5 percent over the Federal Reserve Bank of San Francisco discount rate. Most institutional and broker-arranged real estate loans are exempt.CA Constitution