Proven mnemonics — built specifically for the real estate licensing exam.
Purchase Transaction Timeline
Contract to close timeline: offer → acceptance → escrow opened → inspections → contingencies removed → closing
Purchase Transaction Timeline
The key stages from offer to closed deal
Offer submitted → Seller accepts (or counters) → Earnest money into escrow → Inspection period (typically 7-17 days) → Loan application and appraisal → Contingency removal deadlines → Final walk-through → Closing day: sign documents, fund loan, record deed, keys delivered.
Closing Disclosure
RESPA Closing Disclosure: must be provided 3 business days before closing. Replaced HUD-1 in 2015.
Closing Disclosure
The federal form detailing all closing costs — required 3 days before closing
Closing Disclosure (CD): itemizes all costs, loan terms, and cash needed to close. Lender must provide at least 3 business days before closing. If certain terms change, new 3-day waiting period begins. Replaced the HUD-1 Settlement Statement for most residential transactions in 2015 under TRID.
Closing Cost Responsibilities
Closing costs: buyer typically pays 2-5% of loan amount. Seller typically pays commission plus transfer taxes.
Closing Cost Responsibilities
Who typically pays which closing costs
Buyer typically pays: loan origination fees, appraisal, title insurance (lender's policy), prepaid interest, escrow setup, recording fees. Seller typically pays: real estate commission, transfer taxes, owner's title insurance, payoff of existing mortgage, outstanding liens. Negotiable — can be split or shifted as part of deal.
Closing Prorations
Prorations at closing: taxes, HOA, rent collected in advance, insurance — split by days of ownership
Closing Prorations
How ongoing costs are divided at the closing table
Items prorated at closing: property taxes (paid in arrears in most states — seller owes for days they owned), HOA dues, prepaid rent if tenant-occupied, prepaid insurance. Seller's prorated share shown as credit to buyer or debit to seller on Closing Disclosure.
Title Search and Title Insurance
Title search: examines public records for liens, easements, judgments — ensures clean title
Title Search and Title Insurance
What a title search finds — and why insurance is still needed
Title search: examines county recorder's records going back years to find: existing mortgages, liens, easements, judgments, unpaid taxes, encroachments, missing heirs. Even a thorough search can miss: forgeries, undisclosed heirs, errors in records, off-record claims. Title insurance covers these risks.
Recording Documents
Recording: notarized deed recorded at county recorder — gives constructive notice to the world
Recording Documents
Why recording is the final critical step in a real estate transaction
Recording puts the world on constructive notice of the ownership transfer. Until recorded: deed is valid between parties but not against subsequent buyers or lenders who didn't know. Race-notice states: first to record wins (if they didn't know of prior claim). Notice states: bona fide purchaser without notice wins.
Actual vs Constructive Notice
Actual vs Constructive notice: actual = you personally know. Constructive = public records say you should know.
Actual vs Constructive Notice
Two types of notice that affect ownership rights
Actual notice: you have direct personal knowledge of a fact. Constructive notice: the law presumes you know something because it was publicly recorded or visible. 'You should have checked the public records' — that's constructive notice. Recorded documents give constructive notice to the world.
Counter Offers
Counter offer: original offer dies, new offer is made. Creates new offer that original offeror can accept or reject.
Counter Offers
How counter offers work in contract law
When seller makes a counter offer: original offer is legally dead and cannot be revived. The counter offer is a brand new offer from the seller to the buyer. Buyer can: accept (creates binding contract), reject, or counter again. Either party can withdraw their offer at any time before acceptance.
Liquidated Damages
Liquidated damages: pre-agreed remedy for breach. If buyer defaults, seller keeps earnest money (if liquidated damages clause signed).
Liquidated Damages
The pre-agreed remedy for buyer default
Liquidated damages clause: both parties agree upfront that if buyer defaults, seller keeps earnest money as full compensation — cannot sue for more. If no liquidated damages clause: seller may sue for actual damages, which could exceed the earnest money. Buyers: protects from unlimited liability. Sellers: limits recovery.
Novation vs Assignment
Novation: replace one party to a contract with a new party, releasing the original
Novation vs Assignment
Two ways to transfer contractual obligations
Assignment: original party remains secondarily liable. Novation: complete substitution of new party — original party fully released. Loan assumption without novation: original borrower still liable if new buyer defaults. Novation of mortgage: lender must agree to release original borrower.
1031 Tax-Deferred Exchange
1031 Exchange: defer capital gains tax by reinvesting in like-kind property. Must identify in 45 days, close in 180.
1031 Tax-Deferred Exchange
How investors defer capital gains taxes through property exchanges
Section 1031 of IRS code: investors can defer capital gains tax by exchanging investment property for like-kind investment property. Rules: must use qualified intermediary, identify replacement property within 45 days of sale, close on replacement within 180 days. 'Like-kind' is broad — any investment real estate.
TRID — Know Your Before and After
Good faith estimate → Loan Estimate. HUD-1 → Closing Disclosure. TRID combined them in 2015.
TRID — Know Your Before and After
Understanding the major 2015 mortgage disclosure reform
TRID (TILA-RESPA Integrated Disclosure): replaced old Good Faith Estimate and Truth-in-Lending disclosure with Loan Estimate (within 3 days of application). Replaced HUD-1 and final TIL with Closing Disclosure (3 days before closing). Makes it easier for consumers to compare loans and understand closing costs.
🏠 Contracts
CLOC
Valid Contract Requirements
Four elements every valid real estate contract must have
If any one of these is missing, the contract is void or voidable. CLOC keeps them in order on the exam.
C
Competent parties — legally able to contract (18+, mentally capable)
L
Lawful purpose — must be for a legal reason
O
Offer and acceptance — a valid offer must be made and accepted
C
Consideration — something of value exchanged by both parties
🏠 Contracts
LHAF — "Lovely Houses Are Fun"
Valid Contract Elements (Alternative)
Another way to remember the four contract essentials
Some instructors use LHAF as an alternative to CLOC. Same four elements, different order.
L
Lawful purpose
H
Has consideration
A
Acceptance
F
Full legal capacity
🏠 Contracts
Void vs Voidable
Contract Status
The difference that trips up almost every exam candidate
Void = dead from the start, never had legal effect. Voidable = one party can cancel — but it IS valid until cancelled.
🏠 Contracts
Earnest Money ≠ Down Payment
Earnest Money
One of the most commonly confused terms on the exam
Earnest money is a good-faith deposit held in escrow. The down payment is paid at closing. They are NOT the same thing. If the buyer defaults, the seller may keep the earnest money.
🏠 Contracts
Contingency = "If, Then"
Contract Contingencies
Contingencies protect the buyer — remember them as IF/THEN clauses
IF inspection reveals major defects, THEN buyer can cancel. IF financing not approved, THEN buyer can cancel. Common: Inspection, Financing, Appraisal, Sale of buyer's home.
🏠 Contracts
RESPA = 3 Days Notice
RESPA
Federal law requiring Closing Disclosure 3 business days before closing
RESPA requires the Closing Disclosure be given to the buyer at least 3 business days before closing. Replaced the HUD-1 in 2015. Also prohibits kickbacks between settlement service providers.