Real Estate Salesperson Licensing Exam Transfer of Title, Recording, and Closing Syllabus

What is a suit to quiet title?

A court action brought to remove a cloud on title and establish clear ownership by determining the rights of competing claimants.

What is title insurance, and what is its purpose?

A policy that indemnifies the insured against financial loss from defects in title, liens, or encumbrances that existed but were undiscovered as of the policy date.

What is the difference between an owner's title policy and a lender's (mortgagee's) title policy?

An owner's policy protects the buyer up to the purchase price; a lender's policy protects the lender up to the loan balance and decreases as the loan is paid down.

What is a standard coverage title policy vs. an extended coverage policy?

Standard coverage insures against recorded defects and matters of record; extended coverage also insures against certain unrecorded risks discoverable by inspection or survey (e.g., encroachments, parties in possession).

What is the purpose of the recording system?

To give constructive (legal) notice to the world of a person's interest in real property and to establish priority of competing claims.

What is the difference between constructive notice and actual notice?

Constructive notice is the legal presumption that everyone knows information available through public records or visible inspection; actual notice is knowledge a person genuinely has.

What does it mean to record a document, and what gives a recorded document priority?

Recording places a document in the public record at the county recorder's office; priority is generally established by the order of recording ('first in time, first in right').

What is acknowledgment, and why is it required for recording?

Acknowledgment is a formal declaration before a notary or authorized officer that the signer executed the document voluntarily; most documents must be acknowledged to be eligible for recording.

What is the difference between a 'race,' 'notice,' and 'race-notice' recording statute?

Race: first to record wins. Notice: a later bona fide purchaser without notice wins. Race-notice: a later purchaser wins only if they took without notice AND recorded first.

What is a bona fide purchaser (BFP)?

A buyer who purchases property in good faith, for valuable consideration, without notice of any prior competing claim or defect.

What is marketable title?

Title that is reasonably free from defects, liens, and reasonable doubt, such that a prudent buyer would accept it; it need not be perfect but must be free of serious clouds.

What kinds of defects make a title unmarketable?

Outstanding liens, breaks in the chain of title, encroachments, undisclosed easements, boundary disputes, or unsatisfied judgments that a court might require litigation to resolve.

What is a marketable title act?

A state law that extinguishes certain old claims and defects after a specified period (e.g., 30-40 years), limiting how far back a title search must go to establish marketable title.

What is the closing (settlement) in a real estate transaction?

The final stage of a transaction where the buyer pays the purchase price, the seller delivers the deed, funds are disbursed, and ownership transfers.

What is an escrow closing?

A closing conducted through a neutral third party (escrow agent) who holds documents and funds and disburses them when all conditions of the escrow instructions are met.

What is RESPA, and which transactions does it cover?

The Real Estate Settlement Procedures Act, a federal law governing closings on federally related residential mortgage loans; it requires disclosures and prohibits kickbacks and referral fees.

Under TRID, what are the Loan Estimate and Closing Disclosure, and what are their timing rules?

The Loan Estimate must be given within 3 business days of application; the Closing Disclosure must be received by the borrower at least 3 business days before closing.

What is a proration?

The division of ongoing expenses or income (taxes, insurance, rent, interest) between buyer and seller as of the closing date so each pays only for their period of ownership.

In prorations, what is the difference between an accrued item and a prepaid item?

An accrued item is an expense the seller owes but hasn't yet paid (a credit to buyer, debit to seller); a prepaid item is an expense the seller paid in advance (a credit to seller, debit to buyer).

What is the difference between the 'statutory/banker's' 360-day method and the 365-day method of proration?

The statutory (banker's) method uses a 360-day year of twelve 30-day months; the exact (actual) method uses the calendar's actual 365 days and actual days in each month.

Using a 360-day year, what is the daily rate for annual property taxes of $2,160?

$2,160 ÷ 360 = $6.00 per day.

If annual taxes are $1,800 (360-day year) and closing is May 15 with the seller responsible through the day before closing, what is the seller's share?

Jan-Apr = 4 months × 30 = 120 days, plus 14 days in May = 134 days × ($1,800/360 = $5/day) = $670 (debit seller, credit buyer).

How is mortgage interest typically prorated, and is it usually paid in arrears or in advance?

Mortgage interest is paid in arrears, so at payoff the seller owes interest accrued for the days the loan was outstanding in the final month, prorated on a daily basis.

How are prepaid rents on an income property handled at closing?

Rent already collected by the seller for the period after closing is credited to the buyer and debited to the seller, since the buyer is entitled to it.

On a closing statement, what is the difference between a debit and a credit?

A debit is a charge (an amount owed by that party); a credit is an amount in that party's favor (paid by or owed to them).

Which items typically appear as a debit to the buyer at closing?

The purchase price, recording fees for the deed, prepaid items (taxes/insurance reserves), and the buyer's share of prorated prepaid expenses.

Which items typically appear as a credit to the seller at closing?

The sale price and any prepaid expenses (such as prepaid taxes or fuel) for which the seller should be reimbursed.

How is the earnest money deposit shown on the closing statement?

As a credit to the buyer only (it reduces the cash the buyer must bring); it is not entered as a debit or credit to the seller.

How is a new first mortgage (loan the buyer obtains) shown on the closing statement?

As a credit to the buyer, since the loan proceeds reduce the cash the buyer must bring to closing.

What is the difference between a satisfaction (release) of mortgage and a reconveyance deed?

A satisfaction of mortgage is recorded by a lender when a mortgage loan is fully paid; a reconveyance deed is used by a trustee to release the lien under a deed of trust when that loan is paid.

What is the difference between the survey, the title commitment, and the deed at closing?

The survey shows the property's boundaries and improvements; the title commitment promises to issue title insurance subject to listed exceptions; the deed is the instrument that actually conveys ownership to the buyer.