Custom Quiz Financing Flashcards
When a trust deed is properly prepared and executed, the power of sale of the secured property is given by A) beneficiary to seller. B) buyer to trustor. C) trustor to trustee. D) trustee to lender.
C) trustor to trustee.
The owner of the property (trustor) conveys the bare legal title to the trustee with the provision that in the event of default the trustee can sell the property.
A woman purchases a home for $80,000 and executes a note for $78,000 secured by a first trust deed. The balance she pays in cash. Subsequently, a period of economic inflation sets in. This would benefit
A) the trustor.
B) neither the beneficiary nor the trustor.
C) the trustee.
D) the beneficiary.
A) the trustor.
Inflation will cause the trustor’s (borrower’s) equity to increase faster than it would from principal payments alone. Since inflation will not affect the interest rate on the note, this is an advantage to the trustor but a definite disadvantage to the beneficiary (lender). The trustee is not affected in any measurable way.
A purchase money mortgage may be defined as one
A) that provides for additional advances to the mortgagor without the necessity of writing a new mortgage.
B) taken on several parcels.
C) that includes chattels, such as household appliances, as additional collateral.
D) taken on all or part of the purchase price.
D) taken on all or part of the purchase price.
A purchase money mortgage applies to any money used to purchase the ownership of property, either from credit extended by the seller (“soft money”) or a cash loan from a lender (“hard money”).
An individual borrowed $5,000 and made equal monthly payments over a 20-year period. If the interest rate was 5% and she paid the lender a total of $7,920, the principal payment in the first month was A) $33.00. B) $20.83. C) $53.83. D) $12.18.
D) $12.18.
1. $7,920 ÷ 240 = $33.00
(total paid) (mo.) (monthly payment)
2. $5,000 × 5% = $250 ÷ 12 = $20.83
(loan) (rate) (interest) (mo.) (monthly interest)
3. $33.00 – $20.83 = $12.17 Closest: $12.18
(payment) (interest) (principal)
A developer bought 10 lots valued at $1,000 each with a 20% down payment, and the seller carried back the mortgage. The developer wants additional financing from a lender for construction purposes. What would LEAST likely protect the lender of the construction loan?
A) Physical inspection of the property
B) A posted notice of nonresponsibility
C) A subordination agreement in the purchase money deed of trust
D) An ALTA title insurance policy
B) A posted notice of nonresponsibility
A notice of nonresponsibility (for mechanics’ liens) would have no effect on the construction lender. A physical inspection of the property is very important to a construction lender to make certain that no work has started on the construction project before the construction loan trust deed is recorded. A subordination clause in the purchase money trust deed is required for the construction loan to have first priority. An ALTA title insurance policy is normally required by all institutional lenders.
In setting up a release schedule under a blanket encumbrance the beneficiary will usually require a disproportionate amount of money to release a particular lot
A) because the best lots usually sell first.
B) to have better security on the remaining lots.
C) for all of these reasons.
D) to protect the investment as individual lots are sold.
C) for all of these reasons.
A buyer is taking title subject to the first trust deed lien. Who is liable for the loan in the event of default? A) Buyer B) Both buyer and seller C) Neither buyer nor seller D) Seller
D) Seller
When a buyer takes title subject to an existing lien, he or she assumes no personal liability for the debt but merely takes the title knowing that the lien exists and must be paid. The buyer’s only risk is his or her equity. If there is a possibility of a deficiency judgment upon foreclosure, only the seller could be held liable for such a judgment.
In a purchase of real property in which a land sales contract is used, the buyer has A) an estate of inheritance. B) all of these. C) possessory rights. D) a fee simple estate.
C) possessory rights.
A land sales contract is a form of financing the sale of real property in which the buyer (vendee) is given possession of the property, but the legal title is held by the seller (vendor) until the full purchase price is paid. The buyer has only equitable title to the property, which is not the fee simple estate. While many property interests are capable of being inherited, only the fee estate is properly classified as an estate of inheritance.
In a period of inflation, the Federal Reserve Board would take which action to curb inflation?
A) Reduce reserve requirements
B) Raise reserve requirements and sell bonds
C) Lower discount rates
D) Raise discount rates and buy bonds
B) Raise reserve requirements and sell bonds
To curb inflation, the Federal Reserve Board would raise the reserve requirements for its member banks and enter into the bond market in a selling capacity. If the Federal Reserve Board reduced reserve requirements, lowered discount rates, or bought bonds, it would make more money available and create greater inflation.
In real estate financing, reference is sometimes made to take-out loans. This refers to
A) a blanket encumbrance.
B) a construction loan.
C) a long-term loan after construction.
D) the net amount after points and prepaid interest are deducted.
C) a long-term loan after construction.
A take-out loan is the long-term financing that replaces the interim construction loan. It “takes” the construction lender “out” of the financing picture.
The Jacksons bought a residence with a first trust deed loan from a savings and loan. The Londons bought a residence with a first trust deed loan from a bank. The Londons refinanced, obtaining a first trust deed loan from a savings and loan, to get money for a business opportunity. Which statement is correct?
A) The Londons do not have the right of rescission, the Jacksons do.
B) Both have the right of rescission.
C) The Jacksons do not have the right of rescission, the Londons do.
D) Neither has the right of rescission.
D) Neither has the right of rescission.
The right of rescission under the federal Truth-in-Lending Act never applies to purchase-money loans. Therefore, the Jacksons do not have a right of rescission. The Truth-in-Lending Act applies only to loans for personal, family, or household purposes, never to business loans regardless of what collateral is put up. Therefore, the Londons have no right of rescission.
A broker who negotiates a real estate loan to which the Brokers Loan Law is applicable must deliver the mortgage loan disclosure statement to the borrower A) after close of escrow. B) at signing. C) three days previous to signing. D) within 24 hours.
B) at signing.
A Mortgage Loan Disclosure Statement must be presented, and the borrower’s signature obtained, before the borrower becomes obligated.
Which lender participates and supervises construction loans, solicits loans from anyone, involves itself in the secondary money market, and represents other lending institutions? A) Mortgage company B) Commercial bank C) Savings and loan association D) Insurance company
A) Mortgage company
Mortgage companies characteristically: (1) participate and supervise construction loans (and “take-out” loans); (2) solicit loans from anyone (institutional or noninstitutional lenders), represent them, and also seek out borrowers for such loans; (3) sometimes have money of their own to lend; (4) accumulate loans (“warehousing”) that can be sold in groups and that are readily saleable in the secondary money market; and (5) service loans that are arranged by their correspondents.
A trustor, under a deed of trust, defaults on a note and refuses to reinstate the loan. The most expedient thing for the beneficiary to do is to institute a A) lien sale. B) foreclosure sale. C) sheriff's sale. D) judicial foreclosure.
B) foreclosure sale.
A trustee’s foreclosure takes approximately four months and is referred to as foreclosure sale. A sheriff’s sale would be a court foreclosure known as a judicial foreclosure and could take up to four years.
The lenders that invest a major portion of their assets in long-term real estate loans, do not like to service their own loans, and like large loans on newer high-priced homes as well as large loans on commercial property would be A) mutual mortgage companies. B) insurance companies. C) savings and loan associations. D) commercial banks.
B) insurance companies.
The factor that exerts the greatest influence on mortgage interest rates is the
A) offsetting influence of conservative vs. nonconservative lenders.
B) value of the property.
C) condition of the money market.
D) term of the loan.
C) condition of the money market.
Which factor would be least likely to influence the level and movement of mortgage rates? A) Inflation B) Tight money C) Unemployment D) Demand for funds
C) Unemployment
Inflation, tight money, and demand for funds are all factors that directly influence interest rates. Unemployment has the least effect among the choices presented.
Which would NOT likely cause a loss to a lender? A) Prepayment without a penalty B) Inflation C) Recession D) Unemployment
A) Prepayment without a penalty
When a lender gets his principal back in full, he suffers no direct loss, even though he may not gain as much as expected in terms of future interest not paid. Inflation can result in a lender’s being paid back with money of lower buying power. Recession and unemployment can result in borrower’s going into default with loss to a lender
When a trust deed is foreclosed in judicial foreclosure and the trustor fails to exercise his or her right to redeem, possession during the period of redemption would be held by the A) trustee. B) mortgagor. C) trustor. D) beneficiary.
C) trustor.
The trustor is the borrower, the one who has the right to the possession of the property during any redemption period that may exist in judicial foreclosure. Even though the security instrument is a trust deed, the lender has the option of foreclosing in a judicial proceeding, giving the borrower the right of redemption. Most lenders exercise the “power of sale” in the trust deed to avoid the expense and time involved in a judicial foreclosure.
Mr. and Mrs. Snyder have sold their home to the Binghams using a real property sales contract. From a financing standpoint, the Snyders' relationship to the Binghams is like a A) grantor to grantee. B) lessor to lessee. C) renter to tenant. D) beneficiary to trustor.
D) beneficiary to trustor.
From a financing standpoint, the Snyders are extending credit to the Binghams. A beneficiary does the same to a trustor.
What is the maximum period of time an owner might be able to stay in possession after judicial foreclosure? A) 1 year B) 120 days C) 90 days D) None of these
A) 1 year
A “judicial foreclosure” means that the foreclosure was held in court. This is the typical procedure for a mortgage. In some circumstances, court-held foreclosures entitle the delinquent borrower to a maximum of one year in which to remain in possession and to redeem (equity of redemption).
Which would hold equitable title?
A) Trustor under a deed of trust
B) Vendee under a land sales contract
C) Both trustor under a deed of trust and vendee under a land sales contract
D) Neither trustor under a deed of trust nor vendee under a land sales contract
C) Both trustor under a deed of trust and vendee under a land sales contract
Equitable title is the right to any equity in the property. Both the vendee (buyer) and trustor (buyer) would hold or retain equitable title.
A builder is selling a house that he had built under a blanket encumbrance. Under normal procedure, the instrument that would be requested of the beneficiary would be a A) warranty deed. B) quitclaim deed. C) grant deed. D) partial reconveyance deed.
D) partial reconveyance deed.
A partial reconveyance deed would reconvey the legal title to a specified lot or lots to the trustor in return for a partial payment on the trust note balance, thus releasing a specified lot or lots from under the blanket encumbrance.
The secondary money market creates a marketplace for the transfer of mortgages between which parties? A) Trustors and mortgagees B) Mortgagors and mortgagors C) Mortgagees and mortgagees D) Mortgagees and mortgagors
C) Mortgagees and mortgagees
The secondary mortgage market is the marketplace where existing loans are bought and sold by and to mortgagees. The term mortgagee means lender or holder/owner of the security instrument. Because there are no borrowers (mortgagors/trustors) in the secondary market, the other answer choices can be eliminated.
Interest rates will normally decline when
A) the federal budget deficit is high.
B) the Federal Reserve Board increases reserve requirements.
C) inflationary trends accelerate.
D) there is an excess of mortgage funds available.
D) there is an excess of mortgage funds available.
Points are NOT charged on which type of home loans?
A) California Department of Veterans Affairs
B) None of these
C) Federal Housing Administration
D) Veterans Administration
A) California Department of Veterans Affairs
Smith asked a broker to help secure a $19,000 loan for five years using his house as collateral. The appraised value of the residence was $80,000 and was completely free of liens and encumbrances. The broker would likely fail to succeed if she attempted to secure the loan through a(n) A) commercial bank. B) private lender. C) insurance company. D) savings and loan.
C) insurance company.
Since 1965, insurance companies have steadily withdrawn from mortgage lending on individual residences. Smith would have a better chance of receiving his loan from one of the other three lenders.
A real property sales contract is defined as an agreement wherein one party agrees to convey title to another party upon the satisfaction of specified conditions set forth in the contract and that
A) must be recorded to be enforceable.
B) must be acknowledged by both buyer and seller to be eligible for recording.
C) is not required to be in writing if contract period is for one year or less.
D) does not require conveyance of title within one year from date of formation of the contract.
D) does not require conveyance of title within one year from date of formation of the contract.
Under which loan transaction would the lender have the best opportunity to secure a deficiency judgment in the event of a default and foreclosure?
A) A first trust deed and note taken back by a subdivider as part of the purchase price of an unimproved lot
B) A first trust deed and note executed in favor of a conventional lender, the proceeds being used to purchase a single-family residence
C) A first trust deed and note executed in favor of a private lender to secure a loan, the proceeds of which were used to purchase an automobile
D) A second trust deed and note executed by the buyer in favor of the seller of a 10-unit apartment
C) A first trust deed and note executed in favor of a private lender to secure a loan, the proceeds of which were used to purchase an automobile
The law will not permit a deficiency judgment on any type of loan in which the seller is the beneficiary, nor will it permit an outside lender to obtain a deficiency judgment on a loan used to purchase an owner-occupied residential property of four or fewer units.
If the Federal Reserve Bank tightens reserve requirements of member banks, it would usually result in
A) favorable news from a broker’s standpoint.
B) making more marginal loans available.
C) a fewer number of private second trust deeds.
D) a greater number of private second trust deeds.
D) a greater number of private second trust deeds.
By tightening the reserve requirements, the Federal Reserve Bank can decrease the amount of money that is available for loans. This action would create a demand for more private loans in the form of second trust deeds.
All of these are secondary benefits of the Federal Housing Administration as established by the National Housing Act of 1934 EXCEPT
A) a loan amount appropriate for the borrower’s income.
B) elimination of short-term financing.
C) establishment of improved building standards.
D) mortgage guarantee insurance with low premiums to protect the borrower.
D) mortgage guarantee insurance with low premiums to protect the borrower.
FHA insurance is for the benefit of lenders, not borrowers. A loan amount appropriate for the borrower’s income, elimination of short-term financing, and establishment of improved building standards are all advantages developed by the FHA plan.
A person purchased a property for $70,000 and made a $14,000 down payment. If the person borrowed the balance of the purchase price, it would be considered a purchase money trust deed if the borrower received this amount from A) a lender. B) a friend. C) any of these. D) the seller.
D) the seller.
If a deed of trust (or mortgage) is executed in the act of and for the purpose of purchasing property that is the security, it is a purchase money deed of trust (or mortgage), regardless of whether the beneficiary (lender) is the seller or a third party.
RESPA applies to certain federally related loans secured by liens on owner-occupied one- to four-unit dwellings. Who is federally related under RESPA?
A) A lender whose deposits are insured by a federal agency
B) A private lender making a loan
C) A seller taking back a note and deed of trust
D) None of these
A) A lender whose deposits are insured by a federal agency
Coverage through RESPA is applicable only if financing is with federally related mortgages. This includes FHA, VA, or other government-assisted loans and loans made by institutions with federally insured deposits.
Which would be covered by the Real Estate Settlement Procedures Act (RESPA)?
A) An addition of a room in a single-family residence
B) An initial lien on a one- to four-unit residential building
C) Land for development
D) A commercial building
B) An initial lien on a one- to four-unit residential building
When a deed of trust is foreclosed by court sale, the action
A) provides for a one-year redemption period in some cases.
B) bars the possibility of a deficiency judgment.
C) is the same as a foreclosure by trustee’s sale.
D) is not legal in California.
A) provides for a one-year redemption period in some cases.
A trust deed foreclosed through court (judicial sale) follows the same proceedings as a mortgage foreclosure. In some cases, the borrower would have one year after the sale to redeem the property.
In which situation would a package mortgage be used?
A) When covering more than one parcel of land in a subdivision
B) When including the obligations of a first and second trust deed under one instrument
C) When securing additional financing from the lender at a later date without rewriting the mortgage
D) When encumbering real property and using personal property as additional collateral
D) When encumbering real property and using personal property as additional collateral
A package mortgage covers both real and personal property. Including the obligations of a first and second trust deed under one instrument is an all-inclusive deed of trust. Covering more than one parcel of land in a subdivision is a blanket encumbrance and securing additional financing from the lender at a later date without rewriting the mortgage is an open-end mortgage.
The loan-to-value ratio in a mortgage is defined as
A) amount of a loan as a percentage of the assessed value.
B) monthly payment of the loan on a mortgage.
C) amount of a loan as a percentage of the purchase price.
D) amount of a loan as a percentage of the appraised value.
D) amount of a loan as a percentage of the appraised value.
Under a power of sale clause, the trustee has a minimum of three months from recording a Notice of Default before
A) taking possession.
B) deed of reconveyance is made to the beneficiary.
C) foreclosure is final.
D) publication of sale.
D) publication of sale.
The law states that a minimum of three months must elapse after the recording of the Notice of Default before the publication phase of the foreclosure proceedings can begin.
A buyer purchasing real property using a conditional sales contract (also called a real property sales contract) would acquire A) an estate of inheritance. B) a freehold estate. C) all of these. D) a possessory interest.
D) a possessory interest. The buyer (vendee), under the terms of a conditional sales contract, receives an (1) "equitable" title together with (2) possession of the property. In addition the vendee receives the (3) right to acquire the fee title after all of the conditions of the contract have been met.
When a home is mortgaged, the equity belongs to A) the beneficiary. B) the trustee. C) none of these. D) the trustor.
D) the trustor.
This question uses the word mortgaged in its generic sense, so a mortgage is any device that puts property up as security for a loan. In that sense it is correct to say that in California we commonly use the trust deed as our form of mortgage. The equity in a mortgaged home belongs to the owner, or borrower. When a trust deed is used, the borrower is the trustor.
