Ch 23: Loan Satisfaction, Assumption, Defaults & Foreclosures

Question 1

A mortgage that is subordinate to another is called:

a. Participation
b. Leasehold
c. Blanket
d. Junior

Answer 1

d. Junior

Subordinate means a loan with a lower priority such as a second mortgage loan, which is often referred to as a junior lien.

Question 2

In a judicial foreclosure, the period from the Notice of Default to the date of the foreclosure sale is known as:

a. Equity of Redemption
b. Statutory Redemption
c. Period of Reinstatement
d. Recess Period

Answer 2

a. Equity of Redemption

A judicial foreclosure is a court action that can become very involved and take up to two years to complete. The period of time from the start of the judicial foreclosure process to the date of the sheriff’s sale is known as the Equity of Redemption period. During this period the property owner can stop the foreclosure process by paying the entire loan amount plus interest due and court costs.

Question 3

A borrower can be relieved of primary responsibility for a mortgage by finding a buyer who is willing to:

a. Subordinate the loan
b. Give a wraparound mortgage
c. Take subject to the loan
d. Assume the loan

Answer 3

d. Assume the loan

A loan assumption can be used to transfer the primary responsibility for an existing loan to a buyer.

Question 4

All of the following are financing instruments EXCEPT:

a. Deed
b. Contract for deed
c. Junior mortgage
d. Note

Answer 4

a. Deed

The document that conveys ownership of real property is a Deed. A deed is not a financing instrument, but all of the other answer choices are financing documents.

Question 5

In order to be informed when a borrower defaults under a trust deed, a person should record a:

a. Deed of reconveyance
b. Request for notice of default
c. Trust deed
d. Notice of default

Answer 5

b. Request for notice of default

The Notice of Default is the document that is recorded by the trustee at the request of the beneficiary (lender). The Notice gives constructive notice of the default and sets the date for the Trustee’s Sale. A person of interest who wants notice of the default records a Request for such notice.

Question 6

Failure to meet a mortgage obligation when due is known as a:

a. Deficiency
b. Default
c. Defeasance
d. Duress

Answer 6

b. Default

A default is a breach or failure to meet one or more of the terms and conditions that the borrower agreed to in the loan and security agreements.

Question 7

The foreclosure avoidance procedures adopted by the CFPB restrict the mortgage servicer from making a first notice or filing for foreclosure until the borrower is delinquent more than:

a. 90 days
b. 45 days
c. 120 days
d. 30 days

Answer 7

c. 120 days

Pursuant to the CFPB Foreclosure Avoidance Procedures, a mortgage servicer may not make a first notice or filing for foreclosure until the borrower is more than 120 days delinquent.

Question 8

A sale where the lender agrees to accept a pay-off in full amount that is less than the outstanding balance is known as a:

a. Trustee sale
b. Short sale
c. Loan modification
d. Sheriff sale

Answer 8

b. Short sale

That is the definition of a Short Sale.

Question 9

A deed in lieu of foreclosure conveys a title to which of the following?

a. Trustee
b. Mortgagor
c. Borrower
d. Lender

Answer 9

d. Lender

A Deed in Lieu of Foreclosure is used when an owner and lender do not want the time consuming and expensive process of foreclosure. The deed in lieu is not as damaging to credit as a foreclosure may be.

Question 10

If a mortgagee accepts a quitclaim deed from the mortgagor in lieu of foreclosure, he takes the property:

a. Subject to mortgagor’s redemption rights
b. Clear of all liens
c. Subject to junior liens of record
d. Wiping out the junior liens

Answer 10

c. Subject to junior liens of record

When the lender accepts ownership of property in settlement of the debt securing the property through a deed in lieu of foreclosure any junior liens on that property are NOT eliminated. When the property is acquired by the lender through a foreclosure all junior liens are eliminated.

Question 11

The type of sale that results from a judicial foreclosure is:

a. Beneficiary’s sale
b. Trustee’s sale
c. Sheriff’s sale
d. Treasurer’s sale

Answer 11

c. Sheriff’s sale

A sheriff’s Sale is defined as a sale ordered by the court in which a sheriff or county official has the legal right to sell a distressed or judicially foreclosed property.

Question 12

After the statutory redemption period, the holder of the Certificate of Sale receives a:

a. General Warranty Deed
b. Treasurer’s Deed
c. Sheriff’s Deed
d. Grant Deed

Answer 12

c. Sheriff’s Deed

The Sheriff’s Deed is issued as a result of a court-ordered foreclosure sale after the expiration of the Statutory Redemption Period in the case of a mortgage foreclosure. The Sheriff’s Deed is usually a Bargain and Sale Deed.

Question 13

A single-family residence located on a 43,560 square foot lot sells at a trustee’s sale for $75,000 less than the balance due on the trust deed payable. The beneficiary:

a. Can never obtain a deficiency judgment after a trust deed sale
b. Cannot seek a deficiency judgment
c. Has breached the terms of the note by holding a trustee sale
d. Can seek a deficiency judgment

Answer 13

b. Cannot seek a deficiency judgment

The Arizona Trust Deed Act does not allow for deficiency judgments after a trustee sale of a residential single-family or duplex property on 2 1/2 acres or less.

Question 14

In Arizona, a Trustee’s sale under a Deed of Trust can be held:

a. 61 days after the date of the Notice
b. 91 days after the date of the Notice
c. 60 days after the date of the Notice
d. 90 days after the date of the Notice

Answer 14

b. 91 days after the date of the Notice

The notice period is 90 days so the Trustee’s sale cannot be held until the 91st day.

Question 15

The Statutory Redemption Period after a Trustee’s sale is:

a. 6 months
b. 90 days
c. None
d. 30 days, if the property has been abandoned

Answer 15

c. None

There is no statutory redemption period after a non-judicial foreclosure sale held by a trustee.

Question 16

The successful bidder at a judicial mortgage foreclosure receives a:

a. Certificate of Purchase
b. Certificate of Sale
c. Certificate of Foreclosure
d. Certificate of Redemption

Answer 16

b. Certificate of Sale

At a mortgage foreclosure the successful bidder receives a Certificate of Sale.

Question 17

Which of the following liens has the highest priority to mortgage foreclosure sale proceeds?

a. Real property tax lien
b. Mechanic’s lien
c. Mortgage lien
d. Income tax lien

Answer 17

a. Real property tax lien

The real property tax lien is always in number one priority.

Question 18

The priority of mortgages in relation to each other is based on which of the following?

a. Time of acknowledgment
b. Time of recording
c. Time of delivery
d. Time of execution

Answer 18

b. Time of recording

Real Property taxes have the highest priority followed by special assessments. The priority of other liens such as mortgages is determined by the order in which the lien is recorded, except for mechanic’s liens for which priority is established as of the date the work began.

Question 19

If the subject property has been abandoned, the statutory redemption period after the mortgage foreclosure sale can be reduced by:

a. 30 days
b. 4 months
c. 5 months
d. 90 days

Answer 19

c. 5 months

The Statutory Redemption Period is six months unless the property has been abandoned and then it is one month, a reduction of 5 months.

Question 20

The acceleration clause provides for which of the following:

a. Alienation by borrower
b. Equity of redemption
c. Prepayment penalty
d. Right of lender to require immediate payment of principal balance when borrower is in default

Answer 20

d. Right of lender to require immediate payment of principal balance when borrower is in default

The acceleration clause enables the lender to call the loan due and payable. This clause may be evoked because the mortgagor has defaulted by not making payments as agreed or by not complying with provisions of the security agreement.

Question 21

A deficiency judgment may be available to:

a. Mortgagee
b. Mortgagor
c. Trustor
d. Trustee

Answer 21

a. Mortgagee

A Deficiency Judgment is a judgment against the defaulting mortgagor for the difference between the indebtedness and the sale price through a foreclosure sale. The judgment is against the mortgagor, but available to the mortgagee.

Question 22

The Arizona Trust Deed Act provides protection from a deficiency judgement after a trustee sale for which of the following?

a. Property that was never actually used as a dwelling
b. Property that was owned by a commercial home builder who built the home with a construction loan
c. A residential single-family or duplex property on 2 1/2 acres or less
d. A home that was not substantially completed

Answer 22

c. A residential single-family or duplex property on 2 1/2 acres or less

The Arizona Trust Deed Act does NOT allow deficiency judgments for a residential single-family or duplex property on 2 1/2 acres or less.

Question 23

In Arizona, the Statutory Redemption Period after a judicial foreclosure is:

a. 3 months
b. 1 month
c. 6 months
d. 1 year

Answer 23

c. 6 months

The Statutory Redemption Period is the right of a mortgagor to redeem the property by paying the debt after the foreclosure sale. In Arizona the period is six months. Remember, if the foreclosed property has been abandoned the period is reduced by five months to a one month period.

Question 24

All of the following statements are TRUE, EXCEPT:

a. The parties to a land contact are the vendor and vendee
b. The buyer under a land contract receives full legal title at the close of escrow
c. The buyer under a land contract has a statutory grace period if a forfeiture action is undertaken
d. Land contracts may be foreclosed judicially

Answer 24

b. The buyer under a land contract receives full legal title at the close of escrow

Under a Land Contract, also known as an Agreement For Sale, the buyer does not receive legal title until the total amount due under the contract has been paid.

Question 25

The Arizona reinstatement period for a vendee under a land contract forfeiture is:

a. 120 days
b. 270 days
c. 90 days
d. 30 to 270 days depending on the vendee’s equity

Answer 25

d. 30 to 270 days depending on the vendee’s equity

The reinstatement period ranges from 30 to 270 days depending on the vendee’s equity.