Business Law - Chapter 16 Study Cards

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*In TN*, notice must be published 3 times in a newspaper, with the first notice *at least __ days* prior to the sale.

Exempt

- Homestead (Home equity) - Tools of trade - Retirement plans - Personal property - Disability payments The above are examples of ________ assets that cannot be taken from someone after they file for bankruptcy.

Bankruptcy

A ____________ filing by the borrower temporarily stops foreclosure proceedings while the automatic stay is in effect.

Bankruptcy Trustee

A debtor in a Chapter 7 liquidation bankruptcy turns all assets over to a ____________ _________, a person appointed by the court to manage the debtor's funds. *This person sells the nonexempt assets and distributes the proceeds to creditors.

Notice

Debtor is entitled to receive ________ of foreclosure sale prior to the sale. *Method of ________ may be set by statute or stipulated in the mortgage.

Public Auction

Foreclosure sales *in Tennessee* must take place at a _______ ________ on the *courthouse steps* in the county where the property is located.

Acceleration Clause

If the borrower defaults on their mortgage loan by failing to make the loan payments when due, the lender can declare the *entire debt* "due and payable" under an __________ ______ in the mortgage agreement.

Foreclose

If the mortgage debt is not paid, the lender can "_________" on the real estate, which means that the lender can sell the property at an auction (consistent with state law procedures) and apply the proceeds of the sale to the loan balance.

Deficiency

If the sale proceeds are insufficient to fully pay the mortgage debt, the debtor may be liable for the ________ (which is an "unsecured debt"). *Some states do not permit __________ judgements on residential real estate debt.

Judicial Foreclosure

In about half the states, judicial action (arising from a lawsuit filed by the lender) is required before foreclosure can occur. This process is a "_________ _________."

Attachment

In the context of judicial liens, this refers to a court-ordered seizure and taking into custody of property before a judgement is obtained on a past-due debt.

Tax Deductible

Interest paid by individuals for mortgages on their primary residence, and one additional residence, is ___-_________ for federal income tax purposes (on total loans up to $1 million).

Debtor in Possession

On entry of the order of relief, the debtor generally continues to operate the business as a __________ __ __________.

Not

Other personal interest expenses (car loan, credit card, etc.) are *____ ____ _________*.

Redeem

Prior to the foreclosure sale, a debtor has the right to _______ the property by paying the full amount of the debt, plus interest and legal costs (*"equitable right of redemption"*).

Statutory Right of Redemption

Some states provide a "_________ _____ __ _________" that permits the borrower to repurchase the property for a period of time after a judicial foreclosure sale. *This right is not available after a power of sale foreclosure.

Faster

The foreclosure process is ________ with non-judicial foreclosures than with judicial foreclosures.

Credit Bid

The lender can make a bid in the amount of the debit it is owed ("_______ ___"), so that the lender buys the property for the amount of the loan balance if there are no higher bidders.

Automatic Stay

The moment a petition, either voluntary or involuntary, is filed, an ___________ _____, or suspension, of all actions by creditors against the debtor or the debtor's property normally goes into effect. *In other words, once a petition has been filed, creditors cannot contact the debtor by phone or mail or start any legal proceedings to recover debts or to repossess property.

Collateral

The real property obtained by a purchaser on a mortgage loan document is considered "__________" for the loan taken out to purchase it.

Power of Sale

The remaining states, *including Tennessee*, permit foreclosures to occur pursuant to a "_______ __ ____" clause in a Deed of Trust executed in connection with the original mortgage. No judicial action is required. This type of foreclosure is called a *"non-judicial foreclosure"* or a *"power of sale foreclosure"*.

Chapter 12

This chapter of Bankruptcy Code (for family farmers and family fishermen) provides for the adjustment of debts by persons with regular incomes.

Chapter 13

This chapter of Bankruptcy Code (for individuals) provides for the adjustment of debts by persons with regular incomes.

Chapter 11

This chapter of Bankruptcy Code governs reorganizations.

Chapter 7

This chapter of Bankruptcy Code provides for *liquidation* proceedings (the selling of all nonexempt assets and the distribution of the proceeds to the debtor's creditors). - Probably the *most familiar* type of bankruptcy proceeding and is often referred to as an ordinary, or straight, bankruptcy.

Writ of Attachment

This directs the sheriff or other officer to seize the debtor's nonexempt property after the creditor has successfully filed an affidavit with the court.

Workout Agreement

This is a contract between the borrower and the lender that describes their respective rights and responsibilities as they try to resolve the default without proceeding to foreclosure. *Usually, the lender agrees to delay seeing foreclosure in exchange for the borrower providing additional financial information that might be used to modify the mortgage.

Consumer-Debtor

This is a debtor whose debts result primarily from the purchase of goods for personal, family, or household use.

Forbearance

This is a postponement of part or all of the payments on a loan for a limited time, granted by the lender, if the borrower might be able to make payments in the future.

Balloon Mortgage

This is a type of mortgage in which low amounts (sometimes just the interest) are paid for a set period (7-10 years), after which a payment for the *total balance* of the loan is due. *These final "balloon payments" are typically refinanced by the borrower - but this is risky.

Fixed-Rate Mortgage

This is a type of mortgage in which the interest rate is fixed for the term of the loan, and monthly payments stay the same for the life of the loan (typically 15 or 30 years).

Adjustable-Rate Mortgage

This is a type of mortgage in which the interest rate is initially lower than for a fixed-rate loan, but will be adjusted upward periodically, with a lifetime cap. *Monthly payments will increase as the interest rate increases.

Lien

This is an encumbrance on *(claim against)* property to satisfy a debt or protect a claim for the payment of a debt.

Writ of Execution

This is an order that directs the sheriff to seize (levy) the and sell any of the debtor's nonexempt real or personal property. *Only applies to property that is within the court's geographic jurisdiction (usually the county in which the courthouse is located).

Home Equity

This is the difference between the market value of the home and the amount of debt owed on the *primary mortgage* on the property. *The homeowner may be able to get a "_____ _______ loan" using the _____ _______ as collateral. *A _____ _______ loan lien is *subordinate* to the lien of the primary mortgage lender, meaning that the primary lender gets paid first (making _____ _______ loans riskier for the lender, which is why they often have higher interest rates than primary mortgages).

Voluntary Conveyance

This is with a *"deed in lieu of foreclosure"* agreement; the lender agrees to accept a voluntary transfer of ownership of the property by the borrower in full satisfaction of the mortgage debt.

Involuntary Bankruptcy

This occurs when the debtor's creditors force the debtor into bankruptcy proceedings. - *Debtor has to have a debt of $14,425 and has not been paying debts as they become due* - Cannot be filed against a charitable institution or a farmer (an individual or business that receives more than 50 percent of gross income from farming operations).

Short Sale

This refers to when instead of foreclosing on the property, the lender allows the borrower to sell the property to a third party for less than the balance due on the mortgage loan, and forgives the unpaid balance.

Mechanic's Lien

This type of lien creates a special type of debtor-creditor relationship in which the real estate itself becomes security for the debt.

Artisan's Lien

This type of lien is when a debtor fails to pay for labor and materials furnished for the repair or improvement of personal property. - *In contrast to the mechanic's lien*, an artisan's lien is *possessory*. The lienholder must have retained possession of the property and have expressly or impliedly agreed to provide the services on a cash, not a credit, basis.

Voluntary

To bring a ___________ petition in bankruptcy, the debtor files official forms designated for that purpose in the bankruptcy court.

Mortgage Loan Document

When a party borrows money to purchase real property (land and buildings), a __________ _____ _________ is executed whereby the purchaser grants a lien on the real property to the lender as security for the loan (making it *"secured debt"*).

Discharged

With certain exceptions (after a bankruptcy trustee sells the nonexempt assets and distributes the proceeds to creditors), the remaining debts are then ____________ (extinguished), and the debtor is relieved of the obligation to pay the debts.

Interest

_______ paid on home equity loans (on indebtedness up to $100,000) is *tax-deductible*, regardless of what the funds are used for.

Mortgages

___________ are used in connection with both home loans and commercial property loans.