California Real Estate Salesperson — All Questions

A California grant deed contains two implied warranties: that the grantor has not already conveyed the property to another, and that:

• a.There are no property taxes
• b.The property is worth the purchase price
• c.The property is free of undisclosed encumbrances made by the grantor✓
• d.The buyer will receive title insurance

A grant deed impliedly warrants that the grantor has not already conveyed title to someone else and that the estate is free from undisclosed encumbrances created by the grantor. These implied covenants give the grantee limited protection. It is the most common deed used in California sales.CA Civil Code

A deed that transfers whatever interest the grantor may have, without any warranties of title, is a:

• a.Trustee's deed
• b.Grant deed
• c.Warranty deed
• d.Quitclaim deed✓

A quitclaim deed conveys only whatever interest the grantor happens to hold, with no warranties. It is often used to clear clouds on title or to transfer interests between family members. If the grantor has no interest, the grantee receives nothing.CA Civil Code

Title insurance protects the insured against:

• a.Defects in title existing at the time of the policy✓
• b.Declines in market value
• c.Future physical damage to the property
• d.Failure to pay the mortgage

Title insurance indemnifies the insured against losses from title defects, liens, or encumbrances that existed but were undiscovered when the policy was issued. It is a one-time premium covering past title problems, not future events. Lenders typically require a lender's policy at closing.CA Insurance Code

An escrow holder in a California real estate transaction acts as a:

• a.Agent for the buyer only
• b.Real estate broker
• c.Agent for the seller only
• d.Neutral third party for both parties✓

The escrow holder is a neutral, disinterested third party that holds documents and funds and carries out the parties' mutual written instructions. It must follow the escrow instructions strictly and impartially. Escrow closes when all conditions are met.CA Financial Code

Recording a deed in the county where the property is located gives the public:

• a.Ownership of the property
• b.Constructive notice of the interest✓
• c.Actual notice only to neighbors
• d.A guarantee of clear title

Recording a document provides constructive notice, meaning the public is legally presumed to know of the recorded interest whether or not they actually see it. This protects the grantee's priority against later claims. California follows a race-notice recording system.CA Civil Code

California's documentary transfer tax is $0.55 per $500 of value. On a $600,000 sale with no assumed loan, the county transfer tax is:

• a.$1,100
• b.$660✓
• c.$330
• d.$3,300

Divide the price by $500 to get 1,200 increments, then multiply by $0.55, giving $660. The documentary transfer tax applies to the consideration paid, excluding any assumed liens. Cities may impose additional transfer taxes.CA Revenue and Taxation Code

A deed in which the grantor makes the fullest express warranties, defending title against all claims, is a:

• a.Warranty deed✓
• b.Quitclaim deed
• c.Trustee's deed
• d.Grant deed

A general warranty deed contains the broadest express covenants, with the grantor warranting and defending title against all claims, even those arising before the grantor owned the property. It offers the grantee the greatest protection. California more commonly uses grant deeds, which carry only limited implied warranties.CA Civil Code

The recorded history of successive owners and conveyances of a parcel is called the:

• a.Preliminary report
• b.Chain of title✓
• c.Abstract of judgment
• d.Legal description

The chain of title is the sequence of recorded transfers and documents tracing ownership from the earliest records to the present owner. A break or gap in the chain can create a cloud on title. Title companies examine the chain before insuring title.

A preliminary title report issued before closing primarily:

• a.Sets the loan interest rate
• b.Discloses the current condition of title, including liens and encumbrances✓
• c.Guarantees the property's value
• d.Transfers ownership to the buyer

A preliminary title report shows the current state of title, including recorded liens, easements, and other encumbrances, and states the conditions under which the title company will insure. It is an offer to issue a policy, not the policy itself, and is not a guarantee. Buyers review it during the contingency period.

A valid escrow generally requires a binding contract between the parties and:

• a.Conditional delivery of transfer documents to the escrow holder✓
• b.Payment of the transfer tax first
• c.Approval by the DRE
• d.A recorded deed only

A valid escrow requires an enforceable underlying contract and the conditional delivery of documents and funds to a neutral escrow holder. The escrow holder releases them only when the agreed conditions are satisfied. These two elements distinguish escrow from a simple exchange.CA Financial Code

Before a deed can be recorded, the grantor's signature usually must be:

• a.Published in a newspaper
• b.Acknowledged before a notary public✓
• c.Witnessed by the buyer
• d.Approved by the lender

To be recorded, a deed generally must be acknowledged, meaning the grantor appears before a notary public who verifies identity and voluntariness. The acknowledgment authenticates the signature for the public record. Recording without proper acknowledgment may be rejected.CA Civil Code

The documentary transfer tax in California is generally calculated on the:

• a.Appraised value
• b.Loan amount
• c.Assessed value
• d.Consideration paid, less any assumed liens✓

The documentary transfer tax is based on the consideration or value of the property conveyed, excluding the value of any liens the buyer assumes. Counties impose the base rate, and some cities add their own transfer tax. It is typically paid at closing through escrow.CA Revenue and Taxation Code

For a deed to be valid in California, it must include a competent grantor and a:

• a.Payment of the documentary transfer tax in advance
• b.Notary acknowledgment obtained before the deed is signed
• c.Recording at the county recorder's office before delivery
• d.Grantee named with reasonable certainty✓

A valid deed requires a competent grantor, an identifiable grantee, a granting clause, an adequate property description, and delivery and acceptance. Acknowledgment and recording are needed to record but not for validity between the parties. A deed missing an essential element may be void.

Title actually passes to the grantee when the deed is:

• a.Notarized by a duly commissioned notary public
• b.Signed by the grantor in front of two witnesses
• c.Delivered and accepted✓
• d.Recorded at the county recorder's office of record

A deed transfers title upon delivery by the grantor and acceptance by the grantee, showing present intent to convey. Recording gives notice but is not required to pass title between the parties. Without delivery and acceptance, the deed is ineffective.

A deed signed by a grantor who was legally incompetent at the time is generally:

• a.Fully valid once it is promptly recorded
• b.Void or voidable✓
• c.Enforceable if the grantee paid fair market value
• d.Automatically cured after a three-year period passes

A grantor must have legal capacity; a deed from an incompetent grantor may be void or voidable depending on the circumstances, such as an adjudicated incompetent versus temporary incapacity. A forged deed is void and conveys nothing. Capacity requirements protect vulnerable owners.

A deed used to convey property sold at a trustee's foreclosure sale is a:

• a.Trustee's deed✓
• b.Warranty deed defending title against all claims
• c.Grant deed carrying full implied warranties of title
• d.Quitclaim deed releasing an interest among family

A trustee's deed, or trustee's deed upon sale, conveys title to the successful bidder after a nonjudicial foreclosure of a deed of trust. It passes whatever title the trustor had, without broad warranties. Similar special deeds include sheriff's deeds and tax deeds.

The clause in a deed that defines the extent of the estate being granted, often beginning 'to have and to hold,' is the:

• a.Acknowledgment executed before a notary public
• b.Granting clause that names the parties to the deed
• c.Habendum clause✓
• d.Reddendum clause reserving a rent or a right

The habendum clause follows the granting clause and describes the quantity of the estate conveyed, such as a fee simple or a life estate. If it conflicts with the granting clause, the granting clause usually controls. It clarifies exactly what interest the grantee receives.

When a trust deed loan is fully repaid, the trustee records a document releasing the lien called a:

• a.Sheriff's deed following a court money judgment
• b.Deed of reconveyance✓
• c.Grant deed conveying full ownership to the borrower
• d.Trustee's deed issued after a foreclosure sale

Upon full payment, the beneficiary directs the trustee to record a deed of reconveyance, or full reconveyance, which releases the deed of trust lien and clears title. Failure to reconvey can cloud title. Borrowers should confirm the reconveyance is recorded.

A forged deed in the chain of title is:

• a.Valid if the grantee had no knowledge of the forgery
• b.Voidable but valid until a court cancels it
• c.Enforceable once the statute of limitations has run
• d.Void and conveys no title✓

A forged deed is void from the start and passes no title, even to a later good-faith purchaser. This differs from a merely voidable deed, which is valid until set aside. Forgery is a serious defect that title insurance and careful examination aim to catch.

A deed given without monetary consideration, such as between family members, is often a:

• a.Trustee's deed following a nonjudicial foreclosure
• b.Gift deed✓
• c.Tax deed conveying property sold for unpaid taxes
• d.Sheriff's deed issued after a judgment sale

A gift deed transfers property for love and affection rather than money and is valid if properly executed and delivered. Nominal or no consideration does not invalidate a deed between the parties. Creditors' rights and gift tax rules may still apply.

Which of the following is NOT required for a deed to be valid?

• a.An adequate description of the property being conveyed
• b.Delivery of the deed to the grantee during the grantor's life
• c.A granting clause showing an intent to convey title
• d.Recording at the county recorder's office✓

Recording is not necessary for a deed to be valid between grantor and grantee; it provides constructive notice to third parties. Validity requires a competent grantor, named grantee, granting clause, description, and delivery and acceptance. Recording protects priority, not basic validity.

The signature required on a deed to convey title is that of the:

• a.Grantor✓
• b.Escrow officer who is handling the closing
• c.Grantee who is accepting the property
• d.Notary public who witnesses the signing

Only the grantor must sign a deed to convey title, since the grantor is the party giving up the interest. The grantee need not sign. A notary acknowledges the grantor's signature to permit recording.

Title that is reasonably free from doubt and defects, such that a prudent buyer would accept it, is called:

• a.Constructive title arising merely from possession
• b.Equitable title held by a buyer under a contract
• c.Color of title based on a defective instrument
• d.Marketable title✓

Marketable title is free from significant defects, undisclosed encumbrances, or reasonable doubt, so a prudent buyer would accept it. Purchase contracts typically require the seller to deliver marketable title. Serious clouds must be cleared before closing.

A lawsuit brought to remove a cloud on title and confirm clear ownership is an action to:

• a.Partition the property among the co-owners
• b.Foreclose a delinquent deed of trust on the land
• c.Quiet title✓
• d.Condemn the property for a public purpose

A quiet title action asks a court to resolve competing claims and confirm the plaintiff's ownership, removing clouds such as old liens or disputed interests. The resulting judgment clears the record. It is commonly used after boundary disputes or defective conveyances.

Compared with a standard CLTA owner's policy, an ALTA extended title policy generally provides:

• a.Protection against future declines in market value
• b.A guarantee that the property taxes will never increase
• c.Coverage only for the lender and never for the owner
• d.Broader coverage, including certain unrecorded and physical matters✓

An ALTA extended policy covers additional risks a standard CLTA policy excludes, such as certain unrecorded liens, survey matters, and rights of parties in possession, often requiring an inspection or survey. Lenders frequently require ALTA coverage. Title insurance addresses defects, not market or tax changes.

The condensed recorded history examined to confirm a seller's ownership is called an:

• a.Acknowledgment taken before a notary public
• b.Abstract of title✓
• c.Estoppel certificate signed by an existing tenant
• d.Assignment of the seller's existing mortgage loan

An abstract of title is a condensed history of recorded documents affecting a property, used to evaluate the chain of title. An attorney or title officer reviews it to form an opinion or issue insurance. Today, title insurance largely replaces sole reliance on an abstract.

A buyer who purchases in good faith, for value, and without notice of prior unrecorded claims is a:

• a.Bona fide purchaser✓
• b.Adverse possessor claiming by long and hostile use
• c.Remainderman awaiting the end of a life estate
• d.Trustee holding bare legal title for a lender

A bona fide purchaser buys for value in good faith without notice of others' unrecorded interests and is protected by the recording laws against those hidden claims. Recording promptly protects one's own interest against later purchasers. This concept underlies California's race-notice system.

Under California's race-notice recording system, priority generally goes to the party who:

• a.Pays the highest purchase price for the property
• b.Signs the purchase contract earliest in time
• c.Takes possession of the property before anyone else
• d.Records first without notice of a prior claim✓

In a race-notice jurisdiction, a subsequent purchaser prevails only if they take without notice of a prior interest and record first. This encourages prompt recording and protects good-faith purchasers. Failure to record can subordinate an earlier interest to a later purchaser who records.

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

• a.Marketable title that is free of any defects
• 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.October 1 to September 30 of each fiscal year
• 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.