Ch 29 Creditors' Rights and Remedies Flashcards
Define secured creditors.
Those whose loans are backed by collateral
Define collateral.
Specific property that the borrower pledges to ensure repayment
What is a lien?
- A claim against property to satisfy a debt or protect a claim for the payment of a debt
Statutory liens include what?
Mechanic’s liens
What type of of liens are recognized at common law?
Artisan’s liens
Judicial liens may be used by a creditor to do what?
Collect on a debt before or after a judgement is entered by a court
If a person who has contracted for labor, services, or materials to be furnished for making improvements on real property does not immediately pay for the improvements, what can the creditor do?
Place a mechanic’s lien on the property
With a mechanic’s lien, what secures the debt?
Real property secures the debt
What type of law governs the procedures that must be followed to create a mechanic’s (or other statutory) lien?
State law
Define carte blanche.
Complete freedom to act as one wishes or thinks best
When a debtor fails to pay for labor and materials furnished for the repair or improvement of personal property, a creditor can recover payment through what type of lien?
An artisan’s lien
True or false.
In contrast to a mechanic’s lien, an artisan’s lien is possessory.
True
An artisan’s lien is terminated once what happens?
Possession is voluntarily surrendered (unless the surrender is only temporary)
__________ liens take priority over other creditor’s claims to the same property.
Artisan’s
Is foreclosure on personal property possible with artisan’s liens?
- YES
- Modern statues permit holder of an artisan’s lien to foreclose and sell the property subject to the lien to satisfy the debt
A court’s order to seize the debtor’s property is known as a what if it is issued prior to a judgement in the creditor’s favor?
Writ of attachment
A court’s order to seize the debtor’s property is known as a what if it is issued after a judgement in the creditor’s favor?
Writ of execution
What is the typical procedure for attachment (3 steps)?
1) Creditor files affidavit with court stating debtor has failed to pay and indicating the statutory grounds under which attachment is sought
2) Creditor must post a bond to cover at least the court costs, the value of the property attached, and the value of the loss of use of that property suffered by the debtor
3) If court satisfied that all requirements met, it issues writ of attachment (which directs sheriff or other officer to seize debtor’s nonexempt property) and if creditor prevails at trail, seized property can be sold to satisfy the judgement
An order for garnishment permits a creditor to do what?
- Collect a debt by seizing property of the debtor
- such as wages or funds in a bank account
- that is being held by a third party
True or false.
Pensions can be garnished.
True
Garnishment is most often a ______ remedy.
Postjudgement
What type of law governs garnishment actions?
State law (so specific procedures vary from state to state)
What are agreements where creditors may contract with the debtor for discharge of the debtor’s liquidated debts on payment of a sum less than that owed known as?
Creditors’ Composition Agreements
What is a mortgage?
- Written instrument
- that gives creditor an interest in, or lien on, debtor’s real property
- as security for payment of a debt
In a mortgage, the creditor is the _____ and the debtor is the ______.
- Creditor = mortgagee
- Debtor = mortgagor
Typically, as part of the mortgage loan, borrowers make a ______ _______ up front in cash.
Down payment
True or false.
A fixed-rate mortgage has an unchanging rate of interest. Payments remain the same for the duration of the loan.
True
For a borrower to qualify for a fixed-rate mortgage, lenders typically require that monthly mortgage payments not exceed what percent of the person’s monthly gross income?
28%
The rate of interest paid by the borrower changes periodically with what type of mortgage?
Adjustable-Rate Mortgage (ARM)
When creditors extend mortgages, they are advancing a significant amount of funds for a number of years. What 3 steps do creditors take to protect their interests?
1) Require mortgage insurance
2) Record the mortgage
3) Include contract provisions
If the homeowner defaults, the mortgage lender has the right to do what?
Foreclose on the mortgaged property
Define foreclosure.
Legal process by which lender repossess and auctions off the property that has secured the loan
Forbearance is one way to avoid foreclosure, which is very costly for all parties. What is forbearance?
Postponement of part or all of the payments on a loan for a limited time
A workout agreement is another way to avoid foreclosure. What is a workout agreement?
- Borrower and lender may enter into a contract
- that describes their respective rights and responsibilities
- as they try to resolve the default w/o proceeding to foreclosure
True or false.
To bring a foreclosure action, a bank must have standing to sue.
- True
- NOTE: Chase Bank did not have standing to sue in McLean v JP Morgan Chase Bank and thus could not bring a foreclosure action
When a third person promises to pay a debt owed by another in the event that the debtor does not pay, either a ____ or a _____ relationship is created.
- Suretyship
- Guaranty
In a suretyship or guaranty, what becomes the security for the debt owned?
Third person’s creditworthiness
True or false.
A contract of strict suretyship is a promise made by a third person to be responsible for the debtor’s obligation.
True
In the strictest sense, the surety is _____ liable for the debt of the principal.
Primarily
With a guaranty arrangement, the guarantor (third person making the guaranty) is _____ liable.
Secondarily
The Statute of Frauds requires a guaranty contract b/w the guarantor and the creditor to be in what form to be enforceable?
In writing or electronically recorded (unless the main purpose exception applies)
Will making any material modification to the terms of the original contract without the surety’s consent discharge the surety’s obligation?
YES
What three actions can release the surety or guarantor’s relationship?
1) Material modification
2) Surrender of property
3) Payment or tender of payment
What defenses can the surety or guarantor assert to avoid liability on the obligation to the creditor?
1) Incapacity or bankruptcy
2) Fraud
What three rights does a surety or guarantor acquire when he or she pays the debt owed to the creditor?
1) Right of subrogation
2) Right of reimbursement
3) Right of contribution
What is the right of subrogation?
Any right that the creditor had against debtor now becomes the right of the surety
What is the right of reimbursement?
Surety entitled to receive from debtor all outlays made on behalf of the surety-ship arrangement
The law protects debtors as well as creditors. In most states, certain types of real and personal property are exempt from execution or attachment. What is the most familiar exemption?
Homestead exemption
What is the purpose of the homestead exemption?
To ensure that debtor will retain some form of shelter
Does a cow qualify as exempted personal property?
Yes (livestock)
