Course 1 Practice Test

Question 1

Evans Family Developers are owners of a 200 unit apartment complex. They are seeking financing under HUD’s 223(f) program. They need to form an ownership structure acceptable to HUD, but they want to be protected from liability and avoid double taxation. Which of the following ownership structures is closest to meeting their needs?

Answer 1

Limited Liability Corporation

Question 2

In which type of ownership structure do all partners share in business gains and all partners are held personally liable?

Answer 2

General Partnership

Question 3

HUD does not conduct mortgage credit review on which of the following?

Active principal with less than a 25% ownership interest
Corporate Board of Directors
Beneficiary of a Trust
Managing Member of a LLC

Answer 3

Beneficiary of a Trust

Question 4

Which of the following organizational structures is an acceptable borrower structure under FHA financing?

REITs
Delaware Statutory Trust
Tenants-In-Common
Irrevocable Trust

Answer 4

Irrevocable Trust

Question 5

When an individual within a borrowing entity is identified as an active principal but not a Section 50 signer, a limited mortgage credit review is still conducted by the underwriter. Which of the following item(s) is not required for this type of review?

REO Schedule
HUD 2530
HUD 92013 Supp
OFAC/Terrorist Check

Answer 5

REO Schedule

Question 6

What is a distinguishing characteristic of a general partnership?

The partners are not held personally liable.
Tax-shelter benefits of depreciation, interest and real estate taxes are not passed through to its partners.
The partnership agreement automatically terminates when a general partner dies.
There are limited partners as well as general partners.

Answer 6

The partnership agreement automatically terminates when a general partner dies.

Question 7

What is the main reason why tenants-in-common are not an acceptable borrower structure to HUD?

TIC’s do not have a controlling principal and therefore do not have active/passive principals
TIC’s are an estate held by two or more persons or entities, each of who have an individual ownership interest
TICs have no right of survivorship
TICs are not permitted to invest in real estate

Answer 7

TIC’s do not have a controlling principal and therefore do not have active/passive principals

Question 8

Which of the following statements is NOT a correct statement regarding non-profit entities?

1. Non-profit principals are generally understood to mean the borrowing entity and its Board of Directors.
   Sponsoring parent organizations may act as principal.
2. Non-profit entity requires a full mortgage credit review of the ownership entity and organizations officers, including the officer’s resume, financial and credit review of borrowing entity and REO schedule.
3. Non-profit entity credit review is limited to a 2530 review of the ownership entity and organization’s officers, including review of the officer’s resume and financial and credit review of the borrowing entity.

Answer 8

Non-profit entity requires a full mortgage credit review of the ownership entity and organizations officers, including the officer’s resume, financial and credit review of borrowing entity and REO schedule.