Ch 4 Financing Flashcards
A second trust deed can be distinguished from a first trust deed by:
a. the heading of the instrument
b. the information contained in the note.
c. the time and date of recording.
d. agreement of the principals.
c — The priority of trust deeds is determined by the time and date of recording
All of the following are NOT true regarding promissory notes, except:
a. They are used as security for trust deeds.
b. Discounting a note indicates it is being sold at more than the face value, or the amount
still owing on the principal.
c. They are always used when real state is sold.
d. They are the evidence of the debt.
d — Promissory notes are the evidence of debt. Trust deeds are security for debt. Though promissory notes and trust deeds are frequently used as the loan instruments, there are alternatives, such as a land sales contract. Note when the word “always” appears in an answer choice, one exception defeats its accuracy.
Hypothecate means:
a. to give a thing as security without giving possession.
b. to sell.
c. to substitute.
d. to alienate
a — To hypothecate is to offer property (real or personal) as security for a loan without giving up possession.
Who generally benefit the most by a subordination clause in a trust deed?
a. The beneficiary.
b. The trustor.
c. The trustee.
d. The county tax assessor.
b — The borrower (trustor) benefits the most from a subordination clause since this makes it easier to obtain an additional loan on their property. For example, the buyer of vacant land can obtain a construction loan more easily if the loan against the land will be subordinated to the construction loan.
Total foreclosure time under a trustee’s sale on a trust deed is minimally:
a. one year.
b. fifteen months.
c. three months.
d. four months.
d — A trustee’s sale includes a three month redemption period followed by three weeks of advertising the sale for a total just short of four months if the sale is processed without any delay. In practice, it is generally longer.
The beneficiary of a trust deed is most likely a:
a. buyer.
b. bank.
c. trustee.
d. borrower.
b — The beneficiary is the lender. Therefore, the only answer selection that applies is the bank.
A clause in a trust deed calling for an assignment of rents most benefits the:
a. trustee.
b. trustor.
c. purchaser.
d. beneficiary.
d — An assignment of rents clause allows the lender to collect the rents on an income-producing property when the borrower defaults on the underlying loan.
On each payment of an amortized loan:
a. the same amount applies to principal each month.
b. there will be a balloon payment.
c. the amount applying to the principal increases with each payment.
d. the amount applying to the interest increases with each payment.
c — With an amortized loan, whether fully or only partially amortized, the balance of the loan is reduced with each payment. Therefore, the interest portion of the payment decreases and the principal portion increases with each payment made.
Which of the following are most related to each other?
a. Taxes and insurance.
b. Points and interest.
c. Assessment and book value.
d. Interest and taxes.
b — While all answer selections relate to one another, points and prepaid interest are synonymous, making this answer selection the best match.
In the context of mortgage finance, a beneficiary statement is made:
a. to designate the person who will receive the property in the event of the borrower’s death.
b. by the insurer, stating the amount that will be paid to the policyholder if the improvements are destroyed.
c. by the lender to state the current balance required to pay off a real estate loan.
d. by the homeowner, listing the beneficial features of an assumable loan.
c — A lender (beneficiary) delivers a beneficiary statement to escrow as a statement of required funds to release the existing debt.
A CalVET buyer finances the property with a:
a. trust deed and note.
b. contract of sale.
c. mortgage.
d. lease with an option to purchase
b — CalVET loans are land contract purchases with the state functioning as the vendor.
When the debt has been paid in full, the trustee will record what legal instrument to remove
the lien on a trust deed from the public record?
a. Statement of complete release.
b. Satisfaction of payment.
c. Redemption certificate.
d. Reconveyance deed.
d — A trustee records a reconveyence deed to release a trust deed.
In a period of deflation:
a. the value of money increases.
b. profits increase.
c. the gross national product increases.
d. the value of commodities increase.
a — Deflation is the opposite of inflation where money becomes worth less.
When the Federal Reserve (the Fed) increases the reserve requirements, referred to as tight money policy, it will:
a. result in more construction starts.
b. increase the supply of funds available for making real estate loans.
c. reduce deflationary pressures.
d. decrease loan activity.
d — The tightening of money allows less money to be available for lending, resulting in a decrease of loan activity.
If a lender accepts a deed-in-lieu of foreclosure, the lender:
a. also receives a power of sale from the trustor.
b. takes ownership of the property free and clear of all liens.
c. goes to court and get a deficiency judgment.
d. assumes any junior liens.
d — When the holder of the first trust deed accepts a deed-in-lieu, they become responsible for all liens junior to their position.
Gale is the beneficiary of a $1,500,000 deed of trust on a single family home. Frank, the trustor, made $200,000 in payments before going into default. At the trustee’s sale, the property sold for $1,000,000, resulting in a $300,000 deficiency. In California, a deficiency judgment cannot be obtained:
a. if the security is a purchase money trust deed.
b. if foreclosed through a trustee’s sale.
c. if the fair market value (FMV) of the property exceeds the amount due on the trust deed.
d. Any of the above
d — A deficiency judgment cannot be obtained through any of the provided answer selections. For example, a deficiency judgment cannot be obtained if the security is a purchase money trust deed (answer selection A). A mortgage holder must use the judicial foreclosure option rather than a trustee’s sale to receive a deficiency judgment (answer selection B). If the fair market value (FMV) of the property exceeds the amount due on the trust deed, no deficiency would exist (answer selection C).
When a borrower defaults on a loan and the lender initiates judicial foreclosure, the right of
possession to the property is held by the during the redemption period.
a. mortgagee
b. commissioner designated by the court
c. mortgagor
d. sheriff
c — The borrower (mortgagor) has possession during the redemption period.
An owner’s right to bring current any monetary or curable default stated in the notice of default (NOD) prior to five business days before the date of the sale is called:
a. refurbishment.
b. rejuvenation.
c. reinstatement.
d. redemption.
c — When full payment of arrears and costs have been made, the loan has been reinstated, bringing the loan current and placing the borrower in good standing.
Bruce sold his home for $215,000 to Maria and carried back a $150,000 note with interest at 6% per annum. The note was secured by a first trust deed. The home had a fair market value (FMV) of $200,000. Later, Bruce sold the trust deed and note at a discounted price of $135,000 to Syndi. On the back of the note, Bruce wrote, “I hereby assign the within note to Syndi without
recourse.” If Maria defaults before any principal payments are made, Syndi’s best legal remedy is to:
a. foreclose to recover the $135,000 investment.
b. do nothing since she has no recourse as an investor who purchased an existing loan
and has no right to foreclose.
c. sue her assignor.
d. foreclose to enforce payment of the $150,000.
d — The demand would be on Maria for the full amount of the monies owed regardless of the discounted price paid for the note.
The power to sell a property in the event of a default under the terms of the trust deed is given by:
a. trustee to the trustor.
b. buyer to the beneficiary.
c. buyer to the seller.
d. trustor to the trustee.
d — It is the borrower (trustor) who gives the authority to sell to the trustee.
All of the following entities buy loans in the secondary mortgage market, except:
a. Freddie Mac.
b. Ginnie Mae.
c. Fannie Mae.
d. Federal Housing Administration (FHA).
d — The Federal Housing Administration (FHA) is neither the lender nor purchaser of
loans on the secondary mortgage market. The FHA acts as an insurer of the loan which is
originated by a lender or mortgage company.
Which of the following loans would be most likely to qualify for Federal Housing
Administration (FHA) insurance but not for a Veterans Administration (VA) loan guarantee?
a. A loan to fund the purchase of agricultural land.
b. A loan to fund the purchase of one-to-four units of residential rental property.
c. A loan to fund the purchase of a motel.
d. A loan to fund the purchase of an existing business.
b — While neither the Federal Housing Administration (FHA) or Veterans Administration
(VA) will guarantee properties intended for business (motel or agriculture included), FHA will
do small residential rentals (one-to-four units).
The primary purpose behind the creation of the Federal National Mortgage Association
(FNMA) was:
a. to increase the money available to housing.
b. to provide funds to large home builders in urbanized areas.
c. to lend money on FHA Title II loans when banks, savings and loan associations, or
private lenders are unwilling to do so.
d. to supervise public lending agency associations.
a — The Federal National Mortgage Association (FNMA) was created to repurchase
qualifying loans, thus placing cash in the lenders’ hands to facilitate a continuing source of
monies to loan.
In real estate loans, the term “impounds” most nearly means:
a. attachments.
b. reserves.
c. court action.
d. short rate.
b — When a lender requires impounds, they are demanding that monthly payments be made
to establish a reserve fund to pay future property tax and insurance expenses.
