Exam 2 Homework Review

Artisan's liens usually take priority over other creditors' claims to the same property. A. True B. False

A

Dina and Michelle buy a house together and sign a document to borrow some of the money for the house. The contract provides that they will pay a single rate of interest for the first five years of the loan, and then the rate will vary depending on a specific index rate. This type of contract is: A. an adjustable-rate mortgage. B. a fixed-rate mortgage C. a traditional home contract. D. a prepayment mortgage.

A

Donald is buying a house and obtains a loan from the lender. The document that Donald signs giving the lender an interest in Donald's house as security for a debt is called a: A. mortgage. B. promissory note. C. deed. D. guaranty.

A

In a suretyship, the surety is _________ liable for the loan A. Primarily B. Secondarily

A

Normally, the terms of the guaranty contract determine the extent and time of the guarantor's liability when the principal debtor defaults. A. True B. False

A

Susan agrees to act as a surety for Harris. Harris defaults on his loan and Susan repays the bank, because Harris declares bankruptcy. Susan now has: A. a right of subrogation. B. a right of competition. C. a right of exemption. D. no rights.

A

The rationale behind the right of redemption is that: A. it is only fair for the borrower to have a chance to regain possession after default. B. it is only fair for the creditor to be able to resell the house quickly after foreclosure. C. the creditor and the debtor must have a meeting of the minds.

A

When a secondary party promises to pay the debt of another in the event that the debtor fails to pay, a suretyship is created. A. True B. False

A

Mortgage

A contract between two parties that gives the creditor interest in, or a lien on, real property as security for the loan used to purchase the property

Workout

A contract that outlines the rights and responsibilities of the parties when they are resolving a default

Judicial lien

A court order that creates a creditor's right to property

Writ of Execution

A court order to a law enforcement officer directing that person to seize and sell property

Garnishment

A court order to collect a debt by seizing property of the debtor being held by a third party

Attachment

A court-ordered seizure and taking of property The process by which a security interest in the collateral becomes enforceable

Deficiency Judgment

A judgment for any amount of debt that is not paid after collateral is sold

Security Agreement

A legal document that creates the relationship between the debtor and secured party regarding the collateral

Foreclosure

A legal process by which the lender repossesses and disposes of property that has secured a loan

Security Interest

A legal right to property or fixtures that secures payment or performance of an obligation

Artisan's Lien

A possessory lien given to a person who has made improvements and added value to another person's personal property as security for payment for services performed.

Suretyship

A promise by a third party to be primarily responsible for the debtor's obligation

Guaranty

A promise by a third party to be secondarily responsible for the debtor's obligation

Floating Lien

A security interest in collateral that is retained even when the collateral changes character, classification, or location

Creditors' Composition Agreement

A situation where creditors agree to accept less than the full sum owed from the debtor, and the debtor agrees to pay that amount to satisfy the debt

Mechanic's Lien

A statutory lien on the real property of another, created to ensure payment for work performed and materials furnished in the repair or improvement of real property, such as a building.

Four of the common factors that determine the interest rate on a mortgage are: A. income B. gender C. credit history D. credit score E. physical condition of the property F. outstanding debts G. national origin H. religion

A, C, D, F

In order to get approval from the lender for a short sale, a borrower typically must show a hardship. Select four examples of appropriate hardships. A. loss of job B. starting a new job C. declining value of the home D. death of a distant relative E. divorce F. death of a household member G. promotion at work

A, C, E, F

Select the three defenses that a surety or guarantor can assert on his or her own behalf. A. Incapacity B. Duress C. Negligence D. Fraud E. Bankruptcy F. Statute of limitations

A, D, E

Execution

An action to carry into effect the directions in a court decree or judgment

Debtor

Any party who owes payment or performance of a secured obligation

In secured transactions, _________________ means the creditor has met all of the requirements to obtain an enforceable security interest in the collateral.

Attachment

A surety would ordinarily be released from his or her obligation in the event of: A. the failure of the debtor to pay within a reasonable amount of time. B. a material modification of the terms of the original contract without consent. C. the death of the debtor before the entire amount of the debt is paid.

B

An attachment occurs when property is seized and taken into custody after a judgment is obtained on a post-due debt. A. True B. False

B

As a surety for a loan that Duke did not pay, Caden pays the debt in full. If Duke does not declare bankruptcy Caden has a right of: A. contribution. B. reimbursement. C. exemption. D. foreclosure.

B

Eric brings a valuable watch to Sherry's clock shop for repairs. One of Sherry's assistants mistakenly allows Eric to take the watch without paying for the repairs. Sherry sues Eric to recover payment for the repairs, and she asks the court to direct the sheriff to seize and take custody of the watch before the trial. Sherry is seeking a: A. garnishment. B. writ of attachment. C. writ of certiorari. D. suretyship.

B

In a surety agreement, the creditor must exhaust all legal remedies against the principal debtor before holding the surety responsible for payment. A. True B. False

B

Lindsey promises Mountain State Bank that she will be responsible for a loan taken out by her niece, Emma. The agreement is that if Emma does not make payment the moment the debt is due, then Mountain State may demand repayment from Lindsey. This is known as a: A. bond. B. suretyship. C. foreclosure. D. creditor's composition agreement.

B

Mortgage lenders typically require a statement that the borrower will obtain insurance to cover personal property that he or she plans to keep in the home. A. True B. False

B

The difference between a mechanic's lien and an artisan's lien is that a mechanic's lien involves personal property. A. True B. False

B

Tranh owns a home with a fixed-rate mortgage. Unfortunately, the real estate market experiences a downturn, and his home is now worth less than he owes on the mortgage. In addition, Tranh is laid off from his job. Rather than go through the time and cost of a foreclosure, the bank gives Tranh permission to sell the property for the market value and agrees to forgive the balance of the loan. This is called: A. a forbearance. B. a short sale. C. a workout agreement. D. a prepayment.

B

Every aspect of the disposition of collateral by the secured party must ______________

Be commercially reasonable

A lien may be defined as: A. a structure that supports the real property of a creditor. B. a debt owed by a creditor to a bank. C. a creditor's claim on the property of a debtor.

C

Article __ of the Uniform Commercial Code creates various rights and remedies for secured creditors. A. 7 B. 8 C. 9 D. 10

C

Bartell contracts with LaRonda to remodel and retile a bathroom. LaRonda finishes the job and gives Bartell a bill for $14,000 for labor and materials. Bartell refuses to pay. In this case, LaRonda may seek: A. an artisan's lien. B. an innkeeper's lien. C. a mechanic's lien. D. nothing; she may bring a suit only for breach of contract.

C

Carter owns a condo with a mortgage on it. Carter has some financial difficulties and fails to make several payments, so the bank begins the foreclosure process. After Carter's condo is sold at auction, Carter writes a book about his financial hardships which sells a significant number of copies and makes Carter enough money to pay off the mortgage. If Carter is allowed to buy back the property from the purchaser and regain the property, it is because his state has the: A. equitable right of redemption. B. one-year statute of limitations on the foreclosure. C. statutory right of redemption. D. borrower privilege.

C

Misha owes money on several different credit cards. He owes so much money that he may be forced to declare bankruptcy. Rather than declare bankruptcy, he asks the creditors to reduce his debt amounts so that he can pay them off. The creditors and Misha sign a contract that provides for the payment of some of the debt and the elimination of the rest of the debt. This is called: A. a writ of attachment. B. an order of garnishment. C. a composition agreement. D. a writ of execution.

C

What type of law governs the procedures that must be followed to create a mechanic's lien? A. Federal law B. Municipal law C. State law D. Real estate law E. Mechanical law

C

Because of the right of subrogation, any right that the creditor had against the debtor now becomes the right of the surety and includes all of the following EXCEPT: A. creditor rights in bankruptcy. B. rights to collateral possessed by the creditor. C. rights to judgments obtained by the creditor. D. liabilities of the creditor.

D

Edward brings a valuable piece of jewelry to Luisa's shop for repairs. One of Luisa's assistants mistakenly allows Edward to take the jewelry without paying for the repairs. Luisa sues Edward to recover payment for the repairs and wins. Edward does not have the cash to pay Luisa. Luisa asks the court to issue an order to the sheriff to seize some of Edward's property to pay off the debt. Luisa is seeking a(n): A. writ of attachment. B. order of garnishment. C. mechanic's lien. D. writ of execution.

D

Rick agrees to customize Melissa's wedding ring. The cost is $10,000. After the job is complete, Melissa refuses to pay. As long as Rick retains possession of the ring, he may seek to recover the cost of the labor with: A. an innkeeper's lien. B. a judicial lien. C. a mechanic's lien. D. an artisan's lien.

D

Rosie hired Donald to perform repairs on some farm equipment she owned. Donald allowed Rosie to have the equipment before she paid for the repairs. When it became obvious that Rosie was not going to pay him, Donald successfully sued her for breach of contract. Rosie did not pay the judgment, and the tractor was destroyed in a fire. Rosie has no other valuable property that can be seized to satisfy the judgment, but she does have a job. Donald: A. is out of options. B. may file a lawsuit for harassment. C. may seek to have Rosie jailed for nonpayment. D. may seek an order of garnishment.

D

Which of the following typically is not a possible method of avoiding foreclosure? A. Forbearance B. A workout agreement C. A short sale D. Moving away

D

Default

Failure to pay as promised.

Chapter 11

Governs reoganizations

The __________________ is a protection for debtors that allows them to either keep their house or to have sufficient funds to find a place to live.

Homestead exemption

Levy

Obtaining money by legal process through the seizure and sale of property

_____________ is the process by which secured parties protect themselves against third parties who may want a debt settled out of the same collateral.

Perfection

To execute an artisan's lien, the lienholder must have __________

Possession of the property

Collateral

Property that is subject to a security interest

After-Acquired Property

Property that the debtor receives after the security agreement is executed

Chapter 7

Provides for liquidation proceedings

If a person holds a mechanic's lien, the security for the lien is the debtor's ____________

Real Property

The payments on a fixed-rate mortgage _______

Remain the same

If the non-prevailing party refuses to pay the judgment after a lawsuit, the prevailing party may _____________

Seek a writ of execution

___________________ normally requires that a guaranty contract between the guarantor and the creditor be in writing to be enforceable unless the "main purpose" rule applies.

The Statute of Frauds

Mortgagor

The creditor who borrows money for the purchase of property in exchange for an interest in that property as security for the loan

Mortgagee

The creditor who loans money for the purchase of property in exchange for an interest in that property as security for the loan

Short Sale

The disposition of the mortgaged property for less than the balance due on the mortgage, resulting in a loss to the creditor

Authenitcation

The process by which a person verifies the intent to adopt or accept the document

Perfection

The process by which a security interest is made known to third parties who may have claim on the same collateral

Redemption

The right of the borrower to keep the property by paying off the entire balance of the mortgage after proceedings to take the property have been started by the creditor

Reimbursement

The right to be repaid for costs, expenses, or losses incurred on behalf of another

Contribution

The right to recover payment if a co-surety pays more than the proportionate share on a default

Subrogation

The right to stand in the place of another with all the same rights and privileges' of the original party

Cross-Collateralization

The use of an asset that is not the subject of a loan to collateralize that loan

Proceeds

What is received when the collateral is sold or otherwise disposed of, such as by an exchange

The secured party in a secured transaction is the party: _____________

Who has an interest in the collateral

A floating lien is created by a security agreement that provides for a security interest in the proceeds of the sale of collateral as well as in: a. after-acquired property and future advances. b. previously acquired property and future advances. c. after-acquired property and gifts to the owners.

a

A purchase-money security interest (PMSI) is an automatically perfected security interest that arises when one buys consumer goods on credit. a. True b. False

a

A secured party can release all or part of any collateral described in the financing statement, thereby terminating its security interest in that collateral. a. True b. False

a

Amanda owns a business with $1,500,000-worth of equipment. She needs cash, so on September 15, she opens a $750,000 line of credit with Eighth Avenue Bank, using the equipment as collateral. She draws $40,000 on the line of credit. The bank properly perfects the security agreement. On November 10, Amanda takes another $15,000 from the bank. The bank: a. has a perfected security interest for the $55,000, which was perfected on September 15. b. has a perfected security interest for the $55,000, $40,000 of which was perfected on September 15, and $15,000 of which was perfected on November 10. c. has a perfected security interest for the $40,000, which was perfected on September 15, but not for the $15,000. d. has a perfected security interest for the $15,000, which was perfected on November 10, but not for the $40,000.

a

Financing statements are filed publicly so that: a. third parties can learn of a security interest that already exists in the collateral. b. the public filing office can remind debtors when payments are due. c. the state can ensure that interest rates charged by creditors are not usurious.

a

Jennie signs a written instrument giving the bank a security interest in her car. This instrument is known as: a. a security agreement. b. a security interest. c. collateral. d. a financing statement.

a

Joey obtains a loan through First American Bank for farm equipment and signs a security agreement. He takes out a second loan through Second American Bank and signs a security agreement using the same equipment as collateral. Second American Bank files a UCC-1. Joey borrows money from Clyde and signs a promissory note. Who has priority in the farm equipment? a. Second American Bank b. First American Bank c. Clyde d. No one

a

John takes out a loan from First Mutual Bank. He uses the inventory of his business as collateral. After six weeks, the inventory that was in his warehouse when he signed the loan papers has all been sold and replaced with new inventory. For First Mutual to have any claim on that new inventory, the loan documents should have a. an after-acquired property clause. b. a future advances clause. c. an automatic perfection clause. d. an attachment clause.

a

Marguerite wants to borrow cash from Jimmy. She offers him a security interest in her neighbor's diamond ring, which she has been told that she or her sister will receive after their neighbor passes away. Regarding Marguerite's proposal, which of the following statements is true? a. Jimmy cannot take a security interest in the ring, because Marguerite does not have legal rights to it. b. Jimmy must have the ring in his possession or have a written agreement from Marguerite describing the ring to obtain a security interest in it. c. Marguerite must not have legal rights to the ring if she is going to give Jimmy a security interest. d. Marguerite must not give Jimmy something of value as a security interest.

a

Michael signs a promissory note and a security agreement with First American Bank for a line of credit, with his business inventory as collateral with First American Bank. First American perfects its interest. Michael then buys a truck for use in his business, and he finances the purchase through Second American Bank. Second American perfects its security interest. In the event of default, who has priority in the truck? a. Second American Bank b. First American Bank c. Both banks d. Neither bank

a

Stewart grants Julie a security interest in 500 shares of stock in his company in exchange for a loan. Stewart makes his loan payments on time, and his business is growing and successful. When the loan is nearly repaid, Stewart is in a car accident and is unable to work for a few months. He could sell his company were it not encumbered by Julie's security interest. Julie: a. may release her interest in the stock by filing an amendment. b. must abide by the original terms; once a financing statement is filed, it is permanent until it is fully paid according to the filing. c. may require Stewart to accelerate his payments because of her insecurity about his ability to pay her. d. may request an accounting from Stewart.

a

The general rule when more than one security interest has been perfected in the same collateral is that the first security interest to be perfected has priority. a. True b. False

a

When a debtor has fully paid a debt, the debtor is entitled to have a termination statement filed if a UCC-1 was filed to perfect the security interest. a. True b. False

a

Forbearance

a postponement of part or all of the payments on a loan for a time, usually when the debtor has short-term financial problems

Article 9 of the UCC accurately defines the term default so that it is clear to parties involved in a secured transaction. a. True b. False

b

Gil loans Larson the money to buy a new ski boat. They agree that Gil will have a security interest in the boat until Larson repays the loan. Under the UCC, Article 9, they need to file a financing statement a. under the name of Gil. b. under the name of Larson. c. with the marina where Gil purchased the boat. d. in the county in which the transaction took place.

b

Select the proper order of distribution of proceeds. a. Pay the debt of the secured party, then give the surplus to the debtor b. Pay the expenses to sell the collateral, then pay off the debt, then give the surplus to the debtor c. Pay the expenses to sell the collateral, then pay off any secondary claims on the collateral, then pay off the debt, then give the surplus to the debtor

b

Select the two situations in which a security interest can be perfected without filing a financing statement. a. When all goods are purchased for wholesale only b. When the collateral is in the possession of the secured party c. When there are oral promises to repay the debt by the debtor d. When the security interest is automatically perfected e. When there is a promise to pay the debt of another person

b and d

Abigail borrows $14,000 from Daniel, using her family jewelry collection as collateral. Daniel properly perfects the security interest. When Abigail defaults on the loan, Daniel demands that she give him the jewelry. Abigail refuses. Daniel: a. can enter her property during daylight hours without her permission to take the collection. b. can threaten her with breaking into her house if she doesn't give him the collection, because she is wrongfully withholding it. c. can ask a court to order her to give him the collection. d. can wait until she is gone and then sneak in to her house and take the collection.

c

Joshua and Samantha borrow $25,000 from Zachary, using their boat as collateral for the loan. Zachary properly perfects his security interest. When Joshua and Samantha default on the loan, the boat is worth $15,000, but Zachary believes that the market will rebound and the value of the boat will go back up. Zachary: a. must sell the boat and use the $15,000 as partial satisfaction of the debt, but then be an unsecured creditor for the remaining $10,000 owed by Joshua and Samantha. b. must sell the boat and use the $15,000 as full satisfaction of the debt. c. may retain the boat in full satisfaction of the debt so long as he gives notice to the proper parties and there are no objections. d. must retain the boat until the value increases above the loan amount, then sell the boat and distribute the excess back to Joshua and Samantha.

c

Logan borrows money from Third Street Bank. To ensure repayment, the bank makes Logan sign a statement that if he fails to pay back the loan, the bank has a right to take his family art collection. The art collection is worth approximately the same amount as the loan. The art collection is called: a. security. b. a financing statement. c. collateral. d. a default remedy.

c

Monica defaults on her business line of credit with First American Bank, for which she used a business vehicle as security. First American Bank obtains possession of the vehicle and can: a. retain the vehicle as partial satisfaction of the debt. b. sell the vehicle and apply the proceeds to the debt. c. lease the vehicle and apply the proceeds to the debt. d. do any of the above.

d

Which article of the UCC governs secured transactions? a. 2 b. 3 c. 7 d. 9

d