Exam 6: Finance Part 3

Question 1

Smith owned a property that had a market value of $225,000 and wished to use it as security for a new loan for $80,000 with a rate of interest of 9%. After Smith could not find a lender, a friend came forward and offered to buy the property for $80,000 and give the seller an option to repurchase it within one year for a price of $89,000 and also allow the seller to rent the property for $600 per month. If the owner agreed and entered into this transaction with the friend, it would be referred to as
A)
an illegal option.
B)
usury.
C)
an all-inclusive or wraparound trust deed.
D)
sale-leaseback.

Answer 1

sale-leaseback.

Question 2

When a home is mortgaged, the equity belongs to
A)
the trustee.
B)
the beneficiary.
C)
the trustor.
D)
none of these.

Answer 2

the trustor.

Question 3

An institutional lender requiring impound accounts for taxes and insurance must under the law pay what percentage of interest on the accumulated impounds?
A)
4% simple interest
B)
Same rate as borrower pays on loan
C)
4% compound interest
D)
2% simple interest

Answer 3

2% simple interest

Question 4

If a person wanted to transfer equitable title and retain legal title, he or she would use a
A)
grant deed.
B)
land contract.
C)
security agreement.
D)
mortgage.

Answer 4

land contract.

Question 5

In a purchase money mortgage, the mortgagor is identified as the party who
A)
receives the note.
B)
holds the property in trust.
C)
signs the note.
D)
lends the money.

Answer 5

signs the note.

Question 6

Which of the following is NOT a cost of ownership of real property?
A)
Depreciation
B)
Interest on borrowed capital
C)
Amortization of mortgage
D)
Income foregone on equity

Answer 6

Amortization of mortgage

Question 7

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)
judicial foreclosure.
C)
foreclosure sale.
D)
sheriff's sale.

Answer 7

foreclosure sale.

Question 8

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 seller taking back a note and deed of trust
B)
A lender whose deposits are insured by a federal agency
C)
None of these
D)
A private lender making a loan

Answer 8

A lender whose deposits are insured by a federal agency

Question 9

When a trust deed is properly prepared and executed, the power of sale of the secured property is given by
A)
trustee to lender.
B)
buyer to trustor.
C)
trustor to trustee.
D)
beneficiary to seller.

Answer 9

trustor to trustee.

Question 10

Of which two types of financing are synonymous?
A)
Interim loan-Construction loan
B)
Take-out lease-Secondary financing
C)
Construction loan-Take-out loan
D)
Obligatory advances-Installment loan

Answer 10

Interim loan-Construction loan

Question 11

In making a decision with regard to a proposed real estate loan for a borrower, lenders normally seeks to minimize
A)
overall net yield.
B)
a borrower’s difficulties with regard to the results of divorce, death, or unforeseen events.
C)
the number of substandard loans in their portfolio.
D)
loan-to-value ratio.

Answer 11

the number of substandard loans in their portfolio.

Question 12

Which of the following would limit the impound payments (to be used to pay taxes and insurance) that must be impounded into escrow and added to the monthly payments of the purchaser?
A)
Housing and Urban Development
B)
Real Estate Settlement Procedures Act
C)
Truth-in-Lending "Regulation Z"
D)
The Parity Law of 1982

Answer 12

Real Estate Settlement Procedures Act

Question 13

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)
renter to tenant.
B)
lessor to lessee.
C)
beneficiary to trustor.
D)
grantor to grantee.

Answer 13

beneficiary to trustor.

Question 14

Mr. Jacobs is purchasing a parcel of real property. The provisions of the contract require the seller to convey title to the property when the buyer pays the full amount of the contract to the seller. When the buyer offers to fulfill his part of the contract and requests the seller to convey title, the seller refuses to fulfill his contractual obligation. Under these circumstances, the buyer is said to have a
A)
tender.
B)
covenant.
C)
demand.
D)
condition.

Answer 14

tender

Question 15

The National Housing Act of 1934, in addition to providing for the insuring of loans, has had a number of secondary benefits, including all of these EXCEPT
A)
instituting scientific subdivision planning to reduce neighborhood deterioration.
B)
creating a comprehensive system of valuing property and rating mortgage risk.
C)
stimulating mortgage investment on a nationwide basis.
D)
establishing maximum standards of construction.

Answer 15

establishing maximum standards of construction.

Question 16

The secondary money market creates a marketplace for the transfer of mortgages between which parties?
A)
Mortgagees and mortgagees
B)
Mortgagors and mortgagors
C)
Trustors and mortgagees
D)
Mortgagees and mortgagors

Answer 16

Mortgagees and mortgagees

Question 17

If a homeowner had a complaint regarding ECOA (Equal Credit Opportunity Act), the homeowner would file with which of the following jurisdictions?
A)
Federal Housing Administration
B)
Federal Reserve Board
C)
Housing and Urban Development
D)
State Department of Consumer Affairs

Answer 17

Federal Reserve Board

Question 18

A conventional lender considering a real estate loan would be MOST concerned with
A)
degree of risk involved.
B)
federal and state regulations.
C)
economic and financial conditions of the nation.
D)
amount of mortgage funds available.

Answer 18

degree of risk involved.

Question 19

A developer wants to purchase land and later secure financing for improvements. What clause is MOST beneficial to the developer in the original trust deed used to purchase the land?
A)
Subordination clause
B)
Exculpatory clause
C)
Acceleration clause
D)
Alienation clause

Answer 19

Subordination clause

Question 20

In real estate investments, what is a “blind pool”?
A)
An investment in which the number of shareholders is unknown
B)
Syndicates investing money without having the investment properties predetermined
C)
An investment group in which a trustee is the only one who knows the number of shares and the proportionate ownership of these shares
D)
A limited partnership in which investors do not participate in management

Answer 20

Syndicates investing money without having the investment properties predetermined

Question 21

Under the Truth-in-Lending Act, the three-day right of rescission would begin with which event, if they occurred on different days in the sequence stated?
A)
The date the loan application is made
B)
The date the note is signed
C)
The date the funds are disbursed
D)
The date the disclosure statement is delivered

Answer 21

The date the note is signed

Question 22

Junior loans that are available today can be secured through
A)
individual lenders or private lenders.
B)
savings and loans.
C)
all of these.
D)
commercial banks.

Answer 22

all of these.

Question 23

A home sold for $131,000 with a fair market value of $129,000. The seller took a purchase money first trust deed for $125,000 and sold it “without recourse” at a discount for $123,500. The buyer defaulted before any payments were actually made. The holder of the trust deed can do which of the following?
A)
Look to the seller since the “without recourse” has no effect
B)
Foreclose for $123,500
C)
Foreclose for $125,000
D)
Look to the seller since the note was usurious

Answer 23

Foreclose for $125,000

Question 24

A deed of reconveyance would be signed by the
A)
beneficiary.
B)
trustor.
C)
grantee.
D)
trustee.

Answer 24

trustee

Question 25

All of these may be negotiable instruments EXCEPT
A)
installment note.
B)
mortgage securing a promissory note.
C)
bank draft.
D)
check.

Answer 25

mortgage securing a promissory note.