Section 11 Unit 1

Jim decided to refinance his three-year-old mortgage that has a balance of $300,000. He has to pay a fee of 5% of the loan amount to the original lender for paying off the mortgage early. What is this fee called? a. A prepayment penalty b. Closing costs c. Origination fee d. Points

a. A prepayment penalty

Which of the following statements about the promissory note is true? a. A promissory note is a negotiable instrument and can be transferred to a secondary holder who has the right to enforce the note's terms. b. A promissory note isn't a legal document. c. A promissory note isn't transferable, so it must be held by the original lender until paid in full. d. A promissory note serves as collateral for a mortgage loan.

a. A promissory note is a negotiable instrument and can be transferred to a secondary holder who has the right to enforce the note's terms.

Elaina and Allen just purchased a home using a deed of trust. Which of the following is most likely true about their home loan? a. A trustee will hold title until the loan is paid. b. Their transaction is secured with a mortgage as well. c. The lender will hold the mortgage, while a trustee will hold the deed of trust until their loan is paid off. d. The lender will hold the title until the loan is paid off.

a. A trustee will hold title until the loan is paid.

After getting into a fender bender, Parker had to buy a new car. To make the down payment on the car, he had to skip a couple of his mortgage payments. He received a notice from his lender indicating the remaining amount of his loan is due immediately and in full. What clause in his mortgage stipulates this? a. Acceleration b. Alienation c. Defeasance d. Due-on-sale

a. Acceleration

Stacy has gone into default on her mortgage. Her lender is demanding that the entire loan balance be paid in full. Which mortgage clause permits her lender to do this? a. Acceleration b. Alienation c. Defeasance d. Due-on-sale

a. Acceleration

What's a discount point? a. An upfront charge to make up for the difference between the rate the borrower is receiving and the rate the lender normally requires b. The amount a borrower charges a lender for using its money, charged either monthly or annually c. The amount a lender charges to initiate a loan d. The interest rate at which a bank is allowed to borrow money from the Fed; this rate changes with the stock market

a. An upfront charge to make up for the difference between the rate the borrower is receiving and the rate the lender normally requires

Buyer Ed is reviewing the Loan Estimate he received from the lender he's working with. He notices the loan terms include a prepayment penalty. Because he's a savvy consumer, which of the following does Ed do? a. Ask the lender if there are other options available that would not involve a prepayment penalty. b. Check with his real estate agent to make sure that the penalty shown is typical. c. Laugh and throw the Loan Estimate in the trash. d. Resolve to not try to pay the loan off early.

a. Ask the lender if there are other options available that would not involve a prepayment penalty.

Which of the following documents is an example of a promissory note? a. Borrower Keesha just signed a document that states that she pledges to pay back her mortgage loan of $310,000. b. First Financial drafted a document for a borrower that includes, among other things, an acceleration clause. c. The document that Darren is about to sign includes an acceleration clause. d. The document that Sandra will sign also includes spaces for her lender's and her trustee's signatures.

a. Borrower Keesha just signed a document that states that she pledges to pay back her mortgage loan of $310,000.

A trustee is holding title to Cassandra's house until the loan is paid in full. Which type of security instrument was used? a. Deed of trust b. Mortgage c. Mortgage and deed of trust d. Promissory note

a. Deed of trust

Gerard has been offered a 4% interest rate on a $300,000 mortgage. His monthly mortgage payment would run about $950 per month. He plans to pay $2,000 up front to drop his interest rate to 3.75% and his payment to $920 per month. What is this upfront charge called? a. Discount point b. Interest c. Notes d. Usury

a. Discount point

What's an up front charge to make up for the difference between the interest rate the borrower is paying and the rate the lender normally requires? a. Discount point b. Interest c. Note d. Usury

a. Discount point

Phyllis and Maury obtained a mortgage from Taylor Bank & Trust in 1998. In 2014, they obtained a second mortgage from Quail Loans. What's the loan with Taylor Bank & Trust considered? a. First mortgage b. Home equity line of credit c. Junior mortgage d. Subordinate mortgage

a. First mortgage

What's the purpose of a typical subordination agreement? a. It allows a junior mortgage to move into first lien position. b. It allows the lien(s) ahead of the junior mortgage to be refinanced without changing their priority in lien positions. c. It raises interest rates incrementally over time. d. It removes a lien from a property when it's been repaid.

a. It allows a junior mortgage to move into first lien position.

Sondra, a buyer, signs all the required mortgage documentation, promising to make all payments to her lender. Unfortunately, Sondra falls on hard times and misses multiple payments, and the bank indicates that it's going to foreclose on her. The foreclosure proceedings are more difficult for the lender because Sondra holds the deed to the land. What kind of state does Sondra live in? a. A deed of trust theory state b. A lien theory state c. An intermediary theory state d. A title theory state

b. A lien theory state

Which of the following describes the amount a lender charges a borrower for using money? a. Discount point b. Interest c. Principal d. Usury

b. Interest

In a title theory state, which of the following is a true statement? a. A promissory note creates a lien against the property used as security for the loan. b. It's generally much easier for a lender to foreclose on a property. c. The lien makes non-judicial foreclosure typical. d. The mortgage creates a lien against the property used as security for the loan.

b. It's generally much easier for a lender to foreclose on a property.

Sheila's financing calls for the use of a promissory note. What's a promissory note? a. A lien on a property b. An agreement for a consumer to buy a new condominium c. The borrower's promise to repay a certain sum of money to another party (the lender or holder of the note) under specified terms d. The lender's promise to repay a certain sum of money to another party

b. It's generally much easier for a lender to foreclose on a property.

A mortgage is a legally binding document that creates a lien on a piece of property and gives the lender the right to foreclose on the property if the borrower defaults. Who or what entity is considered the mortgagee? a. Borrower b. Lender c. Loan d. Property

b. Lender

Alyssa's mortgage loan is secured by the note and the mortgage. Which of the following is true if she lives in a lien theory state? a. Her lender can foreclose on her without advance notice. b. She holds title to the property, and the mortgage becomes a lien on the property. c. The lender can never legally foreclosure on her home. d. The lender doesn't need to involve the court to foreclose.

b. She holds title to the property, and the mortgage becomes a lien on the property.

Who or what entity has legal title to a financed property in a lien theory state? a. The beneficiary b. The borrower c. The lender d. The state

b. The borrower

In title theory states, which of the following is true? a. The borrower and lender hold the title jointly. b. The borrower doesn't hold the legal title to the property until the loan is paid in full. c. The borrower receives the title at closing. d. The lender is not allowed to hold the title.

b. The borrower doesn't hold the legal title to the property until the loan is paid in full.

What generally determines the priority of a lien? a. The amount of the lien b. The date it is recorded c. The date the lien is to be paid off d. The lien holder

b. The date it is recorded

Janice is selling her property, and Tim wants to assume her loan. If a due-on-sale clause exists in Janice's mortgage, ______. a. Janice will have to pay any loan assumption fee b. The entire loan balance may be due at once, and Tim won't be able to assume it c. The interest rate will rise with the assumption d. Tim will have to accept existing terms of the loan

b. The entire loan balance may be due at once, and Tim won't be able to assume it

Ken and Julia took out a five-year subprime loan that included a prepayment penalty clause. They're on track to pay it off after only three years. Which one of the following is a true statement? a. Lenders may not charge a prepayment penalty. b. The lender can only charge a prepayment penalty if it was disclosed to the borrower. c. The prepayment penalty can be as much as 30 days' interest. d. The prepayment penalty can be as much as 5% of the original loan balance.

b. The lender can only charge a prepayment penalty if it was disclosed to the borrower.

Shirley's lender discharged the mortgage lien on Shirley's property after processing her final payment. Which clause requires the lender to take this action? a. Acceleration b. Alienation c. Defeasance d. Due-on-sale

c. Defeasance

Which mortgage clause requires the lender to discharge the mortgage lien once the borrower has paid in full? a. Acceleration b. Alienation c. Defeasance d. Due-on-sale

c. Defeasance

Which one of the following is a true statement regarding prepayment penalties? a. All loans involve prepayment penalties. b. Lenders don't have to tell borrowers about prepayment penalties until the borrower's payoff amount is received. c. Lenders must disclose up front if they reserve the right to charge a prepayment penalty, and under what conditions a penalty will apply. d. Prepayment penalties are illegal.

c. Lenders must disclose up front if they reserve the right to charge a prepayment penalty, and under what conditions a penalty will apply.

What type of foreclosure is commonly used when a deed of trust is the security instrument? a. Eviction b. Judicial c. Non-judicial d. Strict

c. Non-judicial

Which of the following is the name of a penalty lenders charge when borrowers repay their loans earlier than expected? a. Discount point b. Late fee c. Prepayment penalty d. Usury

c. Prepayment penalty

Which of the following is a promise from the borrower to repay a certain sum of money to another party (the lender or holder of the note) under specified terms? a. Deed of trust b. Mortgage lien c. Promissory note d. Usury

c. Promissory note

Rusty received an acceleration letter from his mortgage lender. What is the most likely reason for receiving this letter? a. Rusty failed to pay his property taxes. b. Rusty has paid off his mortgage. c. Rusty is two or three months in default. d. Rusty's mortgage is being sold on the secondary market.

c. Rusty is two or three months in default.

Olivia took out a 15-year loan secured with a deed of trust. She worked two jobs in order to pay the loan back and finally made her last payment this month. What happens now? a. The lender releases the deed of trust that secured her mortgage loan. b. The lender releases the mortgage that secured her mortgage loan. c. The lender tells the trustee to release the title to Olivia. d. The trustee releases the mortgage that secured her mortgage loan.

c. The lender tells the trustee to release the title to Olivia.

When a deed of trust is used as a security instrument, who holds the deed and the note? a. The lender holds the deed and the note b. The lender holds the deed, and the trustee holds the note. c. The trustee holds the deed, and the lender holds the note. d. The trustee holds the mortgage and the note.

c. The trustee holds the deed, and the lender holds the note.

Jason purchased his dream home six months ago. After Jason received an inheritance from his uncle, he decided to pay off his mortgage. What should he consider before doing this? a. A second mortgage b. The state of his local housing market c. Whether he will incur a prepayment penalty d. Whether his uncle would like this

c. Whether he will incur a prepayment penalty

Which one of the following examples describe a prepayment penalty? a. A fee the government charges the lender if the borrower pays off a loan before its intended time b. A fee the lender charges for servicing a loan c. A loan origination fee charged to the borrower d. A monetary penalty imposed on a borrower for paying off a loan before its intended time

d. A monetary penalty imposed on a borrower for paying off a loan before its intended time

While Martha's paying off her loan, her lender is holding on to something that includes her name, property address, the interest rate on her loan, what the late charge amount would be, and the amount and term of the loan. When her loan is paid off, the lender returns it to Mary, marked paid in full. What is this item? a. A deed of trust b. A mortgage c. An assignment d. A promissory note

d. A promissory note

Which of the following options describes a subordination agreement? a. An agreement between a contractor and any subcontractors b. An agreement between a landowner and a contractor c. An agreement between the court and landowner to decrease property taxes d. An agreement between two lien holders to modify the order of lien priority

d. An agreement between two lien holders to modify the order of lien priority

Daniel purchased a townhome and obtained financing from Bank A on February 1, 2014. On April 1, 2015, he took out a home equity loan on the property with Bank B. On August 1, 2015, Daniel refinanced his mortgage through Bank C, which resulted in Bank A's loan being paid off. Bank B signed a subordination agreement related to Bank C's loan. Which lender will be paid first in the event of a foreclosure? a. Bank A b. Bank B c. Bank B and C will be paid at the same time. d. Bank C

d. Bank C

In a mortgage, the property is used as collateral for the loan. What's the term for the process of pledging something as collateral? a. Hypercollateral b. Hyperinflation c. Hyperventilation d. Hypothecation

d. Hypothecation

What purpose does the promissory note serve? a. It gives the lender the right to begin foreclosure proceedings if the buyer defaults. b. It gives the trustee the right to begin foreclosure proceedings if the buyer defaults. c. It's a promise made to the buyer that the lender will not foreclose as long as the note is kept current. d. It's a promise the buyer makes to the lender that the note will be repaid in full.

d. It's a promise the buyer makes to the lender that the note will be repaid in full.

Rob and Jill obtained a mortgage from Taylor Bank & Trust in 1998. In 2014, they obtained a second mortgage from Quail Loans. What is the loan with Quail Loans considered? a. First mortgage b. Graduated mortgage c. Home equity line of credit d. Junior mortgage

d. Junior mortgage

Which of the following is a mortgagor's responsibility? a. Assign the mortgage. b. Charge late payment penalties. c. Foreclose on the property if in default. d. Keep the property in good repair.

d. Keep the property in good repair.

Generally, there are covenants between the borrower and the lender within a mortgage document. Which of the following is a mortgage covenant? a. Agree to refinance only with the current lender. b. Give the lender first right of refusal. c. Move all checking and savings account to the lender's institution. d. Pay any charges and assessments against the property.

d. Pay any charges and assessments against the property.

Upon examination of his mortgage document, Jared finds a clause stating he will owe additional interest if he pays off his loan within one year of the loan origination date. What type of penalty does this describe? a. Acceleration b. Alienation c. Defeasance d. Prepayment

d. Prepayment

If a negotiable instrument is transferrable, it must be ___________. a. Include a "not to exceed" clause b. On a government-issued form c. Payable at an indefinite time d. Signed

d. Signed

When a mortgage is used as a security instrument, who holds the mortgage and the promissory note? a. The borrower holds the mortgage, and the lender holds the note. b. The borrower holds the mortgage and the note. c. The lender holds the mortgage, and the borrower holds the note. d. The lender holds the mortgage and the note.

d. The lender holds the mortgage and the note.

Where are mortgages recorded? a. Mortgages are not recorded; only deeds are. b. They're recorded at the lending bank's main office. c. They're recorded at the real estate brokerage's main office. d. They're recorded at the recorder's office in the county where the property is located.

d. They're recorded at the recorder's office in the county where the property is located.

Which of the following is one reason a lender might charge a prepayment penalty? a. Because the lender is a subprime lender b. To cover the costs of processing an early payoff c. To deter buyers from ever paying off their mortgage d. To recover the money lost in anticipated interest

d. To recover the money lost in anticipated interest

How many parties does a mortgage involve? a. Five: borrower, lender, trustee, trustor, and beneficiary b. Four: borrower, lender, trustee, and trustor c. Three: borrower, lender, and trustee d. Two: borrower and lender

d. Two: borrower and lender

Which of the following defines when a lender charges a borrower more than the highest allowable interest rate? a. Default b. Discount points c. Note d. Usury

d. Usury

How can a lender with a lien that's in second position get into the first position? a. With a deed of trust b. With an IOU c. With a promissory note d. With a subordination agreement

d. With a subordination agreement