California — Financing — California Real Estate — State Law Practice Test

This California Real Estate — State Law California — Financing practice set has 13 practice questions based on the official exam materials, each with an instant explanation.

Sample questions

Three questions from the California — Financing bank with the correct answer and an explanation. The practice quiz above draws 13 questions at random from the same bank.

1. For a NON-consumer loan secured by real property (not a loan made or arranged by a licensed broker), what is California's maximum lawful interest rate under the usury provisions of the State Constitution?

   • The greater of 10% per year, or 5% plus the Federal Reserve Bank of San Francisco discount rate — Correct answer
   • A flat 7% per year with no exceptions
   • A flat 12% per year for all real-property loans
   • There is no interest-rate limit on any California loan

   Explanation: Under California Constitution Article XV §1, a loan for purposes other than personal/family/household use may charge interest up to the GREATER of (a) 10% per year, or (b) 5% per year plus the discount rate of the Federal Reserve Bank of San Francisco. The flat 10% cap (without the Fed-rate alternative) applies only to consumer loans. Usury（高利贷）: charging interest above the legal maximum. Source: Cal. Const. Art. XV §1.

   Handbook: California Financing — Usury limit (Cal. Const. Art. XV §1)

2. A licensed California real estate broker negotiates and arranges a private hard-money loan secured by a deed of trust, charging the borrower 14% interest. Is this loan subject to California's usury limit?

   • No — loans made or arranged by a licensed real estate broker and secured by real property are exempt from usury — Correct answer
   • Yes — broker involvement makes no difference; 14% exceeds the 10% cap and is usurious
   • Only if the borrower is a corporation rather than an individual
   • Only if the loan term is shorter than one year

   Explanation: No. California Constitution Article XV §1 exempts any loan 'made or arranged by' a person licensed as a real estate broker and secured in whole or in part by a lien on real property. Broker-arranged real-property loans are therefore not capped by the usury rate, which is why brokers can arrange higher-rate private/hard-money loans. Broker-arranged loan（经纪人安排的贷款）: a real-property loan in which a licensed broker acts as agent — exempt from usury. Source: Cal. Const. Art. XV §1.

   Handbook: California Financing — Usury exemption for broker-arranged loans (Cal. Const. Art. XV §1)

3. Which of the following lenders is EXEMPT from California's usury limit when it makes a loan secured by real property?

   • A state- or federally-chartered bank — Correct answer
   • A private individual lending personal savings directly to a friend, with no broker involved
   • The seller who carries back a note in a private sale, acting alone
   • An unlicensed investor pooling money from neighbors

   Explanation: California Constitution Article XV §1 and related statutes exempt a long list of institutional and licensed lenders — including banks, credit unions, savings and loan (building-and-loan) associations, industrial loan companies, and licensed pawnbrokers — from the usury ceiling. A private individual lending personal funds directly (with no broker arranging it and no exempt status) is NOT on the exempt list, so that lender must stay within the usury cap. Exempt lender（豁免出借人）: a class of lender the Constitution frees from the usury rate. Source: Cal. Const. Art. XV §1.

   Handbook: California Financing — Usury exemption for institutional lenders (Cal. Const. Art. XV §1)