Module #4 Finance Test Questions

In a mortgage transaction there are two instruments given to the lender in return for the loan:

1. A promissory note or bond 2. A mortgage or a deed of trust (trust deed) a promissory note or bond must always ac ]]]\

The term "amortization" can be used in connection with all of the following Except..... A. a deed B. a real estate loan C. depreciation D. land sales contracts

A. a deed Real estate loans and land sale contracts would be amortized by paying principal during the term of the loan. Depreciation results in amortization of the cost of an item through annual tax deductions. Since amortization can only apply when money is involved, it does not apply to a deed (which is evidence of title).

A purchase money mortgage is A. a mortgage given to the seller by the purchaser as part of the purchase price B. a partial release of the first mortgage C. used in an installment contract transaction D. a mortgage on personal property purchased

A. a mortgage given to the seller by the purchaser as part of the purchase price. When the buyer gives the seller a note and mortgage as payment for the property, the mortgage is called a "purchase money mortgage." A mortgage is called a purchase money mortgage when the seller is the mortgagee.

A clause in a deed of trust or mortgage or accompanying note or bond which permits the creditor to declare the entire unpaid sum due upon certain default of the debtor is called a(n)....... A. acceleration clause B. elector clause C. forfeiture clause D. excelerator clause

A. acceleration clause

A mortgage that covers several parcels of real property and which contains a provision for the sale of an individual property, thereby reducing the mortgage payments, is called a(n) A. blanket mortgage B. amortized mortgage C. declining balance mortgage D. direct reduction mortgage

A. banket mortgage

The term "strict foreclosure" is most commonly associated with A. land sales contracts B. the stature of frauds C. the statute of limitations D. mortgages

A. land sales contract

The sale of real property on a conditional sales contract ordinarily transfers A. possession B. legal title C. an estate for years D. an estate for life

A. possession

Federal Reserve Board's Regulation "Z" (Truth-in-Lending) 1. controls the maximum interest rate that can be charged o n a mortgage loan. 2. requires disclosure to consumers of the effective interest rate charges, expressed as an annual percentage rate A. 1 B. 2 C. both D. Neither

B. 2

A mortgage loan payable in monthly installments which are sufficient to pay the principal in full during the term of the loan is called a(n) 1. "straight loan" 2. "amortized loan" A. 1 B. 2 C. both D. neither

B. 2 An amortized loan provides for payments to reduce the principal balance during the term of the loan. A straight loan provides for no payments to principal during the loan term.

Equitable title is transferred to a buyer upon the execution of the following documents? 1. Mortgage 2. Land sales contract 3. Trust deed A. 1 B. 2 C. 3 D. 2 & 3

B. 2 Mortgages and trust deeds do not convey any title. A land sales contract, also called an "agreement of sale," a "real property sales contract" and other similar names conveys equitable title to the purchaser

If a commercial property sold at a court foreclosure does not sell for an amount sufficient to satisfy the mortgage loan debt, the mortgagee may obtain.... A. a judgment by default B. a deficiency judgment C. a satisfaction of mortgage D. damages

B. A deficiency judgment is a judgment against the borrower for the balance of a debt owed when the foreclosure sale of a property produces less than the amount needed to pay the costs and expenses of the foreclosure action and to satisfy the obligation incurred by the foreclosed mortgage.

A mortgage is... A. the amount of money the borrower owes the lender B. a pledge of property to secure a debt C. the amount of money owed at the time of foreclosure D. None of these

B. A pledge of property to secure a debt.

The clause in a mortgage, contract or trust deed which allows the lender to call the entire unpaid balance upon default id called the....... A. balloon payment clause B. acceleration clause C. cancellation clause D. defeasance clause

B. Acceleration clause

A buyer taking title subject to a mortgage should request a A. satisfaction B. reduction certificate C. deficiency judgment D. new mortgage

B. reduction certificate when a buyer takes title subject to a mortgage, the mortgage will remain a lien against the property. He would want a statement signed by a lender to confirm the current status of the loan (called a "reduction certificate" or a "beneficiary statement") so he will know the exact status of the loan outstanding against the property.

Truth-in-Lending laws apply to A. commercial loan transactions involving real property B. residential real estate mortgages C. all personal property transactions D. real property loans made to corporations

B. residential real estate mortgages

Smith's mortgage is payable in monthly installments which include principal and interest over 15 years; the last payment is a larger amount than the regular monthly payments. This is known as a

Balloon mortgage

The Sale of real property on a conditional sales contract ordinarily transfers A. possession B. legal title C. an estate for years D. an estate for life

A. Possession

Mr. and Mrs.Adams purchased a piece of vacant property for $20,000. They put $5,000 down and the seller carried back a mortgage for $15,000 for a term of 10 years. The Adams' plan to build on the property in 5 years prior to paying off the existing mortgage. The absence of which clause in their mortgage could cause them problems when they try to get financing to build their home? A. Subordination clause B. Subrogation clause C. Alienation clause D> Acceleration clause

A. Subordination clause

The mortgagee sues the mortgagor and obtains a judgment and a court order to sell the property. This is an example of..... A. strict foreclosure B. voluntary foreclosure C. judicial foreclosure D. nonjudicial foreclosure

C. Judicial foreclosure Foreclosure through the court is a judicial foreclosure. In this example, the procedure would be a "foreclosure and sale." "Strict foreclosure" is a foreclosure without a sale, resulting in the property being returned to the lien holder.

The mortgage that includes items such as refrigerators, ranges, and electric washers is referred to as a A. blanket mortgage B. private mortgage C. package mortgage D. participating mortgage

C. Package mortgage A package mortgage includes real property and personal property

The Truth-in-Lending Laws provide that the cost of credit on certain amounts must be disclosed to the borrower as a(n) _______ percentage rate. A. monthly B.minimum C. Maximum D. annual

D. Annual

A borrower obtains a home improvement loan which is neither insured nor guaranteed by a government agency. The security for the loan is the borrower's house, which he owns free of any encumbrance. This borrower has obtained which type of loan? A. wrap-around B. package-money C. Subordinated D. Conventional

D. Conventional Conventional loans are loans made by private lenders which do not involve government insurance or guarantees

Which of the following would be considered part of the financing charge when figuring the annual percentage rate under the Truth-in-lending Act (regulation "Z")? A. Title insurance B. Notary fee C. Credit report fees D. Discount points

D. Discount points Under Truth in lending, the lender must disclose all finance charges which might include buyer's points, loan fees, finder's fees paid to the person bringing the borrower to the lender, service charges, mortgage insurance premiums and interest. He must add these charges together and calculate them as a percentage of the loan balances during the term of the loan to arrive at the APR. Actual costs not retained by lenders( title fees, legal fees, closing costs, property taxes, appraisal fees, recording fees, notary fees, etc.) are not considered finance charges and are not included in the APR.

The Closing Disclosure used under the Truth-in- Lending Act (Regulation "Z") is concerned with the 1. real estate taxes assessed on the property 2. legal fees charged to prepare the deed to the property A. 1 B. 2 C. Both D. Neither

D. Neither The lender must disclose all finance charges (loan fees, finders fees paid to the person bringing the borrower to the lender, service charges, points, mortgage insurance premiums and interest). He must add these charges together and calculate them as a percentage of the loan balances during the term of the loan, to arrive at "annual percentage rate" (APR). The APR can then be used as a means of comparing costs among lenders. Actual costs not retained by lenders (Title fees, legal fees, closing costs, property taxes, appraisal fees, recording fees, notary fees, etc.) are not considered finance charges and are not included in the APR.

In a mortgage the lender can establish which of the following? 1. The right of redemption 2. The length of the redemption period. A. 1 B. 2 C. Both D. Neither

D. Neither The right of redemption following a mortgage foreclosure is 180 days and established by state statute, not by the lender.

A veteran purchases and occupies a home by giving a mortgage as security for the loan. He loses his job and falls into default. He is protected against foreclosure by.... A. the veterans' Foreclosure Act. B. the homestead Exemption C. the Soldiers and sailors Relief Act. D. none of these

D. None of these The soldiers and sailors Civil Relief Act protects persons in the service against foreclosure of property encumbered before they entered the service. It does not protect veterans. There is no Veteran's Foreclosure Act. The homestead exemption applies only to judgment liens, not mortgage foreclosure.

A clause in a mortgage making it secondary to a subsequent mortgage is called A. a "deed-escalation" clause B. a "submortgage" clause C. an "alienation" clause D. none of these

D. None of these This would be a subordination clause

A clause which relinquishes the lien on just one lot out of a mortgaged subdivision is a(n) A. satisfaction clause B. prepayment clause C. exoneration clause D. Partial release clause

D. Partial release clause A partial (parcel, lot) release clause allows the borrower to obtain a release from a blanket mortgage for each lot as a certain portion of the loan is repaid.

Payments periodically made to reduce an outstanding indebtedness on real property are called.....? A. depreciation B. appreciation C. quitclaim reduction D. amortization

D. amortization Amortization is the gradual repayment or retiring of a debt by means of systematic payments of principal (and interest) over a set period so that at the end of the period there is zero balance.

When the purchaser under a real estate (land sales) contract records the contract 1. legal title immediately passes to the purchaser 2. all prior encumbrances on the property are rendered invalid A. 1 B. 2 C. Both D. Neither

D. neither when the contract is recorded the result is that public notice is provided of the purchase's equitable (not legal) title, and the purchaser's claim to the title is given priority position as of that time. The recording would not after the legal effect of any existing encumbrances on the property.

A mortgage is usually associated with a A. deed B. land sale contract C. title policy D. promissory note

D. promissory note

Just as his foreclosed property is about to be sold at public auction, the owner appears with sufficient funds to prevent the sale by exercising his right of... A. lis pendens B. umbrage C. habendem D. redemption

D. redemption A "right of redemption" is the right to reclaim ownership of the property by paying off the entire amount of the debt and foreclosure costs.

Amortization is the process of...

liquidation of a debt

Discount points are used to A. increase the yield to the seller of the property B. both; increase yields to the lender and the seller of the property C. lower a borrower's interest rate D. decrease yields to the lender when short-term rates are higher than long-term rates

lower the borrowers interest rate

The fee which the seller pays his lender for the privilege of paying off the loan ahead of schedule is the....

prepayment penalty

A provision which prohibits a borrower from paying the loan in full for a prescribes period of time without incurring additional charges is known as the...

prepayment penalty clause

Which of the following statements concerning purchase money mortgages is TRUE? 1. A purchase money mortgage is am instrument given to the seller from the buyer to finance the purchase of real property 2. The mortgage may foreclose a delinquent mortgage and forego a deficiency judgment, or may waive the security and sue only on the note.

1 & 2 A purchase money mortgage is given to the seller. If the seller forecloses he cannot obtain a deficiency judgment. However, as with all mortgages, there is a note which can be sued upon. The mortgagee can sue on the note and get a judgment lien instead of foreclosing on the mortgage and risking a deficiency.

A provision in a real estate loan that prohibits its assumption without permission of the lender is known by one or more of the following terms. Identify the term of terms.. 1. A call provision 2. A due-on-sale clause 3. A lock-in clause

1 and 2

Equitable title is transferred to a buyer upon the execution of which of the following documents? 1. Mortgage 2. Land sales contract 3. Trust Deed

2 only (land sales contract)

An appraiser has correctly determined that the net annual income of a feed store is $67,250. The appraiser incorrectly selected a capitalization rate of 11.5% instead of the correct figure, 12.25%. because of the mistake, the appraiser's estimate is A. $35,803 too high B. $7,947 too hight C. $7,947 too low D. $35, 803 low

3

If unaccompanied by other facts, an advertisement under Truth-in-Lending may state A. "low downpayment" B. "$200 down." C. "6 1/2% interest" D. "$3,000 down"

A. "low downpayment"

An open-end mortgage allows the 1. mortgagor to borrow back up to the original amount, after some payments have been made. 2. lender to increase the rate of interest at any given point in time A. 1 B. 2 C. both D. neither

A. 1

It would be to the advantage of the lending institution to waive the prepayment penalty in a mortgage loan when.. 1. funds are in short supply and demand for loans is high 2. the Federal Reserve System drastically lowers the discount rate and reserve requirements A. 1 B. 2 C. both D. neither

A. 1

Ion the language of real estate, which of the following terms does NOT belong with the others? A. Joint tenancy B. Hypothecation C. Second trust deed D. Subordination

A. Joint tenancy "Joint tenancy" is a method of holding an estate. Hypothecation, second trust in deed and subordination all relate to financing of real estate

Cheryl Evans built a house and is selling it under a blanket encumbrance. Under normal procedure, she would request that the beneficiary arrange for her to get a .... A. partial reconveyance deed B. warranty deed C. grant deed D. Quitclaim deed

A. Partial reconveyance deed

A chattel mortgage is a lien on 1. real property 2. personal property A. 1 B. 2 C. both D. Neither

B. 2 A "chattel mortgage" is a lien against chattels (Personal property)

A characteristic of a partially amortized loan is that A. no loan balance exists at the end of the loan term B. a balloon payment exists at the end of the loan term C. all have variable interest rates D. all have terms of 25 years

B. a balloon payment exists at the end of the loan term

Which of the following statements regarding the TILA-RESPA (TRID) Rule is False? A. A closing Disclosure must be given to the borrower at or before closing B. An information booklet published by HUD (Housing and Urban Development) must be provided to the purchaser by the lender C. The lender must furnish a Loan Estimate Form of loan terms and charges within 3 days of the loan application D. RESPA regulations cover all residential mortgages

D. RESPA regulations cover all residential mortgages RESPA applies to first and second residential mortgage loans made by federally-related lenders. Where the law applies, the lender must provide a special info booklet published by HUD, within 3 business days of the application, give a LOAN Estimate form of loan terms and costs, and prepare and give to the borrower a Closing Disclosure (itemizing closing costs).

if the foreclosure sale proceeds are less than the outstanding debt and foreclosure expenses, which of the following remedies is available to the mortgagee? A. The mortgagee may void the sale B. The mortgagee must absorb the loss, since the mortgagor is liable only for foreclosure expenses C. The owner has the statutory right of redemption D. The mortgagee may obtain a deficiency judgment against the mortgagor.

D. The mortgagee may obtain a deficiency judgment against the mortgagor.

A loan agreement in which the interest rate goes up or down according to some indicator is referred to as... A. a variable rate mortgage B. an adjustable mortgage loan C. A renegotiated rate mortgage D. any of these

D. any of these

As used in real estate practice, the phrase "take-out loan" refers to a A. net amount after points and prepaid interest are deducted B. blanket encumbrance C. construction lien D. long term loan taken out after construction is completed.

D. long-term loan taken out after construction is completed Construction loans are short-term loans (also called "interim loans"), which are set up to last only during the construction phase of a building project. Once the construction is completed a new lender will give the developer a permanent (long-term) loan which will "take out" the interim lender by paying off the construction loan. This permanent loan is called a "take-out" loan.

An endorser of a note who does not guarantee payment of the note to the person to whom hen immediately assigns it and to all future holders endorses it A. in blank B. with protest C. with recourse D. without recourse

D. without recourse When a person endorses a note "without recourse" he is stating that the person receiving the note cannot take action (the have "no recourse") against him in the event they do not receive payment.

Douglas McCormick obtained a loan for his business from a banker by agreeing that 1% of the equity ownership would be conveyed to the bank and by also paying a 1/2% discount. This kind of loan is called.....

A participation loan

in large construction projects the developer usually obtains financing from two main sources. The first is the interim lender who specializes in short-term investment when the building has been completed. The second phase is called... A. take-out financing B. subjacent financing C. subrogation D. a junior mortgage

A. take-out financing Construction loans are short-term loans (Also called interim loans), which are set up to last only during the construction phase of a building project. once the construction is completed a new lender will give the developer a permanent (long-term) loan which will "take out" the interim lender by paying off the construction loan. This permanent loan is called a "take-out" loan.

Financing that involves a trust deed that is junior to and subordinate to an existing lien, yet includes the existing lien is called an A. wraparound or all-inclusive trust deed B. equity participation C. collateral trust bond D. land contract of sale

A. wrap around or all-inclusive

A properly executed promissory note establishes A. the amount of the debt B. who is borrower and who is lender C. the terms of repayment and the interest rate D. all of these

ALL OF THE ABOVE

The conditions of most loan instruments require the borrower to pay of the following when they are due EXCEPT A. principal and interest B. recording fees C. property taxes D. insurance premiums

B. recording fees principal, interest taxes, and insurance are recurring items, as they are due at various times during the loan term.22

Which of the following statements concerning typical land sales (real estate) contracts is correct? A. The land sales contract is similar to a lease in that the buyer has a right of possession but no rights in the title B. Land sales contract are the least secure method of financing for the buyer because the seller retains the title and the buyer is merely the equitable owner. C. The buyer has absolute assurance of receiving title upon performance of the contract D. The buyer is usually not responsible to pay the property taxes until the seller has delivered a deed to the property

B. Land sales contracts are the lease secure method of financing for the buyer because the seller retains the title and the buyer is merely the equitable owner

Which of the following statements concerning typical land sales (real estate) contracts is correct? A. The land sales contract is similar to a lease in that the buyer has a right of possession but no rights in the title. B. Land sales contracts are the least secure method of financing for the buyer because the seller retains the title and the buyer is merely the equitable owner C. the buyer has absolute assurance of receiving title upon performance of the contract D. The buyer is usually not responsible to pay the property taxes until the seller has delivered a deed to the property

B. Land sales contracts are the least secure method of financing for the buyer because the seller retains the title and the buyer is merely the equitable owner. The buyer has an equitable right in the property. Encumbrances, death, lack of clear title, etc. Could result in problems in obtaining a deed upon performance of the contract. The buyer has the seller's promise to deliver title, but this is not the same as absolute assurance. The buyer usually pays property taxes, insurance and all other expenses relating to the property.

When compared to Federal Housing Administration loans, conventional loans generally offer the borrower A. longer maturities B. lower loan-to-value ratios C. lower rates of interest D. lower down payments

B. Lower loan-to-value ratio

Each of the following is an advantage to the purchaser of property who finances it by a package mortgage, EXCEPT A. the buyer deals with only one lender B. the interest rate is higher than through conventional installment C. the payments are distributed over a longer period D. total payments are uniform throughout the life of the loan

B. The interest rate is higher than through conventional installment financing

A potential homeowner wants to borrow money and is advised by the lender that he will only accept a negotiable instrument in exchange for the loa. Which of the following documents is NOT a negotiable instrument? A. promissory note B. Trust deed C. Draft D. Check

B. Trust deed To be a negotiable instrument there must be a promise to pay at some future time. Notes, drafts, checks would be negotiable instrument. The trust deed (or mortgage) is not a promise to pay; it's security backing up the promise to pay. Therefor, it could not be transferred to another without the note being transferred as well.

What kind of mortgage loan allows the interest thereon to be increased or decreased for certain reasons? A. Fluctuating B. Variable C. Escalation D. Alienation

B. Variable

According to Regulation "Z" (Truth-in-lending) 1. An advertisement offering new homes at "$1,000 down" is in violation if the seller will not usually accept this amount as a downpayment 2. the Federal Trade Commission is responsible for enforcement of the regulation A. 1 B. 2 C. both D. neither

C. Both Regulation "Z" prohibits "bait and switch" advertising. This is advertising of credit terms not usually accepted by the lender. The FTC is the agency which administers the law.

Which of the following statements concerning the Real Estate Settlement Procedures Act (RESPA) is FALSE? A. all persons obtaining a federally-related new mortgage loan to purchase a residence must receive a copy of Housing and Urban Development's settlement cost brochures B. RESPA covers all sales of not-to-four family residences when the purchaser is obtaining a federal related mortgage loan to purchase the property C. Real estate brokers may not split commissions with cooperating members of there multiple listing service. D. A lender may not receive a referral fee for sending a seller to a specific title insurance company.

C. Real estate brokers may not split commissions with cooperating members of their multiple listing service.

When does the seller give the buyer title to the property if the property is financed by a purchase money mortgage? A. Possession date B. at whatever date the seller and buyer agree to in the earnest money agreement C. When the mortgage is paid in full D. At closing

C. when the mortgage is pain in full

The evidence of money obligation used in a mortgage transaction is the...

Note The promissory note is evidence of the debt and the promise to repay the debt. The note is not the security for the debt.