Overview
Property entails items capable of being owned (i.e., the rights related to the ownership of things that society will recognize and enforce). Property is classified as real or personal, and as tangible or intangible. Protection of property and settlement of disputes concerning property is a major function of the legal system.
A. Distinctions between Real and Personal Property
B. Personal Property Can Be Acquired By
C. Bailments
D. Intellectual Property and Computer Technology Rights
E. Interests in Real Property
F. Contracts for Sale of Land
G. Types of Deeds
H. Executing a Deed
I. Recording a Deed
J. Title Insurance
K. Adverse Possession
L. Easement by Prescription
M. Mortgages
N. Lessor-Lessee
Key Terms
Multiple-Choice Questions
Multiple-Choice Answers and Explanations
Simulation
Simulation Solution
The candidate should be able to distinguish between personal and real property and between tenancies in common, joint tenancies, and tenancies by the entirety. The candidate also should understand that an instrument given primarily as security for real property is a mortgage and be able to distinguish between the legal results arising from “assumption” of a mortgage and taking “subject to” a mortgage. Other questions concerning mortgages require basic knowledge of the concepts of novation, suretyship, subrogation, and redemption.
Questions on deeds may distinguish between the legal implication of warranty deeds, quitclaim deeds, and special warranty deeds. Both mortgages and deeds should be publicly recorded, and the questions may require the candidate to identify a priority and constructive notice. The most important topics under lessor-lessee law are the Statute of Frauds, the effect of a sale of leased property, assignment, and subleasing. Before beginning the reading you should review the key terms at the end of the module.
Bailee. A party who is entrusted to hold the goods of another person.
Bailment. When a party entrusts goods to another party.
Bailor. The party who gives his/her own goods to another to hold.
Common carrier. A party who transports goods for hire and is strictly liable for any damage to those goods. Damages are generally limited by statute though.
Copyright. Intellectual property right that provides protection for the original expression of an idea.
Deed. A written instrument that transfers ownership of real property.
Easement. A legal right to use another’s property in a specific manner.
Fair use doctrine. Allows copyrighted material to be used without paying royalties. Use is generally limited to educational, news and other not-for-profit purposes.
Joint tenancy. A type of co-ownership of real property with the right of survivorship.
Landlord. The owner of the leased premises.
Lease. A contract used to rent real property for a period of time.
Mortgage. A security interest in real property.
Mortgagee. The party with the security interest in the real property (the lender).
Mortgagor. The party who uses his/her real property as collateral to secure a loan (the borrower).
Notice statute. A law that applies to the recording of interests in real property. Notice states allow parties who take an interest in real property without notice to have a superior interest than a party who had an earlier interest.
Notice-race statute. A law that applies to the recording of interests in real property. Notice-race states allow parties who take an interest in real property without notice to have a superior interest than a party who had an earlier interest if the subsequent party records before the party with the earlier interest.
Patent. An intellectual property right that gives an inventor the exclusive right to use the invention.
Race statute. A law that applies to the recording of interests in real property. Race statutes give the superior interest to whichever party records its interest first.
Real estate contract. A written instrument that contains the terms of the bargain to transfer real property.
Real property. Land, the interests in land, and the permanent structures attached to the land.
Recording. The filing of property interests with the appropriate local government that allows the party who records to protect its interest against subsequent parties.
Tenancy by the entirety. A type of co-ownership of real property that is only available to married couples. Helps to protect the property from claims of individual creditors.
Tenant. The party who rents the rental property and acquires a right to use the premises.
Tenants in common. A type of co-ownership of real property that does not include the right of survivorship.
Title insurance. Insures against defects of title of the real property.
Trademark. A distinctive mark, word, symbol, design, etc. that a manufacturer/seller uses to identify its goods.
Trade secrets. Information that a business does not want disclosed to the public. Business must take extraordinary measures to keep the information private.
1. Which of the following items is tangible personal property?
a. Share of stock.
b. Trademark.
c. Promissory note.
d. Oil painting.
2. What is an example of property that can be considered either personal property or real property?
a. Air rights.
b. Mineral rights.
c. Harvested crops.
d. Growing crops.
3. Which of the following factors help determine whether an item of personal property is a fixture?
I. Degree of the item’s attachment to the property.
II. Intent of the person who had the item installed.
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
4. Getty owned some personal property which was later found by Morris. Both Getty and Morris are claiming title to this personal property. In which of the following cases will Getty win over Morris?
I. Getty had mislaid the property and had forgotten to take it with him.
II. Getty had lost the property out of his van while driving down a road.
III. Getty had abandoned the property but later changed his mind after Morris found it.
a. I only.
b. II only.
c. I and II only.
d. I, II, and III.
5. Rand discarded an old rocking chair. Stone found the rocking chair and, realizing that it was valuable, took it home. Later, Rand learned that Stone had the rocking chair and wanted it back. Rand subsequently put a provision in his will that his married daughter Walters will get the rocking chair. Who has the actual title to the rocking chair?
6. Which of the following standards of liability best characterizes the obligation of a common carrier in a bailment relationship?
a. Reasonable care.
b. Gross negligence.
c. Shared liability.
d. Strict liability.
7. Multicomp Company wishes to protect software it has developed. It is concerned about others copying this software and taking away some of its profits. Which of the following is true concerning the current state of the law?
a. Computer software is generally copyrightable.
b. To receive protection, the software must have a conspicuous copyright notice.
c. Software in human readable source code is copyrightable but in machine language object code is not.
d. Software can be copyrighted for a period not to exceed twenty years.
8. Which of the following is not correct concerning computer software purchased by Gultch Company from Softtouch Company? Softtouch originally created this software.
a. Gultch can make backup copies in case of machine failure.
b. Softtouch can typically copyright its software for at least seventy-five years.
c. If the software consists of compiled computer databases it cannot be copyrighted.
d. Computer programs are generally copyrightable.
9. Which of the following statements is correct?
a. Patent law is largely based on state law.
b. Accessing a digital work is protected by the fair use doctrine.
c. Financial and business models used over the Internet can be patented.
d. All of the above statements are incorrect.
10. Professor Bell runs off fifteen copies to distribute to his accounting class using his computer from a database in some software he had purchased for his personal research. The creator of this software is claiming a copyright. Which of the following is correct?
a. This is an infringement of a copyright since he bought the software for personal use.
b. This is not an infringement of a copyright since databases cannot be copyrighted.
c. This is not an infringement of a copyright because the copies were made using a computer.
d. This is not an infringement of a copyright because of the fair use doctrine.
11. Intellectual property rights included in software may be protected under which of the following?
a. Patent law.
b. Copyright law.
c. Both of the above.
d. None of the above.
12. Which of the following statements is not true of the law of trademarks in the United States?
a. Trademark law may protect distinctive shapes as well as distinctive packaging.
b. Trademark protection can be lost if the trademark becomes so popular that its use becomes commonplace.
c. Trademarks to receive protection need not be registered.
d. Trademarks are valid for twenty years after their formation.
13. Diane Trucco recently wrote a novel which is an excellent work of art. She wishes to copyright and publish this novel. Which of the following is correct?
a. Her copyright is valid for her life plus seventy years.
b. She must register her copyright to receive protection under the law.
c. She is required to put on a copyright notice to obtain a copyright.
d. All of the above are correct.
14. Long, Fall, and Pear own a building as joint tenants with the right of survivorship. Long gave Long’s interest in the building to Green by executing and delivering a deed to Green. Neither Fall nor Pear consented to this transfer. Fall and Pear subsequently died. After their deaths, Green’s interest in the building would consist of
a. A 1/3 interest as a joint tenant.
b. A 1/3 interest as a tenant in common.
c. No interest because Fall and Pear did not consent to the transfer.
d. Total ownership due to the deaths of Fall and Pear.
15. What interest in real property generally gives the holder of that interest the right to sell the property?
a. Easement.
b. Leasehold.
c. License.
d. Fee simple.
16. Which of the following unities (elements) are required to establish a joint tenancy?
17. Which of the following is not an interest that a person can have in real property?
a. Fee simple absolute.
b. Tenancy by default.
c. Life interest.
d. Remainder.
18. On July 1, Quick, Onyx, and Nash were deeded a piece of land as tenants in common. The deed provided that Quick owned 1/2 the property and Onyx and Nash owned 1/4 each. If Nash dies, the property will be owned as follows:
a. Quick 1/2, Onyx 1/2.
b. Quick 5/8, Onyx 3/8.
c. Quick 1/3, Onyx 1/3, Nash’s heirs 1/3.
d. Quick 1/2, Onyx 1/4, Nash’s heirs 1/4.
19. Brett conveys his real property by deed to his sister, Jan, for life with the remainder to go to his friend, Randy, for his life. Brett is still living. Randy died first and Jan died second. Who has title to this real property?
a. Brett.
b. Brett’s heirs.
c. Jan’s heirs.
d. Randy’s heirs.
20. Court, Fell, and Miles own a parcel of land as joint tenants with right of survivorship. Court’s interest was sold to Plank. As a result of the sale from Court to Plank
a. Fell, Miles, and Plank each own one-third of the land as joint tenants.
b. Fell and Miles each own one-third of the land as tenants in common.
c. Plank owns one third of the land as a tenant in common.
d. Plank owns one-third of the land as a joint tenant.
21. The following contains three fact patterns involving land. In which of the following is an easement involved?
I. O sells land to B in which O retains in the deed the right to use a roadway on B’s newly purchased property.
II. O sells land to B in which O in the deed has the right to cut and keep ten specified trees on the land sold.
III. O sells land to B. O continues that year to use a roadway on B’s newly purchased property when B is not looking.
a. I only.
b. I and II only.
c. II and III only.
d. I, II, and III.
22. A method of transferring ownership of real property that most likely would be considered an arm’s-length transaction is transfer by
a. Inheritance.
b. Eminent domain.
c. Adverse possession.
d. Sale.
23. Which of the following elements must be contained in a valid deed?
Purchase price | Description of the land | |
a. | Yes | Yes |
b. | Yes | No |
c. | No | Yes |
d. | No | No |
24. Which of the following warranties is (are) contained in a general warranty deed?
I. The grantor has the right to convey the property.
II. The grantee will not be disturbed in possession of the property by the grantor or some third party’s lawful claim of ownership.
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
25. For a deed to be effective between the purchaser and seller of real estate, one of the conditions is that the deed must
a. Contain the signatures of the seller and purchaser.
b. Contain the actual sales price.
c. Be delivered by the seller with an intent to transfer title.
d. Be recorded within the permissible statutory time limits.
Items 26 and 27 are based on the following:
On February 1, Frost bought a building from Elgin, Inc. for $250,000. To complete the purchase, Frost borrowed $200,000 from Independent Bank and gave Independent a mortgage for that amount; gave Elgin a second mortgage for $25,000; and paid $25,000 in cash. Independent recorded its mortgage on February 2 and Elgin recorded its mortgage on March 12.
The following transactions also took place:
A judicial sale of the building resulted in proceeds of $220,000 after expenses were deducted. The above transactions took place in a notice-race jurisdiction.
26. What amount of the proceeds will Scott receive?
a. $0
b. $ 1,000
c. $12,500
d. $19,000
27. Why would Scott receive this amount?
a. Scott knew of the Elgin mortgage.
b. Scott’s mortgage was recorded before Elgin’s and before Scott knew of Elgin’s mortgage.
c. Elgin’s mortgage was first in time.
d. After Independent is fully paid, Elgin and Scott share the remaining proceeds equally.
28. A purchaser who obtains real estate title insurance will
a. Have coverage for the title exceptions listed in the policy.
b. Be insured against all defects of record other than those excepted in the policy.
c. Have coverage for title defects that result from events that happen after the effective date of the policy.
d. Be entitled to transfer the policy to subsequent owners.
29. Which of the following is a defect in marketable title to real property?
a. Recorded zoning restrictions.
b. Recorded easements referred to in the contract of sale.
c. Unrecorded lawsuit for negligence against the seller.
d. Unrecorded easement.
30. Which of the following is not a necessary element for an individual to obtain title of a piece of real estate by adverse possession?
a. Continuous possession.
b. Possession that is to the exclusion of others.
c. Possession permitted by the actual owner.
d. Open and notorious possession.
31. Rake, twenty-five years ago, put a fence around a piece of land. At the time, Rake knew that fence not only surrounded his land but also a sizable piece of Howe’s land. Every summer Rake planted a garden on this land surrounded by the fence. Howe recently sold all of his land to Cross. Cross has found out about the fence line and has asked Rake to either move the fence or pay Cross for the land in question. What is the result?
a. Rake does not have to move the fence but must pay Cross for the land in question.
b. Rake does not have to move the fence but must pay Howe for the land in question.
c. Rake must move the fence.
d. Rake must neither move the fence nor pay either party for the land in question.
32. Generally, which of the following federal acts regulate mortgage lenders?
Real Estate Settlement Procedures Act (RESPA) | Federal Trade Commission Act | |
a. | Yes | Yes |
b. | Yes | No |
c. | No | Yes |
d. | No | No |
33. Gilmore borrowed $60,000 from Dix Bank. The loan was used to remodel a building owned by Gilmore as investment property and was secured by a second mortgage that Dix did not record. FCA Loan Company has a recorded first mortgage on the building. If Gilmore defaults on both mortgages, Dix
a. Will not be entitled to any mortgage foreclosure sale proceeds, even if such proceeds are in excess of the amount owed to FCA.
b. Will be unable to successfully claim any security interest in the building.
c. Will be entitled to share in any foreclosure sale proceeds pro rata with FCA.
d. Will be able to successfully claim a security interest that is subordinate to FCA’s security interest.
34. Wilk bought an apartment building from Dix Corp. There was a mortgage on the building securing Dix’s promissory note to Xeon Finance Co. Wilk took title subject to Xeon’s mortgage. Wilk did not make the payments on the note due Xeon and the building was sold at a foreclosure sale. If the proceeds of the foreclosure sale are less than the balance due on the note, which of the following statements is correct regarding the deficiency?
a. Xeon must attempt to collect the deficiency from Wilk before suing Dix.
b. Dix will not be liable for any of the deficiency because Wilk assumed the note and mortgage.
c. Xeon may collect the deficiency from either Dix or Wilk.
d. Dix alone would be liable for the entire deficiency.
35. On April 6, Ford purchased a warehouse from Atwood for $150,000. Atwood had executed two mortgages on the property: a purchase money mortgage given to Lang on March 2, which was not recorded; and a mortgage given to Young on March 9, which was recorded the same day. Ford was unaware of the mortgage to Lang. Under the circumstances
a. Ford will take title to the warehouse subject only to Lang’s mortgage.
b. Ford will take title to the warehouse free of Lang’s mortgage.
c. Lang’s mortgage is superior to Young’s mortgage because Lang’s mortgage is a purchase money mortgage.
d. Lang’s mortgage is superior to Young’s mortgage because Lang’s mortgage was given first in time.
36. Which of the following conditions must be met to have an enforceable mortgage?
a. An accurate description of the property must be included in the mortgage.
b. A negotiable promissory note must accompany the mortgage.
c. Present consideration must be given in exchange for the mortgage.
d. The amount of the debt and the interest rate must be stated in the mortgage.
37. On February 1, Frost bought a building from Elgin, Inc. for $250,000. To complete the purchase, Frost borrowed $200,000 from Independent Bank and gave Independent a mortgage for that amount; gave Elgin a second mortgage for $25,000; and paid $25,000 in cash. Independent recorded its mortgage on February 2 and Elgin recorded its mortgage on March 12.
The following transactions also took place:
A judicial sale of the building resulted in proceeds of $220,000 after expenses were deducted. The above transactions took place in a notice-race jurisdiction.
Frost may redeem the property before the judicial sale only if
a. There is a statutory right of redemption.
b. It is probable that the sale price will result in a deficiency.
c. All mortgages are paid in full.
d. All mortgagees are paid a penalty fee.
38. A mortgagor’s opportunity to redeem will be terminated by a judicial foreclosure sale unless
a. The proceeds from the sale are not sufficient to fully satisfy the mortgage debt.
b. The mortgage instrument does not provide for a default sale.
c. The mortgagee purchases the property for market value.
d. The jurisdiction has enacted a statutory right of redemption.
39. Rich purchased property from Sklar for $200,000. Rich obtained a $150,000 loan from Marsh Bank to finance the purchase, executing a promissory note and a mortgage. By recording the mortgage, Marsh protects its
a. Rights against Rich under the promissory note.
b. Rights against the claims of subsequent bona fide purchasers for value.
c. Priority against a previously filed real estate tax lien on the property.
d. Priority against all parties having earlier claims to the property.
40. Which of the following provisions must be included to have an enforceable written residential lease?
A description of the leased premises | A due date for the payment of rent | |
a. | Yes | Yes |
b. | Yes | No |
c. | No | Yes |
d. | No | No |
41. Which of the following rights is (are) generally given to a lessee of residual property?
I. A covenant of quiet enjoyment.
II. An implied warranty of habitability.
a. I only.
b. II only.
c. Both I and II.
d. Neither I nor II.
42. Which of the following methods of obtaining personal property will give the recipient ownership of the property?
Lease | Finding abandoned property | |
a. | Yes | Yes |
b. | Yes | No |
c. | No | Yes |
d. | No | No |
43. Which of the following forms of tenancy will be created if a tenant stays in possession of the leased premises without the landlord’s consent, after the tenant’s one-year written lease expires?
a. Tenancy at will.
b. Tenancy for years.
c. Tenancy from period to period.
d. Tenancy at sufferance.
1. (d) Real property is land and objects attached to land in a relatively permanent manner; personal property is property not classified as real. Tangible property is subject to physical possession; intangible property cannot be physically possessed, but can be legally owned. Ownership of intangible property is often represented by a piece of paper, but the property itself is intangible; thus answers (a), (b), and (c) are incorrect. A share of stock is part ownership of a company; a trademark is ownership of the use of a particular mark, design, word, or picture, and a promissory note is ownership of the right to receive payment of a debt at a future date. These are all usually represented by a piece of paper, but are intangible. An oil painting is personal property subject to physical possession.
2. (d) Growing crops generally are part of the land and therefore considered real property. However, the crops can be sold separately from the land, in which case they are considered personal property under the UCC, whether the buyer or the seller will sever the growing crops later from the land. Answer (a) is incorrect because air rights are not discussed in the UCC as one of those that can be either. Answer (b) is incorrect because mineral rights are associated with land or realty. Answer (c) is incorrect because unlike growing crops that may be realty until sold in a contract, harvested crops are personal property separate from the realty.
3. (c) The factors used to determine whether an item of personal property is considered a fixture are (1) the affixer’s intent, (2) the method and permanence of attachment, and (3) whether the personal property is customarily necessary to use the real property.
4. (c) When the owner mislays personal property and forgets to take it with him or her, the finder does not obtain title but the owner of the premise acts as caretaker in case the true owner comes back. In the case of lost property (involuntarily left), the finder obtains title; however, the true owner, Getty, wins over this title. In the case of abandoned property, the finder gets valid title that is even valid against Getty.
5. (d) When property is discarded with no intention of keeping ownership over it, it is considered abandoned property. In such cases, the one who finds and keeps the abandoned property becomes the owner with title that is good against all other parties, even the owner who abandoned it. Note that Walters cannot obtain title from Rand because Rand no longer owns the rocking chair.
6. (d) The general rule for a bailee is to exercise reasonable care in light of the particular facts and circumstances. However, a common carrier holds itself out as a public delivery service, and is held to a very high standard for property placed in its care; therefore answer (a) is incorrect, and answer (d) is correct. Answer (b) is incorrect because gross negligence is reckless conduct and any bailee owes a duty of at least reasonable care. Answer (c) is incorrect because the common carrier does not share liability for losses.
7. (a) Computer software is covered under the general copyright laws and is therefore usually copyrightable as an expression of ideas. Answer (b) is incorrect because copyrights in general do not need a copyright notice for works published after March 1, 1989. Answer (c) is incorrect because a recent court ruled that programs in both source codes, which are human readable, and in machine readable object code can be copyrighted. Answer (d) is incorrect because copyrights taken out by corporations or businesses are valid for 100 years from creation of the copyrighted item or seventy-five years from its publication, whichever is shorter.
8. (c) Computer databases are generally copyrightable as compilations. Answer (a) is not chosen because copies for archival purposes are allowed. Answer (b) is not chosen because in the case of corporations or businesses, the copyright is valid for the shorter of 100 years after the creation of the work or seventy-five years from its date of publication. Answer (d) is not chosen because computer programs are now generally recognized as copyrightable.
9. (c) Even though earlier views of financial and business models that were used over the internet often categorized them as based on ideas and thus not patentable, more recent authority says they can be patented. Answer (a) is incorrect because patent law is exclusively federal law. Answer (b) is incorrect because accessing a digital work is not protected by the fair use doctrine. Answer (d) is incorrect because answer (c) is correct.
10. (d) Under the fair use doctrine, copyrighted items can be used for teaching, including distributing multiple copies for class use. Answer (a) is incorrect because although he originally purchased this software for personal use, he may still use it for his class, in which case, the fair use doctrine applies. Answer (b) is incorrect because databases can be copyrighted as derivative works. Answer (c) is incorrect because the use of the computer is not the issue but the fair use doctrine is.
11. (c) Both patent and copyright law are used under modern law to protect computer technology rights. Answer (a) is incorrect because copyright law now also protects software. Answer (b) is incorrect because modern law also protects software as patentable. Answer (d) is incorrect because modern law generally protects intellectual property rights in software under both patent law and copyright law.
12. (d) Trademarks are valid indefinitely until they are actually abandoned or the company allows the trademark to lose its distinctiveness. Answer (a) is not chosen because trademarks can protect many distinctive things such as shapes, packaging, or graphic designs. Answer (b) is not chosen because a company must take steps to keep the trademark distinctive or it can lose it through others’ common usage. For example, elevator was once a trademark which has since been lost. Answer (c) is not chosen because although a company may register a trademark to better protect its legal rights, it may still receive protection without registering it by proving the facts.
13. (a) Since January 1, 1978, this is the life of a copyright. Answer (b) is incorrect because the copyright is valid when the author puts the work of art in tangible form. Answer (c) is incorrect because works published after March 1, 1989 no longer require a copyright notice placed on them. Answer (d) is incorrect because under current copyright law, (b) and (c) are no longer required.
14. (b) In a joint tenancy, each joint tenant has an equal and undivided interest in the property. Each joint tenant can transfer his/her interest in the property without the prior consent of the other joint tenants. When this occurs, the conveyance destroys the joint tenancy and creates a tenancy in common between the remaining joint tenants and the third party. When Long gave his/her interest in the building to Green, Green became a tenant in common with a 1/3 interest in the property. Therefore, answer (a) is incorrect. Answer (d) is incorrect because Green would have total interest in the building after the deaths of Fall and Pear only if Green had been a joint tenant rather than a tenant in common. Answer (c) is incorrect because a joint tenant may convey rights in property without the consent of other joint tenants.
15. (d) A fee simple is generally the most comprehensive interest that a person may have in property under the law of the United States. It allows the owner to sell it or to pass it on to heirs. Answer (a) is incorrect because an easement is not ownership of the land but the right to use it in a way such as using a roadway along with the owner. Answer (b) is incorrect because a leasehold gives the lessee the right to possess the premises under the lease but not the ownership of the premises. Answer (c) is incorrect because a license is permission given by the owner to use or occupy the real estate but not to own it.
16. (a) In a joint tenancy, each joint tenant has an equal and undivided interest in the property. Joint tenancy ownership consists of the unities of time, title, interest, and possession and carries with it the right of survivorship. Thus, all the elements listed in the question are required to establish a joint tenancy and answers (b), (c), and (d) are incorrect.
17. (b) A tenancy by default is not one of the recognized interests in real estate. Answer (a) is incorrect because a fee simple absolute is the highest estate recognized in American law. Answer (c) is incorrect because a life interest is an interest measured by the life of the holder or some other person. Answer (d) is incorrect because a remainder is the future interest that a third party acquires after the interest of a transferee terminates.
18. (d) In a tenancy in common, each tenant essentially owns an undivided fractional share of the property. Each tenant has the right to convey his/her interest in the property and if one of the tenants dies, that tenant’s interest passes to his/her heirs. Therefore, if Nash dies, Nash’s interest would pass to Nash’s heirs and the ownership of the property would be as follows: Quick 1/2, Onyx 1/4, and Nash’s heirs 1/4.
19. (a) Jan had title to the property when Brett granted it to her for her life. Randy never got title to it because he died before Jan’s life estate terminated. When Jan died, her life estate terminated and the property reverted back to Brett, who was still living. Answer (b) is incorrect because Brett was still living. Answers (c) and (d) are incorrect because Jan and Randy had been granted life estates which automatically terminate upon their deaths.
20. (c) When rights in property held in joint tenancy are conveyed without the consent of the other joint tenants, the new owner becomes a tenant in common rather than a joint tenant; therefore answers (a) and (d) are incorrect. Answer (b) is incorrect because the remaining cotenants are still joint tenants. Thus, after the sale of land from Court to Plank without the consent of the others, Plank owns one third of the land as a tenant in common. Both Fell and Miles will continue to each own 1/3 of the land as joint tenants.
21. (a) Fact pattern I involves an easement in which O reserves the right to use B’s land in the deed to B. O does not any longer own the roadway but retains the right to use it. Fact pattern II is a profit rather than an easement in which O has the right to enter B’s land to cut and keep the ten trees. Fact pattern III is not an easement because O has not retained nor has s/he been given the right to use the roadway. Note that this is not an easement by prescription in that the use is not open and notorious nor has it occurred for several years.
22. (d) An arm’s-length transaction is a negotiation between unrelated parties acting in his/her interest. A way to test an arm’s-length transaction is to consider what a disinterested third party would pay for the property. Answer (d) is correct because a sale involves the transfer of property for consideration in which a third party would generally negotiate and act in his/her interest. Answer (a) is incorrect because the property passes to a party as the decedent directs, subject to certain state limitations. Answer (b) is incorrect because eminent domain is the power of the government to take, with just compensation, private property for public use. Answer (c) is incorrect because adverse possession allows a person to gain title to real property if the person has continuously and openly occupied the land of another for a statutory period of time.
23. (c) In order for a deed to be valid, a description of the land must be included. The purchase price of the land need not be present to form a valid deed. The purchase price is part of the terms of the bargain and needs to be included in the real estate contract, not the deed.
24. (c) A general warranty deed warrants that (1) the seller has title and the power to convey the property described in the deed, (2) the property is free from any encumbrances, except as disclosed in the deed, and (3) the grantee (purchaser) will not be disturbed in his/her possession of the property by the grantor (seller) or some third party’s lawful claim of ownership. Thus, a general warranty deed would contain both of the warranties listed and answers (a), (b), and (d) are incorrect.
25. (c) In order for a deed to be effective between the purchaser and seller of real estate, the deed must be delivered by the seller with an intent to transfer title. Even though a deed may be executed it does not become effective until delivery is made with the proper intent. Answer (d) is incorrect because a deed need not be recorded in order for it to be valid between the seller and purchaser. Recordation of a deed is important because it gives constructive notice to all third parties of the grantee’s ownership; however, it does not affect the resolution of any disputes between the grantor and the grantee. Answer (a) is incorrect since a deed need be signed by only the seller in order for it to be effective; it does not have to be signed by the purchaser. Answer (b) is incorrect since the form of a deed is very different from a contract for the sale of real property. There is no requirement that the deed must contain the actual sales price.
26. (d) Under a notice-race statute, if a mortgagee fails to record its mortgage, a subsequent mortgagee who records will have a superior security interest if s/he did not have notice of the prior mortgage. In this situation, Independent Bank was the first to record its mortgage and would receive the $195,000 owed it. Scott would then receive $19,000 because Scott recorded his/her mortgage before Elgin. Since Scott did not have knowledge of Elgin’s mortgage until after Scott had recorded his/her mortgage, Scott would have priority over Elgin.
27. (b) Under a notice-race statute, a subsequent mortgagee (lender) who loans money without notice of a previous mortgage and records the mortgage first has priority over that previous mortgage. Thus, since Scott recorded his/her mortgage before Elgin and without knowledge of Elgin’s mortgage, Scott would have priority in a notice-race jurisdiction. Answer (a) is incorrect because Scott did not know of Elgin’s mortgage at the time Scott recorded his/her mortgage. Although Scott later learned about both prior mortgages, this would not affect Scott’s priority over Elgin’s mortgage. Answer (c) is incorrect because Elgin’s mortgage would have priority only if it had been recorded before Scott’s. Answer (d) is incorrect because Scott’s mortgage had priority over Elgin’s. Therefore, Scott would be entitled to receive the full $19,000 before Elgin received any of the proceeds from the judicial sale.
28. (b) Title insurance insures against all defects of record and defects the grantee may be aware of. Any exceptions not insured by the title policy must be shown on the face of the policy. Answer (a) is incorrect because title exceptions are not insured by the title policy. Answer (c) is incorrect because title insurance covers only defects of record. Answer (d) is incorrect because title insurance does not pass to subsequent purchasers.
29. (d) Marketable title means that the title to real property is free from encumbrances, such as mortgages, easements, and liens and defects in the chain of title. However, there is an exception. Most courts hold that the seller’s obligation to convey marketable title does not require the seller to convey the title free from recorded zoning restrictions, visible public rights-of-way or recorded easements; therefore answers (a) and (b) are incorrect. An unrecorded easement, however, would be a defect in marketable title. Therefore, answer (d) is correct. Answer (c) is incorrect because a lawsuit concerning negligence would generally not affect marketable title.
30. (c) One of the elements to obtain title to property by adverse possession is that the possession be hostile to the ownership interests of the actual owner. This does not occur when possession is permitted by the actual owner. Answers (a), (b), and (d) are all necessary elements to obtain ownership by adverse possession and are therefore incorrect.
31. (d) Rake has fulfilled the elements necessary to gain title to this land in question by adverse possession. These are: (1) open and notorious possession, (2) hostile possession shown by the fence, (3) actual possession, (4) continuous possession, and (5) exclusive possession for twenty-five years. Note that it is considered continuous possession even though the gardening is only during the summer, because the fence is constantly there. Answers (a), (b), and (c) are incorrect because since Rake obtained title to the land in question, he does not have to move the fence or pay for the land.
32. (b) Congress enacted the Real Estate Settlement Procedures Act (RESPA) in 1974 to provide home buyers with more extensive information about the settlement process and to protect them from unnecessarily high settlement fees. The act applies to all federally related mortgage loans, and nearly all first mortgage loans. Therefore, the general purpose of this act is to regulate mortgage lenders.
The purpose of the Federal Trade Commission Act is to prevent unfair methods of competition and unfair or deceptive practices in commerce. It is a general consumer protection act, and regulates compliance with antitrust laws. Although it may apply to mortgage lenders, its general purpose is not to regulate mortgage lenders.
33. (d) Dix’s second mortgage on Gilmore’s property will allow Dix to claim a security interest subordinate to FCA’s first mortgage security interest. Dix’s failure to record the second mortgage will not affect their right to successfully enforce the mortgage against Gilmore. Therefore, answer (b) is incorrect. Answer (a) is incorrect because Dix would be entitled to receive mortgage foreclosure sale proceeds if such proceeds were in excess of the amount owed to FCA. Answer (c) is incorrect because FCA’s first mortgage must be fully satisfied before any payments can be made to Dix.
34. (d) If a buyer takes a mortgage “subject to,” then the buyer accepts no liability for the mortgage and the seller is still primarily liable. The mortgagor does not have to attempt to collect from the buyer first; he can go directly against the seller. Therefore, answer (d) is correct, and answers (a) and (c) are incorrect. Answer (b) is incorrect because Wilk did not assume the mortgage but bought the building subject to the mortgage.
35. (b) A purchaser of real estate takes title subject to any mortgage he was aware of or any mortgage that was recorded before the purchase. Ford, therefore, takes title to the warehouse subject to Young’s mortgage, but free of Lang’s mortgage. Therefore, answer (b) is correct and answer (a) is incorrect. Answer (c) is incorrect because there is no such provision. Answer (d) is incorrect because the recording statutes change the first in time concept to encourage the recording of mortgages.
36. (a) To have an enforceable mortgage it must be in writing and must include a description of the property and debt to be incurred. Therefore, answer (a) is correct. Answer (b) is incorrect, because although debt is usually evidenced by a promissory note, this is not required to be. Answer (c) is incorrect because the promise to pay is adequate consideration. Answer (d) is incorrect because the amount of the debt and the interest rate are not required to be stated in the mortgage.
37. (c) A mortgagor has the right to redeem the mortgaged property after default and before a judicial sale by payment of all principal and interest due on the mortgage note. Thus, Frost may redeem the property only if all mortgages are paid in full prior to the judicial sale. Answer (a) is incorrect because the right of redemption is a right that occurs after the judicial sale. Most states allow a mortgagor a period of time, usually one year after the foreclosure sale, to reinstate the debt and mortgage by paying to the purchaser at the judicial sale the amount of the purchase price plus the statutory interest rate. Answer (b) is incorrect because Frost may redeem the property prior to the judicial sale by paying all mortgages in full without regard to the probable sale price of the property. Answer (d) is incorrect because Frost would not have to pay penalty fees to the mortgagees.
38. (d) After foreclosure of the mortgage, the mortgagor may redeem the property by payment of all principal and interest due on the mortgage note. However, the right of redemption will terminate at the time of the judicial foreclosure sale unless the jurisdiction has enacted a statutory right of redemption. Answers (a), (b), and (c) are incorrect because they do not affect when the mortgagor’s right of redemption terminates.
39. (b) Recording a mortgage protects the mortgagee against subsequent mortgagees, purchasers, or other takers. Therefore, answers (a), (c), and (d) are incorrect because those answers involve parties with existing claims on the property.
40. (b) A residential lease agreement must contain the following essential elements: the parties involved, lease payment amount, lease term, and a description of the leased property. The omission of any of these terms will cause the agreement to fail for indefiniteness. The other terms of payment due date, liability insurance requirements, and responsibility for repairs are optional, but not required. They will not cause the contract to fail for indefiniteness.
41. (c) The lessee of residential property, although not the owner, generally has the right to possession of the property and the right to quiet enjoyment of the property. The right to quiet enjoyment means that neither the lessor nor a third party with a valid claim will evict the lessee unless the lessee has breached the lease contract. The lessee also has the implied warranty of habitability which means that s/he has the right to inhabit premises that are fit for human occupation.
42. (c) A lease is not a sale and does not involve a transfer of title. A lessee may have possession and control of the property but will not have ownership. When property is abandoned, the owner relinquishes possession and title of the property. Subsequent parties who acquire abandoned property with the intent to own it acquire title.
43. (d) A tenancy at sufferance is created when a tenant stays in possession of the leased property after the expiration of the lease without the landlord’s consent. A tenant at sufferance is a trespasser and the landlord may evict the tenant by instituting legal proceedings. Answer (a) is incorrect because a tenancy at will is an agreement that is not for a fixed period but is terminable at the will of the landlord or tenant. In this situation, the tenant does not have the consent of the landlord to stay in possession of the property and a tenancy at will is not created. Answer (b) is incorrect because a tenancy for years is a tenancy that has a fixed beginning and end at the time of creation of the tenancy. Answer (c) is incorrect because a tenancy from period to period would only be created if the landlord allowed the tenant to remain in possession of the property.
On June 10, 2010, Bond sold real property to Edwards for $100,000. Edwards assumed the $80,000 recorded mortgage Bond had previously given to Fair Bank and gave a $20,000 purchase money mortgage to Heath Finance. Heath did not record this mortgage. On December 15, 2011, Edwards sold the property to Ivor for $115,000. Ivor bought the property subject to the Fair mortgage but did not know about the Heath mortgage. Ivor borrowed $50,000 from Knox Bank and gave Knox a mortgage on the property. Knox knew of the unrecorded Heath mortgage when its mortgage was recorded. Ivor, Edwards, and Bond defaulted on the mortgages. Fair, Heath, and Knox foreclosed and the property was sold at a judicial foreclosure sale for $60,000. At the time of the sale, the outstanding balance of principal and accrued interest on the Fair mortgage was $75,000. The Heath mortgage balance was $18,000 and the Knox mortgage was $47,500.
Fair, Heath, and Knox all claim that their mortgages have priority and should be satisfied first from the sale proceeds. Bond, Edwards, and Ivor all claim that they are not liable for any deficiency resulting from the sale.
The above transactions took place in a jurisdiction that has a notice-race recording statute and allows foreclosure deficiency judgments.
Items 1 through 3. For each mortgage, select from List A the priority of that mortgage. A priority should be selected only once.
List A |
|
A. | First Priority |
B. | Second Priority |
C. | Third Priority |
Items 4 through 6. For each mortgage, select from List B the reason for its priority. A reason may be selected once, more than once, or not at all.
List B |
|
A. | An unrecorded mortgage has priority over any subsequently recorded mortgage. |
B. | A recorded mortgage has priority over any unrecorded mortgage. |
C. | The first recorded mortgage has priority over all subsequent mortgages. |
D. | An unrecorded mortgage has priority over a subsequently recorded mortgage if the subsequent mortgagee knew of the unrecorded mortgage. |
E. | A purchase money mortgage has priority over a previously recorded mortgage. |
Items 7 through 9. For each mortgage, select from List C the amount of the sale proceeds that each mortgagee would be entitled to receive. An amount may be selected once, more than once, or not at all.
List C |
|
A. $0 | E. $42,000 |
B. $12,500 | F. $47,500 |
C. $18,000 | G. $60,000 |
D. $20,000 |
Items 10 through 12. Determine whether each party would be liable to pay a mortgage foreclosure deficiency judgment on the Fair Bank mortgage. If the party would be held liable, select from List D the reason for that party’s liability. A reason may be selected once, more than once, or not at all.
List D |
|
A. Original mortgagor. | C. Took subject to the mortgage. |
B. Assumed the mortgage. | D. Not liable. |
For items 13 through 15, determine whether each party would be liable to pay a mortgage foreclosure deficiency judgment on the Heath Finance mortgage. If the party would be held liable, select from List E the reason for that party’s liability. A reason may be selected once, more than once, or not at all.
List E |
|
A. Original mortgagor. | C. Took subject to the mortgage. |
B. Assumed the mortgage. | D. Not liable. |
For items 16 through 18, determine whether each party would be liable to pay a mortgage foreclosure deficiency judgment on the Knox Bank mortgage. If the party would be held liable, select from List F the reason for that party’s liability. A reason may be selected once, more than once, or not at all.
List F |
|
A. Original mortgagor. | C. Took subject to the mortgage. |
B. Assumed the mortgage. | D. Not liable. |
1. (C) 2. (B) 3. (A) Under a notice-race recording statute, a subsequent mortgagee (lender) who loans money without notice of the previous mortgagee and records the mortgage first has priority over that previous mortgagee. Once a mortgagee records, this gives constructive notice to any subsequent parties who then cannot obtain priority over the one who recorded. In this fact pattern, Fair Bank was the first mortgagee. Since Fair Bank also recorded this mortgage first, Fair Bank has the first priority over the subsequent mortgagees. Therefore, the answer to number 3 is (A). Of the two remaining mortgagees, Heath Finance was next in time but did not record the mortgage. Knox Bank was third in time and did record. However, Knox is unable to gain priority over Heath because Knox, when it recorded, knew of the Heath mortgage. Therefore, Knox does not meet all of the rules necessary to have priority over Heath. Thus Heath has the second priority after Fair Bank and Knox has the third priority. Therefore, the answer to number 2 is (B) and number 1 is (C).
4. (D) 5. (D) 6. (C) This part covers the reason for the priority that applies to each of the mortgagees. Reason (A) states that “an unrecorded mortgage has priority over any subsequently recorded mortgage.” This is incorrect for all mortgagees and goes against the policy behind the recording statutes to encourage recording to warn subsequent parties of the previous mortgages. Reason (B) is not a correct statement. It states that “A recorded mortgage has priority over any unrecorded mortgage.” In this fact pattern, Knox recorded but Heath did not; however, Knox still has a lower priority because Knox knew of the Heath mortgage when its mortgage was recorded. Reason (C) is the correct answer for Fair Bank. It states that “The first recorded mortgage has priority over all subsequent mortgages.” This is true because once Fair Bank recorded, subsequent mortgagees had constructive notice of the Fair Bank mortgage and thus could not obtain priority. The correct answer to number 6 is therefore (C). Reason (D) states that “An unrecorded mortgage has priority over a subsequently recorded mortgage if the subsequent mortgagee knew of the unrecorded mortgage.” In this fact pattern, the Heath mortgage was the unrecorded mortgage that still had a higher priority than the recorded Knox mortgage because Knox Bank knew of the Heath mortgage when its mortgage was recorded. Thus Knox never fulfilled the rule which would allow it as the subsequent mortgagee, to gain a higher priority. Therefore, reason (D) is the correct answer for both Knox Bank, number 4, and Heath Finance, number 5, because the same rule determines the relative priority of these two parties. Note that reason (E) is not a correct statement for any of the mortgagees because there is no rule that gives purchase money mortgages priority over previously recorded mortgages.
7. (A) 8. (A) 9. (G) Since Fair Bank has the highest priority, its mortgage will be satisfied first. Since the outstanding balance of the Fair Bank mortgage was greater than the $60,000 received at the judicial foreclosure, Fair Bank receives all of the $60,000 and Knox Bank and Heath Finance each receive nothing.
10. (B) 11. (A) 12. (D) When a foreclosure sale does not provide enough money to pay off the mortgages, the mortgagee, in states that allow foreclosure deficiency judgments, will attempt to collect any deficiency from the parties involved. In this fact pattern, Bond is liable because s/he was the original mortgagor on the property and as such agreed to pay the mortgage. Thus, (A) is the correct answer for number 11. When Edwards later bought the property from Bond, s/he assumed the Fair Bank mortgage. Edwards, thus, became personally liable on the mortgage even though the seller, Bond, also remained liable. Therefore, (B) is the correct answer for number 10. When Ivor subsequently purchased the property from Edwards, Ivor purchased the property subject to the Fair Bank mortgage. In so doing, s/he did not accept any liability on the mortgage. Note that although reason (C) states “Took subject to the mortgage,” the correct answer for number 12 is (D) “Not liable.” This is true because the directions to part d. indicate that reasons (A), (B), or (C) are to be chosen as reasons for liability and (D) is to be chosen if the party is not liable.
13. (A) 14. (D) 15. (D) When Edwards purchased the property, s/he gave a mortgage to Heath Finance. Therefore, (A) is the correct answer for number 13 because as the original mortgagor on the Heath mortgage, s/he agreed to be liable on it. Bond is not liable on the Heath mortgage because s/he having owned the property earlier, never agreed to be liable on this mortgage. Therefore, the correct answer to number 14 is (D). Ivor is not liable on the Heath mortgage because s/he never had actual notice or constructive notice of the unrecorded mortgage, and never agreed to be liable on it. Therefore, the correct answer to number 15 is (D).
16. (D) 17. (D) 18. (A) Since Ivor borrowed from Knox Bank and gave Knox a mortgage on the property, Ivor is liable as the original mortgagor, making (A) the correct reason for number 18. Both Edwards and Bond owned the property prior to the Knox mortgage and never agreed to be liable on it. Therefore, the correct answer to numbers 16 and 17 is (D).
18.220.98.14