Chapter 6
A contract for deed can allow the seller/lender to recover property pledged as collateral in as little as
The answer is 30 days.
Which statement regarding the establishment of collateral for a loan is TRUE?
The answer is Texas is a deed of trust state.
Examples of financial encumbrances, referred to as liens, include all of the following EXCEPT
The answer is a covenant.
A deed of trust contains all of the following EXCEPT
The answer is a list of items conveying with the property.
Which of the following is sufficient to provide adequate legal evidence of a debt?
The answer is a note.
A borrower was surprised when he attempted to pay off his current loan and was told that he must pay 2% of the loan balance in addition to the balance due. His loan must have included
The answer is a prepayment penalty clause.
A young couple is attempting to purchase a property for $200,000. They are told they can qualify for a mortgage loan of $180,000, but will need $20,000 for a down payment. Since they only have $5,000 available for a down payment, they could ask the sellers to provide a carryback loan of $15,000 as
The answer is a second deed of trust.
The MOST common type of physical encumbrance on a property is for
The answer is a utility easement.
One important difference between a contract for deed and deed of trust is that a contract for deed does not have a(n)
The answer is accompanying note.
A common clause found in financing agreements today is the due-on-sale clause. The main purpose for this clause is to prevent the borrower from
The answer is allowing the loan to be assumed.
A bank makes a loan of $2,000 to one of its account holders to be used to pay income taxes. This would MOST likely be
The answer is an unsecured note.
Based on the doctrine of "first in time, first in right," lenders establish a priority lien position on the date their loan document is recorded, so it is MOST important to the lender that the borrower has not
The answer is borrowed money for the down payment.
A buyer is more likely to use a contract for deed if the
The answer is buyer lacks sufficient cash or credit for traditional financing.
When a buyer has insufficient cash for the entire amount required to purchase a house, the seller may provide a portion of the sales price in the form of a junior encumbrance, called a
The answer is carryback loan.
When a buyer purchases a property and the seller retains title to the property, they have executed a
The answer is contract for deed.
Collateral for a loan for the purchase of real estate in Texas is established by a
The answer is deed of trust.
Provisions of a note generally include all of the following EXCEPT
The answer is deed of trust.
Which of these is a lending instrument in which foreclosure is quicker and easier for a lender?
The answer is deed of trust.
Which clause states that the mortgagor will regain full, free, and clear title upon the repayment of the debt?
The answer is defeasance.
An owner/seller with a conventional mortgage was willing to sell his property by allowing his current mortgage to be assumed by a buyer, but the lender would not allow it. Which clause is the lender using to achieve this?
The answer is due-on-sale clause.
The U.S. Supreme Court ruling in the California case Fidelity Federal Savings and Loan Association v. de la Cuesta confirmed the lender's right to enforce the
The answer is due-on-sale clause.
Home improvement loans are somewhat safer than other types of junior financing because they are secured not only by the equity pledged but also by the
The answer is enhanced value of the improvements to the property.
As the system for lending money using property as collateral evolved, the procedure was changed to allow borrowers to remain in possession as long as they met the terms of the agreement. Legal ownership was still transferred to the lender by placing the title in the lender's name. The borrower retained
The answer is equitable rights.
After a lender notifies the trustee that a borrower is in default, the trustee must take all the following actions EXCEPT
The answer is establish the opening bid for the auction.
Because the second loan is in a subordinate position, the junior lienholder is in a
The answer is high-risk position.
In addition to being obligated to repay a mortgagee (lender) according to the terms of the promissory note, a mortgagor is also obligated to do all of the following EXCEPT
The answer is improve the value of the property.
What is the first step a buyer should take when considering asking the seller to carry back financing due to insufficient funds to cover the down payment?
The answer is inform the first lien lender and the seller up front.
The property at 1100 Main Street has gone into default. After six months, the property is sold at a foreclosure auction. The lender was allowed to take possession of the property before the foreclosure sale, but will not receive clear title until after the expiration of the statutory redemption period prescribed by state law. This is an example of
The answer is intermediate theory.
A homeowner who uses the equity in his home to pay off a five-year car loan with a high interest rate would BEST be described as using home equity to create a
The answer is junior loan.
In MOST cases, the trustee named in a deed of trust is selected by the
The answer is lender (beneficiary of the trust).
In lien and intermediate theory states, the trustee acquires
The answer is lien rights.
Many states now recognize the rights of lenders as equitable rights, while borrowers retain their legal rights in the property. The borrower pledges the property as collateral for a loan from a lender. This is known as
The answer is lien theory.
Some second lien lenders will impose a prepayment penalty if a mortgage is paid off within six months after closing. This would be an example of what type of prepayment penalty?
The answer is lock-in clause.
The BEST answer for why a lender may include a prepayment penalty on a high-interest loan is that the lender will
The answer is lose the opportunity for high earnings.
Which of the following is an example of a voluntary lien?
The answer is mortgage lien of $180,000.
Involuntary liens would include all of the following EXCEPT
The answer is mortgage liens.
A lender never wants a borrower to prematurely pay off a high-yield loan such as one with a high interest rate. To avoid this, the lender may wish to include a prepayment penalty clause in the loan contract. This is no longer allowed by all of the following EXCEPT
The answer is nonconforming jumbo loans.
The Garn-St. Germain Act of 1982 limited the enforcement of the due-on-sale clause in special situations, such as
The answer is passing of title by inheritance.
In order to protect the vendee's rights to the property, a contract for deed must be
The answer is recorded.
When the purchaser of a real estate loan wants to be protected in the event the loan goes into default, the loan is sold with a(n)
The answer is recourse clause.
The escrow agent for a first-time purchaser is showing the survey and easements from the local electric utility company along the front edge of the property. The title agent explains that this easement is a covenant that
The answer is runs with the property.
The increased activity of buying and selling junior loans on a regular basis has created a
The answer is secondary market.
One of the protections a buyer can make when purchasing a property with a contract for deed is to
The answer is set up a collection escrow for payments and recordkeeping.
A borrower holds a loan in which no prepayment is allowed for a specified time from its inception. Then proportionate amounts of the loan become payable in advance according to an agreed-upon schedule, with some penalty imposed if the loan is repaid after three years but before its regularly scheduled time. This scenario is an example of all of the following EXCEPT
The answer is subordinate clause.
Which of the following liens would have priority in the event of a foreclosure sale?
The answer is tax lien for nonpayment of county property tax.
The Smiths have obtained a mortgage loan for $200,000. To be considered on time, their monthly payment should be made on
The answer is the 1st day of the month.
The parties to a trust include all of the following EXCEPT
The answer is the executor.
A release clause in a note and deed of trust is activated by
The answer is the full satisfaction of the terms of the loan.
The buyers purchasing a home decide they want to add a fence to the front yard. This should NOT be a problem unless the
The answer is the homeowners association has restrictions against any fencing in the front yard.
All of the following concepts with regard to the evolving title theory of mortgage lending are true EXCEPT
The answer is the lender has both legal and equitable rights.
Lien theory means
The answer is the lender has equitable rights and the borrower has legal rights.
Obtaining adequate hazard and liability insurance for the mortgaged property has become more difficult in recent years due to
The answer is the occurrence of natural disasters.
Because the contract for deed is a financing and sales agreement, it requires
The answer is the signature of the buyer and the seller.
Under a contract for deed, the seller remains the legal fee owner of the property and is referred to as
The answer is the vendor.
A homeowner might use junior financing for any of the following EXCEPT
The answer is to reduce the balance due on his first mortgage.
When a note is used as a debt instrument without any related collateral, it is described as a(n)
The answer is unsecured note.