Lesson 10: Defaults & Foreclosures

If a bank recovers $200,000 from a foreclosure sale on a mortgage owing $250,000, but the borrower proves to the court that the fair market value is $225,000, the deficiency judgment should be: A) $50,000 B) Nothing - no deficiency C) None of these D) $25,000

$25,000 if the property sold for $160,000, but the borrower can show to the court's satisfaction that the fair market value was $170,000, then the amount of the deficiency judgment would be $5,000 instead of $15,000.

When in default on a mortgage, which of these is NOT a possible option for the buyer to avoid foreclosure? A) A loan modification. B) Refinancing. C) A short sale. D) A principal reduction agreement.

A principal reduction agreement. A loan modification program may be available for borrowers during, or preferably prior to, the pre-foreclosure stage. Making Home Affordable is the homeowner bailout program designed to help homeowners. There are two aspects of Making Home Affordable or the Obama Mortgage. One is refinancing (discussed in a subsequent section), the other is called loan modification. Another method for avoiding foreclosure is a short sale, which has to approved by the lender.

Which of these is/are associated with default and foreclosure issues? A) Tax impacts B) Adjustments and modifications C) Deficiency judgments D) All of these

All of these A) Tax impacts B) Adjustments and modifications C) Deficiency judgments

What types of foreclosures are used in Texas? A) Judicial B) Nonjudicial C) Both of these D) Neither of these

Both of these A) Judicial B) Nonjudicial

Which of these consequences IS NOT a likely result from a loan default? A) Foreclosures B) Criminal charges C) Acceleration D) Late Fees

Criminal charges

A mutual agreement by the parties is for the borrower to voluntarily deed the property back to the lender is called a: A) Forbearance B) Deed in Lieu of Foreclosure C) Statutory Redemption D) Refinance

Deed in Lieu of Foreclosure One way for both lender and borrower to avoid foreclosure that requires a mutual agreement by the parties is for the borrower to voluntarily deed the property back to the lender. In exchange, the borrower asks for a cancellation of any remaining debt.

Which of these is required to qualify for the Making Home Affordable modification program? A) Must occupy the home for which the mortgage is being modified B) Must be at least six months behind on mortgage payments C) Must not have ever missed a payment D) Must owe more than $729,750 on a single-family home

Must occupy the home for which the mortgage is being modified Own and occupy a one to four unit home

In a non-recourse loan: A) The lender can only recover through liens on any of the defaulting borrower's real property B) The lender's only remedy is to repossess the property being financed or used as collateral C) None of these is correct D) The lender can attach any property, real or personal, of the defaulting borrower who then has no recourse

The lender's only remedy is to repossess the property being financed or used as collateral Non-recourse loans (loans for which the lender's only remedy is to repossess the property being financed or used as collateral).

A deficiency judgment is: A) the amount of money a homeowner still owes on a home when it is foreclosed on. B) none of these. C) an unsecured monetary judgment to a lender when a foreclosure sale does not recapture enough money to cover the full balance owed on mortgage. D) the fines and fees that a defaulting homeowner must pay to their creditor for defaulting.

an unsecured monetary judgment to a lender when a foreclosure sale does not recapture enough money to cover the full balance owed on mortgage. A deficiency judgment is an unsecured (no collateral) monetary judgment that a lender may seek through the courts when a foreclosure sale does not recapture enough money to cover the full balance owed on mortgage.

Acceleration clauses: A) must be called in by the lender after a triggering event. B) are triggered automatically. C) cannot be circumvented in any way once triggered. D) are technically illegal.

must be called in by the lender after a triggering event. Acceleration clauses generally do not trigger automatically. Instead, once the conditions in the clause have or have not been met, the lender then has the option whether or not to invoke the clause. But that option may not be enduring, there may be a limited time for the lender to invoke if the borrower corrects the default before the lender takes action on the clause.

Generally, if a borrower is granted a cancellation of debt: A) they cannot borrow money anymore. B) it does not need to be reported. C) they must sign over whatever was held as collateral. D) the amount of the debt forgiven is considered taxable income.

the amount of the debt forgiven is considered taxable income. When someone borrows money from a commercial lender, and later has their debt cancelled or forgiven by the lender, the cancelled amount may need to be included as income for tax purposes, depending on the individual circumstances.

For property owners facing foreclosure, refinancing is rarely an option, if: A) they don't have top-notch credit. B) they don't have a sufficient reason for going into default. C) they can't be nice to the lender. D) they have little to no equity in the property

they have little to no equity in the property Property owners must have some equity in the property (that is, the current property value must be greater than the sum of all outstanding debts against the property including the delinquent mortgage) to be eligible for refinancing. Refinancing is rarely available to property owners with zero or negative equity.