CH. 29

Question 1

Dion has a mortgage loan with Eagle Bank that includes a prepayment penalty clause. If Dion repays his mortgage in full within the period specified in the clause, he will most likely be

Answer 1

required to pay a penalty.

Question 2

To purchase an apartment, Les borrows funds from Metro Bank. The terms of the loan give the lender a lien on the property being acquired by the borrower as security for payment of the debt. This is

Answer 2

a mortgage.

Question 3

In a few states, if a judgment debtor does not have a family, a creditor may be entitled to collect the full amount realized from the sale of the debtor’s home.

Answer 3

True

Question 4

Auto Sales & Finance wants to get paid for its goods and services, so it will not sell goods or lend funds unless payment is guaranteed. To obtain those goods or services, a customer or borrower might pledge

Answer 4

collateral.

Question 5

The rate of interest paid by the borrower stays fixed with an adjustable-rate mortgage.

Answer 5

False

Question 6

The loans made by companies that provide credit cards are not backed by collateral.

Answer 6

True

Question 7

Brew Pub Company’s debt to Credit Service is past due. Credit obtains a judgment against Brew, but the firm refuses to pay. Credit asks the court to order the seizure of Brew’s property. This is a request for

Answer 7

a writ of execution.

Question 8

A guarantor is entitled to receive from the debtor all outlays made on behalf of the guaranty arrangement.

Answer 8

True

Question 9

Mortgage loans are contracts.

Answer 9

True

Question 10

Generally, any defenses available to a principal debtor cannot be used by a surety or guarantor to avoid liability on the obligation to the creditor.

Answer 10

False

Question 11

To purchase a farmhouse, Clay obtains a mortgage loan from Debit Bank. Clay defaults on the payments on the loan. The bank has

Answer 11

the right to foreclose on the mortgaged property.

Question 12

The borrower need not obtain the lender’s permission for a short sale.

Answer 12

False

Question 13

Coastal Bank agrees to lend Dobie the funds to buy a beach house. The loan has an unchanging rate of interest—the amount of each payment will be the same for the duration of the loan. In this deal, the borrower is

Answer 13

a mortgagor.

Question 14

Because a mortgage conveys an interest in property to the lender, to protect the lender’s investment, the mortgage typically requires the borrower to

Answer 14

maintain the property.

Question 15

Rashi is a student at State University. To pay tuition, Rashi asks Tempo Loans Inc. for a short-term loan. The lender agrees to make a loan if Rashi will have someone who is financially responsible guarantee the loan payments. Upton, a well-known businessperson and a friend of Rashi’s family, calls Tempo and agrees to pay the loan if Rashi cannot. Because of Upton’s reputation, the loan is made. Rashi is making the payments, but because of illness he is unable to work for one month. He asks Tempo to extend the loan for three months. The lender agrees, raising the interest rate for the extended period. Upton is not notified of the extension (and thus does not consent to it). One month later, Rashi drops out of school. All attempts to collect the remainder of the loan from Rashi fail. Can Tempo assert a claim against Upton on the debt?

Answer 15

Since the terms of the contract were altered without consent of the guarantor, there can not be a claim against Upton.

Question 16

Because a mortgage involves the transfer of real property, to comply with the Statute of Frauds, it must be

Answer 16

written.

Question 17

Bach borrows funds from City Bank to pay his tuition. Dvorak co-signs the credit application. After the loan agreement is signed, Bach agrees to a higher rate of interest without telling Dvorak, who is thereby

Answer 17

discharged from the agreement.

Question 18

Personal property that is most often exempt from satisfaction of judgment debts does not include a vehicle for transportation.

Answer 18

False

Question 19

Any payment of the principal obligation by the debtor will discharge the surety or the guarantor from the obligation.

Answer 19

True

Question 20

Recording a mortgage ensures that the creditor is officially on record as holding an interest in the property.

Answer 20

True

Question 21

Mortgage insurance compensates a debtor for losses due to a default on a mortgage loan.

Answer 21

False

Question 22

Foreclosure is a process that allows a lender to legally repossess and auction off the property that is securing a loan.

Answer 22

True

Question 23

A mortgage gives a creditor a lien on a debtor’s real property as security for payment of a debt.

Answer 23

True

Question 24

A fixed-rate mortgage is a standard mortgage with an adjustable rate of interest.

Answer 24

False

Question 25

A short sale is a sale of property for less than the balance due on a mortgage loan.

Answer 25

True

Question 26

United Contractors Inc. holds a lien on Vista Estate’s real property. This property can be sold to satisfy the debt if, before the sale, notice is given to

Answer 26

Vista Estate.

Question 27

Equitable redemption allows a lender to gain title and regain possession of a property.

Answer 27

False

Question 28

Because the homestead exemption interacts with other areas of the law that relate to creditors’ rights and remedies, it can sometime operate to cancel out

Answer 28

a portion of a lien on a debtor’s real property.

Question 29

To purchase a farmhouse, Clay obtains a mortgage loan from Debit Bank. Clay defaults on the payments on the loan. The bank has

Answer 29

the right to foreclose on the mortgaged property.

Question 30

A mortgage gives a creditor a lien on a debtor’s real property as security for payment of a debt.

Answer 30

True

Question 31

Business Inc.’s debt to Cartage Company is past due. Cartage brings a legal action against Business to collect. To ensure that a judgment in the creditor’s favor will be collectible, Cartage asks the court to order the seizure of the debtor’s property. This is a request for

Answer 31

a writ of attachment.

Question 32

The borrower need not obtain the lender’s permission for a short sale.

Answer 32

False

Question 33

A guarantor is entitled to receive from the debtor all outlays made on behalf of the guaranty arrangement.

Answer 33

True

Question 34

Because a mortgage involves the transfer of real property, to comply with the Statute of Frauds, it must be

Answer 34

written.

Question 35

To buy a home, Lois pays part of the purchase price up front in cash and borrows the rest of the funds from Members Credit Union. The part of the purchase price paid up front is

Answer 35

a down payment.

Question 36

To purchase a house, Elma obtains a mortgage loan from Fidelity Bank. Later, Elma is unable to make payments on the loan. Meanwhile, the market value of the house has declined. Fidelity agrees to a sale of the property for less than the amount due on the loan. This is

Answer 36

a short sale.

Question 37

No state allows a defaulting borrower to repurchase the property after a judicial foreclosure sale.

Answer 37

False

Question 38

Kari is a surety for Lore’s loan from Metro Bank. As a surety, Kari’s right of reimbursement entitles her to receive from the debtor

Answer 38

all outlays made on behalf of the suretyship arrangement.

Question 39

Personal property that is most often exempt from satisfaction of judgment debts does not include a vehicle for transportation.

Answer 39

False

Question 40

The rate of interest paid by the borrower stays fixed with an adjustable-rate mortgage.

Answer 40

False

Question 41

Bach borrows funds from City Bank to pay his tuition. Dvorak co-signs the credit application. After the loan agreement is signed, Bach agrees to a higher rate of interest without telling Dvorak, who is thereby

Answer 41

discharged from the agreement.

Question 42

To buy a townhouse, Becky obtains a mortgage loan from Countywide Bank. The lender should record the mortgage to

Answer 42

be officially on record as holding an interest in the property.

Question 43

Credit Inc. lends $10,000 to Dace. Egan acts as Dace’s surety. When the loan becomes due, Egan pays it in full. As a consequence, the surety gets

Answer 43

all of the choices.

Question 44

Mortgage loans are contracts.

Answer 44

True

Question 45

Auto Sales & Finance wants to get paid for its goods and services, so it will not sell goods or lend funds unless payment is guaranteed. To obtain those goods or services, a customer or borrower might pledge

Answer 45

collateral.

Question 46

The loans made by companies that provide credit cards are not backed by collateral.

Answer 46

True

Question 47

Mortgage insurance compensates a debtor for losses due to a default on a mortgage loan.

Answer 47

False

Question 48

On a debtor’s default, to ensure that the debtor will retain some form of shelter, most familiarly exempt from execution or attachment by an unsecured creditor is the value of

Answer 48

a family home to a specified amount.

Question 49

Rose applies for a credit card at Sell-Mart. The terms do not include a pledge of certain property to ensure the repayment of charges to the card, but it does provide that Sell-Mart can assess interest on the unpaid amount of a monthly statement. In this situation, the unsecured party is

Answer 49

Sell-Mart.