California Real Estate Practice Exam

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A principal gives a broker $50,000 with which to purchase 2nd notes and trust deeds. The broker guarantees an 18% return on the investment. What must the broker do to legally sell these real property securities?

Broker is in violation of California law
Broker's license is all that is required
Must post a bond
None of the above

The correct answer is: Broker is in violation of California law

The correct response to the question involves understanding the regulatory framework governing real property securities in California. When a broker engages in the sale of securities, including 2nd notes and trust deeds, they must adhere to specific legal requirements set forth by both state and federal laws. In California, engaging in the sale of securities requires registration unless an exemption applies. If the broker guarantees a return on the investment, as stated in the scenario, this constitutes the offering of a security. The broker would need to be compliant with the California Department of Business Oversight regulations and potentially the Securities and Exchange Commission (SEC) regulations, which oversee the sale of securities to protect investors from fraud and ensure transparency. Given that the broker is guaranteeing a specific return on investment, this act may further implicate the need for appropriate licensing and adherence to legal obligations concerning the sale of securities. Therefore, entering such an arrangement without the necessary compliance would indeed place the broker in violation of California law regarding securities transactions.