National Topic Tester: Transfer of Property

Question: Which of the following is NOT true about a title search?

A. It is an examination of public records
B. The purpose is to determine defects in the chain of title
C. The title searcher goes back at least 100 years
D. It is usually performed by a title company or title abstractor


(title searches) Title examiners must research the public record at least 40 years prior to the date of examination. As such, title searches only NEED to go back 40 years. Abstractors, or title examiners, examine the public record in order to determine whether the title is marketable or free from defects.

Question: The act of recording a deed in the public office results in which of the following?

A. Title will pass to the new owner on the date of recording
B. Provides constructive notice
C. Provides actual notice
D. both B and C


(deed elements) The act of recording provides constructive notice to the world, regardless of whether anyone looks. The act of recording alone does not create actual notice (which is created when an individual is informed directly of something). Recording the deed has no effect on whether title transfer.
Question: All of the following statements are true about valid restrictive covenants except:

A. The covenant runs with the land
B. The covenant may be removed without legal action
C. The covenant does not need a termination date
D. The covenant may be at variance with Fair Housing laws


(private controls) Any restrictive covenant in a deed that is at variance with Fair Housing laws would be unenforceable. The Federal Fair Housing law and state laws make it illegal to restrict the sale or lease of property based on a person’s race, color, religion, national origin, sex, handicap or familial status.
Question: Each closed real estate transaction requires a report to be filed with the IRS on form 1099. Required information includes the seller’s name, social security number, and: 

A. Buyer’s name and social security number
B. The selling price of the property
C. The name of the mortgage lender
D. A description of the property


(tax aspects) The selling price of the property is included on the 1099. This is the amount of income the seller received. At tax reporting time, this sale is subject to adjustments when calculating the actual tax due.
Question: Title passes from the grantor to the grantee after a deed is:

A. Signed
B. Acknowledged
C. Delivered
D. Recorded


(deed elements) Legal title to real property conveys (passes) to a purchaser (grantee) when the deed is delivered by the seller (grantor) and accepted by the grantee. Acceptance is legally presumed in absence of evidence to the contrary.

Question: All of the following are examples of insurable title defects except:

A. Forged documents
B. Undisclosed heirs
C. Mental incompetence
D. Unrecorded easements


(title defects)  All of the listed items, except unrecorded easements are common insured title defects. Unrecorded easements and other rights of parties in possession are generally excluded, along with facts than an accurate survey would reveal, taxes, assessments not yet due or payable, zoning, and other governmental restrictions.

Question: To transfer title to property by deed, which of the following is required?

A. The deed must be recorded in the public record
B. The deed must be signed by the buyer
C. The deed must be signed by the grantor
D. Both B and C


(deed elements) Title passes after the deed has been delivered and accepted. The grantor (seller) must sign the deed, but the grantee (buyer) does not need to sign the deed so long as the grantee is identified.
Question: A deed delivered in escrow is given to:

A. A neutral third party
B. The mortgagee
C. The buyer’s attorney
D. The seller’s attorney


(deed elements) Grantor (seller) delivers the deed to an escrow agent who delivers it to the grantee (buyer) upon fulfillment of specified conditions (or returns it to grantor if conditions fail). An escrow agent is a neutral third person authorized by the parties to hold property or perform specified acts.
Question: The covenant in a deed where the grantor guarantees that she owns the property and has the right to sell it is known as:

A. Seisin
B. Against encumbrances
C. Warranty forever
D. Quiet enjoyment


(deed elements) A covenant of seisin is a promise by the grantor to the grantee that the grantor has the degree of ownership that the grantor claims she can convey.
Question: Tax assessment of real property according to value is known as:

A. Appraisal
B. Ad valorem
C. Replacement cost
D. Accretion


(tax aspects) One of the two principal methods of assessing real estate taxes is ad valorem (the other is special assessment). “Ad valorem” is Latin for “according to value.” Ad valorem taxes are based on the unique assessed value of the subject property.
Question: Which of the following is NOT true about title insurance?

A. The policy will include a list of exclusions
B. It serves many of the same functions as homeowners’ insurance
C. It will insure the owner against losses arising from title defects
D. It will generally include exclusions for unrecorded easements


(title insurance) Title insurance and homeowner’s insurance are two different things. Homeowner’s insurance insures against damage to the home. A title insurance policy promises to reimburse the policy holder for specified title defects, so the policy will include exclusions.
Question: Who pays excise taxes?

A. Grantor
B. Grantee
C. Broker
D. Both A and B


(tax aspects) An excise tax is a tax assessed for a service. For the grantor, excise taxes may include transfer taxes paid at settlement. For the grantee, excise taxes may include recordation taxes.

Question: All of the following represent a transfer of real property that takes place on the death of an owner except:

AEscheat to the state
B. Transfer by devise
C. Transfer by descent
D. Transfer by eminent domain


(conveyances after death) Escheat is when a deceased owner has no will or heirs, so the property transfers back to the state. However, in most situations, the title immediately passes to the person it is devised to in a will. Transfer by descent states that in the absence of a valid will, the living heirs will inherit the estate. Meanwhile, eminent domain is the right of government to take ownership of private property, so long as it is taken for a legitimate public use and just compensation is paid to its (still alive) owner.

Question: If a seller deposits the deed with an escrow agent, but the seller dies before it is delivered to the purchaser, the transfer of title becomes effective on the date the deed was deposited into escrow due to the:

A. parties’ consent
B. law of contracts
C. parole evidence rule
D. doctrine of relation-back


(deed elements) Note that this question states the definition of the relation-back doctrine.
Question: When the grantor of a deed swears that he is conveying title of his own free will, his action is referred to as:

A. Execution
B. Acknowledgment
C. Novation
D. Authentication


(deed elements) Swearing that he passes title (in a deed) of his own free will is usually done before a notary public or some other official. It is called acknowledgment.

Question: Which act regulates the closing procedures in a real estate transaction?

D. Lead Act


(escrow or closing) RESPA (Real Estate Settlement Procedure Act) regulates closing procedures to ensure that lenders fully inform buyers and sellers of all settlement costs, and that lenders do not engage in unfair practices. It limits who may conduct a real estate closing (settlement agent) and imposes obligations on settlement agents.


Question: Chris defaults on his house loan and his lender wants to auction the property (which secures the loan) in order to satisfy the debt. This is known as:

A. Short Sale
B. Forfeiture
C. Foreclosure
D. None of the above


(foreclosure, short sales) A short sale happens when the defaulting borrower sells the property to a new buyer for less than the full amount owed to the lender. Foreclosure is the loss of property to pay off a debt. Forfeiture is losing the property because of disobeying a condition in the deed.

Question: The covenant in a deed where the grantor guarantees that no one has any other interest that can disturb the grantee’s possession is known as:

A. The covenant of further assurances
B. The covenant against encumbrances
C. The covenant of quiet enjoyment
D. The covenant of seisin


(deed elements) Two similar covenants are warranty forever and quiet enjoyment. Quiet enjoyment is the promise that the grantee’s possession of the land will be defended against hostile claims and and that he shall enjoy possession of the property. Meanwhile, warranty forever is the promise the title will always be good.
Question: Which of the following statements is correct if a deed transferring legal title from one party to another is NOT recorded in the public record?

A. The deed is valid
B. The grantor gives up all rights to the property conveyed
C. The transfer is not valid
D. Both A and B


(deed elements) A deed is valid even if it is not recorded. However, because recording a deed offers protection against third party claims to ownership, it is the wise and prudent thing done by most people. In transferring title, the grantor gives up his or her rights.
Question: Jill agrees to sell a three-bedroom ranch to Jason. Per the sales agreement, Jill deposits the deed to the ranch in escrow. Subsequently, Jill dies. The ranch will most likely:

A. Pass to Jill’s heirs provided she left a valid will
B. Pass to the state because the escrow terminates
C. Pass to Jason, provided he satisfies the terms of the sales agreement
D. Pass to Jason if he is an heir of Jill’s


(deed elements) Note that the doctrine of relation back establishes that the death of the grantor does not terminate escrow, and authorizes the escrow agent to deliver the deed as instructed. Provided Jason satisfies the terms in the sales contract, Jill’s death will not affect the transaction.

Question: The purpose of a recording act is to:

A. Ensure title is marketable
B. Raise revenue
C. Create a local public record
D. Protect property owners


(recording acts) Recording acts create local public records that are available for public inspection and ensures public notice of all recorded information.
Question: What are fees charged for the privilege of buying or selling property in a particular jurisdiction?

A. Excise taxes
B. Ad valorem taxes
C. Special assessments
D. None of the above


(tax aspects) Excise taxes (also known as transfer and recording taxes) are fees charged by local jurisdictions for the privilege of buying or selling real estate in that jurisdiction. Transfer taxes are generally paid by the seller, grantor, or lessor and are usually based on the sales price of the property.
Question: All of the following usually perform title searches except:

A. An examiner
B. An abstractor
C. A real estate salesperson
D. The same company that issues title insurance on the property


(title searches) A person who performs a title search is known as a title examiner or abstractor. To promote its own interests, the same company that insures title usually conducts the title search. Real estate salespersons do not generally perform title searches.

Question: Deed restrictions apply to:

A. Current owners
B. Subsequent owners
C. All property owners in a neighborhood
D. Both A and B


(deed elements) Deed restrictions run with the land, and therefore apply to the current owner and any other person who later occupies the property. While other homes in a neighborhood may have similar deed restrictions (developments), each deed restriction applies only to its owner.

Question: Which of the following clauses is least likely to be included in a mortgage?

A. Acceleration
B. Habendum
C. Alienation
D. Defeasance


(deed elements) A habendum clause is found in a deed, not a mortgage. It is the clause that begins with “To have and to hold…” and describes how the property will be held by the new owner. All other items listed are generally included in the mortgage.

Question: Gill had a bad year. In September 1991, Gill’s vacation home had a 1st mortgage, a mechanic’s lien, and a special assessment filed against it. Later, in May 1992, a second mechanic’s lien was filed against the property. Which lien has priority? 

A. Mortgage
B. 1st mechanics’ lien
C. Special assessment
D. 2nd mechanics’ lien


(tax aspects) Because special assessments are a form of real property tax, it would have priority over all the other liens. Real estate property taxes take priority over other types of liens, regardless of their date of recording.
Question: Which of the following deeds creates the most liability for a seller?

A. Special warranty deed
B. Universal warranty deed
C. General warranty deed
D. Quitclaim deed


(types of deeds) The general warranty deed is the most complete of all deeds. It carries all the warranties of title. A quitclaim deed is the least complete in that it warrants nothing. A special warranty deed warrants only against defects arising during the tenure of the grantor’s ownership and not against previous defects in title.
Question: Bill and Sue want to purchase the home that is occupied by their grandparents. They want to take title in such a way that will result in the least amount of income tax liability for themselves. How should a real estate sales agent advise them?

A. Take title as tenants-in-common with their grandparents
B. Acquire title as joint tenants with each other
C. Take title as tenants-in-common, but each with an equal interest
D. Refer Bill and Sue to an attorney or tax advisor


(tax aspects) This is a problem that licensees should NOT get involved in. Tax matters can be very complex. You will be doing them a favor and keeping yourself out of possible trouble.

Question: Gus the Mechanic knew of an individual, Josh, who was interested in buying a house in the area. Gus told a broker, who was very familiar with real estate options in that area. Upon referral by Gus, the broker sold a house to Josh received a $600,000 commission. Under RESPA, the broker may give Gus: 

A. $500 for referring him to Josh
B. A ticket to the upcoming basketball game
C. A thank you
D. 1% of the commission he received


It is illegal under RESPA for anyone to pay or receive a fee, kickback or anything of value because they agree to refer settlement service business to a particular person or organization. It is also illegal for anyone to accept a fee or part of a fee for services if that person has not actually performed settlement services for the fee.
Question: Escrow may be used in which of the following situations?

A. When property is purchased and secured by a deed of trust
B. In an exchange of property
C. With a contract for sale
D. All of the above


(escrow or closing) Escrow is the holding of money, documents, etc. by a third party until the conditions of a contract have been satisfied by the principal parties. Escrow is commonly used in most real estate transactions, including the closing of mortgage loans and property exchanges.
Question: A court action to remove a cloud from the title is called an action or suit:

A. For specific performance
B. For title insurance
C. To quiet title
D. Of legal injunction


(title defects) A court action (suit) for the removal of a defect, cloud, or claim against the title of a property is called a suit to quiet title.

Question: A house sold for $109,000 with the buyer making a 20% down payment. The grantor’s tax is based on the:

A. Down payment
B. Loan amount
C. Selling price
D. None of the above


(tax aspects) The grantor’s tax, also known as the transfer and/or recording tax, is based on the selling price of the property. It is customary in many jurisdictions for the grantor (seller) to pay the grantor’s tax.
Question: What should Sally Salesperson do with an earnest money deposit check she received from Billy Buyer?

A. Deposit it in her escrow account
B. Give it to her broker
C. Attach the check to the contract and file it
D. Give it to the seller


(escrow or closing) The deposit should be given to the broker as soon as the buyer’s offer is accepted by the seller and a contract exists. Remember a salesperson does NOT have an escrow account; only the broker does.

Question: All of the following would be considered involuntary alienation EXCEPT:

A. Foreclosure
B. Eminent domain
C. Devise
D. Adverse possession


(transfer of title) Alienation means to transfer property. A devise is a gift of real property through a will, which is a voluntary act. Foreclosure (when the lender takes over property) and eminent domain (when the government takes over the property) are involuntary. Adverse possession can only occur WITHOUT the true owner’s permission.

Question: Pete purchased a home from Tony. He did not record his deed, but took immediate possession. Tony died a few months later and according to the terms of his will, the property was to go to his nephew, Bob. Bob knew his friend Angela was interested in buying a house. They inspected the property and Angela agreed to buy it from Bob. Angela recorded her deed. Who owns the property?

A. Angela, because she recorded the deed
B. Bob, because Tony died testate
C. Pete, because he purchased it from Tony
D. Pete, due to the relation back doctrine


(recording acts) Remember that a deed need not be recorded to effectuate a valid transfer of title. If Bob and Angela inspected the property, they would have actual notice that Pete was in possession of the property (and should have questioned the ownership rights). There could be a fight in court if Angela sues, but the property legally belongs to Pete. Note that the relation-back doctrine applies where the grantor dies while the property is in escrow.

Question: In a foreclosure sale, what kind of deed does the mortgagor receive?

A. Sheriff’s deed
B. Executor’s deed
C. Quitclaim deed
D. None of the above


(foreclosure, short sales) This is a trick question, so read it carefully. The MORTGAGOR is the person that is in default. He is going to lose the property, therefore he would not receive anything. When anyone (other than the delinquent borrower) buys property at a public auction, they receive a sheriff’s deed (also known as a referee’s deed). A sheriff’s deed functions to eliminate all unpaid junior liens against the property so the purchaser may receive marketable title.
Question: Bill sells real property to Betty through an escrow closing. Bill relinquishes control of the deed, but Betty does not receive it. What most likely happened to the deed?

A. It was stolen
B. Bill placed it in a safe deposit box
C. Bill gave it to his wife to hold
D. Bill delivered it to an escrow agent


(escrow or closing) Note that the question states this is an escrow closing. In an escrow closing, the deed is placed in escrow, where the grantor relinquishes his control of the deed. The escrow agent delivers the deed to the grantee upon the completion of agreed upon conditions (usually specified in the sales contract).

Question: Which of the following is an example of involuntary alienation?

A. Property transferred by descent
B. Property transferred by a will
C. Property transferred by a trust
D. Property transferred by a deed


(conveyances after death) This is a form of involuntary alienation because the state (not the deceased) determines the disposition of property. The question of who inherits the descendant’s estate (after the payment of applicable debts) is handled in each state by the laws of descent and distribution, also known as “intestate succession” statutes.

Question: Which of the following is NOT a cloud on title?

A. A valid first mortgage
B. A recorded contract for deed under which the buyer’s rights have been judicially terminated
C. A recorded option contract whose option period has expired
D. A recorded mortgage that has been paid in full but a satisfaction has never been recorded


(title searches) This question is intended to distinguish between “cloud on title,” “title defect,” and “marketable title.” Cloud on title is an indication of a potential, but uncertain defect that may be cleared. A valid first mortgage is certain to be a title defect (encumbrance) that prevents marketable title. Therefore, it is not a “cloud” because there is no ambiguity. The question is intended to illustrate these very fine distinctions and more importantly, to demonstrate the difficulty of the PSI exam.
Question: Which of the following provides compensation for defects?

A. Homeowners’ insurance
B. Private mortgage insurance (PMI)
C. Title insurance
D. Both B and C


(title insurance) Title insurance reimburses the title holder for certain losses incurred due to defects in the title. Homeowners’ insurance reimburses the homeowner for damage to the home or property. PMI is used by lenders to hedge against the risk that a borrower will default on a mortgage.
Question: Larry sells property to David, and the deed contains the following covenants: seisin, quiet enjoyment, against encumbrances, and further assurances. Following the transfer, David discovers utility poles on the property, which lead to a nearby transformer. Larry failed to list the utility poles in the deed. Larry’s failure to identify such encumbrances violates:

A. The covenant of quiet enjoyment
B. The covenant against encumbrances
C. The covenant against grantor’s acts
D. None of the above


(deed elements) A covenant against encumbrances is the grantor’s guarantee that there are no encumbrances against the property except those specifically disclosed. The utility poles are indeed an encumbrance. However, the covenant against encumbrances is NOT breached by merely failing to list an open and visible encumbrance, such as a power line or drainage ditch. Open and visible encumbrances provide actual notice to purchasers. Therefore, such encumbrances need not be listed in the deed.

Question: Which of the following is NOT prorated between buyer and seller at closing?

A. Recording fees
B. Real estate taxes
C. Rents
D. Home owner’s insurance premiums


(tax aspects) Recording fees are NOT prorated; each party pays his own. If insurance premiums have been paid in advance by the seller, they would be prorated if the buyer assumes the insurance policy. However, this is not as common a practice as it once was.

Question: A quitclaim deed may be used to:

A. Transfer ownership of a fee simple estate
B. Transfer interest in a life estate
C. Terminate an easement
D. Any of the above


(types of deeds) A quitclaim deed CAN be used to transfer any interest in real property from one party to another. It is normally used for the transfer of an interest that is less than fee simple.

Question: Bob the Bigot imposes a deed restriction on his property, which prohibits the sale of his home to anyone from France. Bob’s deed restriction is:

A. Voidable
B. Void
C. Enforceable
D. Irrelevant


(private controls) Illegal covenants are void (not voidable) and unenforceable. Discrimination based on national origin is illegal under fair housing laws; therefore, Bob’s deed restriction is void and unenforceable. While Bob’s restriction is arguably irrelevant since it is unenforceable, that answer choice is not the “best” choice because it expresses an opinion.

Question: A title insurance policy reimburses the title holder for:

A. Loss of property through foreclosure
B. Loss as a result of a superior claim
C. Damage caused by a fire
D. Flood damage


(title insurance) Title insurance reimburses the policy holder for specified losses caused by title defects that arose before the effective date of the policy. Damage caused by fire or flood would be covered by homeowner’s insurance, not title insurance.

Question: Dan has a loan secured by his home through Bank Trust Company (BTC). Dan has failed to make several mortgage payments to BTC and as a result, BTC has begun to send collection notices. If Dan files for bankruptcy, BTC must:

A. Send Dan a notice of acceleration before it can continue its collection efforts
B. Send Dan a notice of foreclosure before it can proceed with foreclosure
C. Send Dan a notice of forfeiture
D. Stop all collection activity during the pendency of Dan’s bankruptcy petition


(special processes, bankruptcy) When someone files a petition for bankruptcy protection, a creditor must cease all collection activity until the petition is discharged. Therefore, pursuing any kind of collection action, such as acceleration or foreclosure, would be improper. A notice of forfeiture would be a form of collection activity, but would not be sent by BTC since forfeiture is used for the breach of a land installment contract, not the breach of a mortgage contract.
Question: Smith is interested in purchasing a parcel of land, but wants to first examine any recorded documents relating to the parcel. Smith must have authorization from:

A. The current owner
B. The civil court having jurisdiction
C. A magistrate
D. No one


(recording acts) All recorded documents pertaining to land are public information. Therefore, no permission is required to gain access.

Question: In the event of any conflict, which clause would best state the extent of ownership?

A. Premises
B. Testimonium
C. Habendum
D. None of the above


(deed elements) While both the premises and habendum clauses could state the event of ownership being transferred, the premises clause controls in the event of a conflict.

Question: When a property sells, who pays to record a satisfaction or release of the existing deed of trust?

A. Buyer
B. Seller
C. Lender
D. Broker


(tax aspects) The buyer pays to have his new deed recorded. The seller pays to have his existing deed of trust released.

Question: All of the following persons may act as escrow agents except: 

A. Brokers
B. Neutral third persons
C. Salespersons
D. Attorneys


(escrow or closing) An escrow agent is a neutral third-party that is authorized to hold property or perform specified acts. Both brokers and attorneys can act as escrow agents. However, most states do not allow salespersons to be escrow agents, though they may accept money and documents for escrow on behalf of their employing broker.
Question: Quincy sold a piece of property to Ralph, and transferred title through a quitclaim deed. Later, a court determined that Quincy did not own the property. Which of the following is true in this situation? 

A. Ralph owns the property because the court action was after he bought after title transferred
B. Ralph has no interest in the property
C. Ralph has a good claim against Quincy for misrepresentation
D. Both B and C


(types of deeds) With a quitclaim deed, the grantor does not promise that he has any interest or rights to convey. Because Quincy had no interest, he had nothing to sell, and Ralph has no interest in the property. On these facts, Ralph has no basis for a suit because through the quitclaim deed, Quincy never asserted he had an interest at all.
Question: What is a written instrument or thing of value that held by a disinterested third party, but must be handed over upon satisfaction of specified conditions?

A. A bond
B. A deed of trust
C. An escrow closing
D. An assignment


(escrow or closing) The question describes an escrow closing. In an escrow closing, documents (deeds, mortgages, etc) and funds are held by a third party until closing is complete. Upon closing (and as specified in the purchase agreement), the escrow agent turns over the deed and funds to the proper parties.
Question: A deed where the grantor only promises against claims that arose during his property ownership is referred to as a: 

A. Quitclaim deed
B. Bargain and sale deed
C. General warranty deed
D. Special (limited) warranty deed


(types of deeds) In a special warranty deed, the grantor only warrants against title defects and claims that occurred while the grantor held title to the property. Bargain and sale deeds and quitclaim deeds offer no warranty to the grantee regarding the status of title. General warranty deeds warrant against title defects and claims that occurred before and during the grantor’s property ownership.
Question: Which of the following deed clauses is most likely to state the names of the parties? 

A. Premises
B. Habendum
C. Testimonium
D. None of the above


(deed elements) Deeds may contain all of the following clauses: premises, habendum, and testimonium. However, only the premises clause names the parties to the transaction.

Question: An individual appointed by the court to handle the affairs of someone who died intestate is exempt from the Virginia License Law. This person is called a(n):

A. Executor
B. Testator
C. Administrator
D. Trustee


The person died intestate (without a will), so the court will appoint an administrator. If the person had died testate (with a will), the WILL would have named someone to handle the affairs of the estate and that person would be the executor.