CP CP Real Property and Real Estate Law 2 — Questions and Answers
Question 1: A seller has a valid contract to sell a house but dies before closing. Under the doctrine of equitable conversion, who bears the risk of loss if the house burns down before closing?
- The seller's estate, because title has not yet transferred
- The buyer, because equity treats the buyer as the owner once the contract is signed (Correct answer)
- The title insurance company, because it assumed the risk
- Neither party; the contract is automatically void
Correct answer: The buyer, because equity treats the buyer as the owner once the contract is signed
Under equitable conversion, once a binding sale contract is executed, equity treats the buyer as the owner of the real property, placing the risk of loss on the buyer.
Question 2: What is the purpose of a title search in a real estate transaction?
- To verify the property's appraised market value
- To examine the chain of title and identify any liens, encumbrances, or defects (Correct answer)
- To confirm the physical boundaries of the property
- To verify the seller's identity for tax purposes
Correct answer: To examine the chain of title and identify any liens, encumbrances, or defects
A title search reviews public records to trace the chain of ownership and uncover any claims, liens, easements, or other encumbrances that could affect the buyer's title.
Question 3: Which type of mortgage clause allows the lender to demand full repayment of the loan if the property is sold or transferred without the lender's consent?
- Acceleration clause
- Due-on-sale clause (Correct answer)
- Prepayment clause
- Defeasance clause
Correct answer: Due-on-sale clause
A due-on-sale (or alienation) clause prevents the buyer from assuming the existing mortgage without lender approval and triggers immediate repayment upon transfer.
Question 4: In a deed, what is the 'habendum clause' commonly referred to as?
- The granting clause that identifies the grantor and grantee
- The 'to have and to hold' clause that defines the extent of the estate conveyed (Correct answer)
- The acknowledgment that the grantor has received consideration
- The warranty of title provided by the grantor
Correct answer: The 'to have and to hold' clause that defines the extent of the estate conveyed
The habendum clause, beginning with 'to have and to hold,' defines the type of estate being transferred, such as fee simple or life estate.
Question 5: A property owner in a community property state dies without a will. Under community property rules, what happens to the half of the community property owned by the deceased spouse?
- It passes entirely to the surviving spouse by operation of law
- It is distributed according to the state's intestate succession laws (Correct answer)
- It becomes part of the probate estate and is split among all heirs equally
- It automatically vests in the surviving spouse only if there are no children
Correct answer: It is distributed according to the state's intestate succession laws
In community property states, each spouse owns one-half of community property; when one dies intestate, their half is distributed under intestacy statutes, not automatically to the survivor.
Question 6: What distinguishes a fixture from personal property in real estate law?
- Fixtures are always purchased separately from the real property
- A fixture is an item of personal property that has become permanently attached to and part of the real property (Correct answer)
- Personal property includes all items inside the home, while fixtures are those outside
- A fixture requires a separate bill of sale to transfer ownership
Correct answer: A fixture is an item of personal property that has become permanently attached to and part of the real property
A fixture is personal property that has been affixed to real property with the intent to make it permanent, such as built-in cabinets or central heating systems, and passes with the real estate unless excluded in the contract.
CP CP Real Property and Real Estate Law 2
A seller has a valid contract to sell a house but dies before closing.
Under the doctrine of equitable conversion, who bears the risk of loss if the house burns down before closing?