3.
The presence of lead paint in a home must only be disclosed if the home is being purchased using an FHA loan.
True
False
Federal lead-based paint disclosures have nothing to do with the type of loan used to purchase a home. This federal law requires lead-based paint disclosures when the residential property—offered either for sale or lease—was constructed prior to 1978. Residential housing constructed prior to 1978 is called “target housing.” For target housing, a prospective tenant must be given the EPA-approved pamphlet on the dangers of lead. The EPA-approved pamphlet must also be given to prospective purchasers of target housing. But, additionally, prospective purchasers must be given a 10-day window to have the home tested for lead-based paint. Prospective buyers can waive testing. In fact, no party is legally obligated to test or pay for removal of lead-based paint. Finally, even if construction began after January 1, 1978, actual knowledge of lead-based paint on the premises must be disclosed to both prospective tenants and prospective buyers. Note: Federal lead-based paint disclosures are strict because lead poisoning can cause significant neurological damage, particularly to small children. Test-Taking Tip: Lead-based paint disclosures are the responsibility of the seller or the landlord. However, if there is a real estate licensee involved in a transaction, the licensee has a duty to make sure the client is both aware of—and has complied with—the lead-based paint rules. In fact, licensees, buyers, and sellers all must sign the lead-based paint hazard addendum which is attached to the purchase contract or lease.
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4.
Of the many expenses involved with owning a house, which of the following are tax-deductible?
a. Property taxes
b. Insurance
c. Interest
d. Both a and c
Capped at $10,000, property taxes are deductible. With some restrictions, interest on a mortgage loan is also a tax-deductible expense for home owners. In fact, this is considered one of the major tax advantages of homeownership. Note: Discount points (i.e., prepaid interest) is also tax-deductible. B is incorrect. Insurance (e.g., fire, comprehensive, title, etc.) is not a tax-deductible expense. Note: Home Owners Association dues and home repairs are not deductible.
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9.
The Real Estate Settlement Procedure Act (RESPA) applies to what types of real estate transactions?
a. All cash sales
b. Sales invovling seller financing
c. Federally related mortgage loans
d. All of the above
RESPA applies to federally related mortgage loans. Because nearly all loans on residential properties are federally related, RESPA regulations cover the vast majority of residential loans. Here are some of the loans that are considered federally related: VA guaranteed loans, FHA insured loans, loans intended to be sold onto the secondary mortgage market, lenders with FDIC, etc. A, B, and D are incorrect. These incorrect answer choices are examples of loans not subject to RESPA. Other exempt loans include: commercial loans, business loans, land contracts, and loans for land tracts of 25 or more acres, etc
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15.
You are trying to price a property. Five years ago it was sold for $125,000, but property values in this particular neighborhood have decreased by an average of 5 percent since then. What is the rough value of this property?
a. $117,500
b. $118,750
c. $118,000
d. $119,000
$125,000 x .05 = $6,250 $125,000 - $6,250 = $118,750
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16.
A homeowner has a mortgage with a fixed interest rate. Under what circumstances would her payments change?
a. None; the payment will not change over the life of the loan.
b. The property taxes go up or down.
c. The cost of homeowner's insurance goes up or down.
d. Either b or c.
Here, the test question states that the homeowner has a mortgage with a fixed interest rate. Especially when interest rates are low, a mortgage with a fixed interest rate is appealing to borrowers because the interest rate and the amount of the monthly loan payment will not change over the entire term of the loan. The question, however, is testing your knowledge of mortgage impound accounts (aka “mortgage escrow accounts”). These accounts are set up by lenders to hold the borrower's money for expenses that are charged to the property and unrelated to the loan (e.g., property taxes, homeowner's insurance, hazard insurance, etc.). Lenders collect funds along with the borrower's mortgage payment to ensure that property taxes and insurance premiums are paid. Because the amount of these property-related expenses can change over time, the monthly payment due the lender might vary, even when the loan itself has a fixed interest rate. A is incorrect. This statement accurately describes a mortgage with a fixed interest rate, but does not account for a lender collecting whatever is needed to cover changes in property taxes and insurance premiums.
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17.
A seller and a broker enter into a written listing agreement for the seller's 2-unit dwelling. The broker is authorized to advertise, stage, and solicit offers on the property. The broker's duties also include advising the seller as to the advantages and disadvantages of offers received. However, the broker cannot accept an offer and bind the seller. This is an example of what type of agency?
a. Special agency
b. General agency
c. Implied agency
d. Dual agency
The fact pattern describes a special agency created by the listing agreement. In a listing agreement, the seller is the principal and the listing broker is the agent. When a special agent, the broker typically has one task or duty. That duty is to find a ready, willing, and able buyer for the seller's property. A special agency is an advisory position. Therefore, while the broker can advise the seller as to the merits of each offer, the broker does not have the authority to accept a particular offer and bind the seller to that decision. B is incorrect. In contrast to a special agency, a general agent typically has a number of duties to perform. This type of agency is usually used for ongoing businesses. The general agent does have a limited authority to bind the principal. One frequently-tested example of a general agency is a property manager with the authority to, for example, find and sign well-qualified tenants. C is incorrect. An implied agency can be created unintentionally or by accident. It may be created accidentally through the speech or actions of the agent (e.g., the broker for the seller advising a stranger who drops in at an open house). This answer choice is incorrect because, here, both parties intended to enter into an agency relationship and formalized that intention in a written listing contract. D is incorrect. A dual agency occurs when the agent represents more than one party to the transaction (e.g., representing both the buyer and the seller in a purchase transaction). There is no dual agency scenario presented in this fact pattern. Note: Some states legally prohibit dual agencies.
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21.
Who can legally appraise a residential property when the purchase is being financed with an FHA-insured loan?
a. The lender financing the purchase money mortgage
b. A licensed appraiser
c. A broker hired to provide a Broker Opinion of Value
d. A home inspector.
Only a licensed appraiser can perform an appraisal. An appraisal is required for all federally related loans like, for example, an FHA-insured loan, a VA-guaranteed loan, a conventional loan, and loans from lenders with FDIC. A is incorrect. The lender, however, needs the appraisal to ensure that the loan-to-value ratio is appropriate. C is incorrect. The Broker Opinion of Value (aka “Broker Price Opinion”) is the broker's estimation of a property's market value based on recent sales of nearby comparable properties. While this approach is similar to the market data approach used by appraisers, the broker is not authorized to complete an appraisal. D is incorrect. A home inspector does not appraise a property, but reports on the condition of its major systems and components (e.g., electrical, plumbing, foundation, walls, insulation, heating, air conditioning, etc.)
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23.
What must a homeowner in foreclosure do to exercise his right of redemption?
a. Pay the entire mortgage
b. Pay the entire mortgage, plus interest
c. Pay the entire mortgage, plus court costs and legal fees
d. Pay the entire mortgage, plus court costs, legal fees and interest
There are two phases in a foreclosure: Reinstatement (the first phase) and Redemption (the second phase). During the Reinstatement phase, the homeowner must only pay any missed mortgage payments (plus court costs, legal fees and interest). This will “cure” the default and allow the homeowner to continue paying off the mortgage. During the Redemption phase, the homeowner must pay the entire outstanding mortgage loan amount (plus court costs, legal fees, and interest). Redeeming a property means saving it from foreclosure. A, B, and C are incorrect because they are incomplete. In order to exercise the right of redemption and save the property from foreclosure, the property owner must pay the entire outstanding mortgage, court costs, legal fees, and any interest owed.
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25.
A woman who owns a parcel of real estate in severalty wants her son to have the property, but only after she dies. Which of the following choices is correct and will accomplish her wishes?
a. A devise in a properly executed will.
b. A life estate in which the son is the life tenant and measuring life, and the woman is the remainderman.
c. Alienation via a delivered and accepted quitclaim deed.
d. Since the property is owned in severalty, the other owners will need to be consulted.
After the woman dies, her debts will be paid and assets distributed through the probate court. When a parcel of real estate is transferred through the probate court as per the terms of a valid will, it is called a “devise.” (Test-Taking Tip: An inheritance of personal property, by contrast, is called a “bequest” or a “legacy.”) B is incorrect. This answer choice reverses the woman's wishes. In order to comply with the woman's desires with a life estate, the woman should be the life tenant and measuring life, and the son should be the remainderman. C is incorrect. To alienate means to convey. A deed that has been delivered and accepted would result in an immediate transfer of the real estate from the woman to her son. D is incorrect. An estate in severalty (aka “a tenancy in severalty”) is ownership by one person. When a parcel of real estate is owned in severalty, there are no other owners to consult. Test-Taking Tip: One person, one corporation, one governmental entity, one trust, one partnership can all own real estate in severalty. As long as there is only one owner, that is an estate in severalty. Examiners like to test this because of the word “several” in severalty.
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