NALA Real Estate Law & Transactions 2 — Questions and Answers
Question 1: What is the legal effect of a 'time is of the essence' clause in a real estate purchase contract?
- It extends all deadlines by 30 days automatically
- It makes contract deadlines strictly enforceable and breach allows termination (Correct answer)
- It only applies to the closing date, not contingency deadlines
- It requires the parties to mediate before canceling the contract
Correct answer: It makes contract deadlines strictly enforceable and breach allows termination
A 'time is of the essence' clause makes contractual deadlines strictly binding, so missing a deadline constitutes a material breach allowing the non-breaching party to terminate.
Question 2: Which type of deed provides the LEAST protection to the grantee?
- General warranty deed
- Special warranty deed
- Bargain and sale deed
- Quitclaim deed (Correct answer)
Correct answer: Quitclaim deed
A quitclaim deed conveys only whatever interest the grantor may have without any warranties, giving the grantee the least protection against title defects.
Question 3: Under the Statute of Frauds, which element is generally NOT required for a valid real estate contract?
- Signature of the party to be charged
- Written form
- Identification of the parties
- Notarization of signatures (Correct answer)
Correct answer: Notarization of signatures
The Statute of Frauds requires real estate contracts to be in writing and signed but does not require notarization, which is typically required only for deeds to be recorded.
Question 4: A legal assistant is reviewing a title commitment and sees a Schedule B-I exception for 'rights of parties in possession.' This most likely refers to:
- The seller's right to occupy until closing
- Tenants or other occupants whose rights were not discovered by survey or record search (Correct answer)
- Easement holders who have recorded their easements
- The mortgagee's right to foreclose
Correct answer: Tenants or other occupants whose rights were not discovered by survey or record search
Rights of parties in possession is a standard exception that protects the insurer from claims by tenants or occupants whose interests do not appear in the public record.
Question 5: Which of the following best describes a 'purchase money mortgage'?
- A mortgage used to refinance an existing loan
- A mortgage given by the buyer to the seller as part of the purchase price (Correct answer)
- A mortgage insured by the FHA or VA
- A mortgage used solely to purchase personal property
Correct answer: A mortgage given by the buyer to the seller as part of the purchase price
A purchase money mortgage is one given by the buyer to the seller (or a third-party lender) as part of the consideration for the real property being purchased.
Question 6: What is an 'abstract of title' used for in a real estate transaction?
- To determine the current market value of the property
- To provide a condensed history of all recorded instruments affecting title to a property (Correct answer)
- To identify zoning and land use restrictions
- To calculate prorations at closing
Correct answer: To provide a condensed history of all recorded instruments affecting title to a property
An abstract of title is a chronological summary of all recorded documents—deeds, mortgages, liens, judgments—that affect title to the property.
Question 7: In a 1031 like-kind exchange, what is the maximum number of calendar days a taxpayer has to identify replacement property after the sale of the relinquished property?
- 30 days
- 45 days (Correct answer)
- 60 days
- 180 days
Correct answer: 45 days
Under IRC §1031, the taxpayer must identify potential replacement properties within 45 days of the transfer of the relinquished property.
NALA Real Estate Law & Transactions 2
What is the legal effect of a 'time is of the essence' clause in a real estate purchase contract?