MODULE 31 PROPERTY 341

24. (c) A general warranty deed warrants that (1) the 29. (d) Marketable title means that the title to real prop-
seller has title and the power to convey the property de- erty is free from encumbrances, such as mortgages, ease-
scribed in the deed, (2) the property is free from any encum- ments, and liens and defects in the chain of title. However,
brances, except as disclosed in the deed, and (3) the grantee there is an exception. Most courts hold that the seller's obli-
(purchaser) will not be disturbed in hislher possession of the gation to convey marketable title does not require the seller
property by the grantor (seller) or some third party's lawful to convey the title free from recorded zoning restrictions,
claim of ownership. Thus, a general warranty deed would visible public rights-of-way or recorded easements. An un-
contain both of the warranties listed and answers (a), (b), recorded easement, however, would be a defect in market-
and (d) are incorrect. able title. Therefore, answer (d) is correct. An unrecorded
lawsuit fornegligence against the seller would not cause a
I. Recording a Deed defect in marketable title.
25. (c) In order for a deed to be effective between the K. Adverse Possession
purchaser and seller of real estate, the deed must be deliv-
ered by the seller with an intent to transfer title. Even 30. (c) One of the elements to obtain title to property by
though a deed may be executed it does not become effective adverse possession is that the possession be hostile to the
until delivery is made with the proper intent. Answer (d) is ownership interests of the actual owner. This does not occur
incorrect because a deed need not be recorded in order for it when possession is permitted by the actual owner. All of
to be valid between the seller and purchaser. Recordation of the others are necessary elements to obtain ownership by
a deed is important because it gives constructive notice to all adverse possession.
third parties of the grantee's ownership; however, it does not
31. (d) Rake has fulfilled the elements necessary to gain
affect the resolution of any disputes between the grantor and
title to this land in question by adverse possession. These
the grantee. Answer (a) is incorrect since a deed need be
are: (1) open and notorious possession, (2) hostile posses-
signed by only the seller in order for it to be effective; it
sion shown by the fence, (3) actual possession, (4) continu-
does not have to be signed by the purchaser. Answer (b) is
incorrect since the form of a deed is very different from a ous possession, and (5) exclusive possession for twenty-five
contract for the sale of real property. There is no require- years. Note that it is considered continuous possession even
mentthat the deed must contain the actual sales price. though the gardening is only during the summer, because the
fence is constantly there. Answers (a), (b), and (c) are incor-
26. (d) Under a notice-race statute, if a mortgagee fails rect because since Rake obtained title to the and in question,
to record its mortgage, a subsequent mortgagee who records he does not have to move the fence or pay for the land.
will have a superior security interest if s/he did not have
M. Mortgages
notice of the prior mortgage. In this situation, Independent
Bank was the first to record its mortgage and would receive 32. (b) Congress enacted the Real Estate Settlement
the $195,000 owed it. Scott would then receive $19,000 Procedures Act (RESPA) in 1974 to provide home buyers
because Scott recorded his/her mortgage before Elgin. Since with more extensive information about the settlement pro-
Scott did not have knowledge of Elgin's mortgage until after cess and to protect them from unnecessarily high settlement
Scott had recorded hislher mortgage, Scott would have pri- .fees. The act applies to all federally related mortgage loans,
ority over Elgin. and nearly all first mortgage loans. Therefore, the general
27. (b) Under a notice-race statute, a subsequent mort- purpose of this act is to regulate mortgage lenders.
gagee (lender) who loans money without nqtice of a previ- The purpose of the Federal Trade Commission Act is to
ous mortgage and records the mortgage first has priority prevent unfair methods of competition and unfair or decep-
over that previous mortgage. Thus, since Scott recorded tive practices in commerce. It is a general consumer protec-
hislher mortgage before Elgin and without knowledge of tion act, and regulates compliance with antitrust laws. Al-
Elgin's mortgage, Scott would have priority in a notice-race though it may apply to mortgage lenders, its general purpose
jurisdiction. Answer (a) is incorrect because Scott did not is not to regulate mortgage lenders.
know of Elgin's mortgage at the time Scott recorded hislher 33. (d) Dix's second mortgage on Gilrnore's property
mortgage. Although Scott later learned about both prior will allow Dix to claim a security interest subordinate to
mortgages, this would not affect Scott' s priority over Elgin's FCA's first mortgage security interest. Dix's failure to re-
mortgage. Answer (c) is incorrect because Elgin's mortgage
cord the second mortgage will not affect their right to suc-
would have priority only if it had been recorded before
cessfully enforce the mortgage against Gilmore. Therefore,
Scott's. Answer (d) is incorrect because Scott's mortgage
answer (b) is incorrect. Answer (a) is incorrect because Dix
had priority over Elgin's. Therefore, Scott would be entitled
would be entitled to receive mortgage foreclosure sale pro-
to receive the full $19,000 before Elgin received any of the
ceeds if such proceeds were in excess of the amount owed to
proceeds from ·the judicial sale. .
FCA. Answer (c) is incorrect because FCA's first mortgage
J. Title Insurance must be fully satisfied before any payments can be made to
Dix.
28. (b) 'Title insurance insures against all defects of
record and defects the grantee may be aware of. Any ex- 34. (d) If a buyer takes a mortgage "subject to," then the
ceptions not insured by the title policy must be shown on the buyer accepts no liability for the mortgage and the seller is
face of the policy. Answer (a) is incorrect because title ex- still primarily liable. The mortgagor does not have to at-
ceptions are not insured by the title policy. Answer (c) is tempt to collect from the buyer first; he can go directly
incorrect because title insurance covers only defects of rec- against the seller. Therefore, answer (d) is correct, and an-
ord. Answer (d) is incorrect because title insurance does not swers (a) and (c) are incorrect. Answer (b) is incorrect be-
pass to subsequent purchasers.