FINANCING I
A real estate broker arranges a loan secured by a second trust deed for $7000 to be repaid in 5 years. Her maximum commission would be:
15%. Article 7 applies to first trust deeds less that $16000 and second trust deeds less than $8000. Commission on a second trust deed for a term of 3 years or more is 15%.
Brokers are required to retain a copy of the Mortgage Loan Disclosure Statement in their office files for a period no less than:
3 years. The Mortgage Loan Disclosure Statement, RE form 882, states, " A copy of the form signed by the borrower must be retained by the broker for a period of 3 years."
JoAnn, a licensed real estate broker, decides to stop selling real estate and start brokering real estate loans. What kind of license does she need?
A MLO license endorsement. Effective January 1, 2011 all licensees who perform residential mortgage loan originator MLO activities must obtain an MLO license endorsement.
Which of the following forms would be required when selling a promissory note served by a trust deed in which an appraisal of the real property is compulsory as in regards to the real estate code?
A real property security agreement.When a note is a real property security, an appraisal is required.
A loan held by ABC Insurance Company was assumed by the buyer. In addition, the seller was agreeable to taking back a note secured by the property. At first the seller wanted to note to be paid off in two years. The buyer refused but later agreed to a provision that the note become due and payable in the event the property is sold, conveyed or alienated. Which of the following clauses is most applicable?
Acceleration. it would actually be an alienation clause, which is a type of acceleration clause.
First Savings bank granted a construction loan in a five stage plan for the development of a new local mall. When would the last payment be made?
After the mechanics time lien has expired. A mechanic's lien has priority over any other liens filed after the beginning of labor and delivery of materials. If a mechanics lien were filed with a subsequent foreclosure, the mechanic's lien would be paid first.
Any loan payment that is significantly larger than any of the other payments is called a:
Balloon payment. The last installment, called a balloon payment, is much larger than any of the other payments because it includes all of the remaining principal and interest.
Which party benefits the most from the recordation of a Request for Notice of Default?
Beneficiary of the second deed of trust. A Request for Notice of Default is for the beneficiary of the second deed of trust. This way, if the first deed of trust is in default, the holder of the second deed of trust must be notified so that he may protect himself.
Of the following loans, which loan never requires the borrower to pay discount points?
Cal-vet. A cal-vet borrower does not have to pay discount points, however he or she does pay an origination fee.
Interest paid on the principal amount and the accrued interest due on the loan is referred to as:
Compound interest. Definition: When interest is paid on accrued interest it is called compund interest.
A man had a promissory note for $2,000. He sold it to a friend for $1,500. What is this practice called?
Discounting. Notes sold for less than the unpaid balance are said to be sold at discount.
Mr. Smith sells his lot for $10,000 and takes back a promissory note for $5,000. Needing cash, he immediately sells the note at a discount to Mr. Brown for $3,500, assigning the security instrument and endorsing the note "without recourse." The borrower defaults before making any principal payments. What should Mr. Brown do to recover his loss?
Foreclose to recover $5000. The fact that Mr. Smith sold this promissory note at a discount in order to obtain ready cash does not change the face value of the note.
You have a customer that is interested in purchasing a home using his G.I. benefits. You have located a most desirable home for which the owner is asking $120,000. It has been appraised by the DVA for $118,000. If the customer wants to purchase the home and use his G.I. benefits you should advise him that:
He can pay more than $118,000 and use his G.I. benefits but must pay cash for the excess above $118,000. The DVA permits a veteran to purchase a home for a price that exceeds the CRV but must pay cash for the amount in excess of the CRV.
What provides the most security to the lender of a junior loan?
Loan to value ratio. Loan to value ratio refers to the percentage of the value of the property the loan amount is. For example, if the value of the property is $100,000 and the loan amount is $80,000, the loan amount is 80% of the value. The lower the percentage the less risk to the lender or the holder of a 2nd, 3rd, etc. loan.
Mr. McCormick can secure a loan with the term of 15 years or 30 years. What is his advantage if he chooses the longer term loan?
Lower total monthly payment. The longer the term, the lower the amortized payments.
If the annual percentage rate provided in the good faith estimate is out of tolerance under TILA, creditors must provide a connected TIL disclosure statement to a consumer:
On or before the 3rd business day before consummation of the transaction. If the annual percentage rate provided in the good faith estimates changes beyond a specified tolerance for accuracy, more that 1/8 of 1% in a regular transaction of 1/4 of 1% in an irregular transaction, creditors must provide corrected disclosures, which the consumer must receive on or before the third business day before consummation of the transaction.
I = P times R times T, Interest=Principal times Interest Rate times Time of loan, has to do with which of the following?
Real Estate Loans. Interest=Principal times Interest Rate times Time of the loan. Naturally all of these refer to real estate loans.
A seller takes back a deed of trust and a note as part of the purchase price and the buyer immediately defaults. What action could the seller take?
Request trustee to record a "notice of Default". The seller could only foreclose since no deficiency judgment is possible on a purchase money deed of trust.
What is the federal law requiring mortgage loan originators to be licensed according to national standards?
Secure and Fair Enforcement for mortgage licensing Act. Title V of public law 110-289, the Secure and Fair Enforcement for Mortgage Licensing Act of 2008, SAFE ACT, was passed on July 30, 2008. The new federal law gave states one year to pass legislation requiring the licensure of mortgage loan originators according to national standards and the participation of state agencies on the Nationwide Mortgage Licensing System and Registry, NMLSR.
Jane offers to purchase Stan's property for $139,000. Jane takes title subject to a VA loan. What is the effect on liability?
Stan is liable for the loan. When a buyer purchases subject to a loan, the seller, Stan, remains liable for the loan.
What clause is used to change the priority of a financial institution?
Subordination clause. A subordination clause is one in which the holder of a security instrument, mortgage or deed or trust, permits a subsequent loan to take priority.
Of the following, which is a correct statement concerning a junior mortgage?
The holder of a junior mortgage would most likely make the payments for the mortgagor on a delinquent first mortgage and start his own legal proceedings. Statement of fact. The holder of a second mortgage usually records a request for notice of default on the first mortgage when recording the second. A second mortgage may be a purchase money loan or a hard money loan. The holder of a second mortgage may bid on his own foreclosure sale.
Ms. "A" purchased a piece of property for $200,000, incurring a 30 year loan for $180,000. Inflation trends caused the dollar to decrease in value. Who would benefit?
Trustor. trustor-borrower.
"CRV" is a common phrase used in the financing of real estate. The CRV is issued by the:
Veteran's Administration. Certificate of reasonable value is the VA appraisal.
In a construction loan situation, the lender agrees to an obligatory advance agreement which states that the contractor will receive funds as the construction progresses. The contractor will receive the final payment:
When the lien period has expired. The major type of lending activity funded by commercial banks is for short-term, or interim, construction loans, whereas standby commitments and takeout loans, permanent loans that pay off a construction loan, are arranged by mortgage companies for large investors such as insurance companies.
A due-on-sale clause in a promissory note would most likely not be enforced by a lender under which condition?
a deflationary trend creates more home for sale than buyers. A lender will probably agree to an assumption of the loan with a new approved buyer.
Land contracts, also referred to as installment contracts, are commonly used when the purchase does not have sufficient cash to take title and pay the balance of the purchase price. Of the following, which is a correct statement concerning a land contract?
a land contract is a security instrument. The contract of sale is a financing instrument with many names. It may be called an installment sale contract, a contract of sale, an agreement of sale, a conditional sales contract, a contract for deed or a land sales contract.
At times when money is considered tight:
a seller may have to pay for all the points in order that the buyer may obtain an FHA loan. When money is tight, interest rates generally go up. A VA loan will always charge more points than a conventional loan. A buyer can only pay one point on a VA or FHA loan; however, if money is tight, the seller may agree to pay all the points in order to make the sale.
A promissory note that provides for the payment of interest only during the term of the note is known as:
a straight note. If interest only is paid during the term, the principal will be paid in one lump sum. This type of note is called a straight note.
What kind of a promissory note has an interest rate that varies upward or downwards over the term of the loan?
adjustable note. A promissory note whose interest rate is tied to a movable economic index is called an adjustable not, or adjustable rate mortgage.
According to TILA, for purposes of rescission and the 3 day or 7 day waiting period, how is a business defined? A business is defined as:
all calendar days except Sundays and legal public holidays. Per TILA, purposes of rescission and the 3 day or 7 day waiting period, business day means all calendar days except Sundays and legal public holidays such as New Years day, MLK day, Washington's Birthday, Memorial Day, Labor Day Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day.
another name for wrap around mortgage is:
all inclusive trust deed. Definition: a wrap around mortgage or an all inclusive trust deed is a type of seller financing, wrapping an existing loan with a new loan and allowing the borrower to make on payment for both loans.
A borrower was notified that the payment on his FHA loan was increased $4 per month. This was probably due to:
an increase in impounds for either taxes or insurance. FHA regulations require the beneficiary to collect impound payments for taxes and insurance.
If a seller wants to relieve himself of the primary liability for payment of a promissory not, he must find a buyer who is willing to:
assume the liability for the promissory note. When a promissory note is assumed by the buyer, the liability then shifts to the buyer.
In order for a seller to release herself from primary responsibility when allowing the buyer to take over her existing loan, she must find a buyer who will:
assume the loan. When a buyer assumes an existing loan the buyer becomes primarily liable for the debt. This would relieve the seller from primary liability.
An "assignment of rents" clause in a deed of trust would most likely benefit:
beneficiary. An assignment of rents permits the lender to collect any rents from the tenants and apply them to the loan while the property is under foreclosure proceedings.
The primary mortgage market is the market in which lenders make loans directly to the:
borrowers. The primary mortgage market is in which lenders make mortgage loans by lending directly to borrowers.
A hard money loan is one made in exchange for:
cash. A hard money loan is one made in exchange for cash, as opposed to a loan made to finance the purchase of a home.
Broker Jenny Johnson was approved for the $200,000 bank loan that she needed to open up her real estate office, as long as she agreed to keep $20,000 in a savings account at the bank at all times during the term of the loan. This is known as:
compensating balance. Keeping a certain amount in an account at the bank for the term of a loan is called a compensating balance.
Of the following, which is a correct statement concerning a deed of trust and a note? a. the deed of trust is held by the trustee. b. the deed o trust is acknowledged by a notary public. c. the beneficiary holds naked legal title, however, the trustee has the power of sale. d. the trustor to beneficiary relationship is not a fiduciary relationship but merely that of a borrower and lender.
correct answer is The trustor is the owner/broker. The beneficiary is the lender. The deed of trust is held by the beneficiary. Naked legal title is held by the trustee.
As a condition of granting a loan, a lender will often change discount points. Which statement is not correct concerning discount points? a. FHA and VA regulations forbid the lender to charge discount point when their agencies insure or guarantee the loan. b. if a lender charged 6 discount point on a 6.75% loan, the effective interest rate would be approximately 7.5%. c. discount points are considered an interest expense. d. in a tight money market the number of discount points demanded by lenders rends to increase.
correct answer is a. FHA and VA regulations forbid the lender to charge discount point when their agencies insure or guarantee the loan. The other statements are correct.
Of the following, which would most likely require a judicial foreclosure? a. mortgage. b. land contract with power of sale. c. deed of trust. d. security deed.
correct answer is a. mortgage. Default on mortgage, unless the mortgage includes a power of sale clause, requires a court ,judicial, foreclosure. In most states, a deed of trust has a "power of sale" clause that permits the trustee to foreclose non-judicially. For example, the Freddie Mac Deeds of Trust for CA, V, TX, VA and WA include the power of sale clause, but the FL Mortgage does not. The Security Deed used in GA includes a power of sale clause.
Which of the following are synonyms? a. take out loan and construction loan. b. construction loan and interim loan. c. interim loan and take out loans. d. construction loan and open end loan.
correct answer is b. construction loan and interim loan. construction and interim loans are short term loans. they would be taken out by a take out loan.
The majority of real estate loans are made by institutional investors. Which of the following would be classified as an institutional investor? a. Trust department of a bank. b. insurance company. c. university. d. mortgage company.
correct answer is b. insurance company. Institutional lenders include banks, not bank trust departments, savings and loans, and insurance companies.
Which of the following does not apply to mortgage? a. contract. b. trustee. c. note d. hypothecation.
correct answer is b. trustee. the other answers apply to mortgage transaction. A trustee is used in a deed of trust, not in a mortgage.
Which of the following statement does not belong with the other? a. not insured by a governmental agency. b. higher interest rate. c. FHA loan. d. conventional loan.
correct answer is c. FHA loan. Conventional loans are not insured by a governmental agency and have higher interest rates. The one that does not belong is an FHA loan.
A primary source of funds for residential mortgage financing is: a. federal home loan bank. b. federal savings and loan corporation. c. savings banks. d. federal housing administration.
correct answer is c. savings banks. the other three do not make residential loans.
When a loan broker secures a hard money second loan for $16,300: a. the Real Estate Law limits the maximum charges. b. the Real Property Security Law limits the maximum charges. c. the maximum costs are limited by the Business and Profession Code. d. none of the above
correct answer is c. the maximum costs are limited by the Business and Profession Code. Article 7 of the Business and Professions Code limits the charges on hard money junior loans of less the $20,000.
When applying for an FGA loan, which of the following would be given lease credit in determining qualifications for the loan? a. husband's salary. b. wife's salary. c. outstanding debts. d. husband's overtime.
correct answer is d. Overtime pay is too uncertain to be given much credit by FHA.
Under the provisions of FHA the borrower is required to pay the non-recurring closing costs unless the seller agrees to pay part or all of them. Which of the following are not considered non-recurring closing costs? a. credit information costs and loan points, fees. b. structural, pest control fees and FHA appraisal fee. c. Drawing and escrow fees; title search and title insurance. d. Currently due property taxes and hazard insurance on property.
correct answer is d. Currently due property taxes and hazard insurance on property. These are recurring costs, paid each year or on a regular basis.
One of the disadvantages of a land contract to a buyer is: a. the possibility that the buyer would not get the title free and clear of loans. b. if the seller dies there might be litigation to obtain the title. c. lending institutions view land contracts as poor collateral. d. all if the above.
correct answer is d. all if the above. Land Contracts are considered to be the least desirable method of financing property. Hence, answer a through c could be considered disadvantages to the buyer.
Under the FTC red flag Rules, which could be considered a warning sign of identity theft? a. suspicious account application documents. b. suspicious personal identifying information, such as a suspicious address. c. unusual account activity. d. all of the above.
correct answer is d. all of the above. The Interagency Guidelines on Identity Theft Detection, Prevention and Mitigation are part of the Fair and Accrete Credit Transactions Act of 2003, FACTA. Under the Red Flags Rules, financial institutions and creditors must develop a written program that identifies and detect the relevant warning signs, or "red flags", of identity theft. These may include, unusual account activity, fraud alerts on a consumer report, attempted use of suspicious account application documents, suspicious address, or notices from customers, law enforcement authorities or other businesses about possible identity theft in connection with covered accounts.
If a Cal-Vet Loan is paid off during the first 5 years, the penalty (service charge) would be: a• 1%. •b 2%. c• 5%. d• no penalty.
correct answer is d. no penalty. Cal-Vet loans do not have a pre-payment penalty.
Title to real property would immediately pass to the purchase under which of the following contracts? a. land contract of sale b. installment sales contract. c. agreement of sale. d. none of the above.
correct answer is d. none of the above. All of these contracts are conditional sales contracts whereby the seller retains title until the terms of the contracts are met. all that time a deed is given and title passes.
Assume that a property was sold for $20,000 and the buyer assumed the existing first trust deed and note of $8000, the existing second trust deed of $4000 and executed a new third trust deed and note in favor of seller for $2000. Shortly after the purchase, payments were not made on either the second trust deed or the third trust deed and the beneficiary of the second trust deed recorded a notice of default and sent a copy to the seller. Upon receipt of the notice, the seller could take action and obtain: a. a judgment. b. an attachment. c. a lien. d. none of the above.
correct answer is d. none of the above. The seller already has a lien with his trust deed and note. Since he cannot obtain an attachment nor a judgement, this is a purchase money trust deed, the answer is "none of the above."
A holder in due course is one who has taken a negotiable instrument that is complete and valid on its face, became the holder before it was overdue, and took it in good faith and without knowledge of defect in the title of the negotiator. under which of the following circumstances would a person taking a negotiable instrument not be classified as a holder in due course? a. taking a note endorsed in blank, that is, Where the holder simply signs his name on the back of the note. b. taking a straight note on which payment is not due for two years. c. taking a note that is made payable to bearer rather than to the order of a specific person. d. taking a note properly endorsed by the payee but not signed by the maker.
correct answer is d. taking a note properly endorsed by the payee but not signed by the maker. The other answers would all be classified as holders in due course. If the note is not signed by the maker it is negotiable.
A man had a promissory note in the amount of $200,000 secured by a second mortgage. He sold it to a friend for $150,000. This would be known as:
discounting. Promissory notes sold for less than the unpaid balance are said to be sold at discount.
under the article 7 of the real estate law, any loan other than trust deed take back by a seller made by any person and secured directly by a lien on real property which provides for installment payments and the term of which is less than six years, shall require substantially equal installment payments over the period of the loan with the final payment not payable until the maturity date thereof. This section of the law:
does not apply to a 6 year loan. the answer to the question is constained in the statement of the question. you will note that the law applies to "less than 6 year loans" so it will not apply to 6 year loans. ARTICLE 7, SECTION 10244.1
Who usually pays the FHA discount points?
either the buyer or seller. Paying FHA discount points is negotiable between buyer and seller, however, the buyer, borrower usually pays FHA discount points.
Of the following answers, which best describes a seasoned note?
history of payments on the note. A seasoned loan is a loan borrowed by someone who has a stable and consistent history of payments under the terms of the loan.
A ___________________________ is a person who is an innocent purchaser of a negotiable note without knowledge of any defect.
holder in due course.
Notes are said to be negotiable and non-negotiable. Which of the following is true about a negotiable note?
if a note is secured by a mortgage, the note is negotiable but the mortgage is not negotiable. The maker signs a note and the payee endorses it.
a subordination clause:
is very often used in the purchase of raw land by a builder. A builder purchases raw land on first mortgage inserting a subordination clause so that when he build he can get a new first mortgage making the first on e become second.
In real estate financing, lenders will sometimes fin it necessary to refer to nominal rate when granting a loan. This means:
it is the rate of interest specified in the promissory note. The word nominal stems from the word "name" and is the rate named in the note.
In real estate financing, lenders will sometimes find it necessary to refer to nominal rate when granting a loan. This means:
it is the rate of interest specified in the promissory note. The word nominal stem from the word name and is the rate named in the note.
The purchaser of a home under the California Veteran's Farm and Home Purchase Act acquires possession through a:
land contract. The state purchases the property and sells it to the veteran on a land contract.
A downpayment of $1000 for the purchase of an apartment house valued at $690,000 is a good example of:
leverage. the definition of leverage can be viewed as using a small down-payment to purchase as much property as possible.
In the course of offering a note for resale, Mr. Kim, an investor, explains that the note contains an alienation clause. This one fact would:
make the note more negotiable. If an investor buys a loan that contains an alienation clause and the property resold, the balance due on that loan is immediately due and payable to the investor. This fact tends to make a promissory note more negotiable.
Trustor is to beneficiary as:
mortgagor is to mortgagee borrower to lender.
A holder in due course is an innocent party who purchased a:
negotiable instrument without knowledge of any defects.
When do deeds of trust outlaw?
never promissory notes do outlaw but deeds of trust never outlaw since they have conveyed title to the property.
The seller under a land contract not recorded may:
not encumber the property in excess of the amount due on the contract. To prevent fraud on the buyer.
When a borrower does not pay on a loan secured by a deed of trust what must be recorded to start foreclosure?
notice of default. To start foreclosure, first the beneficiary, lender, notifies the trustor, borrower, of default and requests the trustee to record a notice of default.
When a contractor receives the money from a construction lender in stages of his construction, it is called:
obligatory advance. Then lender may withhold portions of the loan until certain stages of construction have been accomplished, but he is obligated to finally advance the full amount of the loan.
A man sold his property for $25,000 and took back a promissory not for $9000 secured by a first deed of trust. He is now in need of some cash and wants to use the deed of trust as security for the loan with the bank. This type of loan transaction would be known as:
pledge agreement. Using personal property, the deed of trust, as security for a loan is considered a pledge, similar to the pawn broker's holding the property for loan security.
Which of the following best describes a promissory note?
primary evidence of a loan. Remember that any kind of a note in real estate is considered to be evidence of a debt/loan.
A written promise to pay or evidence o a debt is called:
promissory note. a written agreement between a lender and a borrower to document a loan is called a promissory note.
There are many differences between mortgages and deeds of trust. One of the main difference is the:
redemption period. The period of redemption for a mortgage usually is one year after a court foreclosure. No redemption is allowed on a deed of trust.
There are many differences between deeds of trust and mortgages. The main difference is:
redemption. In many instances, the period of redemption for a mortgage is one year after a court foreclosure. None is allowed on a deed of trust.
To bring current and restore is to:
reinstate. as in reinstating a loan.
In what market does investment banks and government sponsored enterprises buy pools of loans from loan originators?
secondary mortgage market. The secondary mortgage market is the buying and selling of existing mortgages.
a person can borrow money on personal property with a:
security agreement. In personal property finance, the security agreement is used as security for a loan.
The trustor under a deed of trust is the party to who:
signs the note as maker. The trustor is the one who borrows the money and therefore promises to repay the loan.
A mortgagor is one who:
signs the note. Mortgagor, borrower, signs the promissory note.
Funds used to finance the California Veterans Farm and Home Purchase Program come from:
state bonds. Unlike other government financing, the Cal-Vet program funds services its own loans. Funds are obtained through the sale of State General Obligation Bonds.
Mortgage companies which operate primarily as mortgage loan correspondents of life insurance companies and others are usually regulated by:
state law. Mortgage companies operating primarily as mortgage loan correspondents are not considered to be institutional lenders and are not subject to the same controls. Organized under State Laws, they are subject to minimum supervision.
Mortgage companies, which operate primarily as mortgage loan correspondents of life insurance companies, mutual savings banks, and others are usually regulated by:
state law. mortgage companies operating primarily as mortgage loan correspondents are not considered to be institutional lenders and are not subject to the same control. Organized under state laws, they are subject to minimum supervision.
Long term loans to be issued by one lender upon completion of the interim construction financing by another lender are known as:
take out loans. construction financing is usually paid off after the building has been completed by refinancing the property on a long term loan. The lender on the construction financing is taken out of the picture with the new loan.
A long term loan to be issued by one lender upon completion of the interim construction financing by another lender is known as:
takeout loan. Takeout loan takes out the construction loan.
A collection service is trying to collect a note at the issuance of a holder in due corse. The maker of the note could use as a real defense:
that the face of the note was materially altered. A material alteration of a note, e.g. the face of the note is changes from $500 to $5000, is an example of a real defense for a maker, borrower, of a note. The maker can refuse to pay the holder in due course, investor and owner of the note, for this reason.
The factor exerting the greatest influence on interest rates pertaining to real estate loans is:
the availability of loan funds. When money is not available to lend, the price, interest rate, for borrowing it will be higher.
In the language of real estate, which of the following terms does not belong with the others? a. joint tenancy. b. hypothecate. c. subordination. d. second mortgage.
the correct answer is a. joint tenancy. Joint tenancy is a type of ownership. The other choices were pertaining to finance.
Mr. Sloan wishes to purchase a piece of industrial property and apply for a large loan that will help him with the purchase of the property. The lender is most interested in: a. the appraised value of the land and the improvements. b. the financial condition and credit standing of the applicant for the loan. c. the demand of the product being manufacture on the property. d. all of the above.
the financial condition and credit standing of the applicant for the loan. The lender would be interested in all of these but would probably be most interested in the financial condition and credit standing of the applicant for the loan.
You purchase a negotiable note and have no knowledge of any defects. You are known as:
the holder in due cause.
A borrower on a new loan is required to advance $412,000 for an impound account. He would do so for the benefit of:
the trustor and the beneficiary.. An impound account is an account into which money is paid by the borrower to insure the payment of taxes and fire insurance when due. Most beneficiaries/lenders require this of borrowers/trustors. Hence the answer b. is the best answer.
In searching the file's of the county recorder's office you could most likely tell a first mortgage form a second mortgage by:
time and date of recording. Most likely. Exception would be if it had be subordinated
When a deed of trust is properly executed, the power of the sale is given by the:
trustor to the trustee This gives the trustee the power to sell the property if the trustor defaults. Trustor, borrower, to trustee, lender.
In a deed of trust, which of the following is the borrower?
trustor. The trustor is a borrower in a deed of trust.
