Chapter 12 Flashcards
Residential Mortgages
1
Q
A mortgagor defaulted on his loan payments. The lender foreclosed on the property. Some states allow the party that was foreclosed the right to redeem the property following foreclosure. What is the term used to describe this right? A. statutory right of redemption B. equitable right of redemption C. due-on-sale redemption D. declaratory redemption
A
A. statutory right of redemption
2
Q
The original mortgagor is NOT released from liability if title to real property is taken by what? A. as a result of a short sale B. foreclosure of the mortgage C. novation of the mortgage D. subject to the mortgage
A
D. subject to the mortgage
3
Q
Which term is used to refer to the difference between current market value of a property and the amount the owner still owes on the mortgage? A. equity B. down payment C. escrow D. interest
A
C. escrow
4
Q
When may the equity of redemption be exercised? A. until the time of foreclosure B. for 30 days following foreclosure C. for up to one year D. at any time
A
A. until the time of foreclosure
5
Q
Who are the parties involved in a deed of trust? A. beneficiary, mortgagee, and mortgagor B. beneficiary, trustee, and mortgagor C. beneficiary, trustee, and trustor D. benefactor, trustee, and trustor
A
D. benefactor, trustee, and trustor
6
Q
What document would be used to return title to the trustor when a deed of trust is satisfied? A. bill of sale B. quitclaim deed C. sheriff's deed D. reconveyance deed
A
B. quitclaim deed
7
Q
When the mortgagor fulfills all obligations under the note, what clause protects his rights to the property? A. cognovit B. defeasance C. subordination D. condemnation
A
B. defeasance
8
Q
Which of the following is a two-party arrangement that uses the property as security, and creates a lien on the property that may be removed by foreclosure? A. deed B. conveyance C. mortgage D. deed of trust
A
C. mortgage
9
Q
When a mortgage is paid in full, which document should be delivered to the mortgagor? A. assignment B. satisfaction C. deed D. estoppel
A
B. satisfaction
10
Q
What is the purpose of an estoppel certification?
A. to establish the mortgagee’s position
B. to establish a lien on the property
C. to provide the right of foreclosure
D. to provide information to the mortgagee or mortgagor
A
D. to provide information to the mortgagee or mortgagor
11
Q
What is the legal instrument that includes the borrower's promise to repay a loan with interest according to the terms and conditions specified? A. mortgage B. lien C. deed of trust D. promissory note
A
D. promissory note
12
Q
If a lender charges four point on a loan with an interest rate of 11%, what would be the approximate yield to the lender? A. 11.25% B. 11.50% C. 11.75% D. 11.85%
A
B. 11.50%
13
Q
In states which operate under title theory, the borrower:
A. transfers ownership to the mortgagee or a third party until paid
B. transfers possession to the mortgagee or a third party until paid
C. pledges the property as security on the loan
D. creates a tenancy in common with the lender
A
A. transfers ownership to the mortgagee or a third party until paid
14
Q
Fill in the blanks. Conventional lenders usually want the buyer's housing ratio not to exceed \_\_\_\_ and the total obligations ratio not to exceed \_\_\_\_. A. 31%, 43% B. 29%, 41% C. 29%, 36% D. 28%, 36%
A
D. 28%, 36%
15
Q
What is the name for the legal document that pledges a property as security for a loan? A. promissory note B. mortgage C. title D. bond
A
B. mortgage
16
Q
What is it called when a buyer buys a property and takes over responsibility on an existing loan? A. agreement for deed B. subject to the mortgage C. assumption of the mortgage D. any of the above
A
C. assumption of the mortgage
17
Q
When calculating housing and total obligations rations, which income value does the lender use? A. gross monthly income B. net monthly income C. gross annual income D. net annual income
A
A. gross monthly income
18
Q
What term refers to the right of a mortgagor to stop a foreclosure process by paying the entire balance, interest and so on? A. equity of estoppel B. right of redemption C. right of defeasance D. equity of disposition
A
B. right of redemption
19
Q
Where are the interest rate, payment, and other terms of a loan found? A. note B. lease C. satisfaction D. mortgage
A
A. note
20
Q
Which statement is correct in a lien-theory state such as Florida?
A. the borrower will obtain title only after the loan is paid
B. foreclosure will take place much quicker than in title theory states
C. the borrower conveys title to the lender using a deed of trust
D. the mortgage serves as a lien against the property
A
D. the mortgage serves as a lien against the property
21
Q
If a lender charges 8% interest plus 2 points, what is the approximate yield on the loan? A. 9.00% B. 8.50% C. 8.25% D. 8.13%
A
C. 8.25%
22
Q
What may the lender request the court to grant when there is a foreclosure and the auction sale does not provide enough proceeds to pay the entire mortgage debt? A. estoppel judgement B. novation judgment C. satisfaction judgment D. deficiency judgment
A
D. deficiency judgment
23
Q
What is a contract for deed, or land contract?
A. a type of ownership or tenancy
B. a legal document that conveys title
C. a purchase and sale contract for unimproved land
D. a form of owner financing
A
D. a form of owner financing
24
Q
James, a potential buyer, is told by the lender that he can have a loan at an interest rate of 6%. When he goes to the closing, he notices that the Truth-in-Lending statement says the APR is 6.5%. Using the rule of thumb calculation, how many points were most likely charged? A. 3 B. 4 C. 5 D. 6
A
B. 4
25
```
Carol is borrowing money to purchase her first home. The lender has agreed to a 5% loan with 2 discount points. What is the approximate yield on the loan?
A. 3.00%
B. 4.75%
C. 5.25%
D. 7.00%
```
C. 5.25%
26
```
Jack has an income of $85,000 per year, and Patricia, his wife, has an income of $75,000. They have car payments of $540 per month each, credit card payments of $600 and student loan payments of $1000 per month. The loan they are applying for would have a monthly payment of $3,400. What is the housing expense ratio?
A. 53%
B. 45%
C. 38%
D. 26%
```
D. 26%
27
```
Sandy is purchasing a home for $570,000, with a down payment of $114,000. If she finances the difference, what is the loan-to-value ratio?
A. 85%
B. 80%
C. 65%
D. 60%
```
B. 80%
28
```
Which set of terms is NOT synonymous?
A. vendee, purchaser
B. mortgagee, lender
C. lessor, landlord
D. grantee, seller
```
D. grantee, seller
29
```
In the process of mortgage underwriting (qualifying), which is of most concern to the lender?
A. assets
B. credit history
C. deductions
D. income
```
D. income
30
```
In a lien-theory state, what instrument would be conveyed by the mortgagee to the mortgagor when the mortgage has been paid in full?
A. a reconveyance deed
B. a notice of redemption
C. a quitclaim deed
D. a letter of satisfaction
```
D. a letter of satisfaction
31
```
All of the following are required for a valid mortgage, EXCEPT:
A. the legal description of the property
B. signature of the mortgagee
C. signature of the mortgagor
D. it be in writing
```
B. signature of the mortgagee
32
```
A buyer purchases a property with an existing mortgage and assumes personal responsibility for the note. Which term describes the situation?
A. an assignment of mortgage
B. novation
C. purchasing subject to a mortgage
D. an assumption of mortgage
```
D. an assumption of mortgage
33
A buyer takes over the seller's mortgage payments, but does not assume liability. Which statement best describes this situation?
A. the buyer is purchasing subject to the mortgage
B. the buyer is assuming the loan with novation
C. this is legal only when the mortgage contains a due-on-sale clause
D. this is an example of an assumption
A. the buyer is purchasing subject to the mortgage
34
```
Which clause in a mortgage requires the lender to look to the mortgaged property only for satisfaction?
A. defeasance clause
B. exculpatory clause
C. cognovit clause
subordination clause
```
B. exculpatory clause
35
```
The buyer receives all of the following items at closing, EXCEPT:
A. deed
B. mortgage
C. option of title
D. closing statement
```
B. mortgage
36
```
Who are the three parties in a trust deed?
A. benefactor, trustee, and trustor
B. beneficiary, mortgagor, and trustee
C. beneficiary, trustor, and trustee
D. beneficiary, mortgagee, and trustor
```
C. beneficiary, trustor, and trustee
37
```
All of the following loans can be first liens, EXCEPT:
A. first mortgage
B. home equity loan
C. second mortgage
D. purchase money mortgage
```
C. second mortgage
38
```
Which clause in a mortgage calls for the principal balance to be paid in full?
A. satisfaction clause
B. defeasance clause
C. due on sale clause
D. cognovit clause
```
C. due on sale clause
39
Which mortgage clause calls for the entire balance to be paid?
A. cognovit clause
B. special-purpose and circumstance clause
C. defeasance clause
D. acceleration clause
D. acceleration clause
40
```
Which clause in a mortgage allows the borrower to borrow back up to the original loan amount?
A. open end clause
B. prepayment clause
C. reborrowing clause
D. escalation clause
```
A. open end clause
41
```
Which mortgage clause permits the mortgagee to have a third party appointed to collect income and manage the property until foreclosure proceedings have been accomplished?
A. personal representative clause
B. administrator's clause
C. redemption clause
D. receivership clause
```
D. receivership clause
42
```
All of the following entities may assign a mortgage, EXCEPT:
A. Freddie Mac
B. a mortgagee
C. Fannie Mae
D. A mortgagor
```
D. A mortgagor
43
All of the following statements apply to an estoppel certificate, EXCEPT:
A. it may also be called a letter of estoppel
B. it is used to confirm that a lien or obligation exists
C. it is used to confirm the outstanding loan balance as of a given date
D. it forms a lien against the property
D. it forms a lien against the property
44
Which definition best describes the equity a homeowner has in their home?
A. the difference between the market value and the mortgage balance
B. the amount of upfront cash paid upon purchase of the home
C. the amount still owed on the home
D. the value determined by an appraiser
A. the difference between the market value and the mortgage balance
45
```
A property sells for $200,000 with a $30,000 down payment and debt service of $1,500 per month. What is the loan to value ratio?
A. 9%
B. 15%
C. 85%
D. 91%
```
C. 85%
170,000
______
200,000 = 85%
46
```
A buyer purchases Mr. Orange's home for $190,000, assuming the first mortgage, which covers 80% of the purchase price. Mr. Dis Count, a licensed mortgage broker arranges a second mortgage for 46% of the difference. Mortgage broker wants 2 1/2 points as an origination fee. What will the total down payment be, including the discount points?
A. $20,957
B. $17,480
C. $14,145
D. $437
```
A. $20,957
47
```
The quoted interest rate on a conventional loan is 12.5%, but after allowing for the origination fee, the true APR is 13%. Approximately how many points did the bank charge for the loan?
A. 4
B. 5
C. 6
D. 8
```
A. 4
48
```
In a lien-theory state, what will the borrower receive after making his or her final payment?
A. title
B. a mortgage
C. a letter of satisfaction
D. a deed of reconveyance
```
C. a letter of satisfaction
49
```
What is the instrument that is used to pledge real property as security for a debt?
A. promissory note
B. sales contract
C. mortgage
D. security deposit agreement
```
C. mortgage
50
```
To whom does a deed of trust convey title?
A. a third party
B. the bank
C. the mortgager
D. the beneficiary
```
A. a third party
51
```
Mr. Jones purchased a home for $95,000, with closing costs of $3,500. The loan-to-value ratio was 80%. If the bank charged $2,280.00 for lender fees, how many points did the lender charge?
A. 2.3 points
B. 2.4 points
C. 2.5 points
D. 3.0 points
```
D. 3.0 points
52
```
A buyer purchases a home for $60,000. He obtains a 80% conventional loan at 8.5% interest, with a 2.5% loan originating fee. How much is the originating fee?
A. $480
B. $1,200
C. $1,500
D. $4,080
```
B. $1,200
53
```
Complete the sentence. Discount points that are charged by lenders are a percentage of the:
A. borrower's equity
B. real estate commission
C. sale price
D. loan amount
```
D. loan amount
54
```
When the mortgagor fulfills all his obligations under the note, what clause protects his right to the property?
A. cognovit clause
B. defeasance clause
C. subordination clause
D. condemnation clause
```
B. defeasance clause
55
```
Recording a mortgage is which form of notice?
A. actual
B. constructive
C. legal
D. lien
```
B. constructive
56
```
In the event of a foreclosure of an income producing property, who may collect the rents?
A. marchal
B. broker
C. receiver
D. tenant
```
C. receiver
57
```
What should a valid mortgage contain?
A. granting clause
B. reddendum clause
C. promissory note
D. legal description
```
D. legal description
58
```
What is the document entered into by two parties, which replaces a lien on a property?
A. construction (mechanic's lien)
B. lease
C. mortgage
D. option
```
C. mortgage
59
```
What term refers to a written contract, often used in conjunction with a mortgage refinance, in which a lender and property owner agree to a change in lien priority?
A. prepayment agreement
B. reprioritization contract
C. subordination agreement
D. escalation agreement
```
C. subordination agreement
60
Why does the mortgagor need to execute a note or bond when a lender is making a loan?
A. to insure that the mortgagor is aware of their obligation
B. to let the world know that a loan has been given by the lender
C. to override the default clause in a mortgage
D. for the lender to be able to assess a lien against the mortgagor's property if in default
A. to insure that the mortgagor is aware of their obligation
61
```
When a deed of trust is involved, who signs the note?
A. trustee
B. trustor
C. beneficiary
D. mortgages
```
B. trustor
62
```
Which clause in a mortgage benefits the lender?
A. exculpatory
B. defeasance
C. acceleration
D. redemption
```
C. acceleration
63
Jack defaulted on his mortgage payments, and the lender instituted foreclosure proceedings. If the foreclosure sale does not bring enough to cover the debt, what is the impact to the lender?
A. the lender may seek a cognovits judgement
B. the lender may seek a reconveyance judgement
C. the lender automatically gets ownership of the property
D. the lender may seek a deficiency judgement
D. the lender may seek a deficiency judgement
64
```
Which term refers to the substitution of a debtor or a creditor for another?
A. Novation
B. subordination
C. defeasance
D. equity of redemption
```
A. Novation
65
What happens in title-theory states that use deeds of trust?
A. the mortgagor gives a deed of trust to the beneficiary
B. the trustor gives a promissory note to the beneficiary
C. the trustee gives a loan to the borrower
D. the beneficiary gives a mortgage to the trustor
B. the trustor gives a promissory note to the beneficiary
66
In a lien-theory state, what is the ownership status of the mortgagee?
A. mortgagee has the right of possession
B. mortgagee has the right to any rents collected
C. mortgagee acquires ownership "automatically" upon default by the mortgagor
D. mortgagee holds a lien on the property
D. mortgagee holds a lien on the property
67
```
Fannie Mae is selling an FHA mortgage with an interest rate of 14% at 92% (8 points). What is the approximate yield for the new lender?
A. 13%
B. 14%
C. 15%
D. 16%
```
C. 15%
68
```
What instrument must be recorded in order to convey a title back to the mortgagor in a deed of trust?
A. quitclaim deed
B. reconveyance deed
C. bargain and sale contract
D. special warranty deed
```
B. reconveyance deed
69
When calculating the housing expense ratio, what do expenses include?
A. annual mortgage payments and federal taxes
B. property taxes and state income taxes
C. property taxes and insurance
D. annual mortgage payments, property taxes and insurance
D. annual mortgage payments, property taxes and insurance
70
```
What is the term used for the buyer of a mortgage in the secondary mortgage market?
A. assignor
B. assignee
C. vendor
D. vendee
```
B. assignee
71
```
Which term best describes foreclosure?
A. voluntary alienation
B. a redemption action
C. enforcement of a mortgage
D. a procedure taken by the mortgagor
```
C. enforcement of a mortgage
72
```
What is the maximum allowable total obligations ratio for an FHA insured loan?
A. 28%
B. 29%
C. 36%
D. 43%
```
D. 43%
73
```
Which mortgage clause would allow the mortgagee to call the note due in the event of a default by the mortgagor?
A. acceleration clause
B. prepayment clause
C. defeasance clause
D. subordination clause
```
A. acceleration clause
74
```
A buyer purchases a property for $65,000. A lending institution loaned the buyer 80% of the purchase price and charged a discount of 4 points. What is the amount of the discount paid?
A. $13,000
B. $2,600
C. $2,080
D. $208
```
C. $2,080
Loan amount = $65,000 x 0.80= $52,000; Each point =1% of loan amount, so discount =$52,000 x .04= $2,080
