California Real Estate Practice Exam

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A real estate broker lends his own money to Buyer to aid in purchasing a home. The note is for $4,000, and will be secured by a trust deed on the purchased property. The note interest rate is 12% per year, with monthly payments of $40. Final payoff will be on the 48th monthly payment. Which of the following is true?

Broker holds legal title to property
Broker is in violation of usury
Final amount of payoff on the 48th month will be $4,040
None of the above

The correct answer is: Final amount of payoff on the 48th month will be $4,040

The correct answer is C. The final amount of payoff on the 48th month will be $4,040. This is because the monthly payment is $40, which includes both principal repayment and interest. With a 12% annual interest rate on a $4,000 note, the monthly interest would be $40 ($4,000 x 0.12 / 12 months = $40). Therefore, each monthly payment of $40 includes interest, and by the 48th month, the accumulated interest would total $40 x 47 = $1,880. Adding the original principal amount of $4,000 to the interest brings the total payoff amount to $4,000 + $1,880 = $4,880. The other options are incorrect: Option A is incorrect because when a trust deed is used as security, the legal title to the property is held by a trustee, not by the broker. Option B is incorrect because usury laws prohibit charging excessively high-interest rates. In this scenario, with a 12% annual interest rate, the broker is not in violation of usury laws. Option D is incorrect because as explained above, option C is true.