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RE > Ch. 12 Real Estate Finance > Flashcards

Ch. 12 Real Estate Finance Flashcards

Because most real property transactions involve some type of financing, real estate licensees must understand this aspect of the business. Fluctuating interest rates, deregulation of financial institutions, and varying rates of inflation have in the past created shock waves among institutional lenders and mortgage specialists. As a result, new practices and variations of former lending procedures evolved. Licensees must keep current in the real estate finance area.

1
Q

Stipulation in a mortgage that the entire unpaid balance of the debt may become due and payable if a default of expressed conditions should occur.

A

acceleration clause

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2
Q

adjustable-rate mortgage ( ARM )

A financing technique in which the lender can raise or lower the interest rate according to a set index.

A

adjustable-rate mortgage ( ARM )

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3
Q

A loan characterized by payment of a debt by regular installment payments.

A

amortized mortgage

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4
Q

assignment of mortgage

A

1

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5
Q

The buyer of real property that is already mortgaged assumes liability for the mortgage payments of the original loan that remains on the property.

A

assumption

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6
Q

A single, large payment made at maturity of a partially amortized mortgage to pay off the debt in full.

A

balloon payment

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7
Q

A mortgage loan amortized the same way as other loans with monthly payments, except that the borrower makes a payment every two weeks.

A

biweekly mortgage

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8
Q

One debt instrument covering two or more parcels.

A

blanket mortgages

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9
Q

A financing technique wherein the seller agrees to deliver the deed at some future date and the buyer takes possession while paying the agreed amount (also called land contract, an installment sale contract, and an agreement for deed).

A

contract for deed

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10
Q

1

A

conventional loan

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11
Q

A friendly foreclosure (nonjudicial procedure) in which the mortgagor gives title to the mortgagee.

A

deed in lieu of foreclosure

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12
Q

A provision in a mortgage that specifies the terms and conditions to be met in order to avoid default and thereby defeat the mortgage.

A

defeasance clause

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13
Q

A provision in a conventional mortgage that entitles the lender to require the entire loan balance to be paid in full if the property is sold.

A

due-on-sale clause

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14
Q

That portion of a VA-guaranteed loan that protects the lender if the borrower defaults.

A

entitlement

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15
Q

The right of a mortgagor, before a foreclosure sale, to reclaim forfeit property by paying the entire indebtedness.

A

equity of redemption

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16
Q

A written statement that bars the signer from making a claim inconsistent with the instrument (commonly used with a mortgage assumption).

A

estoppel certificate

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17
Q

A mortgage secured by a personal residence. It provides a line of credit available for draws when needed by the homeowner. It is sometimes used as a home improvement loan.

A

home equity loans

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18
Q

To pledge real or personal property as security for a debt or obligation without giving up possession of the property.

A

hypothecation

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19
Q

The variable component that is added to the margin to calculate the interest rate in an adjustable rate mortgage.

A

index

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20
Q

Relationship between amount borrowed and appraised value (or sale price) of a property.

A

loan-to-value ( LTV ) ratio

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21
Q

The fixed component that is added to the index to calculate the interest rate in an adjustable rate mortgage.

A

margin

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22
Q

A written agreement that pledges property as security for payment of a debt.

A

mortgage

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23
Q

A lender who holds a mortgage on specific property as security for the money loaned to the borrower.

A

mortgagee

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24
Q

Fee paid by FHA borrowers to obtain a loan (upfront and annual).

A

mortgage insurance premium ( MIP )

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25
Q

A borrower who gives a mortgage on the borrower’s property in order to obtain a loan from a lender.

A

mortgagor

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26
Q

A financing arrangement whereby monthly mortgage payments are less than required to pay both interest and principal. The unpaid amount is added to the loan balance.

A

negative amortization

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27
Q

1

A

nonconventional loan

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28
Q

Legal evidence of a debt that must accompany a mortgage in Florida; a legally executed pledge to pay a stipulated sum of money.

A

note

29
Q

A loan covering both real and personal property.

A

package mortgage

30
Q

Stipulates the conditions under which the mortgagee will grant freeing building lots from a mortgage lien upon payment of a certain amount of money.

A

partial release clause

31
Q

A provision in a mortgage that allows the mortgagor to pay the mortgage debt ahead of schedule without penalty.

A

prepayment clause

32
Q

The amount set by the creditor that the debtor is charged for retiring the debt early.

A

prepayment penalty

33
Q

Any new mortgage taken as part of the purchase price of real property by the seller.

A

purchase-money mortgage (PMM)

34
Q

A provision in a mortgage, related to income-producing property, that is designed to require that income derived shall be used to make mortgage payments in the even the mortgagor (borrower) defaults.

A

receivership clause

35
Q

A certificate issued by the lender when the debt obligation is paid in full.

A

satisfaction of mortgage

36
Q

1

A

statutory redemption period

37
Q

A provision in a mortgage in which the lender voluntarily permits a prior or subsequent mortgage to take priority over the lender’s otherwise superior mortgage; the act of yielding priority.

A

subordination clause

38
Q

A financing technique in which the payment of the existing mortgage is continued (by the seller) and a new, higher interest rate mortgage, which is larger than the existing mortgage, is paid by the buyer-borrower.

A

wraparound mortgage

39
Q
  1. In a fully amortized, level-payment plan mortgage, the portion of the monthly payment that goes to reducing the principal.
    a. remains constant throughout the loan term.
    b. gradually increases with each payment throughout the duration of the loan term.
    c. gradually decreases with each payment throughout the duration of the loan term.
    d. fluctuates based on the prevailing interest rates.
A

B

40
Q
  1. A term mortgage differs from a level-payment, fully amortized mortgage because of the
    a. index chosen.
    b. number of points that may be charged.
    c. method of repayment.
    d. criteria used to qualify the borrower.
A

C

41
Q
  1. In a mortgage transaction in Florida, the legal evidence of the personal debt is the
    a. property (collateral).
    b. note.
    c. mortgage instrument.
    d. borrower’s credit history.
A

B

42
Q
  1. A financing vehicle in which the vendor holds title to the property until the buyer has met the stated obligations is a
    a. balloon mortgage.
    b. purchase-money mortgage.
    c. contract for deed.
    d. term mortgage.
A

C

43
Q
  1. In title theory states, the mortgage clause that provides that the conveyance of title to the lender is defeated when all of the terms of the agreement have been fulfilled is the
    a. penalty clause.
    b. release clause.
    c. defeasance clause.
    d. insurance clause.
A

C

44
Q
  1. If a foreclosed property fails to bring sufficient proceeds at the foreclosure sale to pay the debt, the lender
    a. must absorb the loss as a bad investment.
    b. may seek recovery of the loss from the Real Estate Recovery Fund.
    c. may obtain an interpleader judgement for the amount of deficit.
    d. may obtain a deficiency judgement for the amount of deficit.
A

D

45
Q
  1. A home was purchased with a down payment of $500,000 and a loan of $200,000 at 6 percent interest for 20 years. Monthly payments are $1,432.86. What is the loan-to-value ratio?
    a. 25 percent
    b. 70 percent
    c. 75 percent
    d. 80 percent
A

D

46
Q
  1. Which is considered an advantage of home equity loans?
    a. The interest rate is typically lower than the prevailing home mortgage rate.
    b. Home equity loans do not create a lien against the borrower’s residence.
    c. The interest on most home equity loans is tax deductible.
    d. All of the above are considered home equity loan advantages.
A

C

47
Q
  1. The current maximum FHA loan available for a single-family dwelling is
    a. dependent on location.
    b. $108,000.
    c. $203,000.
    d. $417,000.
A

A

48
Q
  1. A couple purchased their first home in January. The interest rate was based on the property being owner-occupied. In May of the same year, the couple decided to live on their sailboat and make a two-year trip around the world. They rented their home to a friend. The lender soon notified the couple in writing of the mortgagee’s intent to increase their interest rate on their loan to the investor rate of interest. The lender was proceeding under which of the following clauses?
    a. Acceleration clause
    b. Escalator clause
    c. Defeasance clause
    d. Release clause
A

B

49
Q
  1. The maximum amount of a VA loan is
    a. $417,000.
    b. $104,250.
    c. $89.912.
    d. not a legislated limit for qualified borrowers.
A

D

50
Q
  1. A man wants to buy a small restaurant and is considering financing the restaurant equipment in addition to the real estate. If the man pledges the personal property in addition to the real estate as collateral for the mortgage, the man’s mortgage is
    a. an equipment mortgage.
    b. a package mortgage.
    c. an all-inclusive mortgage.
    d. a chattel mortgage.
A

B

51
Q
  1. A borrower who is in default on a mortgage is allowed to prevent the lender from foreclosing on the property by paying the mortgagee the delinquent principal and interest, plus any expenses the mortgagee has incurred in attempting to collect the payments.
    a. novation.
    b. a satisfaction of mortgage.
    c. the equity to redemption.
    d. an acceleration clause.
A

C

52
Q
  1. A lender declares all the unpaid balance due and payable as a result of default. The lender is exercising the
    a. acceleration clause.
    b. due-on-slaw clause.
    c. defeasance clause.
    d. escalator clause.
A

A

53
Q
  1. The person who borrows money to help pay for the purchase or real property is called at various times the
    a. lender.
    b. mortgagee.
    c. lienor.
    d. mortgagor.
A

D

54
Q
  1. The mortgage provision that relieves the mortgagor from any personal liability for the debt so that mortgagee can look only to the mortgaged property for reimbursement in the event of default is the
    a. novation.
    b. estoppel certificate.
    c. exculpatory clause.
    d. subordination clause.
A

C

55
Q
  1. A mortgage
    a. creates a lien.
    b. is a contract.
    c. must be in writing.
    d. has all the above characteristics.
A

D

56
Q
  1. When a vendee buys “subject to the mortgage,” the
    a. vendee becomes responsible for the note.
    b. original obligation is substituted with a new note by novation.
    c. vendor is relieved of the obligation for the promissory note.
    d. vendor remains responsible for the note.
A

D

57
Q
  1. Blanket mortgages
    a. are illegal.
    b. typically include a partial release clause.
    c. include equipment and other personal property.
    d. have all the above traits.
A

B

58
Q
  1. A couple has just made the final mortgage payment on their home. What document must the mortgagee file on their behalf?
    a. Liz pendens
    b. Novation
    c. Satisfaction of mortgage
    d. Estoppel certificate
A

C

59
Q
  1. A new mortgage accepted by the seller as part of the purchase price is
    a. a wraparound mortgage.
    b. a shared-appreciation mortgage.
    c. an assumption of the mortgage.
    d. a purchase-money mortgage.
A

D

60
Q
  1. If a mortgagee does NOT want the mortgage to be paid ahead of schedule, the mortgage will normally contain
    a. a prepayment penalty clause.
    b. a redemption clause.
    c. a defeasance clause.
    d. an acceleration clause.
A

A

61
Q
  1. A mortgagor defaulted on a mortgage encumbering an apartment complex. Once the foreclosure proceedings were filed, the lender appealed to the courts to appoint
    a. a receiver.
    b. an on-site manager.
    c. an attorney to handle the case.
    d. an arbitrator.
A

A

62
Q
  1. Which statement is TRUE regarding the mortgagor’s minimum cash investment on an FHA loan?
    a. Closing costs paid by the buyer may be applied toward satisfying the cash requirement.
    b. Seller-paid closing costs may be included when calculating the cash investment amount.
    c. A loan from the seller may be used to satisfy the cash requirement.
    d. A gift from a relative may be used to satisfy the cash requirement.
A

D

63
Q
  1. An AHA loan is a
    a. government-insured loan.
    b. government-guaranteed loan.
    c. private loan that is insured with mortgage insurance.
    d. loan in which the mortgagor is protected against financial loss in the event of default.
A

A

64
Q
  1. Which applies to FHA 203(b) loans?
    a. The loan program applies to loans for one-family to four-family residences.
    b. The maximum insurable loan limit varies from are to area.
    c. Borrowers are required to pay a one-time upfront mortgage insurance premium.
    d. Each of the above applies to 203(b) loans.
A

D

65
Q
  1. A potential FHA borrower’s monthly housing expenses is $504, the total monthly gross income is $1,800, and the total monthly obligations are $648. What is the monthly housing expense ratio for the borrower?
    a. 28 percent
    b. 36 percent
    c. 38 percent
    d. 43 percent
A

A

66
Q
  1. The loan-to-value ratio is 80 percent. A buyer wants to acquire a property with a purchase price of $116,000. Calculate the required down payment.
    a. $20,000
    b. $23,200
    c. $32,800
    d. $92,800
A

B

67
Q
  1. The primary purpose of an estoppel certificate is to
    a. prevent foreclosure.
    b. relieve the mortgagor of personal liability for the debt.
    c. verify the loan balance.
    d. prevent transfer of title to the mortgagee.
A

C

68
Q
  1. Which expense is NOT charged to FHA borrowers?
    a. Annual mortgage insurance premium
    b. Up-front mortgage insurance premium
    c. Funding fee
    d. All of the above expenses are charged to FHA borrowers.
A

C

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