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C H A P T E R 1 8
Real Property and Land Use
TRUE-FALSE QUESTIONS
1. Real estate law has its roots in both English common law and Spanish civil law.
2. In the simplest type of ownership, property is owned by a partnership.
3. A trust is a form of co-ownership of property.
4. All tenants in common have an equal right to possession of the property.
5. The ownership interests of tenants in common are by definition equal.
6. The type of deed used by the seller determines the scope of the warranties the buyer is given.
7. An outstanding mortgage balance in excess of the value of a house is referred to as negative equity.
8. Under a race recording statute, the first person to receive a valid deed will be deemed the owner of
the property.
268 MANAGERS AND THE LEGAL ENVIRONMENT
9. A ground lease is a very long-term lease.
10. The person that conveys real property by deed is called the grantee.
11. As a general rule, a real estate broker may act for more than one person in a real property transaction
without the knowledge of all parties to the transaction.
12. A sublease is legally the same thing as an assignment of a lease.
13. A variance allows a landowner to construct something ordinarily not permitted under existing zoning
regulations.
14. English common law created a type of co-ownership of real property between husband and wife
called joint tenancy.
15. Inverse condemnation by the government constitutes a taking requiring just compensation.
16. Sales of real property interests to nonresident aliens may be regulated by the state but are not
regulated by the federal government.
17. An environmental impact statement is not required from the government before actions are taken
that will affect the environment, but such a statement is required from private developers.
18. The rate at which major financial institutions offer to lend to their most creditworthy customers is
called the prime rate.
19. As opposed to a general partnership, property may not be held in a limited partnership.
20. The Americans with Disabilities Act places requirements on employers regarding accommodating
the disabled but does not address accessibility to commercial facilities.
MULTIPLE-CHOICE QUESTIONS
1. Which of the following are situations in which ownership rights are shared by two or more
individuals?
A. Tenancy in common
B. Tenancy by the entirety
C. Both tenancy in common and tenancy by the entirety
D. Neither tenancy in common nor tenancy by the entirety
2. Which of the following is true regarding the passing of community property upon the death of one of
the owners?
A. The community-property interest of a spouse may be separately willed upon death; and in the
absence of a will, community property passes to the other spouse.
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B. The community-property interest of a spouse may be separately willed upon death; and in the
absence of a will, passes to the surviving spouse and any surviving children in equal shares upon the
death of one of the spouses.
C. The community-property interest of a spouse may not be separately willed upon death and passes
to the other spouse automatically upon the death of one of the spouses.
D. The community-property interest of a spouse may not be separately willed upon death and passes
to the surviving spouse and any surviving children in equal shares automatically upon the death of
one of the spouses.
3. Which of the following sell beneficial shares that are traded in the stock markets and thereby permit
small investors to invest in a diversified portfolio of real estate?
A. Real estate investment trusts
B. Real estate mutual funds
C. Land diversification trusts
D. Investment land diversifications
4. The conveyance of a ________ interest conveys absolute ownership of real property.
A. fee absolute
B. ownership unlimited
C. total ownership
D. fee simple
5. Which of the following is not a type of recording statute?
A. race statute
B. notary statute
C. pure notice statute
D. race–notice statute
6. ________ each own an undivided fractional interest in a parcel of real property.
A. Tenants in common
B. Joint tenants
C. Tenants by the entirety
D. Community property tenants
7. A title insurance policy does not insure against
A. defects in title.
B. undisclosed liens.
C. defects in warranties.
D. errors in the abstraction of the title.
8. A warranty of _______ is applied in a minority of jurisdictions and involves a warranty at the
inception of a commercial lease that there are no latent defects in the premises that will prevent the
premises from being used for its intended purpose and that the premises will remain in a suitable
condition.
A. habitability
B. merchantability
C. suitability
D. fitness for a particular purpose
9. Which of the following was the result on appeal in Strawn v. Canuso, the case in the text involving
whether the defending developers of new homes and the real estate brokers marketing those homes
had a duty to disclose to buyers that the homes were constructed near an abandoned
hazardous waste dump?
A. That the defendants should have disclosed the existence of the landfill but that they could not be
held liable for money damages based on the caveat emptor rule.
B. That the defendants and the plaintiffs shared responsibility resulting in the defendants being
responsible for 50% of the damages suffered by the plaintiffs.
C. That the defendants did not violate any duty because the burden was on the buyers to determine
the prior use of the land.
D. That the defendants violated their duty to disclose the existence of the landfill and were liable to
the plaintiffs.
10. A majority of states impose on commercial builders of houses a(n) _________.
A. express warranty of quality
B. implied warranty of merchantability
C. warranty of deed
D. implied warranty of habitability
11. Title companies often hold purchase money in ______, meaning in a special account, until the
conditions for the sale have all been met.
A. open account
B. dedication
C. escrow
D. closed account
12. In a(n) ________ listing, the listing broker will receive a commission only if he or she procures a
ready, willing, and able buyer.
A. exclusive
B. open
C. net listing
D. broker
13. In a[n] _______, the transaction is treated as a conventional operating lease for accounting purposes
and payments under the lease are treated as rent; but for tax purposes the lessee treats the transaction
as though it had purchased the property and obtained a loan from the seller.
A. synthetic lease
B. sale and leaseback
C. operating lease
D. non-operating lease
14. In a(n) ________ listing, the broker will receive any sales proceeds in excess of the net listing
amount specified by the seller.
A. exclusive
B. open
C. net listing
D. broker
15. Which of the following have been identified as valid uses of a state’s police power?
A. Efforts to address threats to the public health and safety, such as fires and unsanitary conditions.
B. Rent control within constitutional limits and efforts to address threats to the public health and
safety, such as fires and unsanitary conditions
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C. Rent control within constitutional limits; efforts to address threats to the public health and safety,
such as fires and unsanitary conditions; and restrictions on off-site advertising signs.
D. Only efforts involving legislation addressing the conduct of police officers both on and off the
job because the state’s police power is limited to supervision of law enforcement officers within the
state’s jurisdiction.
16. A(n) ________ is an agreement by a lender to replace a construction loan with a permanent loan,
usually after certain conditions, such as the timely completion of the project, have been met.
A. substitution agreement
B. interim agreement
C. development commitment
D. take-out commitment
17. A(n) ________ gives the mortgagor the right, after a foreclosure, to reacquire property within a
statutory limited period.
A. interim statute
B. right of redemption
C. mortgagee relief statute
D. right of relief
18. A one-point charge will generate a fee of ________ on a loan of $10,000.
A. $1,000
B. $100
C. $10
D. $1
19. In a ________ financing transaction, the second lender lends the owner the additional funds and
agrees to take over the servicing of the first loan.
A. permanent
B. wraparound
C. mortgage
D. deed of trust
20. Which of the following references the power of government to acquire private property needed for a
public use?
A. Adverse possession
B. Area plan
C. Eminent domain
D. Call
21. In community property states, property acquired by inheritance during the marriage is
A. Community property.
B. Separate property.
C. A tenancy by the entirety.
D. A tenancy in common.
22. Which of the following is not true regarding the legal requirements of a deed?
A. It must specifically describe the interest that is conveyed.
B. It must signed by the named grantee.
C. It must be delivered to the named grantee.
D. It must be accepted by the named grantee.
23. Which of the following is not one of the three basic types of deeds?
A. A grant deed.
B. A specific deed.
C. A quitclaim deed.
D. A warranty deed.
24. Until a developer obtains a _______ right, meaning a fully guaranteed right, to develop a property,
the regulation governing that property may be changed.
A. vested
B. acknowledged
C. known
D. discretionary
25. What is generally meant by a reference to a triple net industrial lease?
A. That the tenant pays all taxes, insurance, and operating maintenance expenses.
B. That the lessor pays all taxes, insurance, and operating maintenance expenses.
C. That the tenant pays insurance and operating maintenance expenses, but that the lessor pays
taxes.
D. That the lessor pays insurance and operating maintenance expenses, but that the tenant pays
taxes.
26. In a(n) ________, the potential buyer pays the seller for the right, but not the obligation, to purchase
the property during a given time period.
A. right of first refusal
B. real estate investment trust
C. option contract
D. preliminary agreement
27. A ________ gives a person the right to negotiate the purchase of the property before the seller enters
negotiations with another party.
A. letter of agreement
B. letter of intent
C. right of first refusal
D. right of first negotiation
28. A ________ is the right, conferred by a written contract, to purchase property on the same terms
offered by or to a third party.
A. letter of agreement
B. letter of intent
C. right of first refusal
D. right of first negotiation
29. A ________ sets forth the general terms and conditions of a proposed purchase until a formal
acquisition agreement can be signed.
A. letter of agreement
B. letter of intent
C. form of contract
D. formal delineation
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30. In relation to notice in connection with a property interest, courts may find _______notice if a
reasonable inquiry would have disclosed a prior interest.
A. actual
B. absolute
C. constructive
D. necessary
31. A _______ permit allows uses that are not permitted as a matter of right under a zoning ordinance
and imposes conditions to ensure that the use will be appropriate for the particular situation.
A. conditional-use
B. limited-access
C. nonconforming
D. division
Fact Pattern 18-1 (Questions 32-33 apply)
Prudence wants to develop a shopping center in her town. She is very interested in developing the
center at the location of an old dump. She can purchase the property cheaply, and it is near one of
the fastest growing areas of the city. She is concerned, however, about being held liable for all
cleanup costs. She has heard about federal and state funds that may be available; but she is
concerned that if she purchases the property knowing that contamination is likely there, she will not
be eligible to participate in government assistance programs for cleanup. She decides to discuss her
problem with Bruce, a law student studying environmental law.
32. Refer to fact pattern 18-1. Which of the following is a term used for the dump in which Prudence is
interested?
A. Black area
B. Brownfield
C. Red zone
D. Danger zone
33. Refer to fact pattern 18-1. What should Bruce advise Prudence regarding her plans?
A. That she should forget the project because she would be ineligible for any cleanup assistance
and, as owner, would be individually liable for the entire project.
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B. That she should buy the property without any investigation and deny knowledge of
contamination if later questioned because under federal law she can only be held liable if she had
full and informed knowledge of contaminants when she made the purchase.
C. That she should incorporate because while an individual is liable for the entire costs of cleanup, a
corporation is not.
D. That by taking appropriate steps to become a bona fide prospective purchaser, she can avoid
liability for legacy contamination.
34. Susie has a great farm bordering on a river and plans to build a house on a cliff overlooking the
water. She was also considering building a couple of guest cottages to rent to vacationers. One day
a land conservatory came to Susie and asked her to designate the land as a pristine area whereby no
development or building could take place. Susie told them to get lost. The next thing she knew, the
jurisdiction in which she lived had passed a regulation permanently prohibiting riverfront owners in
her area from building any structures within one half mile of the river. There had been no such
restriction in her state or county previously, and Susie suspects that the regulation is part of a plot to
force landowners to agree to the request of the land conservatory. Susie tells her builder to go ahead
with plans to construct the home because the government cannot take land through excessive
regulation. Is Susie correct that the government cannot take land through excessive regulation?
A. Susie is incorrect although if the government action constitutes a taking, compensation to the
landowner must be provided.
B. Susie is incorrect, and no compensation to the landowner is required.
C. Susie is incorrect although she would only be entitled to compensation for any lost profits she
can establish.
D. Susie is correct, and the regulation would be overturned by a federal court.
35. Blaire and Jimmy have been married for many years and own a home through tenancy by the
entirety. Blaire has grown children from a previous marriage, Andy and Candy; and her will
provides that her interest in the home should go to them upon her death. Blaire dies at age 90, and a
few weeks later Jimmy finds a new girlfriend and moves her into the home. Andy and Candy object
and tell Jimmy to get out because they have an ownership interest in the home, and they believe that
Jimmy is being disrespectful to their mother. Which of the following is true regarding the ownership
claim of Andy and Candy?
A. Blaire’s children are correct; and each of them, along with Jimmy, have a 1/3 ownership interest
in the home.
B. Blaire’s children are correct, and they each have a 25% interest in the home with Jimmy owning
the other 50% interest.
C. Blaire’s children are correct, and they each have a 10% interest in the home with Jimmy owning
the other 80%.
D. Blaire’s children are incorrect, and Jimmy solely owns the home.
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ESSAY QUESTIONS
1. Compare and contrast joint tenancy and tenancy by the entirety.
2. Describe in detail the three basic types of deeds including any warranties or guarantees the deeds
provide.
3. What must a person do to acquire a parcel of land by adverse possession?
4. Lawrence owns several apartments in a large city. The city just enacted a rent control ordinance
limiting the amount of rent that can be charged with apartments. Lawrence heard that Susan, a
friend of his, just graduated from law school and passed the bar. Lawrence asks Susan if there is any
way he can avoid the rent control measures. What should Susan tell him?
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5. John owns a 20-acre parcel of land in Smallville. Bob is a developer that wants to build a
subdivision in Smallville. He offers John $1,000 for a 30-day option to purchase the land for $1
million. John agrees. Clara is John’s sister and has a valid right of first refusal on the same land. Bob
has been told by his bank that the bank will provide a construction loan for the development. What
rights did Bob legally obtain when he purchased his option? What effect will Clara’s rights have on
Bob’s option? Explain the three types of loans—construction, gap, and take-financing—that could
be involved to complete the development. Discuss fully.
6. Bob is selling his home. During the inspection with his broker, Bob discovered that some of the
pipes in the walls had developed tiny leaks. The cost of fully repairing this condition would cost
thousands of dollars and take approximately three months. Instead, Bob verbally represented to each
and every buyer that the house was “in great shape” and “had no problems.” Carl bought Bob’s
house; and six months after the deal closed, a pipe broke causing ten thousand dollars in damages.
What remedies does Carl have against Bob regarding the sale of the house? Discuss fully.