Chapter 14

A mortgage company charges borrowers a 1.5% loan origination fee. A man buys a house for $210,000 and pays $50,000 in cash. He applies for a mortgage to cover the balance. What will the mortgage company charge as a fee if the asking price of the house was $235,000?

$2,400

A man and a woman are married, 65 years old, and retired. They have almost $800,000 in equity in their home, but they don't have enough cash to travel as they have always dreamed of doing. The couple should consider which of these financing alternatives?

A reverse mortgage

Parties to lending agreements are referred to by different terms. Which of these refers to the same party?

Borrower = mortgagor

One afternoon, a client calls a real estate broker. "My lender just told me that my note and mortgage is a negotiable instrument," says the client. "What does that mean?" Which of these would be the broker's BEST response?

Don't worry. That means the mortgage can be sold by the lender, but'019;re not affected

"PITI" refers to principal, interest, time, and insurance.

False

A mortgage is a security instrument in which a mortgagee pledges real property to the mortgagor as security for the debt.

False

A mortgage is classified as an involuntary lien on real estate.

False

A point is 1% of the purchase price of the property being offered as security for the loan.

False

An assignment of mortgage occurs when the borrower pays off the loan.

False

In states that permit strict foreclosure, the court simply awards full legal title to the lender and no sale of the property takes place.

False

In the event of a borrower's default, a subordination clause makes foreclosure easier by giving a lender the right to declare the entire debt due and payable.

False

Lenders are allowed to charge prepayment penalties on mortgage loans insured or guaranteed by the federal government

False

When a mortgage lender finds that a borrower has not made necessary repairs to the property, the lender usually immediately proceeds to foreclosure.

False

When a real estate loan secured by a deed of trust has been repaid in full, the beneficiary executes a discharge that releases the property back to the trustor.

False

Homeowners may deduct which of these from their gross income?

Loan discount points and loan prepayment penalties

One state is a lien theory state. A buyer purchases property from a seller and gives him a mortgage as part of the purchase price. Therefore, the buyer is the borrower, and the seller is the lender. Which of these statements is FALSE?

The buyer has given legal title to the seller.

A buyer purchases property from a seller for $45,000 in cash and assumes the seller's outstanding mortgage balance of $98,500. The lender executes a release for the seller. The buyer fails to make any mortgage payments, and the lender forecloses. At the foreclosure sale, the property is sold for $75,000. Based on these facts, who is liable, and for what amount?

The buyer is solely liable for $23,500.

A woman was the owner of a parcel of property. When she defaulted on her loan, the trustee immediately sold the property to recover the debt. The trustee acted under the terms of the security instrument. Based on these facts, which of these statements is TRUE?

The exercise of this power of sale clause is an example of nonjudicial foreclosure.

When a deed of trust is the security instrument, which party usually chooses the trustee?

The lender

What is a major disadvantage to lenders of accepting a deed in lieu of foreclosure?

The lender takes the real estate subject to all junior liens.

A house is listed for $250,000. A man buys it for $230,000, with a 20% down payment. He borrows the balance on a fixed-rate mortgage at 6%. The lender charges four points. If there are no other closing costs involved, how much money does the man need at closing?

The man needs $53,360 at closing. Three steps: Calculate down payment: $230,000 × 20% = $46,000 Determine points charge: $230,000 × 80% × 4% = $7,360 Total the two amounts: $46,000 + $7,360 = $53,360.

After a foreclosure sale, what responsibility does the purchaser have for the mortgage and any junior liens?

The purchaser has no responsibility because the purchaser receives the property title without the mortgage and junior liens.

A woman defaults on her mortgage, and the lender forecloses. The lender's foreclosure suit is filed on March 15, and the sale is to be held on May 10. If the woman attempts to redeem the property on May 1, which of these statements applies?

The woman is exercising her equitable right of redemption

A buyer who purchases real property and assumes the seller's debt becomes personally obligated for the repayment of the entire debt.

True

A reverse mortgage allows homeowners aged 62 or older to borrow money against the equity they have built up in their home.

True

After the redemption period (if applicable), the successful bidder at a foreclosure sale receives a deed that conveys whatever title the borrower had, with no warranties.

True

An adjustable-rate mortgage begins at one rate of interest, then fluctuates up or down during the loan term.

True

If the lender must obtain insurance on property located in a flood hazard area because the borrower has not, the lender can add the premium cost to the unpaid debt.

True

In a typical deed of trust, the mortgagee is the beneficiary, and the borrower is the trustor.

True

In most mortgage documents, the defeasance clause requires the mortgagee to execute a satisfaction when the note has been fully paid, returning to the mortgagor all interest in the real estate.

True

In title theory states, the mortgagor actually gives legal title to the mortgagee, while retaining equitable title.

True

Usury is defined as the act of charging interest in excess of the maximum legal rate.

True

What is the term that refers to a lender charging an interest rate that is higher than that permitted by law?

Usury

How does an acceleration clause help lenders?

Without the acceleration clause, lenders would have to sue the borrower for every overdue payment.

A mortgage document contains the clause: "In the event of Borrower's default under the terms of this Agreement, Lender may declare the entire unpaid balance of the debt due and payable immediately." This clause is called

an acceleration clause.

If the lender wants to call the entire note due and payable if the borrower stops making payments, the security instrument must include

an acceleration clause.

Lenders charge a loan origination fee to

cover the expenses involved in generating the loan.

A borrower defaulted on his mortgage loan, leaving an unpaid balance of $95,000. After receiving only $85,000 from the sale of the property, the lender filed for a

deficiency judgment.

The difference between the interest rate that the lender charges and what the investor demands can be made up by charging

discount points.

A basic form homeowners insurance policy provides property coverage against

fire, lightning, and smoke damage.

The decision whether to buy or rent should involve consideration of

housing affordability and current mortgage interest rates.

A deed of trust involves all of these terms EXCEPT

mortgagor.

A document that indicates that a loan has been made is called a

promissory note.

This month, a man made the last payment on a mortgage loan secured by a woman. The man's lender must execute a

satisfaction of mortgage.