CHAPTER 3 -- FINANCING REAL ESTATE Flashcards
What is the name for an innocent party who purchases a negotiable instrument without knowledge of any defects?
Holder In Due Course
What does a loan secured by real property usually consist of?
A promissory note and a trust deed
What differentiates a straight note from other loans?
No principal payments are made during the term of the note. The entire principal is paid on maturity. Generally carry higher interest rates.
Are mortgages and trust deeds negotiable instruments?
No. They are not negotiable.
A loan secured by real property usually consists of:
(A) a financing statement and trust deed; (B) a promissory note and a trust deed; (C) FHA or VA insurance; (D) a security agreement and financing statement.
(B) a promissory note and a trust deed
Amortization tables are used to:
(A) determine the interest rate on a loan; (B) compute the APR; (C) compute the monthly payment; (D) determine the term of the loan.
(C) compute the monthly payment
The liquidation of a financial obligation on an installment basis is known as:
(A) conveyancing; (B) acceleration; (C) amortization; (D) conversion.
(C) amortization
Do trust deeds and mortgages get recorded?
Yes, in order to secure the debt.
All the following are considered an estate in real property, EXCEPT:
(A) reversion; (B) deed of trust; (C) fee simple; (D) leasehold.
(B) deed of trust
When using a trust deed to purchase a home, the buyer borrowing the money is called the trustor. The trustor:
(A) receives a promissory note for the amount that is borrowed; (B) receives a less than freehold estate; (C) signs a promissory note; (D) holds the trust deed which is used as security for the loan.
(C) signs a promissory note
Who has the right of possession of the property during the redemption period following the court foreclosure sale on a mortgage?
(A) the person who purchased the property at the court foreclosure; (B) the trustor; (C) the mortgagee; (D) the mortgagor.
(D) the mortgagor
How often must the trustee sale be advertised?
Once a week for three weeks (after waiting three months after the notice of default)
How many days before the trustee sale can the trustor reinstate the loan?
Up until five (5) days before the trustee sale.
When is a deficiency judgement possible?
Only if there is a COURT foreclosure on a non-purchase money loan and the fair market value is less than the loan amount (rare).
What is a purchase-money loan?
- Any seller financing
- Any loan created to purchase 1-4 owner occupied residential units.
How much in advance must a lender notify a borrower before a balloon payment is due?
Not less than 90 days, nor more than 150 days before the balloon payment is due.
What controls if there is a conflict between the terms of the promissory note and those of the trust deed?
The promissory note controls.
When a lender in a trust deed takes a deed-in-lieu of foreclosure, who becomes the owner of the property?
(A) vendor; (B) trustor; (C) beneficiary; (D) trustee.
(C) beneficiary
Broker Jane sold a home. The seller carried back a second trust deed. Broker Jane recorded a “Request for Notice of Default.” Who normally benefits from a “Request for Notice of Default?”
(A) the beneficiary in the second trust deed; (B) the trustor; (C) the trustee; (D) the mortgagor.
(A) the beneficiary in the second trust deed
Lenders may not impose a late charge in a payment due on a promissory note secured by a trust deed until the payment is:
(A) 5 days late; (B) more than 7 calendar days late; (C) 10 days late; (D) more than 10 days late.
(D) more than 10 days late
Up to what amount are loan broker commissions limited on first trust deeds or mortgages?
$30,000
Up to what amount are loan broker commissions limited on junior loans?
$20,000
What is the maximum percentage of commission a loan broker can make on a hard money first trust deed?
5%
What is the maximum percentage of commission a loan broker can make on a hard money second trust deed?
15%
Are land contracts negotiable instruments?
No, land contracts are not negotiable instruments.
The maximum commission a loan broker may charge to negotiage an $8,000 hard money first trust deed, due in 2 years is:
(A) $200; (B) $400; (C) $800; (D) $1,000.
(B) $400
The maximum commission a loan broker may charge to negotiate a $4,000 hard money second trust deed, due in 3 years is:
(A) $200; (B) $400; (C) $600; (D) $800.
(C) $600
A shared appreciation mortgage (SAM) is most beneficial when:
(A) prices of homes are appreciating; (B) there is a tight money market; (C) financing is readily available; (D) prices of homes are declining.
(A) prices of homes are appreciating
In what three ways is a grant deed different when compared to a land contract of sale?
- interest conveyed to the buyer (equitable in land contract)
- signatures of the parties
- and/or the designation of the purchase price.
Can a vendee prepay in a land contract?
Yes, as long as it is for four or less residential units.
Name three types of institutional lenders.
- Insurance companies
- Savings and loans (savings banks)
- Commercial banks
In a land contract, the buyer (vendee) gets:
(A) possession; (B) a freehold estate; (C) an estate in fee; (D) all of the above.
(A) possession
I guess because they only get equitable title?
When a buyer has recently purchased a home with a valid land sale contract, what type of title does the buyer have?
(A) sole title; (B) equitable title; (C) pending title; (D) legal title.
(B) equitable title
When a vendee is buying a home with a land sale contract, what should he do to protect his interests?
(A) get a standard title insurance policy; (B) record the land sale contract at the county recorder’s office; (C) get a certificate of title; (D) get a bill of sale.
(B) record the land sale contract at the county recorder’s office
How does the Federal Reserve regulate banks and the national money supply?
- Adjusting the discount rate (raising tightens the money market)
- Changing the minimum cash reserve requirements
- Buying or selling government bonds through the Federal Open Market Committee. (Selling tightens the market)
Which of the following types of lenders would have the greatest percentage of, and the most money invested in, real estate loans?
(A) life insurance companies; (B) commercial banks; (C) savings banks; (D) mutual savings banks.
(C) savings banks
Should a tight money policy be implemented by the Federal Reserve Board, the net effect would result in an increase in:
(A) the use of new first trust deed financing in real estate transactions; (B) the use of second trust deed financing in real estate transactions; (C) the volume of sales of single-family homes; (D) the supply of lendable funds for housing construction.
(B) the use of second trust deed financing in real estate transactions
Which lender is a major source for junior loans negotiated today?
(A) insurance companies; (B) commercial banks; (C) Federal Land Bank; (D) private lenders.
(D) private lenders
Do mortgage companies lend their own money?
Yes, often.
Which of these three secondary mortgage market participants is a federal agency within the Department of Housing and Urban Development?
(A) Fannie Mae; (B) Ginnie Mae; (C) Freddie Mac; (D) none of the above.
(B) Ginnie Mae
The “G” stands for government
The term “warehousing” as it is used in real estate financing would probably refer to:
(A) Securities registered with the Corporations Commissioner; (B) a mortgage banker collecting loans prior to resale; (C) large storage buildings used to secure some real estate loans; (D) none of the above.
(B) a mortgage banker collecting loans prior to resale
Certain lenders consider the liquidity and marketability of loans to be of paramount importance when they issue mortgages secured by real property. The importance of liquidity and marketability of loans most closely refers to the:
(A) activities of the secondary mortgage market; (B) make up of security offered by the FDIC; (C) subsequent resale of homes used to secure the mortgages; (D) desirability of short term real estate loans over long term real estate loans.
(A) activities of the secondary mortgage market
The primary purpose behind the creation of the Federal National Mortgage Association (FNMA) was:
(A) providing funds to large home builders in or near urbanized areas; (B) lending money on FHA Title II loans when conventional lenders are unwilling to do so; (C) to increase the amount of money available to finance housing; (D) supervising public lending associations.
(C) to increase the amount of money available to finance housing
What are some demand sources of mortgage money?
- construction
- sales financing
- refinancing
What is the maturity date on a construction loan?
It is computed from the date of the note.
When does interest on a construction loan begin?
From the date the loan proceeds arrive in escrow.
What is the loan received by a buyer to pay for new construction and used by the builder to pay off the interim loan?
Take-Out Loan (long term)
The term used by lenders, “mortgage yield,” refers to :
(A) the total amount the lender receives when a mortgage is paid off; (B) the effective interest return obtained from a first trust deed; (C) all of the money received by a lender after deducting closing costs and loan fees; (D) an increase in the value of a property which has a mortgage.
(B) the effective interest return obtained from a first trust deed
All of the following are demand sources for mortgage money, EXCEPT:
(A) construction; (B) refinancing; (C) Federal National Mortgage Association; (D) sales financing.
(C) Federal National Mortgage Association
Lenders my require a reserve or impound account for some loans, included within those accounts are borrower’s funds which are held to assure payment for all of the following recurring items, EXCEPT:
(A) monthly mortgage interest payments; (B) insurance premiums; (C) property taxes; (D) special improvement assessments.
(A) monthly mortgage interest payments
Loan-to-value ratio may be defined as:
(A) mortgage loans as a percent of capitalization rate; (B) mortgage loans as a percent of interest; (C) mortgage loans as a percent of appraised value; (D) mortgage loans as a percentage of assessed value.
(C) mortgage loans as a percent of appraised value
Elizabeth purchased a home with a low down payment and a long term loan. This financing would most likely result in:
(A) increasing the total financing cost; (B) decreasing the total financing cost; (C) having no effect on the total financing cost; (D) accelerating the amortization of the debt.
(A) increasing the total financing cost
Real estate investments are commonly funded by combining:
(A) debt and equity funds; (B) liquid and non-liquid investments; (C) the supply and demand of investment capital; (D) guaranteed returns and speculative investiments.
(A) debt and equity funds
What is it called when a seller is completely relieved from all liability on a loan if taken over by another?
Substitution of Liability
What is it called when a borrower gives up possession – the opposite of hypothecate?
Pledge
When lending money to two or more joint tenants using a single promissory note, the lender would be best advised to increase the security on the note by inserting which of the following phrases after the names of the joint tenants?
(A) personally and corporately; (B) together as individuals; (C) individually and severally; (D) jointly and severally.
(D) jointly and severally
What is the formula for determining simple interest?
(A) I=RT; (B) I=PRT; (C) I=V/R; (D) none of the above.
(B) I=PRT
Roberto, the holder of a $100,000 first trust deed note, wants to borrow $30,000 to build a house. If he gives up possession of the first trust deed note as security for the $30,000 loan, the arrangment would be regarded as:
(A) a chattel mortgage; (B) an illegal security subordination; (C) a subordinated trust deed; (D) a pledge.
(D) a pledge
How is purchasing power affected if housing prices rise by 20%?
The housing dollar goes down 16 2/3% (or 1/6th)
Do unemployment rates directly affect mortgages?
No, not directly.
What are the four cycles of business?
- depression
- recession
- expansion
- prosperity
Lenders use a “debt-income ratio” as a:
(A) loan qualifying tool; (B) government loan ratio; (C) method used in appraising property; (D) method of settling escrow fees.
(A) loan qualifying tool
A woman purchased an apartment building with a small down payment and obtained the maximum loan available to finance the balance of the purchase price. One year later the property had appreciated 2%, she then sold the property making 20% on her original investment. This is a good example of:
(A) assemblage; (B) escalation; (C) deflation; (D) leverage.
(D) leverage
A change in which of the following would have an effect on real estate in future years?
(A) consumerism; (B) land use controls; (C) real estate industry; (D) all of the above.
(D) all of the above
Who usually pays the FHA loan fee?
The seller usually pays the FHA loan fee.
Are alienation clauses or prepayment penalties allowed in a loan backed by a government loan program?
No, they are not allowed.
Which of the following is a unique characteristic of the FHA loan program?
(A) it is easy to qualify for; (B) it has a low loan-to-value ratio; (C) it requires a low down payment; (D) FHA insures the lender against loss.
(D) FHA insures the lender against loss
Who usually pays the FHA loan fee?
(A) the borrower; (B) the seller; (C) the lender; (D) the lender in the secondary mortgage market.
(B) the seller
In which of the following programs will a borrower pay for insurance on a loan?
(A) FHA or PMI; (B) Fannie Mae, Ginnie Mae, and or Freddie Mac approved loans; (C) VA laons; (D) only FHA loans.
(A) FHA or PMI
Martha offers to purchase Peter’s property for $239,000. Martha, who is not a veteran, takes title to Peter’s VA loan. What is the effect on liability?
(A) Martha is primarily liability for the loan; (B) Peter and Martha are both liable for the loan; (C) Peter is liable for the loan; (D) neither Martha nor Peter is liable for the loan.
(C) Peter is liable for the loan
When a buyer initially purchases a home with Cal-Vet financing, the buyer receives:
(A) a bill of sale; (B) a contract of sale; (C) a trust deed; (D) a lease with an option to buy.
(B) a contract of sale
The FHA will allow, but VA and Cal-Vet will not allow, which of the following loans?
(A) a loan for the purpose of buying farm equipment; (B) a loan for the purchase of farm or agricultural land; (C) a business opportunity; (D) loan on a home which is to be rented out.
(D) loan on a home which is to be rented out
After how long is a pre-payment penalty not allowed on a loan against a borrower’s residence?
After the loan is five (5) years old.
The opposite of “alienation” is which of the following?
(A) accretion; (B) acquisition; (C) ad valorem; (D) amortization.
(B) acquisition
A subordination clause placed in a trust deed:
(A) permits the obligation to be paid off ahead of schedule; (B) prohibits the trustor from making an additional loan against the property before the entire loan is paid off; (C) allows for periodic renegotiations and adjustment in the terms of the obligation; (D) gives priority to liens subsequently recorded against the property.
(D) gives priority to liens subsequently recorded against the property
A clause in a real estate loan which permits the borrower to re-borrow additional funds at a later date is called:
(A) an adjustable mortgage; (B) a junior mortgage; (C) an open-end mortgage; (D) an extendible mortgage.
(C) an open-end mortgage
What three things are included in the mortgage disclosure statement?
- Name of the lender
- Finance charge
- Annual Percentage Rate (APR)
Does the finance charge noted in the mortgage disclosure statement include appraisal fees and/or credit report fees?
No, those things are not included.
Mr. Carson bought 10 acres of vacant land for $20,000 per acre, making a down payment of $20,000, and executing a straight note and blanket trust deed for the balance. A provision of the note states that when Mr. Carson made a principal payment of $20,000, the trustee would issue a partial reconveyance for one acre. Mr. Carson has paid a total of $40,000 of the principal on the note and now owns two acres free and clear. The percentage of his equity in the encumbered property:
(A) has been eliminated; (B) remains unchanged; (C) has increased; (D) has decreased.
(C) has increased
The purpose of the Truth-In-Lending Law is to:
(A) prevent usurious charges for credit; (B) limit the borrower’s credit cost; (C) assure a meaningful disclosure of credit terms; (D) establish a maximum APR.
(C) assure a meaningful disclosure of credit terms
When a lender runs an ad in the newspaper using only the APR:
(A) the nominal interest rate must also be stated; (B) the total loan balance must be disclosed; (C) no additional disclosures need be made; (D) if the loan is less than $20,000, only the finance charge must be added.
(C) no additional disclosures need be made
How long does the borrower have to rescind a non-purchase money loan (refinance)?
Until midnight on the third business day after the promissory note was signed.
When must the lender deliver the HUD “Settlement Costs” information booklet and a good faith estimate of costs?
Three business days after the loan application is received.
When must the Uniform Settlement Statement be given to the borrower?
At or before settlement (close of escrow)
The Truth-In-Lending Law allows borrowers a limited right of rescission for non-purchase loans. The time which is allowed for rescission begins when the: (A) credit application is submitted to the lender; (B) lender gives loan approval; (C) loan is funded by the lender; (D) loan documents are signed by the borrower.
(D) loan documents are signed by the borrower
To comply with RESPA, a lender must furnish a prospective borrower with an information booklet prepared by HUD no later than the third business day from which of the following dates?
(A) the date the uniform settlement statement is delivered to the borrower; (B) the date the escrow on the sales transaction is opened; (C) the date the lender receives the borrower’s loan application; (D) the date the borrower requests a copy of the booklet.
(C) the date the lender receives the borrower’s loan application
When a lender is required to provide a Uniform Settlement Statement to the borrower, the maximum fee that the lender may legally charge the borrower for preparation and submission of this required statement is:
(A) $25.00; (B) 1/2% of the loan amount; (C) 1% of the loan amount; (D) nothing.
(D) nothing
When does a loan broker need to deliver to a borrower a Mortgage Loan Disclosure Statement?
If a loan is negotiated by a broker, the Mortgage Loan Disclosure Statement must be delivered within three days receipt of a completed loan application.
What is the maximum amount of time that a loan broker can have an exclusive loan listing?
Limited to a term of not more than 45 DAYS.
What is the CPI used for?
Measures inflation and is a commonly used factor in commercial leases as a way of adjusting the rent for inflation.
Linda applied for a real estate loan. The loan application requested her to disclose her race and marital status. What can she do?
(A) refuse to fill out that portion of the loan application; (B) sue the lender and the real estate broker; (C) nothing; (D) completely fill out the loan application if she wants to get the loan.
(A) refuse to fill out that portion of the loan application
Mr. and Mrs. Nasr were denied a home loan due to a very negative credit report. They obtained a copy of the report and found that the critical information contained in the report was false. They sent the credit reporting agency all the information necessary to disprove the false information and requested that the agency correct their records. If the credit reporting agency fails to correct the information in their files, the Nasrs could file a court action and seek:
(A) actual damages; (B) attorney’s fees, and court costs; (C) punitive damages; (D) any of the above.
(D) any of the above
When calculating the Consumer Price Index (CPI), housing expenses is one of the largest denominators because:
(A) CPI is based upon all consumer purchases; (B) more people buy homes than buy businesses; (C) housing impacts economy; (D) housing is one of the largest expenses for consumers.
(D) housing is one of the largest expenses for consumers
