Section 5 & 6

Rhonda and her husband filed for bankruptcy five years ago. They want to purchase a new house but don't have the best credit score. They've decided to buy the home using an FHA loan. Which of these is a true statement?

A minimum down payment of 3.5% is required.

What type of foreclosure is commonly used when a mortgage is the security instrument?

Judicial

A real estate licensee and his client fulfill the listing agreement, and the agency relationship is terminated. At what point did the agent's fiduciary duty of confidentiality to this client terminate?

Never the relationship is only terminated.

You're representing Abe and Ben in a dual agency situation. Abe tells you something that would give Ben a distinct advantage if he knew. Do you tell Ben?

No, because you can't share one client's confidential information with another client.

Manuel is selling his home to Selena. He has an existing loan that he'll continue to make payments on, and he's extending credit to Selena for the balance of the purchase price. She will make monthly payments to him. What type of financing are the parties using in this transaction?

Wrap-around loan. For example, The seller's mortgage remains in place, but the seller is receiving payments from the new buyer and is therefore financing the purchase.

Esther is thinking of signing an exclusive right-to-sell agreement with broker Sully, but first she asks, "What kinds of things does this agreement cover?" How should Sully answer?

"It includes a description of the property you're selling and my obligations to you, such as my duty to assist in negotiations." Exclusive right-to-sell agreements include descriptions of the property and an explanation of the agent's duties to their client.

A buyer is purchasing a property for $500,000. He has a down payment of $50,000 and is financing the rest. What's the amount of the loan origination fee if the lender charges one-and- a-half points?

$6,750. The amount paid for points = loan amount × number of points. The buyer is financing $450,000 ($500,000-$50,000). Multiply the loan amount of $450,000 by 1.5% (or 0.015) to get $6,750.

You're working with a buyer who's purchasing a home that appraised at $80,000. The buyer is obtaining a 90% loan, and the lender will charge a one-point origination fee at closing. How much will the loan origination fee be?

$720. $80,000 x .9 = $72,000 (loan amount), and 1% of $72,000 = $720

A homeowner has $80,000 of principal left to pay on her mortgage. Her home was recently appraised at $156,000, which is $13,000 more than what she purchased it for. How much equity does she have in her home?

$76,000. To find how much equity she has, subtract the amount she still owes on her mortgage from the appraised value.

Rhonda is an unrepresented buyer who's purchasing Tony's townhome. Gary represents Tony in the sale of his property. What's Rhonda's relationship to Gary?

A customer

April's mother is getting older, lives alone, and needs care. April's house is too small for both of them. She has a solid amount of equity in the home but isn't in a position to move. Instead, she decides to take out a loan to build an 800-square-foot addition onto the existing home for her mom. What type of loan might April likely consider to finance the addition?

A home equity loan because its based on the amount of equity the homeowners have in their home used for large expenses such as home expenses.

Charles is selling his property to Seth. Charles is financing part of the transaction for Seth, who will make payments to Charles while Charles retains the property title. What is this an example of?

A land contract because With a land contract, the seller agrees to provide credit to the buyer for a portion (or sometimes all) of the funds required to close the transaction. The buyer makes payments directly to the seller.

Robin has great credit and was able to secure a loan for her ocean-side dream home. Her 30- year, fixed-rate loan is for an amount that's above conventional loan limits. What type of loan does Robin have?

A non-conforming loan. Because Loans that are outside of Freddie Mac and Fannie Mae guidelines, such as jumbo loans, are non- conforming loans.

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 promissory note: where the borrower's promise to repay the loan. When the loan is paid in full, the note is marked as paid in full and returned to the borrower.

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?

Acceleration because The acceleration clause gives the lender the right to make all money owed immediately due and payable if the borrower defaults.

Which of these is an example of agency coupled with interest?

An agent foregoes buyer agent commission, provided the purchasing developer gives the agent the listings on the developed lots. Agency coupled with interest means the agent holds an estate (or interest) in a property that is the subject of the agency relationship. Forgoing commission now in turn for listings down the road is an example.

Which of the following documents is an example of a promissory note?

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

When considering loan risk, which two items will lenders consider in equal measure?

Borrower and property. The property's value (as underlying collateral) and the borrower's ability to repay the loan will be equal considerations for the lender.

Which of the following is an action borrowers take to temporarily lower the interest rate on their mortgage loan?

Buydown. A buydown is when buyers voluntarily pay points to temporarily bring interest rates down. For example, a 3-2-1 buydown would reduce the interest rate by 3% the first year, 2% the second year, and 1% the third year.

Your buyer client, Percival, was pre-approved for the exact amount he needed to buy the home of his dreams, and he made an offer that was accepted by the seller. What's his next step?

Complete a loan application.

Many of an agent's fiduciary duties to the client end upon termination of an agency agreement. Which fiduciary duty never ends?

Confidentiality. Both the duties of accounting and confidentiality survive the termination of an agency agreement, it never ends.

Jimmy owns a vacant piece of land. He plans to build a home on the land and then sell it. What type of loan is he most likely to acquire to finance this project?

Construction

What type of loan is neither guaranteed nor insured by government agencies?

Conventional

The Baxters are looking at a $425,000 home. They have $90,000 in savings to use as a down payment. What loan type(s) would likely be the best option for them?

Conventional; A $90,000 down payment would be a little more than 20% down ($90,000 ÷ $425,000 = 0.212, or 21.2%). The Baxters should qualify for a conventional loan with that much to put down on the home, and will avoid having to buy mortgage insurance.

An unrepresented ______ who's a party to a transaction is known as a principal.

Customer because a customer is a principal when the customer is a party to a transaction, such as a buyer or a seller.

You're holding an open house for Brenda. Walt and Mary walk in and ask you for a flyer that gives details about the property. At this point, what's your relationship with Walt and Mary?

Customers. No agency agreement exists in this scenario, so no client relationship has been created

Which of the following describes a listing agreement termination by completion/performance?

Dean lists his property on August 1. After just a few showings, he accepts an offer on August 12. The closing takes place on September 22. Because The agency agreement automatically terminates when a transaction closes.

A trustee is holding title to Cassandra's house until the loan is paid in full. Which type of security instrument was used?

Deed of Trust. Three parties include: the lender (beneficiary), the borrower (trustor), and a neutral third party (trustee). The trustee holds the title on loans when a deed of trust is used.

Which one of the following actions is a licensee required to take to fulfill a fiduciary duty?

Disclose personal interest and licensed status when buying property for personal use. Explanation: The fiduciary duty of disclosure requires that licensees disclose any conflict of interest.

Ned represents Sofia in the sale of her townhome. Luciana represents Sofia's buyer, Arturo. What is Luciana's responsibility to Sophia?

Disclosure that the buyer will not have the funds for the down payment unless they sell their current home. Luciana will not provide direct services for Sophia but must make required disclosures including material adverse facts and conflicts of interest.

Which of the following situations is an example of a non-agency relationship?

Dutton was previously a licensee. He's selling his home, and he wants Wanda, who's currently licensed, to assist him with the paperwork. a transaction broker, may assist a customer with ministerial tasks.

Your buyer clients, the Thompsons, told you about a problem they ran into with the lender that handled their mortgage. The Thompsons, who are African American, were given less favorable loan terms than a white couple they know who used the same lender. You know the Thompsons have excellent credit. Which act should you make them aware of?

Equal Credit Opportunity Act. The Equal Credit Opportunity Act lists protected classes against which lenders may not discriminate when making credit available. You should be aware of the rules and notify your clients if the rules have possibly been broken.

When working with a seller, you signed a listing agreement that ensured you'd receive a commission, provided the property sold during the listing term. What type of listing agreement did you sign?

Exclusive right to sell. Exclusive right to sell agreements prohibit the seller from selling the property without paying the listing agent.

Lydia put the minimum 3.5% down on her $210,000 home. She'll have to pay an MIP. What type of loan does Lydia have?

FHA

Which entity services rural development loans?

FSA (Farm Service Agency)

Brenda represents Tina in a real estate transaction. Brenda therefore owes Tina ______ duties, such as confidentiality, obedience, and reasonable skill and care.

Fiduciary

Which of these is NOT an example of agency coupled with interest?

Gene, a real estate professional, is purchasing a home for his personal use. He negotiates a reduction in the sales price in return for taking no commission from the seller. Agency coupled with interest is an agency relationship in which a licensee is given some sort of interest in or right to a principal's property. A standard commission-based transaction isn't agency coupled with interest.

About 50% of the borrowers in Neighborhood One are Hispanic, while only 4% in Neighborhood Two are Hispanic. The median home price in both neighborhoods is the same. However, statistics show that there is a significantly greater percentage of minority and low- income borrows who were denied financing for loans on properties in Neighborhood Two and were offered lower rates to live in Neighborhood One. What act is intended to prevent this type of potentially discriminatory lending pattern?

Home Mortgage Disclosure Act. The Home Mortgage Disclosure Act requires many financial institutions to publicly disclose information about mortgages, allowing public officials to make informed policy decisions and revealing potentially discriminatory lending patterns.

Larry is assisting a buyer who's making an offer on his client's listing. If Larry is too helpful to the buyer, what might occur?

Implied agency and undisclosed dual agency

With a straight mortgage, what type of payments are made up until the end of the loan term?

Interest

What's the purpose of the Equal Credit Opportunity Act?

It requires lenders to make credit equally available to all creditworthy applicants, regardless of the applicant's protected class status. Which prohibits creditors from discriminating against protected classes and requires that credit be equally available to all creditworthy applicants.

In a title theory state, which of the following is a true statement?

It's generally much easier for a lender to foreclose on a property. Explanation: n a title theory state, the lender holds the legal title to the property (usually through a third-party trustee) until the loan is paid off. This makes it easier for the lender to foreclose.

Which of the following statements about the fiduciary duty of disclosure is true?

It's owed to the licensee's clients only. In most states, licensees are required to disclose material facts to all parties to the contract. However, the FIDUCIARY duty of disclosure is due only to the licensee's clients.

Jessie, the buyer's agent, decides to informally inspect the property while she waits for the professional inspection. She notices a small puddle of water in the basement behind a stack of boxes. Later, Jessie calls the seller's agent and tells him what she found. The agent tells her not to worry; the seller is aware of the leak and plans to have it fixed within the week. Which one of these statements about this situation is true?

Jessie should disclose this to her buyer. Because Jessie's duties of disclosure and loyalty require her to disclose this potential issue to her buyer, so the buyer can follow up on the repair.

Which body of law contains the rules governing the relationship between a real estate professional and the person being represented?

Law of agency. Law of agency covers items such as an agent's duties to the client, handling of trust funds, etc.

Which practice involves talking the consumer into refinancing over and over so a lender can charge fees?

Loan Flipping. Loan flipping is a tactic that predatory lenders use.

A calculation that describes the amount being borrowed compared to the value of a property is called ______ ratio.

Loan-to-value.

Mick focuses on originating mortgage loans at a company that has in-house loan processors and underwriters. The options he offers consumers are limited to the products his company offers. What's Mick's position?

Mortgage Banker because they work for institutions that have in-house processors and underwriters, allowing them to lend money fairly quickly, but their lending options are generally limited to their own suite of products.

Zack represents a seller and receives an offer through another agent. The offer is higher than the listing price. The property is already listed at a very high price, and no other offers have been received. Is Zack obligated by his duties to the other party to disclose that the offer is too high?

No, his fiduciary duty is to his own client. The buyer's agent must be responsible for advising on a fair price for the property. Zack owes all parties in the transaction the duty of honesty and fairness, but as a seller's agent, it isn't his responsibility to advise the buyer on an appropriate price.

Bo's real estate ad states: "Custom homes for sale with scenic mountain views. Easy financing and low down payments." What else must be included in the ad in order for it to comply with TILA?

Nothing. Because Under TILA, ads that mention general financing terms, such as "low down payment" or "easy financing," do not require additional disclosure. If Bo had gotten more specific (e.g., "10-year loan with 0% down") he would need to include more information.

_______ is an acronym that can help you remember an agent's fiduciary duties.

OLD CAR. which stands for obedience, loyalty, disclosure, confidentiality, accounting, and reasonable skill and care.

For 25 years, Isadora loved being her own boss, but now she's getting tired of the day in, day out tedium of running her business. She's ready to retire and move to a tropical island. She decides to sell her entire business in one fell swoop: the property together with all the equipment and furnishings. What type of loan would the buyer need to obtain?

Package loan because the sale includes both personal and real property.

When representing the seller, what duty do you owe a buyer?

Present offers from the buyer to your seller. A seller's agent must present all offers to the seller, but must not advise the buyer or negotiate on the buyer's behalf.

What does PITI stand for?

Principal, Interest, Taxes, Insurance

Who are the parties to a listing agreement?

Property sellers and their agent

The Hendersons don't have enough money to make the full 20% down payment their institutional lender requires. To close the sale, the seller is willing to finance a loan for the amount between the home's list price and what the institutional lender is willing to loan. What's this type of financing called?

Purchase Money Mortgage. The term for seller financing that's typically used to bridge the gap between the home's list price and the institutional loan, though it can also be used to finance the entire purchase price.

Tristan refused to let Marla list his property on the MLS, even though Marla told him that more exposure to the property would generate more potential buyers. Which two fiduciary duties are at odds in this situation?

Reasonable skill and care and obedience. Explanation: Marla's skill and expertise tell her that listing the property on the MLS is best for the client because it will provide much more exposure for the property. Her duty of obedience, however, keeps her from going against her client's legal wishes.

What's the purpose of the Home Mortgage Disclosure Act?

Requires financial institutions to maintain, report, and publicly disclose information about their mortgages

The intent of the Consumer Credit Protection Act, which includes the Truth in Lending Act, is to safeguard the consumer by ______.

Requiring full disclosure of the terms and conditions in any offers of credit. The intent of the Truth in Lending Act is to safeguard the consumer through the use of disclosures regarding the terms and conditions of credit offers.

As a licensee, you'll have several tasks you must perform for your buyer client. One of these tasks is to ______.

Review transaction documents with the buyer, clarifying anything that could be confusing, without stepping outside the scope of your license. When representing the buyer, you'll review transaction documents with the buyer. If the buyer has legal questions outside the scope of your expertise, your duty is to advise your buyer to seek legal counsel.

Rusty received an acceleration letter from his mortgage lender. What is the most likely reason for receiving this letter?

Rusty is two or three months in default. Explanation: Before filing a foreclosure against a homeowner, a lender must send an acceleration letter. Lenders can do this immediately when a borrower falls behind, but they usually don't until the borrower is two to three months in default.

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?

She holds title to the property, and the mortgage becomes a lien on the property. Explanation: In the lien theory, the buyer holds title to the property, and the mortgage becomes a lien on the property. The lender must file a lawsuit to initiate foreclosure proceedings.

Monica's business is booming. She's representing an owner who's selling a $500,000 home on one side of town, and a buyer who's purchasing a $300,000 property on the other side of town. As it happens, the seller and buyer both know each other from church and have been talking to others about Monica's talents, which has brought in several new leads for her to pursue. What type of agency relationship does Monica have with the seller and buyer?

She is each party's single agent because She represents each party's interests individually as a single agent.

After a few meetings, the Stinsons sign a listing agreement with broker Vera so she can sell their house. The house has already generated interest from a potential buyer named Sergei, who has spoken with Vera about the house's price and square footage. Which of the following is true about this situation?

The Stinsons and Vera have brokerage relationship agreement. The Stinsons and Vera now have an express brokerage relationship agreement since they signed a listing agreement

A "homes for sale" magazine contains the following ad: "One-bedroom condo. Corner unit with beautiful ocean views. Financing available, 5.25% APR." Which of these statements is true?

The ad is in compliance with TILA because providing the APR doesn't trigger the required disclosure of all credit terms. The APR can be included in an ad without requiring disclosure of all credit terms. APR figures allow consumers to make an informed comparison between loans, which is TILA's goal.

Under which of the following circumstances would the client and agent most likely mutually agree to terminate a listing?

The agent and client don't agree on the best way to price, maintain, and market the property. When an agent and seller client can't agree on important aspects of selling the property, the relationship will not benefit anyone. Mutual termination is a valid way to terminate the agency agreement.

A client terminates a listing agreement before its expiration date. What happens now?

The client may owe a commission anyway since the listing agreement may not be cancelled by only one party.

In a residential real estate sale involving a federally related loan, what entity is required to provide Real Estate Settlement Procedures Act disclosures to the consumer?

The consumer's lender. Because The lender must provide the borrower with a written disclosure of the estimated and final settlement costs.

Your clients closed on their property yesterday, but you still have some paperwork that you need to deliver to them as soon as possible. Under which fiduciary duty are you acting?

The duty of accounting. The duty of accounting may continue even after the transaction closes. The agent must account for any documents or money belonging to the client until it is delivered to the appropriate party.

Norman, the seller's agent, notices a significant crack in the foundation that the inspector failed to note in the inspection report. Norman decides to keep this information to himself. He really needs to close this deal. Which fiduciary duty has Norman breached?

The duty of disclosure. By failing to disclose a known material fact to all of the parties to the transaction, Norman has breached the duty of disclosure.

Alex's client doesn't want prospective buyers to track dirt and mud throughout her clean home. She asks Alex to place a box of booties by the front door with a sign asking visitors to wear the booties while viewing the home. Alex does as his client instructs-no questions asked. What fiduciary duty is this an example of?

The duty of obedience

Rachel is talking with a co-worker, Shawna, about homebuying. Rachel shares some general market trends and talks about the impact of rising interest rates. She notes that the listing price of Shawna's neighbor's house seems lower than it should be, and then they talk about the importance of getting pre-approved for a loan early in the process. Which of her statements might have created an implied agency situation?

The listing price of the neighbor's property. General real estate discussions are safe. However, Shawna may mistake Rachel's comment about the neighbor's list price as an expert's opinion on value. Based on this, Shawna may make an offer, thinking she's getting a deal.

Agency may be legally terminated in which of the following ways?

The principal broker becomes incapacitated. Broker incapacitation can legally terminate an agency agreement. If an agent is incapacitated, the broker can assign a new agent to the client.

In a seller agency relationship, to which party does the licensee owe undivided loyalty?

The seller

Licensee Randy has a written listing agreement with Brent, a seller. The buyer is Tim. Who is Randy's client?

The seller (Brent) because the seller is the broker's client.

In a buyer agency relationship, what relationship does the seller have to the licensee?

The seller is the licensee's customer because the licensee represents the buyer in a single agency relationship

Jacqueline found a ready, willing, and able buyer for her client's condo, with a sales price of $20,000 more than the asking price. However, the appraisal came in just under the asking price. Which number will the lender use to calculate the loan-to-value ratio?

The smaller number because Lenders use the lesser of the sales price and appraised value.

Assuming that dual agency is legal where these scenarios occur and that the licensees' brokerages permit it, which of these situations demonstrates illegal dual agency?

Tom is holding an open house for his client. Ruby, a buyer, says she wants to make an offer. She details her situation; Tom waits until she finishes and then suggests that she offer a non-refundable earnest money deposit to strengthen her offer. This example of illegal dual agency is likely to get Tom into big trouble.

Is this statement about dual agency true or false? "Undisclosed dual agency is illegal."

True, Undisclosed dual agency is always illegal.

How many parties does a mortgage involve?

Two: borrower and lender

How long does the borrower have to pay private mortgage insurance?

Until the borrower reaches a 22% equity position. PMI is cancelled when a borrower reaches a 22% equity position. This is based on payments of principal made toward the original loan balance and not on current market value.

Which of the following best describes a home equity line of credit?

Used as an open-end account similar to the revolving credit of a credit card from which borrowers can take advances, repay money, and even borrow money again. A HELOC is similar to a home equity loan because the borrower uses the home's equity to secure a credit line. A HELOC isn't a lump-sum loan; it's a line of credit that continues as the borrower makes regular payments.

Which of the following defines when a lender charges a borrower more than the highest allowable interest rate?

Usury

Gus has applied for a home equity line of credit from his federally insured bank so that he can make some renovations to his kitchen. The same bank is his lender for his home mortgage. Will this loan be subject to Real Estate Settlement Procedures Act requirements?

Yes, because RESPA applies to any residential loan transaction from a federally insured financial institution, including equity lines of credit. RESPA regulations apply to loans on one- to four-family residential properties, including assumptions, refinances, home improvement loans, and equity lines of credit.

Victor bought a property from Yolanda for $200,000. Under the terms of a land contract, Victor agreed to pay Yolanda in monthly installments of $4,000 over the course of 50 months. Until Victor pays Yolanda the $200,000, who retains the title?

Yolanda

Imagine that you're an active real estate licensee as well as an architect, and you'd like to partner with a builder who's just beginning a development. Which of these creates agency coupled with interest?

You agree to design the houses for this builder in return for getting the listings when the properties are finished. By providing architectural design services in return for the listings, you've gained an interest in the properties being developed that will pay off when the properties are sold.