Zoning +9California · Real Estate · English

Most California cities and counties adopt ordinances dividing jurisdictions into land use zones, each with regulations controlling land use. Zoning authority derives from police power under the California Constitution and is augmented by state law.

• ✓Zoning authority derives from police power in Article XI, Section 7 of the California Constitution
• ✓Zoning is invalid unless it rationally promotes public health, safety, and welfare
• ✓Common zones include single-family, multi-family, commercial, industrial, open space/agriculture, and mixed uses

A zoning ordinance consists of a map and a text. The map delineates zone boundaries; the text specifies procedures and characteristics of each zoning category.

• ✓The map identifies and delineates the boundaries of various zones
• ✓The text sets forth permitted uses, conditional use permit uses, minimum parcel sizes, height limits, lot coverage, setbacks, and densities

Although both address land use, zoning ordinances differ from general plans. The general plan is policy-oriented and long-term; the zoning ordinance regulates land use from the viewpoint of the individual project site as an implementation measure.

• ✓The general plan is policy-oriented and looks further into the future
• ✓A zoning ordinance regulates land use from the individual project site viewpoint and implements the general plan
• ✓Rezonings maintain zoning consistency with the general plan and are commonly initiated by owners or developers

Zoning districts typically include permitted, conditional, and accessory uses. Various flexible zoning methods have evolved to accommodate unique circumstances.

• ✓Permitted uses are allowed as a matter of right; conditional uses require administrative approval subject to conditions; accessory uses are incidental to a primary use
• ✓Flexible methods include floating zones, overlay/combining zones, mixed-use, building block zoning, and planned unit developments
• ✓Charter cities are excepted from the same basic zoning procedures applicable to other cities/counties

Planned unit development (planned development) is a type of zoning classification allowing flexible application of zoning regulations to develop land as a unit, implemented through review and approval of a master or precise plan.

• ✓PUD allows more flexible zoning regulation and diversification in structure location
• ✓The process is implemented by government review and approval of a master or 'precise' plan with development conditions
• ✓'Planned development' also describes a common interest development with common areas and an owners association

A broker must exercise reasonable supervision over the activities of salespersons associated with the brokerage. Reasonable supervision includes establishing policies, rules, procedures, and systems to review, oversee, inspect, and manage salesperson activities. The broker must also fulfill many legal requirements outlined on the Department of Real Estate web site.

• ✓Reasonable supervision requires establishing policies, rules, procedures, and review systems
• ✓The broker must be familiar with and fulfill legal supervisory requirements per the DRE

Selling real estate differs from other sales because the product is more complex and individualized, the sales period is longer and more tedious, and providing a professional service differs from selling tangible products. Since real estate is usually the largest single purchase a buyer makes, the licensee must be prepared to educate, coach, and counsel the client.

• ✓Real estate is a professional service, distinct from selling tangible products
• ✓The licensee must educate, coach, and counsel because real estate is the largest single purchase most buyers make

The broker's staff must have in-depth knowledge of the geography in which the brokerage seeks to operate. The licensee must be knowledgeable about the product being marketed: its value, its neighborhood, and the typical buyer.

• ✓Staff must have in-depth knowledge of the operating geography
• ✓The licensee must know the product's value, neighborhood, and typical buyer

In a typical transaction the seller has 7 days to provide all required disclosures, or before execution for a lease option/sales contract/ground lease with improvements. If certain disclosures or amendments are delivered after execution, the buyer may terminate within 3 days after in-person delivery or 5 days after delivery by U.S. mail by written notice.

• ✓Seller typically has 7 days to provide required disclosures
• ✓Buyer may terminate within 3 days of in-person delivery of late disclosures
• ✓Buyer may terminate within 5 days of delivery by U.S. mail
• ✓Termination requires written notice to the seller or seller's agent

The law requires agents in certain residential transactions to make written disclosures of intended agency roles. It applies to sales/exchanges (including leases over one year) of one-to-four residential dwelling units and mobile home sales through an agent. The seller should receive the agency disclosure before signing the listing.

• ✓Applies to one-to-four residential dwelling units and mobile homes sold through an agent
• ✓Applies to leases of more than one year
• ✓The seller should receive the agency disclosure before signing the listing agreement
• ✓The required agency disclosure form is set forth in Civil Code Section 2079.16
• ✓Agency relationships may be modified only by written consent of all parties

The obligation to prepare and deliver disclosures is imposed on the seller and seller's agent and any cooperating agent. If more than one agent is involved, the agent obtaining the offer delivers disclosures to the buyer (unless otherwise instructed). Disclosures based on an expert's report may protect the seller and agent from liability for errors.

• ✓The agent obtaining the offer delivers disclosures to the buyer if more than one agent is involved
• ✓Required disclosures are set forth in Civil Code Sections 1102 et seq. and 1103 et seq.
• ✓Reliance on an expert's report/opinion may protect seller and agent from liability for that item

A broker must identify who owns trust funds and who is entitled to receive them, since funds can only be disposed of upon that person's authorization. The party entitled may change upon events in the transaction, such as offer acceptance.

• ✓Prior to acceptance, funds belong to the offeror and must be handled per offeror's instructions
• ✓After acceptance, funds are handled per instructions from offeror and offeree per Regulation 2832(d)
• ✓A purchase money deposit shall not be refunded by an agent/subagent of the seller without express written permission of the offeree

The usual transfer form for small businesses is a sale of assets for individual owners and a sale of assets or stock for corporate owners. In a sale of assets, a buyer assumes no obligations unless by specific agreement, and seller liabilities are cleared in escrow. In a stock sale, shareholders sell and assign their stock while the corporation retains the same assets and liabilities.

• ✓Sale of assets is usual for individual owners; sale of assets or stock is used for corporate owners
• ✓In an asset sale, buyer assumes no obligations unless by specific agreement
• ✓In a stock sale, the corporation remains owner with same assets and liabilities, and shareholders sell/assign stock to new shareholders

Transfer of a corporate business by sale of all corporation stock may require the negotiating agent to have a broker-dealer securities license from the California Department of Corporations or the SEC. However, a real estate broker with a listing for the sale of corporate assets is entitled to a commission if the parties decide on the sale of all outstanding stock.

• ✓Selling all corporation stock may require a broker-dealer securities license from the Dept. of Corporations or SEC
• ✓A real estate broker with a listing to sell corporate assets is entitled to commission if parties instead sell all outstanding stock
• ✓See California Code of Regulations Section 260.204.1 regarding the sale of corporate stock

A real estate broker, or a salesperson duly employed by a broker, may solicit, negotiate and broker the sale, purchase or exchange of mineral, oil or gas properties. A licensee may also solicit borrowers or lenders, negotiate and service loans, and lease, rent and collect rents or royalties relating to M.O.G. properties. A license is required to assist another in filing an application to purchase or lease, or to locate or enter upon M.O.G. properties owned by state or federal government.

• ✓A real estate license is required to solicit, negotiate or broker sales, purchases or exchanges of M.O.G. properties
• ✓A license is required to collect rents or royalties or service loans relating to M.O.G. properties
• ✓A license is required to assist in filing applications for or locating M.O.G. properties owned by state or federal government

Persons acting as principals in the purchase, lease or taking of an option on mineral, oil or gas land must obtain a real estate license if the purpose is to then sell, exchange, lease, sublease or assign a lease on all or part of the property to another. Any person acting as a principal who offers mining claims for sale or assignment must also have a real estate license.

• ✓A principal must have a license if the purpose is to resell, exchange, lease, sublease or assign the interest to another
• ✓A principal offering mining claims for sale or assignment must have a real estate license

In three-variable formulas, each variable is a function of the other two. Income = Rate × Value (I = R × V, R = I ÷ V, V = I ÷ R). Property Tax = Assessed Value × Rate (T = A × R, A = T ÷ R, R = T ÷ A).

• ✓Income = Rate × Value; Rate = Income ÷ Value; Value = Income ÷ Rate
• ✓Tax = Assessed Value × Rate; Assessed Value = Tax ÷ Rate; Rate = Tax ÷ Assessed Value
• ✓Each variable is a function of the other two

Percentage = Rate × Base (P = R × B, R = P ÷ B, B = P ÷ R). Commission = Sale Price × Rate (C = S × R, S = C ÷ R, R = C ÷ S). These formulas solve typical exam math problems involving commissions and percentages.

• ✓Percentage = Rate × Base; Rate = Percentage ÷ Base; Base = Percentage ÷ Rate
• ✓Commission = Sale Price × Rate; Sale Price = Commission ÷ Rate; Rate = Commission ÷ Sale Price

Area = Length × Width (A = L × W, L = A ÷ W, W = A ÷ L). This three-variable formula is used to compute the area of squares and rectangles in appraising and land descriptions.

• ✓Area = Length × Width
• ✓Length = Area ÷ Width; Width = Area ÷ Length
• ✓Applies to squares and rectangles

Exclusive agency listing entitles the broker to commission if sold through any other broker but not if the owner sells independently. Exclusive right to sell listing entitles the broker to commission regardless of who sells. Open listing is nonexclusive with commission only to the agent who first produces a buyer. Net listing lets the agent keep sums over a net price. Multiple listing pools listings among member brokers.

• ✓Exclusive right to sell listing pays the broker even if the owner sells the property
• ✓Exclusive agency listing does not pay the broker if the owner sells independently
• ✓Open listing pays only the agent who first procures a ready, willing and able buyer

A contract requires four elements: parties capable of contracting, consent of the parties, a lawful object, and consideration. A real property sale contract must be in writing and signed by the party to be charged (Statute of Frauds). Acceptance establishes the meeting of the minds.

• ✓A valid contract requires capable parties, consent, lawful object, and consideration
• ✓Contracts for the sale of real property must be in writing and signed under the Statute of Frauds
• ✓Acceptance of an offer creates the meeting of the minds

An offer to purchase proposes terms; a counter offer changes terms and rejects the original offer, creating no contract unless accepted by the original offeror. A deposit receipt is a written offer with a deposit that becomes the sale contract upon acceptance. Options give a right to buy/lease within a time without obligation to exercise.

• ✓A counter offer is a rejection of the original offer and is not acceptance
• ✓A deposit receipt becomes the sales contract upon the owner's acceptance
• ✓An option gives the right but not the obligation to purchase within a set time

The Statute of Frauds requires certain contracts (sale of real property, contracts not performed within one year) to be in writing and signed. A land contract / real property sales contract / installment sales contract keeps title with the seller until the purchase price is paid; a real property sales contract does not require conveyance within one year of formation.

• ✓The Statute of Frauds requires real property sale contracts to be written and signed
• ✓In a land contract the seller retains title until the purchase price is paid
• ✓On buyer default in a land contract, installment payments may be forfeited

Bilateral contract has mutual promises; unilateral contract forms only when the other party performs. Executed contract is fully performed (or signed); executory contract has remaining performance. Express contract is stated in words; implied contract is shown by actions.

• ✓A bilateral contract involves mutual promises by both parties
• ✓A unilateral contract is formed only when the requested act is performed
• ✓An executory contract has performance remaining by one or both parties

Rescission cancels a contract and restores parties to their prior position. Specific performance compels performance (e.g., sale of land). Novation substitutes a new contract for an old one. Liquidated damages are agreed-in-advance damages for breach. Reformation corrects a mistake in a document.

• ✓Rescission restores the parties to the position held before the contract
• ✓Specific performance compels performance as an alternative to damages
• ✓A liquidated damages clause fixes damages in advance for breach

A mortgage/deed of trust pledges collateral for a loan. First mortgage/first trust deed has priority over all other claims except taxes and bonded indebtedness. A junior mortgage is recorded subsequently or subordinated. A blanket mortgage covers more than one property. A beneficiary is the lender under a note and deed of trust; the trustor is the borrower.

• ✓First mortgage/trust deed has priority except for taxes and bonded indebtedness
• ✓A junior mortgage is recorded after or subordinated to another mortgage
• ✓The beneficiary is the lender under a deed of trust
• ✓A blanket mortgage covers more than one parcel of real property

An acceleration clause lets the lender declare all sums due upon an event such as sale or delinquency. An alienation/due-on-sale clause grants the lender the right to demand full payment upon sale or transfer of the property. A defeasance clause gives the mortgagor the right to redeem upon payment of obligations.

• ✓Acceleration clause makes all sums immediately due upon a triggering event like default or sale
• ✓Due-on-sale (alienation) clause allows the lender to demand full payment upon sale/transfer
• ✓Defeasance clause allows the mortgagor to redeem the property upon full payment

Amortization is liquidation of a debt on an installment basis. An amortized (level payment) loan is repaid with equal/nearly equal payments of principal and interest without a balloon. A balloon payment is a final installment significantly larger than others. Interest only loans repay principal in a lump sum at maturity. A constant is the percentage applied to face value to develop the annual payment.

• ✓An amortized loan repays principal and interest in equal payments with no balloon
• ✓A balloon payment is significantly larger than the other installments
• ✓Interest only loans repay principal in a lump sum at maturity

Conventional mortgages are not FHA insured or VA guaranteed. FHA insures private mortgage loans; VA guarantees loans (Certificate of Eligibility, Certificate of Reasonable Value). Cal-Vet program finances farm/home purchases for eligible California veterans. Fannie Mae (FNMA) and Freddie Mac (FHLMC) and Ginnie Mae (GNMA) operate in the secondary market buying/selling mortgages.

• ✓Conventional loans are neither FHA insured nor VA guaranteed
• ✓Cal-Vet is administered by the California Department of Veterans Affairs for eligible veterans
• ✓FNMA, FHLMC and GNMA function in the secondary mortgage market
• ✓VA issues Certificate of Reasonable Value (CRV) and Certificate of Eligibility

An ARM bears interest at a rate subject to change during the loan term. The current index plus the gross margin establishes the new note rate at each adjustment. Fully indexed note rate = index at application plus gross margin. The initial note rate may differ from the fully indexed rate. Life of loan cap (cap rate) is the ceiling the note rate cannot exceed over the loan's life.

• ✓ARM new rate = current index value + gross margin at each adjustment date
• ✓Life of loan cap is the maximum note rate over the loan's life
• ✓Fully indexed note rate = index value at application plus gross margin
• ✓Initial note rate may differ from the fully indexed rate

A point equals one percent of the loan. Discount points are amounts paid to the lender to obtain a stated interest rate. Annual Percentage Rate (APR) is the relative cost of credit under Regulation Z (Truth in Lending). Effective interest rate is what the borrower actually pays, distinct from nominal rate. Compound interest is paid on principal plus accrued unpaid interest.

• ✓One discount point equals one percent of the loan amount
• ✓APR reflects the relative cost of credit under Regulation Z of the Truth in Lending Act
• ✓Effective interest rate is what the borrower actually pays, distinct from nominal rate

Foreclosure sells pledged property to pay the debt upon default. Decree of foreclosure orders a court sale. A deficiency judgment is given when security value is insufficient to pay the debt. Equity of redemption is the right to redeem during the foreclosure period. A deed in lieu of foreclosure is accepted by a lender to avoid foreclosure proceedings.

• ✓A deficiency judgment covers the shortfall when the security is insufficient to pay the debt
• ✓Equity of redemption allows the borrower to redeem during the foreclosure period
• ✓A deed in lieu of foreclosure avoids formal foreclosure proceedings

A financing statement is filed to give public notice of a security interest and protect secured parties in collateral. A chattel mortgage is a claim on personal property. Collateral is property pledged as security. Hypothecate means to pledge a thing as security without giving up possession. Carryback (purchase money) loan is credit from seller to buyer.

• ✓A financing statement gives public notice of a security interest in collateral
• ✓Hypothecate means to pledge property as security without surrendering possession
• ✓A carryback loan is seller-provided financing (purchase money)

A mortgage hypothecates property to secure a debt with two parties (mortgagor/borrower and mortgagee/lender). A trust deed has three parties: trustor (borrower), trustee (neutral third party holding title), and beneficiary (lender). Upon default the trustee can sell the property under power of sale without judicial proceedings.

• ✓A trust deed involves three parties: trustor, trustee, and beneficiary
• ✓A mortgage involves two parties: mortgagor and mortgagee
• ✓Power of sale allows the trustee to sell secured property without judicial proceedings on default

Amortized (level-payment) loans repay principal and interest in equal regular payments. Straight/interest-only notes repay principal in a lump sum at maturity. Installment notes reduce principal over time. Balloon payment is a final payment significantly larger than others. Negative amortization occurs when payments don't cover accruing interest, adding to principal.

• ✓An amortized loan repays principal and interest in equal regular payments
• ✓A straight (interest-only) note repays principal in a lump sum at maturity
• ✓Negative amortization adds unpaid interest to the principal balance

An acceleration clause lets the lender declare all sums due upon an event such as sale or delinquency. A due-on-sale clause (an acceleration clause) demands full payment upon sale. An alienation clause gives the lender rights on transfer of mortgaged property.

• ✓An acceleration clause makes the entire balance due upon a triggering event
• ✓A due-on-sale clause requires full payment when the property is sold

Foreclosure sells pledged property to pay the debt on default. Deficiency judgment covers the shortfall when security is insufficient (limited for purchase-money loans, especially owner-occupied residential of four units or less). Deed in lieu of foreclosure avoids proceedings. Equity of redemption allows redeeming property during the foreclosure period. Reconveyance transfers title back after payoff.

• ✓A deficiency judgment is generally not allowed on purchase-money loans for owner-occupied residences of four units or less
• ✓Equity of redemption is the right to redeem property during the foreclosure period
• ✓A reconveyance transfers legal title from trustee back to trustor after the debt is paid

A first mortgage/trust deed has priority over all claims except taxes and bonded indebtedness. Junior/secondary financing is subordinate. A general lien affects all a debtor's property; involuntary liens (taxes, assessments) are imposed without consent; voluntary liens are placed with consent. A subordination agreement lets a claim take an inferior position.

• ✓A first trust deed is superior to all other claims except taxes and bonded indebtedness
• ✓Involuntary liens like taxes are imposed without the owner's consent
• ✓A subordination agreement allows a lien to take an inferior position

FHA insures private mortgage loans; VA guarantees loans to veterans (Certificate of Eligibility, Certificate of Reasonable Value). Cal-Vet finances farm/home purchases for California veterans. FNMA (Fannie Mae), FHLMC (Freddie Mac) and GNMA (Ginnie Mae) operate in the secondary market. PMI (private mortgage insurance) covers conventional lenders on high-risk loan portions.

• ✓FHA insures loans while VA guarantees loans to qualified veterans
• ✓The secondary market involves buying and selling existing loans through FNMA, FHLMC, and GNMA
• ✓A conventional loan is not FHA insured or VA guaranteed

ARM interest rates change during the loan term. Key terms: current index, gross margin (added to index to set note rate), fully indexed note rate, initial note rate, rate adjustment date, periodic interest rate cap, and life of loan cap (cap rate). Payment caps limit monthly payment increases and may cause negative amortization.

• ✓The note rate on an ARM equals the current index plus the gross margin
• ✓A life of loan cap (cap rate) limits the maximum note rate over the loan's life
• ✓A payment cap may result in negative amortization

Purchase money mortgage/trust deed is given as part of purchase consideration. Blanket mortgage covers more than one property with release clauses. Open-end mortgage allows additional borrowing. Wrap-around mortgage has the lender assume existing payments and take a junior trust deed. Package mortgage covers real property plus movable appliances.

• ✓A purchase money trust deed is given as part of the purchase consideration
• ✓A wrap-around mortgage takes a junior trust deed covering existing debt plus new funds
• ✓A blanket mortgage covers more than one parcel and uses release clauses

Discount points equal one percent of the loan each, paid to obtain a stated rate. APR (Regulation Z) is the relative cost of credit. Nominal interest is stated; effective interest is actually paid. Usury is charging interest above the legal limit. Truth in Lending (Regulation Z) ensures credit cost disclosure before a transaction.

• ✓One discount point equals one percent of the loan amount
• ✓APR reflects the relative cost of credit under Regulation Z
• ✓Truth in Lending requires credit cost disclosure before entering a transaction

Conversation is not permitted; cell phones, PDAs, notes, and reference texts are strictly forbidden. Dishonest practice of any kind results in a nonpassing grade and may be grounds for denying future examinations.

• ✓No conversation, cell phones, PDAs, notes or reference texts are allowed during the exam
• ✓Dishonest practice results in a nonpassing grade and possible denial of future exams

DRE may deny, suspend, revoke or restrict a license for subverting an exam. Subversion includes: removing exam material from a test site, reproducing exam material without authorization, using paid examinees to reconstruct an exam, using improperly obtained questions to prepare persons, selling/distributing/buying exam material, cheating, possessing unauthorized equipment or information, and impersonating an examinee or using an impersonator.

• ✓DRE may deny, suspend, revoke or restrict a license for exam subversion
• ✓Removing, reproducing, selling or buying exam material constitutes subversion
• ✓Impersonating an examinee or using an impersonator constitutes subversion

Only the examination booklet, answer sheet, a special pencil, and a silent battery-operated pocket-size electronic calculator without print-out capability or an alphabetic keyboard are allowed. DRE supplies a single page of scratch paper for arithmetic which must be turned in with the answer sheet and booklet.

• ✓Only a silent, non-printing calculator without an alphabetic keyboard is permitted
• ✓The DRE-supplied scratch paper must be turned in with the answer sheet and booklet