Which of the following describes an encumbrance?

An encumbrance is an interest in and right to real property that limits the legal owner's freehold interest. In effect, an encumbrance is another's right to use or take possession of a legal owner's property, or to prevent the legal owner from enjoying the full bundle of rights in the estate. An encumbrance is a third party's interest in real property that limits the legal owner's freehold rights, such as a lien, easement, or deed restriction. It reduces the owner's bundle of rights but does not necessarily take ownership away.

A third party's right to encroach upon a property without the permission of the property owner.

A third party's right to claim the sale proceeds of a property that has been mortgaged as collateral for a loan.

Another's right to acquire a freehold interest in a property against the property owner's wishes.

Melinda purchases a house and finances it. The lender in turn places a lien on Melinda's title. The lien in this mortgage transaction is

A lien is a creditor's claim against personal or real property as security for a debt of the property owner. If the owner defaults, the lien gives the creditor the right to force the sale of the property to satisfy the debt. For example, a homeowner borrows $5,000 to pay for a new roof. The lender funds the loan in exchange for the borrower's promissory note to repay the loan. At the same time, the lender places a lien on the property for $5,000 as security for the debt. If the borrower defaults, the lien allows the lender to force the sale of the house to satisfy the debt. A lien is a creditor's claim against real or personal property securing a debt. The owner keeps title but pledges the property as collateral, so if the owner defaults the creditor can force a sale to satisfy what is owed.

evidence of debt incurred by a property owner.

a promissory note granted by a property owner as security for a debt.

the document required to clear clouded title.

Which of the following accurately describes the act of foreclosure?

All liens can be enforced by the sale or other transfer of title of the secured property, whether by court action, operation of law, or through powers granted in the original loan agreement. The enforcement proceedings are referred to as foreclosure. Note that lienors already possess equitable title, so they do not need to undertake a legal proceeding to establish this. Foreclosure is the proceeding that enforces a lien by forcing the sale or transfer of the secured property. It can occur through court action, operation of law, or a power of sale in the loan documents, and it lets the creditor collect the debt.

A court-ordered acceleration of loan payments.

The final step in a bankruptcy filing.

A proceeding to take equitable title to a property that was liened as security for a mortgage loan.

On two adjacent properties, there is an easement that allows property A to use the driveway that belongs to property B. Here, property A is said to be which of the following in relation to property B?

An easement appurtenant gives a property owner a right of usage to portions of an adjoining property owned by another party. The property enjoying the usage right is called the dominant tenement, or dominant estate. The property containing the physical easement itself is the servient tenement, since it must serve the easement use. An easement appurtenant involves two parcels. The dominant tenement is the property that enjoys the use right, such as crossing a neighbor's driveway. The servient tenement is the property that carries the burden and must allow the use.

Ownership of real estate can be transferred voluntarily or involuntarily. The three ways title can be transferred voluntarily are by

Voluntary transfer, or voluntary alienation, is an unforced transfer of title by sale or gift from an owner to another party. If the transferor is a government entity and the recipient is a private party, the conveyance is a public grant. If the transferor is a private party, the conveyance is a private grant. A living owner makes a private grant by means of a deed of conveyance, or deed. A private grant that occurs when the owner dies is a transfer by will. Voluntary alienation is an unforced transfer of title by an owner. It takes three forms: a grant, which can be public or private; a deed of conveyance from a living owner; and a will that transfers title when the owner dies.

title certificate, will, and deed.

sale contract, deed, and warrant of seizin.

Which of the following best describes the documentary stamp tax?

State law usually requires payment of a documentary stamp tax on a conveyance of real property. The tax is based on the actual price of the property conveyed, thus enabling taxing authorities to ascertain current market value for ad valorem tax purposes. Payment of the tax is evidenced on the deed. A documentary stamp tax is a state transfer tax charged on a conveyance of real property. It is based on the actual price paid, which also lets taxing authorities track current market value for ad valorem assessment. Payment is noted on the deed.

A tax a title company must pay in order to examine title records in the recorder's office.

A tax collected by attorneys and paid to the state when transfer documents are prepared.

A tax on stamps used to certify the authenticity of a conveyance.

A break in the chain of title to a property results in

Chain of title refers to the succession of property owners of record dating back to the original grant of title from the state to a private party. If there is a missing link in the chronology of owners, or if there was a defective conveyance, the chain is said to be broken, resulting in a clouded title to the property. Chain of title is the recorded succession of owners going back to the original grant from the state to a private party. If a link is missing, or a conveyance in the sequence is defective, the chain is broken and creates a clouded title.

a lien of indeterminate ownership.

Which of the following types of leasehold estate lacks a specific term?

Three of the four principal types of leasehold estate are: the estate for years, which has a specific lease term; the estate from period-to-period, where the lease term of a specific period automatically renews; and the estate at will, which has no specified lease term. The fourth principal type, the estate at sufferance, is a tenancy without consent that therefore also has no specific term. Leasehold estates are classified by their term. The estate for years and the estate from period to period both have specific, measurable terms. The estate at will has no stated lease term, and the estate at sufferance is a tenancy without consent.

While a one-year lease is in effect, the tenant dies of a sudden illness. In this situation,

A valid lease creates obligations that survive the death of the landlord or tenant, with certain exceptions. A tenant's estate remains liable for payment of rent if the tenant dies; the landlord's estate remains bound to provide occupancy despite the landlord's death. A valid lease creates obligations that survive the death of either the landlord or the tenant. If a tenant dies, the tenant's estate remains liable for rent, and the landlord's estate must still honor the lease and provide occupancy.

the lease automatically terminates.

the tenant's estate has the option of canceling the contract.

the landlord can record a lien against the leased fee interest.

A tenancy at will can usually be terminated by

In the absence of an explicit term with beginning and ending date, a court will generally construe the lease to be a tenancy at will, cancelable upon proper notice. When a lease lacks a stated beginning and ending date, a court generally treats it as a tenancy at will. Either the landlord or the tenant can end it, provided the party first gives proper notice under state law.

a sublease, with the lessor's approval.

When an owner leases her property, she temporarily relinquishes the right to

The legal essence of a valid lease is that it conveys an exclusive right to use and occupy a property for a limited period of time in exchange for rent and the return of the property after the lease term is over. A lease conveys an exclusive right to use and occupy a property for a limited period in exchange for rent. The tenant gets possession, but the owner keeps other rights, including the ability to sell, mortgage, and maintain the property.

Which of the following is true of a sublease?

In a sublease-- a transfer of a portion of the leasehold-- the sublessor (original tenant) remains primarily liable for the original lease with the landlord. The subtenant is liable only to the sublessor. In a sublease, the original tenant transfers only part of the leasehold interest to a subtenant. The original tenant, called the sublessor, stays primarily liable to the landlord under the original lease, and the subtenant is liable only to that tenant.

The subtenant takes over sole responsibility for performance of the original lease contract.

It does not convey any of the leasehold interest.

It conveys the entire leasehold interest.

One of the key characteristics of a short sale is that the transaction typically takes much longer to close. What is another anomaly of a short sale that makes it a unique conveyance alternative?

The conventional transaction principles are the buyer and the seller. In a short sale, the loan must typically be modified so that the parties can feasibly proceed with the sale. Any time the loan must be modified, the lender assumes a primary role in the negotiations, and must in turn approve of the loan modifications made. In a short sale, the property sells for less than the debt owed, so the lender must agree to modify or discount the loan. Because the loan is being changed, the lender takes a primary role in negotiations and must approve the modified loan and selling terms.

The Real Estate Commission may intervene to protect the broker from seller default.

The broker must take a discount on the conventional commission scale.

The IRS must audit any loan modification.

A utility company has the right to access its equipment on various private properties across the city to perform maintenance. What type of easement does the utility company most likely hold?

An easement in gross is commonly granted to utility companies to allow access to maintain their equipment. This type of easement benefits the company rather than a particular parcel of land and is not tied to land ownership. An easement in gross benefits a specific person or entity rather than a parcel of land. Utility companies commonly hold easements in gross so they can access and maintain equipment on private property. The right is not tied to ownership of adjoining land.

Scenario: Maria is financing a property and takes out two loans, a primary mortgage and a home equity loan. When the property sells, which lien is likely to be paid off first?

The primary mortgage usually holds first priority, meaning it is paid before other liens, including home equity loans. This priority is generally established by the date of recording. When several liens exist on one property, priority usually follows the order of recording. The first mortgage was recorded before the home equity loan, so it is paid first from the sale proceeds, regardless of either loan's balance.

The home equity loan, if it has a higher balance.

The primary mortgage, if it has a lower balance.

Both liens will be paid simultaneously.

Scenario: Thomas purchases a property from Abigail. To protect his interests, Thomas immediately records the deed in public records. Later, Abigail’s previous creditor places a lien on the property, claiming unpaid debts. Who holds priority, Thomas or the creditor, and why?

By recording his deed, Thomas gave constructive notice of his ownership. This generally secures his priority over subsequent liens, even if debts existed prior to his purchase. Recording a deed gives constructive notice to the world that the buyer owns the property. A later creditor is charged with knowing about that recorded interest. Because Thomas recorded first and had no notice of the debt, his ownership generally takes priority.

The creditor, because the debt predates Thomas's purchase.

The creditor, because the lien automatically attaches to all property.

Thomas, because the purchase is a cash transaction.

Kevin defaults on his mortgage, and the bank initiates strict foreclosure proceedings. Which of the following best describes strict foreclosure?

In strict foreclosure, the lender files a claim with the court to obtain title directly, rather than selling the property at auction. This process is used in certain states where a foreclosure sale is not required. In strict foreclosure, the lender petitions the court and takes title to the property directly, without a foreclosure sale or auction. The borrower is given a limited time to pay, and if the borrower does not, the lender's title becomes final.

The lender immediately evicts the borrower upon default.

The borrower may redeem the property by refinancing the loan.

The property must be sold at auction, and proceeds go to the lender.

Scenario: Mike has been parking his car on an unused portion of Alice’s property for over 15 years without her permission. Alice is aware but has never objected. Which of the following legal outcomes might Mike claim if he meets all other statutory requirements?

Mike might establish a prescriptive easement for parking by meeting the requirements of continuous, open, and notorious use without permission over the statutory period. A prescriptive easement is a right gained by using another's land openly, continuously, and without permission for a set statutory period, often many years. If all requirements are met, the user can claim a right to continue the use.

Alice would gain a right to charge Mike rent.

Mike could establish a license agreement for temporary use.

Alice could evict Mike immediately due to trespassing.

Emma buys a property that has a deed restriction preventing the construction of any structures over two stories tall. What is the purpose of this type of deed restriction?

A deed restriction limiting building height is typically used to maintain neighborhood aesthetics and uniformity in property structures. Deed restrictions are private limits on how land may be used, written into the deed and passed on to later buyers. A height restriction like this one is typically meant to preserve visual uniformity and aesthetic consistency within a neighborhood.

To protect the property owner from future legal issues.

To limit the number of occupants per building.

To ensure the property is used for commercial purposes only.

Scenario: David purchases a home in a new development with a covenant that requires homeowners to maintain their lawns regularly. After moving in, David neglects his lawn, resulting in complaints from neighbors. What consequence might David face under the terms of the covenant?

Covenants in a development can be enforced through fines or legal action to compel property owners to comply with community standards, such as maintaining lawns. Covenants are promises about land use that run with the property and bind later owners. A development covenant requiring lawn care can be enforced by a homeowners association or neighbors through fines, or by legal action seeking a court order to comply.

Eviction from the neighborhood until the lawn is maintained.

Loss of ownership of his property.

A temporary loss of utility services until the lawn is maintained.

ApexAgent Practice Questions

Liens, Encumbrances and Title Transfer

Liens and title questions reward one habit: knowing what attaches to the property and what attaches to the owner, and in what order claims get paid. This set covers encumbrances, lien priority, deeds, recording and title transfer. Every question ships with the correct answer, the rule behind it, and the reasoning that eliminates each wrong option.

20 practice questions with answers and explanations. Written and reviewed by the ApexAgent team against the national exam content outline, updated 2026-10-04.

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What this topic tests

Recording a deed gives constructive notice and establishes priority over later liens.
A lien is a creditor's claim against property held as security for a debt.
With easements: the dominant tenement enjoys the right, the servient tenement serves it.
Leases survive the death of the landlord or tenant and bind their estates.
A sublease transfers part of the leasehold; the original tenant stays primarily liable.
Foreclosure enforces a lien by forced sale; strict foreclosure skips the sale.

Jump to a question

1. Which of the following describes an encumbrance?
2. Melinda purchases a house and finances it. The lender
3. Which of the following accurately describes the act of
4. On two adjacent properties, there is an easement that
5. Ownership of real estate can be transferred voluntarily or
6. Which of the following best describes the documentary stamp
7. A break in the chain of title to a
8. Which of the following types of leasehold estate lacks
9. While a one-year lease is in effect, the tenant
10. A tenancy at will can usually be terminated by
11. When an owner leases her property, she temporarily relinquishes
12. Which of the following is true of a sublease?
13. One of the key characteristics of a short sale
14. A utility company has the right to access its
15. Scenario: Maria is financing a property and takes out
16. Scenario: Thomas purchases a property from Abigail. To protect
17. Kevin defaults on his mortgage, and the bank initiates
18. Scenario: Mike has been parking his car on an
19. Emma buys a property that has a deed restriction
20. Scenario: David purchases a home in a new development

20 real estate exam questions on this topic

Question 1 of 20
Which of the following describes an encumbrance?
- A third party's right to encroach upon a property without the permission of the property owner.
- A third party's right to claim the sale proceeds of a property that has been mortgaged as collateral for a loan.
- A third party's interest in a real property that limits the interests of the freehold property owner.Correct answer
- Another's right to acquire a freehold interest in a property against the property owner's wishes.
Correct answer: C. A third party's interest in a real property that limits the interests of the freehold property owner.
Why: An encumbrance is an interest in and right to real property that limits the legal owner's freehold interest. In effect, an encumbrance is another's right to use or take possession of a legal owner's property, or to prevent the legal owner from enjoying the full bundle of rights in the estate.
The rule: An encumbrance is a third party's interest in real property that limits the legal owner's freehold rights, such as a lien, easement, or deed restriction. It reduces the owner's bundle of rights but does not necessarily take ownership away.
Why the other options are wrong
- Confuses an encumbrance with a trespass or license; an encumbrance need not involve unauthorized entry.
- Describes a mortgage lien's claim on proceeds, one specific type, not the general definition of encumbrance.
- Confuses encumbrance with adverse possession or eminent domain, which transfer ownership rather than merely limit it.
Question 2 of 20
Melinda purchases a house and finances it. The lender in turn places a lien on Melinda's title. The lien in this mortgage transaction is
- evidence of debt incurred by a property owner.
- a promissory note granted by a property owner as security for a debt.
- the creditor's claim against the property as collateral security for the loan.Correct answer
- the document required to clear clouded title.
Correct answer: C. the creditor's claim against the property as collateral security for the loan.
Why: A lien is a creditor's claim against personal or real property as security for a debt of the property owner. If the owner defaults, the lien gives the creditor the right to force the sale of the property to satisfy the debt. For example, a homeowner borrows $5,000 to pay for a new roof. The lender funds the loan in exchange for the borrower's promissory note to repay the loan. At the same time, the lender places a lien on the property for $5,000 as security for the debt. If the borrower defaults, the lien allows the lender to force the sale of the house to satisfy the debt.
The rule: A lien is a creditor's claim against real or personal property securing a debt. The owner keeps title but pledges the property as collateral, so if the owner defaults the creditor can force a sale to satisfy what is owed.
Why the other options are wrong
- A lien is not evidence of the debt; the promissory note records the borrower's promise to repay.
- Confuses the promissory note, which is the borrower's promise to pay, with the lien securing it.
- A lien clouds title rather than clearing it; a release or quitclaim deed removes the cloud.
Question 3 of 20
Which of the following accurately describes the act of foreclosure?
- A court-ordered acceleration of loan payments.
- The final step in a bankruptcy filing.
- A proceeding to enforce a lien by forcing the sale or transfer of a secured property.Correct answer
- A proceeding to take equitable title to a property that was liened as security for a mortgage loan.
Correct answer: C. A proceeding to enforce a lien by forcing the sale or transfer of a secured property.
Why: All liens can be enforced by the sale or other transfer of title of the secured property, whether by court action, operation of law, or through powers granted in the original loan agreement. The enforcement proceedings are referred to as foreclosure. Note that lienors already possess equitable title, so they do not need to undertake a legal proceeding to establish this.
The rule: Foreclosure is the proceeding that enforces a lien by forcing the sale or transfer of the secured property. It can occur through court action, operation of law, or a power of sale in the loan documents, and it lets the creditor collect the debt.
Why the other options are wrong
- Acceleration of payments may precede default proceedings but is not itself foreclosure; foreclosure enforces the lien.
- A bankruptcy discharge is separate from foreclosure, which enforces a specific lien through sale or transfer.
- Lienors already hold equitable title, so no proceeding is needed to acquire it; foreclosure forces a sale instead.
Question 4 of 20
On two adjacent properties, there is an easement that allows property A to use the driveway that belongs to property B. Here, property A is said to be which of the following in relation to property B?
- Subservient estate.
- Servient tenement.
- Senior tenant.
- Dominant tenement.Correct answer
Correct answer: D. Dominant tenement.
Why: An easement appurtenant gives a property owner a right of usage to portions of an adjoining property owned by another party. The property enjoying the usage right is called the dominant tenement, or dominant estate. The property containing the physical easement itself is the servient tenement, since it must serve the easement use.
The rule: An easement appurtenant involves two parcels. The dominant tenement is the property that enjoys the use right, such as crossing a neighbor's driveway. The servient tenement is the property that carries the burden and must allow the use.
Why the other options are wrong
- Subservient estate is not the term for the benefiting parcel; the dominant tenement holds the use right.
- The servient tenement is property B, the parcel burdened by the driveway easement, not the user.
- Senior tenant is not an easement term; no such concept exists in dominant and servient estate analysis.
Question 5 of 20
Ownership of real estate can be transferred voluntarily or involuntarily. The three ways title can be transferred voluntarily are by
- grant, deed, and will.Correct answer
- escheat, deed, and covenant.
- title certificate, will, and deed.
- sale contract, deed, and warrant of seizin.
Correct answer: A. grant, deed, and will.
Why: Voluntary transfer, or voluntary alienation, is an unforced transfer of title by sale or gift from an owner to another party. If the transferor is a government entity and the recipient is a private party, the conveyance is a public grant. If the transferor is a private party, the conveyance is a private grant. A living owner makes a private grant by means of a deed of conveyance, or deed. A private grant that occurs when the owner dies is a transfer by will.
The rule: Voluntary alienation is an unforced transfer of title by an owner. It takes three forms: a grant, which can be public or private; a deed of conveyance from a living owner; and a will that transfers title when the owner dies.
Why the other options are wrong
- Escheat is involuntary state taking, and covenant is a promise, not one of the three voluntary transfer methods.
- A title certificate is evidence of ownership, not a conveyance method; voluntary transfer uses grant, deed, or will.
- A warrant of seizin is a deed covenant, and a sale contract is not itself a conveyance of title.
Question 6 of 20
Which of the following best describes the documentary stamp tax?
- A transfer tax based on the price of the property being conveyed.Correct answer
- A tax a title company must pay in order to examine title records in the recorder's office.
- A tax collected by attorneys and paid to the state when transfer documents are prepared.
- A tax on stamps used to certify the authenticity of a conveyance.
Correct answer: A. A transfer tax based on the price of the property being conveyed.
Why: State law usually requires payment of a documentary stamp tax on a conveyance of real property. The tax is based on the actual price of the property conveyed, thus enabling taxing authorities to ascertain current market value for ad valorem tax purposes. Payment of the tax is evidenced on the deed.
The rule: A documentary stamp tax is a state transfer tax charged on a conveyance of real property. It is based on the actual price paid, which also lets taxing authorities track current market value for ad valorem assessment. Payment is noted on the deed.
Why the other options are wrong
- Title companies pay fees to examine records, not a documentary stamp tax based on the property's price.
- Attorneys may collect it, but the tax is measured by the property's price, not by document preparation.
- Stamps do not certify authenticity; the tax is a transfer tax on the actual price of the conveyed property.
Question 7 of 20
A break in the chain of title to a property results in
- a clouded title.Correct answer
- a title plant.
- a lien of indeterminate ownership.
- a duplicate title.
Correct answer: A. a clouded title.
Why: Chain of title refers to the succession of property owners of record dating back to the original grant of title from the state to a private party. If there is a missing link in the chronology of owners, or if there was a defective conveyance, the chain is said to be broken, resulting in a clouded title to the property.
The rule: Chain of title is the recorded succession of owners going back to the original grant from the state to a private party. If a link is missing, or a conveyance in the sequence is defective, the chain is broken and creates a clouded title.
Why the other options are wrong
- A title plant is a compiled set of title records used for examination, not the result of a broken chain.
- A break in the chain clouds title; it does not create a lien of indeterminate ownership.
- A duplicate title involves lost or replacement documents, not a missing link in the chain of ownership.
Question 8 of 20
Which of the following types of leasehold estate lacks a specific term?
- Estate for years.
- Estate from period-to-period.
- Estate at will.Correct answer
- Estate by the entireties.
Correct answer: C. Estate at will.
Why: Three of the four principal types of leasehold estate are: the estate for years, which has a specific lease term; the estate from period-to-period, where the lease term of a specific period automatically renews; and the estate at will, which has no specified lease term. The fourth principal type, the estate at sufferance, is a tenancy without consent that therefore also has no specific term.
The rule: Leasehold estates are classified by their term. The estate for years and the estate from period to period both have specific, measurable terms. The estate at will has no stated lease term, and the estate at sufferance is a tenancy without consent.
Why the other options are wrong
- An estate for years has a specific term with fixed beginning and ending dates, so it does not fit.
- An estate from period to period renews for specific periods, so it has a definite term.
- Estate by the entireties is a form of co-ownership between spouses, not a leasehold estate.
Question 9 of 20
While a one-year lease is in effect, the tenant dies of a sudden illness. In this situation,
- the lease automatically terminates.
- the tenant's estate has the option of canceling the contract.
- the landlord can record a lien against the leased fee interest.
- the tenant's estate is still obligated under the lease.Correct answer
Correct answer: D. the tenant's estate is still obligated under the lease.
Why: A valid lease creates obligations that survive the death of the landlord or tenant, with certain exceptions. A tenant's estate remains liable for payment of rent if the tenant dies; the landlord's estate remains bound to provide occupancy despite the landlord's death.
The rule: A valid lease creates obligations that survive the death of either the landlord or the tenant. If a tenant dies, the tenant's estate remains liable for rent, and the landlord's estate must still honor the lease and provide occupancy.
Why the other options are wrong
- A lease does not automatically end when the tenant dies; the tenant's obligations continue.
- The tenant's estate cannot cancel the contract at will; it remains liable for rent under the lease.
- A landlord cannot record a lien against the leased fee interest over a tenant's death, which is unrelated.
Question 10 of 20
A tenancy at will can usually be terminated by
- either party giving proper notice.Correct answer
- either party without notice.
- a sublease, with the lessor's approval.
- an assignment by the lessor.
Correct answer: A. either party giving proper notice.
Why: In the absence of an explicit term with beginning and ending date, a court will generally construe the lease to be a tenancy at will, cancelable upon proper notice.
The rule: When a lease lacks a stated beginning and ending date, a court generally treats it as a tenancy at will. Either the landlord or the tenant can end it, provided the party first gives proper notice under state law.
Why the other options are wrong
- Termination without any notice is not required; both parties must give proper notice.
- A sublease transfers part of the leasehold rather than terminating a tenancy at will.
- An assignment conveys the leasehold; it does not terminate a tenancy at will.
Question 11 of 20
When an owner leases her property, she temporarily relinquishes the right to
- transfer the property.
- encumber the property.
- occupy the property.Correct answer
- maintain the property.
Correct answer: C. occupy the property.
Why: The legal essence of a valid lease is that it conveys an exclusive right to use and occupy a property for a limited period of time in exchange for rent and the return of the property after the lease term is over.
The rule: A lease conveys an exclusive right to use and occupy a property for a limited period in exchange for rent. The tenant gets possession, but the owner keeps other rights, including the ability to sell, mortgage, and maintain the property.
Why the other options are wrong
- The owner keeps the right to transfer the property and may still sell it subject to the lease.
- The owner may still encumber the property; leasing does not remove the right to mortgage it.
- Maintenance duties may shift, but the lease's legal essence is conveying the right to occupy.
Question 12 of 20
Which of the following is true of a sublease?
- The subtenant takes over sole responsibility for performance of the original lease contract.
- The original tenant retains primary responsibility for performance of the original lease contract.Correct answer
- It does not convey any of the leasehold interest.
- It conveys the entire leasehold interest.
Correct answer: B. The original tenant retains primary responsibility for performance of the original lease contract.
Why: In a sublease-- a transfer of a portion of the leasehold-- the sublessor (original tenant) remains primarily liable for the original lease with the landlord. The subtenant is liable only to the sublessor.
The rule: In a sublease, the original tenant transfers only part of the leasehold interest to a subtenant. The original tenant, called the sublessor, stays primarily liable to the landlord under the original lease, and the subtenant is liable only to that tenant.
Why the other options are wrong
- In a sublease the subtenant is liable only to the sublessor, not solely for the whole original lease.
- A sublease does convey part of the leasehold interest to the subtenant.
- Conveying the entire leasehold interest is an assignment, not a sublease.
Question 13 of 20
One of the key characteristics of a short sale is that the transaction typically takes much longer to close. What is another anomaly of a short sale that makes it a unique conveyance alternative?
- The lender must approve of the modified loan and selling terms.Correct answer
- The Real Estate Commission may intervene to protect the broker from seller default.
- The broker must take a discount on the conventional commission scale.
- The IRS must audit any loan modification.
Correct answer: A. The lender must approve of the modified loan and selling terms.
Why: The conventional transaction principles are the buyer and the seller. In a short sale, the loan must typically be modified so that the parties can feasibly proceed with the sale. Any time the loan must be modified, the lender assumes a primary role in the negotiations, and must in turn approve of the loan modifications made.
The rule: In a short sale, the property sells for less than the debt owed, so the lender must agree to modify or discount the loan. Because the loan is being changed, the lender takes a primary role in negotiations and must approve the modified loan and selling terms.
Why the other options are wrong
- A real estate commission does not step in to shield a broker when a seller defaults on a short sale.
- No rule forces a broker to discount the conventional commission just because a sale is short.
- The IRS does not routinely audit loan modifications; lender approval, not tax review, defines the short sale process.
Question 14 of 20
A utility company has the right to access its equipment on various private properties across the city to perform maintenance. What type of easement does the utility company most likely hold?
- Easement in grossCorrect answer
- Easement appurtenant
- Easement by necessity
- Temporary license
Correct answer: A. Easement in gross
Why: An easement in gross is commonly granted to utility companies to allow access to maintain their equipment. This type of easement benefits the company rather than a particular parcel of land and is not tied to land ownership.
The rule: An easement in gross benefits a specific person or entity rather than a parcel of land. Utility companies commonly hold easements in gross so they can access and maintain equipment on private property. The right is not tied to ownership of adjoining land.
Why the other options are wrong
- An easement appurtenant benefits a particular parcel of land, not a company operating citywide.
- Easement by necessity arises when land is landlocked, not from a utility's maintenance access.
- A temporary license is revocable permission; the utility holds a lasting easement in gross.
Question 15 of 20
Scenario: Maria is financing a property and takes out two loans, a primary mortgage and a home equity loan. When the property sells, which lien is likely to be paid off first?
- The primary mortgage, because it was recorded first.Correct answer
- The home equity loan, if it has a higher balance.
- The primary mortgage, if it has a lower balance.
- Both liens will be paid simultaneously.
Correct answer: A. The primary mortgage, because it was recorded first.
Why: The primary mortgage usually holds first priority, meaning it is paid before other liens, including home equity loans. This priority is generally established by the date of recording.
The rule: When several liens exist on one property, priority usually follows the order of recording. The first mortgage was recorded before the home equity loan, so it is paid first from the sale proceeds, regardless of either loan's balance.
Why the other options are wrong
- Priority is not decided by the size of the balance; it follows the order of recording.
- A lower balance does not raise priority; the first recorded lien keeps its place regardless of amount.
- Liens are not paid at the same time; they are satisfied in order of recorded priority.
Question 16 of 20
Scenario: Thomas purchases a property from Abigail. To protect his interests, Thomas immediately records the deed in public records. Later, Abigail’s previous creditor places a lien on the property, claiming unpaid debts. Who holds priority, Thomas or the creditor, and why?
- The creditor, because the debt predates Thomas's purchase.
- Thomas, because he recorded his deed first.Correct answer
- The creditor, because the lien automatically attaches to all property.
- Thomas, because the purchase is a cash transaction.
Correct answer: B. Thomas, because he recorded his deed first.
Why: By recording his deed, Thomas gave constructive notice of his ownership. This generally secures his priority over subsequent liens, even if debts existed prior to his purchase.
The rule: Recording a deed gives constructive notice to the world that the buyer owns the property. A later creditor is charged with knowing about that recorded interest. Because Thomas recorded first and had no notice of the debt, his ownership generally takes priority.
Why the other options are wrong
- An older debt does not automatically win; a buyer who records first without notice takes priority.
- Liens do not attach automatically to all property; they must be properly recorded to gain priority.
- Whether the purchase was cash or financed is irrelevant; recording first is what secures priority.
Question 17 of 20
Kevin defaults on his mortgage, and the bank initiates strict foreclosure proceedings. Which of the following best describes strict foreclosure?
- The lender immediately evicts the borrower upon default.
- The lender files a claim to take title directly, without a foreclosure sale.Correct answer
- The borrower may redeem the property by refinancing the loan.
- The property must be sold at auction, and proceeds go to the lender.
Correct answer: B. The lender files a claim to take title directly, without a foreclosure sale.
Why: In strict foreclosure, the lender files a claim with the court to obtain title directly, rather than selling the property at auction. This process is used in certain states where a foreclosure sale is not required.
The rule: In strict foreclosure, the lender petitions the court and takes title to the property directly, without a foreclosure sale or auction. The borrower is given a limited time to pay, and if the borrower does not, the lender's title becomes final.
Why the other options are wrong
- Strict foreclosure is not immediate eviction on default; it is a court action to take title.
- Redemption by refinancing describes the borrower's statutory right, not the strict foreclosure process.
- Strict foreclosure avoids an auction sale; the lender petitions the court for direct title instead.
Question 18 of 20
Scenario: Mike has been parking his car on an unused portion of Alice’s property for over 15 years without her permission. Alice is aware but has never objected. Which of the following legal outcomes might Mike claim if he meets all other statutory requirements?
- Mike could acquire a prescriptive easement allowing continued parking.Correct answer
- Alice would gain a right to charge Mike rent.
- Mike could establish a license agreement for temporary use.
- Alice could evict Mike immediately due to trespassing.
Correct answer: A. Mike could acquire a prescriptive easement allowing continued parking.
Why: Mike might establish a prescriptive easement for parking by meeting the requirements of continuous, open, and notorious use without permission over the statutory period.
The rule: A prescriptive easement is a right gained by using another's land openly, continuously, and without permission for a set statutory period, often many years. If all requirements are met, the user can claim a right to continue the use.
Why the other options are wrong
- Adverse use does not create a right to charge rent; it may ripen into a prescriptive easement for Mike.
- A license is permissive use with the owner's consent; Mike used the land without permission.
- If the statutory prescriptive period is met, Alice generally cannot evict; the use has matured into a right.
Question 19 of 20
Emma buys a property that has a deed restriction preventing the construction of any structures over two stories tall. What is the purpose of this type of deed restriction?
- To maintain consistency in building aesthetics within the neighborhood.Correct answer
- To protect the property owner from future legal issues.
- To limit the number of occupants per building.
- To ensure the property is used for commercial purposes only.
Correct answer: A. To maintain consistency in building aesthetics within the neighborhood.
Why: A deed restriction limiting building height is typically used to maintain neighborhood aesthetics and uniformity in property structures.
The rule: Deed restrictions are private limits on how land may be used, written into the deed and passed on to later buyers. A height restriction like this one is typically meant to preserve visual uniformity and aesthetic consistency within a neighborhood.
Why the other options are wrong
- Height restrictions are not meant to shield an owner from general legal disputes.
- The restriction limits structure height, not the number of occupants living in the building.
- Deed restrictions typically preserve residential character; this one does not mandate commercial use.
Question 20 of 20
Scenario: David purchases a home in a new development with a covenant that requires homeowners to maintain their lawns regularly. After moving in, David neglects his lawn, resulting in complaints from neighbors. What consequence might David face under the terms of the covenant?
- A monetary fine or potential legal action to enforce compliance.Correct answer
- Eviction from the neighborhood until the lawn is maintained.
- Loss of ownership of his property.
- A temporary loss of utility services until the lawn is maintained.
Correct answer: A. A monetary fine or potential legal action to enforce compliance.
Why: Covenants in a development can be enforced through fines or legal action to compel property owners to comply with community standards, such as maintaining lawns.
The rule: Covenants are promises about land use that run with the property and bind later owners. A development covenant requiring lawn care can be enforced by a homeowners association or neighbors through fines, or by legal action seeking a court order to comply.
Why the other options are wrong
- Covenant violations do not cause eviction from a neighborhood; they trigger fines or enforcement suits.
- Failing to maintain a lawn does not cause loss of ownership; the covenant is enforced without divesting title.
- Utility services are not suspended for covenant breaches; enforcement is by fine or legal action.

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Encumbrances, Liens, Title Transfer and Leases: frequently asked

What is the difference between a lien and an encumbrance?

An encumbrance is any third party's interest that limits an owner's rights, and a lien is one specific type of encumbrance. A lien is a monetary claim against property securing a debt, while other encumbrances, such as easements and deed restrictions, limit use without involving money owed.

Which lien is paid first when a property is sold?

Priority usually follows the order of recording. The lien recorded first is generally paid first from the sale proceeds, regardless of its balance. That is why a first mortgage is normally satisfied before a later home equity loan or judgment lien.

How does recording a deed protect a buyer's title?

Recording the deed in the public records gives constructive notice that the buyer owns the property. Any later lien holder or buyer is treated as knowing about that recorded interest, so the recorded buyer usually holds priority over interests recorded afterward.

Concepts behind these questions

Each definition includes the mnemonic, the trap the exam sets and a few practice questions of its own.

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