Ch 29 Creditors' Rights and Remedies

Question 1

Define secured creditors.

Answer 1

Those whose loans are backed by collateral

Question 2

Define collateral.

Answer 2

Specific property that the borrower pledges to ensure repayment

Question 3

What is a lien?

Answer 3

• A claim against property to satisfy a debt or protect a claim for the payment of a debt

Question 4

Statutory liens include what?

Answer 4

Mechanic’s liens

Question 5

What type of of liens are recognized at common law?

Answer 5

Artisan’s liens

Question 6

Judicial liens may be used by a creditor to do what?

Answer 6

Collect on a debt before or after a judgement is entered by a court

Question 7

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?

Answer 7

Place a mechanic’s lien on the property

Question 8

With a mechanic’s lien, what secures the debt?

Answer 8

Real property secures the debt

Question 9

What type of law governs the procedures that must be followed to create a mechanic’s (or other statutory) lien?

Answer 9

State law

Question 10

Define carte blanche.

Answer 10

Complete freedom to act as one wishes or thinks best

Question 11

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?

Answer 11

An artisan’s lien

Question 12

True or false.

In contrast to a mechanic’s lien, an artisan’s lien is possessory.

Answer 12

True

Question 13

An artisan’s lien is terminated once what happens?

Answer 13

Possession is voluntarily surrendered (unless the surrender is only temporary)

Question 14

__________ liens take priority over other creditor’s claims to the same property.

Answer 14

Artisan’s

Question 15

Is foreclosure on personal property possible with artisan’s liens?

Answer 15

• YES
• Modern statues permit holder of an artisan’s lien to foreclose and sell the property subject to the lien to satisfy the debt

Question 16

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?

Answer 16

Writ of attachment

Question 17

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?

Answer 17

Writ of execution

Question 18

What is the typical procedure for attachment (3 steps)?

Answer 18

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

Question 19

An order for garnishment permits a creditor to do what?

Answer 19

• 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

Question 20

True or false.

Pensions can be garnished.

Answer 20

True

Question 21

Garnishment is most often a ______ remedy.

Answer 21

Postjudgement

Question 22

What type of law governs garnishment actions?

Answer 22

State law (so specific procedures vary from state to state)

Question 23

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?

Answer 23

Creditors’ Composition Agreements

Question 24

What is a mortgage?

Answer 24

• Written instrument
• that gives creditor an interest in, or lien on, debtor’s real property
• as security for payment of a debt

Question 25

In a mortgage, the creditor is the _____ and the debtor is the ______.

Answer 25

• Creditor = mortgagee

- Debtor = mortgagor

Question 26

Typically, as part of the mortgage loan, borrowers make a ______ _______ up front in cash.

Answer 26

Down payment

Question 27

True or false.

A fixed-rate mortgage has an unchanging rate of interest. Payments remain the same for the duration of the loan.

Answer 27

True

Question 28

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?

Answer 28

28%

Question 29

The rate of interest paid by the borrower changes periodically with what type of mortgage?

Answer 29

Adjustable-Rate Mortgage (ARM)

Question 30

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?

Answer 30

1) Require mortgage insurance
2) Record the mortgage
3) Include contract provisions

Question 31

If the homeowner defaults, the mortgage lender has the right to do what?

Answer 31

Foreclose on the mortgaged property

Question 32

Define foreclosure.

Answer 32

Legal process by which lender repossess and auctions off the property that has secured the loan

Question 33

Forbearance is one way to avoid foreclosure, which is very costly for all parties. What is forbearance?

Answer 33

Postponement of part or all of the payments on a loan for a limited time

Question 34

A workout agreement is another way to avoid foreclosure. What is a workout agreement?

Answer 34

• 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

Question 35

True or false.

To bring a foreclosure action, a bank must have standing to sue.

Answer 35

• 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

Question 36

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.

Answer 36

• Suretyship

- Guaranty

Question 37

In a suretyship or guaranty, what becomes the security for the debt owned?

Answer 37

Third person’s creditworthiness

Question 38

True or false.

A contract of strict suretyship is a promise made by a third person to be responsible for the debtor’s obligation.

Answer 38

True

Question 39

In the strictest sense, the surety is _____ liable for the debt of the principal.

Answer 39

Primarily

Question 40

With a guaranty arrangement, the guarantor (third person making the guaranty) is _____ liable.

Answer 40

Secondarily

Question 41

The Statute of Frauds requires a guaranty contract b/w the guarantor and the creditor to be in what form to be enforceable?

Answer 41

In writing or electronically recorded (unless the main purpose exception applies)

Question 42

Will making any material modification to the terms of the original contract without the surety’s consent discharge the surety’s obligation?

Answer 42

YES

Question 43

What three actions can release the surety or guarantor’s relationship?

Answer 43

1) Material modification
2) Surrender of property
3) Payment or tender of payment

Question 44

What defenses can the surety or guarantor assert to avoid liability on the obligation to the creditor?

Answer 44

1) Incapacity or bankruptcy

2) Fraud

Question 45

What three rights does a surety or guarantor acquire when he or she pays the debt owed to the creditor?

Answer 45

1) Right of subrogation
2) Right of reimbursement
3) Right of contribution

Question 46

What is the right of subrogation?

Answer 46

Any right that the creditor had against debtor now becomes the right of the surety

Question 47

What is the right of reimbursement?

Answer 47

Surety entitled to receive from debtor all outlays made on behalf of the surety-ship arrangement

Question 48

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?

Answer 48

Homestead exemption

Question 49

What is the purpose of the homestead exemption?

Answer 49

To ensure that debtor will retain some form of shelter

Question 50

Does a cow qualify as exempted personal property?

Answer 50

Yes (livestock)