Florida Real Estate Sales Associate — All Questions

Charging interest at a rate higher than the maximum allowed by law is known as:

• a.Amortization
• b.Hypothecation
• c.Subordination
• d.Usury✓

Usury is charging an unlawfully high rate of interest. States, including Florida, set maximum permissible rates, and violations can carry penalties.

An adjustable-rate mortgage typically limits how much the rate can change with:

• a.A balloon payment in month one
• b.Periodic and lifetime interest rate caps✓
• c.A prohibition on any index
• d.A fixed rate that never changes in all cases

ARMs use periodic caps to limit each adjustment and a lifetime cap to limit the total increase over the loan's life. Caps protect borrowers from sudden large payment jumps.

The low starting rate on some adjustable-rate mortgages, set below the fully indexed rate, is commonly called the:

• a.Index
• b.Cap
• c.Margin
• d.Teaser (initial) rate✓

A teaser or introductory rate is a temporarily discounted initial rate on an ARM. When it expires, the rate resets to the index plus the margin, often increasing the payment.

A lender that collects money each month toward the borrower's property taxes and hazard insurance is maintaining a(n):

• a.Trust account for commissions
• b.Intangible tax fund
• c.Discount point reserve
• d.Escrow (impound) account✓

An escrow or impound account holds monthly amounts the lender uses to pay taxes and insurance when they come due. It ensures these obligations are paid and protects the lender's collateral.

At closing, a lender commonly collects prepaid 'per diem' interest to cover:

• a.The buyer's homeowner association dues in all cases under Florida law
• b.The interest from the closing date to the end of that month✓
• c.The seller's capital gains tax
• d.A full year of interest in advance

Because the first regular payment covers the prior month, lenders collect daily interest from closing through the end of the closing month. This aligns the loan's interest accrual with the payment cycle.

A higher loan-to-value ratio generally means:

• a.A smaller loan relative to value
• b.Lower risk and no need for insurance
• c.A larger down payment by the borrower in all cases under Florida law in every transaction
• d.Greater lender risk and a higher likelihood of required mortgage insurance✓

A high LTV means the borrower has less equity, which increases the lender's risk of loss on default. Lenders typically require private mortgage insurance when the LTV exceeds 80 percent.

Florida's documentary stamp tax on a promissory note secured by a mortgage is charged at:

• a.$1.00 per $100 of the note amount
• b.$0.35 per $100 of the note amount✓
• c.2 mills per $100 of the note amount
• d.$0.70 per $100 of the note amount

Florida imposes documentary stamp tax on notes at $0.35 per $100. This is separate from the $0.70 per $100 deed stamps and the intangible tax on the mortgage.

Florida's intangible tax on a new mortgage is imposed at:

• a.2 mills ($0.002 per $1) of the mortgage amount✓
• b.$0.70 per $100 of the mortgage amount in all cases
• c.6 percent of the mortgage amount
• d.$0.35 per $1 of the mortgage amount

Florida charges a nonrecurring intangible tax of 2 mills, or $0.002 per dollar, on new mortgages. It is paid once when the mortgage is recorded.

The Dodd-Frank Ability-to-Repay rule requires that a lender making a residential mortgage:

• a.Approve any applicant who requests a loan in all cases under Florida law in every transaction
• b.Guarantee the loan will never default
• c.Make a reasonable, good-faith determination that the borrower can repay the loan✓
• d.Ignore the borrower's income and debts

The Ability-to-Repay rule obligates lenders to verify income, assets, and obligations before making most home loans. A 'qualified mortgage' provides a safe harbor for compliance.

Steering borrowers into needlessly costly loans, inflating fees, or using deceptive terms is generally described as:

• a.Conforming lending
• b.Secondary marketing
• c.Subordination
• d.Predatory lending✓

Predatory lending involves abusive or deceptive loan practices that harm borrowers, such as hidden fees or unsuitable terms. Federal and state laws prohibit many of these practices.

A loan assumption in which the lender releases the original borrower from liability and substitutes the new buyer is accomplished through:

• a.Hypothecation
• b.Novation✓
• c.Reconveyance
• d.Subrogation

Novation substitutes a new borrower for the original and releases the original from liability, with the lender's consent. Without novation, the seller may remain secondarily liable after an assumption.

Compared with a fully amortized loan, an interest-only loan during its interest-only period:

• a.Does not reduce the principal balance✓
• b.Pays the loan off faster
• c.Increases the principal each month in all cases
• d.Charges no interest at all

During the interest-only period, payments cover only interest, so the principal balance stays the same. Once that period ends, payments rise to begin amortizing the balance.

Fannie Mae and Freddie Mac are best described as:

• a.Federal agencies that originate loans directly to buyers in all cases under Florida law
• b.Private title insurance companies
• c.State agencies that license appraisers
• d.Government-sponsored enterprises that buy loans on the secondary market✓

Fannie Mae and Freddie Mac are government-sponsored enterprises that purchase and securitize conforming loans. By buying loans, they give primary lenders fresh capital to keep lending.

Under Florida law, a deed conveying real property generally must be signed by the grantor in the presence of:

• a.Two subscribing witnesses✓
• b.No witnesses, only a notary
• c.The county property appraiser
• d.The buyer's real estate broker

Florida Statutes require a deed to be signed by the grantor in the presence of two subscribing witnesses. This witnessing requirement is in addition to the notary acknowledgment needed for recording.

In a deed, the party who conveys the ownership interest is the:

• a.Grantor✓
• b.Grantee
• c.Trustee
• d.Devisee

The grantor is the person conveying the interest, and the grantee is the one receiving it. Remembering that the grantor 'gives' helps keep the terms straight.

Which deed offers the buyer the greatest protection by fully warranting title against all defects, even those arising before the grantor owned the property?

• a.Special warranty deed
• b.Quitclaim deed
• c.General warranty deed✓
• d.Bargain and sale deed

A general warranty deed contains the full set of covenants and warrants title against all defects, including those predating the grantor's ownership. It gives the grantee the strongest protection.

A special warranty deed differs from a general warranty deed because it warrants:

• a.Only the accuracy of the legal description
• b.Nothing at all about the title
• c.Only against defects arising during the grantor's ownership✓
• d.Against every defect since the beginning of the chain of title

A special warranty deed limits the grantor's warranties to claims arising during the grantor's own period of ownership. Defects predating the grantor are not covered.

A deed that implies the grantor holds an interest but contains no warranties of title is a:

• a.Grant deed with full covenants
• b.General warranty deed
• c.Special warranty deed
• d.Bargain and sale deed✓

A bargain and sale deed implies that the grantor owns the property but does not warrant against encumbrances unless language is added. It offers less protection than a warranty deed.

The covenant of seizin in a warranty deed assures the grantee that the grantor:

• a.Will pay the property taxes forever
• b.Guarantees the property's future value in all cases
• c.Has never lived on the property
• d.Owns the property and has the right to convey it✓

The covenant of seizin promises that the grantor actually owns the estate being conveyed and has the right to transfer it. It is one of the basic covenants in a general warranty deed.

The covenant of quiet enjoyment in a deed protects the grantee against:

• a.Ordinary wear and tear of the home in all cases under Florida law in every transaction
• b.Noisy neighbors near the property
• c.Disturbance by a person holding a superior or lawful claim to title✓
• d.Increases in the property tax rate

The covenant of quiet enjoyment assures the grantee will not be evicted or disturbed by someone with a superior lawful title claim. It concerns legal title, not literal noise.

The clause in a deed beginning 'to have and to hold,' which defines the extent of ownership granted, is the:

• a.Granting clause
• b.Habendum clause✓
• c.Acceleration clause
• d.Defeasance clause

The habendum clause follows the granting clause and defines the quantity and type of estate the grantee receives. Its traditional wording is 'to have and to hold.'

The words of conveyance in a deed, such as 'grants and conveys,' appear in the:

• a.Granting clause✓
• b.Habendum clause
• c.Reddendum clause
• d.Testimonium clause

The granting clause contains the operative words showing intent to transfer, such as 'grants, bargains, and sells.' It identifies the parties and states that a conveyance is being made.

For title to pass by deed, the deed must be:

• a.Delivered by the grantor and accepted by the grantee✓
• b.Recorded before it can be signed
• c.Held by the grantor until death
• d.Approved by the local zoning board in all cases under Florida law

A deed transfers title only when it is delivered with intent to convey and accepted by the grantee. Recording is not required for a valid transfer, though it protects against later claims.

A legal description that identifies a parcel by referring to a recorded plat map using a lot and block number is the:

• a.Street address method
• b.Metes and bounds method
• c.Lot and block (recorded plat) method✓
• d.Government rectangular survey method

The lot and block, or recorded plat, method describes property by reference to a subdivision map filed in the public records. It is common in platted residential subdivisions.

The type of consideration in a deed described as love and affection, rather than money, is called:

• a.Nominal financing
• b.Liquidated consideration
• c.Valuable consideration
• d.Good consideration✓

Good consideration is based on affection or a nonmonetary motive, such as a gift between family members. Valuable consideration, by contrast, is money or something of measurable worth.

Recording a deed in the public records primarily serves to:

• a.Transfer title, which cannot occur without recording in all cases under Florida law
• b.Set the property's assessed value for taxes
• c.Give constructive notice of the owner's interest and establish priority✓
• d.Guarantee the property is free of all liens

Recording provides constructive notice to the world of the grantee's interest and helps establish priority over later claims. It protects the owner even though delivery, not recording, actually transfers title.

A title that is reasonably free from doubt, defects, and undisclosed encumbrances, so a buyer would accept it, is called:

• a.Equitable title
• b.Marketable title✓
• c.Color of title
• d.Clouded title

Marketable title is title a reasonable buyer would accept without fear of litigation, being free of serious defects and undisclosed liens. Contracts commonly require the seller to convey marketable title.

The main purpose of an owner's title insurance policy is to:

• a.Guarantee the property will rise in value in all cases under Florida law in every transaction without exception
• b.Insure the loan against borrower default
• c.Protect the owner against losses from covered title defects that existed before the policy date✓
• d.Cover physical damage from fire or storms

Owner's title insurance protects against losses from covered defects in title that predate the policy, such as forged deeds or undisclosed liens. It differs from hazard insurance, which covers physical damage.

A defect or claim that impairs an owner's title, which may be removed by a quitclaim deed or a quiet-title suit, is called a:

• a.Cloud on title✓
• b.Habendum defect
• c.Marketable title
• d.Covenant of seizin

A cloud on title is an apparent claim or encumbrance that may impair marketability. It can often be cleared by obtaining a quitclaim deed or by bringing a quiet-title action.

A lease of real property for a term longer than one year generally must be in writing to be enforceable because of the:

• a.Doctrine of laches
• b.Parol evidence rule
• c.Statute of Frauds✓
• d.Statute of Limitations

The Statute of Frauds requires certain contracts, including leases longer than one year and sales of real estate, to be in writing. This helps prevent fraudulent claims based on oral agreements.

In contract law, 'consideration' refers to:

• a.The buyer's real estate agent
• b.A government permit to build
• c.A required notarized signature in all cases under Florida law in every transaction
• d.Something of legal value that each party bargains for and exchanges✓

Consideration is the bargained-for exchange of value, such as money for a promise to convey. It is one of the essential elements needed to form a valid, enforceable contract.

If an offeror dies before the offeree accepts a purchase offer, the offer is generally:

• a.Binding on the heirs
• b.Automatically accepted
• c.Converted into an option
• d.Terminated✓

An offer is generally terminated by the death or incapacity of the offeror before acceptance. Because no contract has yet formed, there is nothing binding on the estate.

A financing contingency in a purchase contract protects the buyer by allowing cancellation if:

• a.The seller finds a higher offer
• b.The buyer cannot obtain the specified loan by the deadline✓
• c.Interest rates rise anywhere in the country
• d.The buyer simply changes their mind for any reason in all cases

A financing contingency lets the buyer cancel and typically recover the deposit if they cannot secure the described loan within the stated time. It ties the obligation to obtaining financing.

An appraisal contingency in a contract generally allows the buyer to renegotiate or cancel if:

• a.The seller repaints the home
• b.Property taxes are paid in arrears
• c.The buyer's agent changes brokerages in all cases under Florida law
• d.The property appraises below the agreed purchase price✓

An appraisal contingency protects the buyer when the appraised value comes in below the contract price. The buyer may renegotiate, pay the difference, or cancel per the contract terms.

Under a typical inspection contingency, the buyer generally has the right to:

• a.Waive the seller's duty to disclose defects
• b.Force the seller to lower the price by law
• c.Inspect the property and cancel or seek repairs within a set period✓
• d.Occupy the property before closing rent-free in all cases under Florida law

An inspection contingency gives the buyer a defined period to investigate the property's condition and to cancel or negotiate based on findings. It shifts investigation risk to the inspection window.

Under the Florida 'AS IS' residential contract, during the inspection period the buyer may:

• a.Force the seller to complete all requested repairs in all cases under Florida law in every transaction
• b.Never cancel once the contract is signed
• c.Extend the closing indefinitely without consent
• d.Cancel for any reason and get the deposit back, while the seller is not required to make repairs✓

The Florida AS IS Residential Contract lets the buyer cancel during the inspection period and recover the deposit, but the seller has no obligation to repair. The buyer accepts the property in its existing condition if they proceed.

The 'effective date' of a Florida purchase contract is generally the date:

• a.The property is first listed for sale in all cases under Florida law in every transaction
• b.The last party signs and communicates acceptance of the final terms✓
• c.The buyer is pre-approved for a loan
• d.The deed is recorded after closing

The effective date is when the last party signs and delivers acceptance, and it starts the clock on contract deadlines. Correctly identifying it is critical because time periods run from that date.

Under Florida rules, a broker who receives an earnest money deposit must generally place it into an escrow account no later than the end of the:

• a.Third business day after receiving the funds✓
• b.Thirtieth business day after receipt in all cases
• c.Tenth calendar day after closing
• d.Same hour the funds are received

Florida requires a broker to deposit trust funds into escrow no later than the end of the third business day after receiving them. Prompt deposit protects the funds and is strictly enforced.

When a broker receives conflicting demands over an escrow deposit, Florida law requires the broker to notify FREC within:

• a.24 hours
• b.15 business days✓
• c.3 business days
• d.6 months

A Florida broker must notify FREC within 15 business days of receiving conflicting demands or having a good-faith doubt about escrowed funds. The broker must then timely institute a settlement procedure.

To resolve a disputed escrow deposit, Florida permits a broker to use settlement procedures that include mediation, arbitration, litigation, or a(n):

• a.Ignoring the dispute until it resolves itself
• b.Escrow disbursement order (EDO) from FREC✓
• c.Keeping the funds as the broker's fee
• d.Immediate payment to whichever party asks first

Among the authorized settlement procedures, a broker may request an escrow disbursement order from FREC. The broker may not simply keep or arbitrarily release the disputed funds.

Under the Florida AS IS Residential Contract, if the buyer defaults without a valid reason, the seller's typical remedy is to:

• a.Retain the buyer's earnest money deposit as liquidated damages✓
• b.Force the buyer to purchase a different home
• c.Sue the buyer for triple damages automatically
• d.Keep the deposit and also demand the commission from the buyer

The standard contract lets the seller keep the earnest money deposit as agreed liquidated damages when the buyer defaults. Liquidated damages fix compensation in advance and avoid litigation over actual loss.

Under FIRPTA, when a foreign person sells U.S. real estate, the buyer generally must withhold and remit a percentage of the amount realized, typically:

• a.50 percent
• b.1 percent
• c.6 percent
• d.15 percent✓

The Foreign Investment in Real Property Tax Act generally requires withholding 15 percent of the amount realized on a sale by a foreign person. The buyer is responsible for withholding and remitting it to the IRS.

Under Florida law, a listing agreement must generally:

• a.Last forever until the property sells
• b.Be approved by the county before it is valid in all cases under Florida law
• c.Automatically renew every 30 days
• d.Contain a definite expiration date and no automatic renewal✓

Florida requires listing agreements to have a definite expiration date and prohibits automatic-renewal (self-renewing) clauses. This protects sellers from being bound indefinitely.

In an open listing, the seller:

• a.Cannot sell the property personally
• b.Owes a full commission to every broker who advertises the home in all cases under Florida law
• c.Gives one broker the exclusive right to sell
• d.May list with multiple brokers and owes a commission only to the one who procures the buyer✓

An open listing lets the seller engage several brokers and pay only the broker who actually procures the buyer. The seller also keeps the right to sell independently with no commission.

A buyer brokerage agreement establishes that the licensee:

• a.Works only for the seller
• b.Must appraise the property for the lender
• c.Represents the buyer in the transaction✓
• d.Guarantees the buyer will qualify for a loan

A buyer brokerage agreement makes the licensee the buyer's representative, setting out duties and compensation. In Florida the relationship may be single agent, transaction broker, or no brokerage relationship as disclosed.

The broker who starts an uninterrupted chain of events that results in the sale is said to be the:

• a.Designated appraiser
• b.Statutory trustee
• c.Escrow agent of record in all cases
• d.Procuring cause of the sale✓

Procuring cause is the broker whose efforts set in motion the unbroken chain of events leading to a completed sale. It is often decisive in commission disputes between brokers.

Under a typical exclusive-right-to-sell listing, a broker generally earns the commission when the broker produces a buyer who is:

• a.Merely curious about the property
• b.Ready, willing, and able to purchase on the seller's terms✓
• c.Unable to qualify for financing
• d.Interested only in leasing the home in all cases under Florida law

A broker generally earns the commission by producing a ready, willing, and able buyer who meets the seller's terms, even if the seller then refuses to close. The buyer must have both the willingness and the financial ability to buy.

A right of first refusal gives its holder the right to:

• a.Match a bona fide offer before the owner sells to someone else✓
• b.Buy the property immediately at any price they choose in all cases
• c.Occupy the property rent-free indefinitely
• d.Force the owner to sell at a set future date

A right of first refusal lets the holder step in and match a legitimate third-party offer before the owner may sell to that party. Unlike an option, it is triggered only when the owner decides to sell.

A contract that calls for the performance of an illegal act is:

• a.Voidable at one party's option
• b.Merely unenforceable until recorded
• c.Fully enforceable
• d.Void✓

A contract with an illegal object or purpose is void and has no legal effect from the outset. Neither party can enforce it, unlike a voidable contract that is valid until disaffirmed.

Under the parol evidence rule, a prior oral agreement generally:

• a.Must be recorded to be valid
• b.Cannot be used to contradict the terms of a complete written contract✓
• c.Always overrides the written contract in all cases under Florida law in every transaction
• d.Replaces the need for consideration

The parol evidence rule bars using earlier oral or written statements to contradict a final, complete written contract. It encourages parties to put all agreed terms in the writing.