1. Under California DRE regulations, which of the following describes the proper handling of a buyer's earnest money deposit by a real estate broker when the broker does not place the funds into a trust account?
- A. The broker may give the funds directly to the seller or into escrow if the parties have agreed in writing and the funds are not commingled with the broker's own money. ✓
- B. The broker must always deposit the funds into the broker's trust account first before disbursing to escrow or the seller.
- C. The broker may hold the funds in cash in a locked safe at the office until close of escrow.
- D. The broker must forward all earnest money deposits to the DRE for safekeeping until escrow is opened.
Under California Commissioner's Regulation 2832(a), a broker who receives trust funds is not required to deposit them in a trust account if the broker instead delivers the funds to the principal, to a neutral escrow, or to a specified third party as directed in writing by the principal. This written authorization allows funds to bypass the trust account entirely without a regulatory violation.
2. A California buyer and seller enter into a purchase agreement using the CAR Residential Purchase Agreement form. The agreement includes a mediation clause. After escrow falls apart due to a dispute over repairs, the seller sues the buyer directly in court without first attempting mediation. Under the CAR mediation clause, what is the consequence for the seller?
- A. The lawsuit is void and must be refiled after mediation is completed.
- B. The seller may lose the right to recover attorney's fees, even if the seller ultimately prevails in the litigation. ✓
- C. The court must automatically dismiss the case and order the parties to mediation.
- D. There is no consequence; the mediation clause is advisory only and carries no legal effect.
The CAR Residential Purchase Agreement mediation clause (paragraph 31A) conditions the right to recover attorney's fees on the prevailing party having first attempted to resolve the dispute through mediation. Under California contract law (Civil Code Section 1717 and the terms of the CAR form), a party who refuses to mediate before filing suit may be denied attorney's fees even if they win the case. The clause does not void the lawsuit or require automatic dismissal, but the loss of attorney's fee recovery is a significant contractual consequence.
3. A California homeowner who is 65 years of age or older obtains a reverse mortgage on their primary residence. Under California Civil Code Section 1923 et seq., which of the following statements about reverse mortgages is most accurate under California law?
- A. The borrower must repay the loan within 30 years regardless of whether they remain in the home
- B. Before obtaining a reverse mortgage, the homeowner must receive independent counseling from a HUD-approved or California-approved counseling agency ✓
- C. The lender may require the borrower to make monthly principal and interest payments to maintain the loan
- D. Reverse mortgages in California are exempt from all disclosure requirements because borrowers are presumed financially sophisticated
Under California Civil Code Section 1923.2 and related statutes, before a reverse mortgage is made on a California residential property, the prospective borrower must receive independent counseling from a counselor approved by HUD or the California Department of Housing and Community Development. This counseling requirement is a specific California consumer protection ensuring elderly borrowers understand the complex terms of reverse mortgage products before committing.
4. Under California Business and Professions Code, a real estate licensee acting as a buyer's agent in a transaction involving a seller-financed (carryback) loan on a one-to-four unit residential property must ensure the buyer receives which of the following documents required by law?
- A. A Mortgage Loan Disclosure Statement (MLDS) from a licensed mortgage broker only if the carryback exceeds $200,000
- B. A completed Seller Financing Addendum and Disclosure (C.A.R. Form SFA) disclosing the terms of the seller carryback and a credit application from the buyer reviewed by the seller ✓
- C. A HUD-1 Settlement Statement from the escrow holder within 3 business days of the carryback agreement being signed
- D. A Promissory Note disclosure from the California Department of Financial Protection and Innovation (DFPI)
California seller-financing rules for broker-arranged carryback financing on one-to-four unit residential property require a written seller financing disclosure statement to be delivered to the buyer and seller before the note or security documents are executed. The disclosure must state the financing terms and include required risk information, and the seller must be given/review information about the buyer's creditworthiness. However, California law does not specifically require use of the C.A.R. Seller Financing Addendum and Disclosure form, nor does it require that a buyer receive the buyer's credit application as a separate statutory document. The legally required document is a statutory seller financing disclosure statement containing the required information.
5. Under California law, a buyer's agent who has obtained valid dual agency consent from both parties is still subject to which of the following limitations during the transaction?
- A. The dual agent may not disclose to the buyer the seller's minimum acceptable price, nor disclose to the seller the buyer's maximum willingness to pay, without express permission from the affected party ✓
- B. The dual agent must withdraw from representing the buyer and represent only the seller for the remainder of escrow
- C. The dual agent may freely share all confidential information between parties since both have consented to dual representation
- D. The dual agent's fiduciary duties are completely eliminated and replaced solely by a duty of honest dealing to both parties
California Civil Code Section 2079.21 provides that even with dual agency consent, the dual agent is prohibited from disclosing the seller's minimum acceptable price to the buyer, or the buyer's maximum willingness to pay to the seller, without the express written permission of the respective party. Dual agency consent does not authorize disclosure of these specific confidential negotiating facts.