California Practice Test → Escrow & Title

California Escrow & Title
Practice Questions & Answers (2026)

Escrow, title, and closing questions on the California exam test how real estate transactions are closed, how title is transferred, and what happens at settlement. California uses escrow companies to handle closings, and candidates must understand the closing process, settlement statement, and title insurance requirements under California law. Title insurance, title searches, and the difference between standard and extended coverage policies are tested, as are the specific closing costs that are customarily paid by buyers vs. sellers under California practice.

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California Escrow & Title — Practice Questions & Answers

96 questions on Escrow & Title from the California real estate question bank. First 10 are free — sign up to unlock all 96.

Q1. What does 'escrow' mean in a California real estate transaction?

A.A loan from a bank to a buyer
B.A neutral third party holding funds and documents until conditions are met
C.A type of property deed
D.The commission paid to a real estate agent

Explanation

Escrow is a neutral depository where funds, documents, and instructions are held by a third party until all conditions of the sale are met and closing can occur.

Q2. A 'cloud on title' refers to:

A.A title held by a corporation
B.Any claim or encumbrance that may impair the owner's title
C.A title recorded electronically
D.A title with multiple owners

Explanation

A cloud on title is any outstanding claim, lien, or encumbrance that could affect or challenge the owner's clear title to a property. It must be resolved before a clean sale.

Q3. What is the purpose of title insurance?

A.To insure the property against fire and theft
B.To protect against defects in title that existed before the purchase
C.To guarantee the property's market value
D.To insure the lender against the borrower's default

Explanation

Title insurance protects the buyer (owner's policy) and lender (lender's policy) against losses from title defects, liens, or encumbrances that existed before the purchase.

Q4. Who selects the escrow company in California?

A.Always the buyer
B.Always the seller
C.The DRE
D.It is negotiable between buyer and seller

Explanation

In California, the selection of the escrow company is negotiable between buyer and seller. It is typically specified in the purchase agreement.

Q5. What is a 'grant deed'?

A.A deed used only for government property transfers
B.A deed that implies the grantor owns the property and has not conveyed it to another
C.A deed that guarantees clear title
D.A deed used for gifts of property

Explanation

A grant deed is the most common deed in California. It contains two implied warranties: the grantor owns the property and has not previously transferred it, and there are no undisclosed encumbrances.

Q6. What is a 'quitclaim deed'?

A.A deed that guarantees clear title
B.A deed that conveys whatever interest the grantor may have, with no warranties
C.A deed used only in foreclosures
D.A deed that transfers title upon death

Explanation

A quitclaim deed conveys only whatever interest the grantor has — with no warranties or guarantees of title. It is often used between family members, to clear title defects, or in divorce settlements.

Q7. What is a warranty deed?

A.A deed with no guarantees
B.A deed where the grantor guarantees clear title and will defend against future claims
C.A deed used only for commercial property
D.A deed issued by the government

Explanation

A warranty deed (general warranty deed) contains express covenants where the grantor warrants clear title and promises to defend the grantee against any future title claims.

Q8. What is 'proration' in a real estate closing?

A.The agent's commission split
B.The division of ongoing expenses (like taxes or HOA dues) between buyer and seller based on the closing date
C.The lender's approval process
D.The title company's fee structure

Explanation

Proration divides ongoing expenses proportionally between the buyer and seller based on the closing date. For example, property taxes paid in advance by the seller would be credited back for the buyer's portion of the year.

Q9. A 'mechanic's lien' can be filed by:

A.A car mechanic owed money for auto repairs
B.A contractor or supplier who has not been paid for work done on a property
C.A lender whose mortgage is unpaid
D.The government for unpaid property taxes

Explanation

A mechanic's lien (materialman's lien) is filed by contractors, subcontractors, or suppliers who have not been paid for labor or materials provided for improvements to a property.

Q10. Which type of lien takes priority regardless of when it was recorded?

A.Mortgage liens
B.Mechanic's liens
C.Property tax liens
D.Judgment liens

Explanation

Property tax liens (and special assessment liens) take priority over all other liens regardless of when they were recorded. This is a statutory priority established by law.

Q11. In California, who typically acts as the escrow holder in a real estate transaction?

A.The real estate broker
B.An independent escrow company or title company
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