Lesson 11 Test Flashcards
A borrower has agreed to accept a loan from a lender in the amount of $200. In one year, the borrower
will need to repay this loan, along with $130 in interest. Which piece of legislation or statutory
provision would automatically render this loan illegal?
(1) The Criminal Code
(2) Section 10 of the Interest Act
(3) Section 3 of the Interest Act
(4) The British Columbia Mortgage Brokers Act
1
Fanny granted a mortgage to Fly by Night Finance Co. with a term of five years and no right of prepayment until the expiration of five years. At the end of the five year term, she accepts a three year extension of the term, also without a right of prepayment. The date of the mortgage is deemed to be changed to the date of the extension agreement.
Which of the following is TRUE?
(1) Because Fanny is an individual mortgagor (i.e., not a corporation), she has an automatic right to
pay out her mortgage, so the provisions against prepayment are not enforceable.
(2) Because Fanny is an individual mortgagor with a mortgage having (now) an eight year term during which prepayment is prohibited, she may tender the full amount owing plus three
months’ interest to Fly by Night, and no further interest is chargeable.
(3) Regardless of how long the mortgage term is, Fly by Night may refuse prepayment to Fanny, and
Fanny has no rights in this regard unless the restriction on prepayment lasts so long that it constitutes a clog.
(4) The prepayment privilege in the Interest Act does not apply in these circumstances and therefore Fanny cannot prepay her mortgage until the new three year term expires.
4
Elliot, a representative for City Wide Realty, entered a listing agreement with Belinda to sell her house
for $450,000. Within a month, he found a purchaser, Lorraine, who was willing to buy the house for the list price. After Lorraine arranged a mortgage with National Bank for $275,000, she told Elliot that
she was still short on funds. Elliot suggested a vendor take back mortgage, to which Belinda agreed, and proceeded to prepare an offer which provided for a vendor take back mortgage in the amount of
$220,000.
Which of the following statements are TRUE?
A. Elliot has a duty to ensure that Belinda receives adequate security for the loan extended to Lorraine.
B. If accepted, this offer would leave Belinda under-secured.
C. The federal Interest Act would not impose a limit on the rate of interest which Belinda could charge Lorraine with respect to the mortgage transaction.
D. Under the Mortgage Brokers Act, Belinda would be regarded as a mortgage broker.
(1) All of the above
(2) A, B, and C only
(3) A and B only
(4) C and D only
2
Homer owns Simpsonacre, and decides to transfer ownership of his property to his friend Flanders for $50,000 to raise capital to open a beer parlour. The transfer documents allow Homer to remain in
his house rent-free for the duration of the agreement. Homer also has the option of having the property transferred back to him if, within 5 years, he repays Flanders the $50,000. The main purpose of this transaction was for Homer to offer land as security for a loan from Flanders. Which of the following is TRUE?
(1) This is a transfer agreement which will be fully carried out if Homer does not repay Flanders the $50,000 within 5 years.
(2) The transaction is a mortgage. After 5 years, Homer cannot regain title to the property.
(3) This is a transfer agreement. However, because Homer has an equity of redemption, Flanders can recover his $50,000 upon demand.
(4) The agreement is a disguised mortgage and Homer will have the right to redeem Simpsonacre free and clear upon repaying Flanders the $50,000.
4
A mortgage is NOT:
(1) a tool that allows parties to purchase an interest in land while financing a portion of the purchase price.
(2) a loan.
(3) security for a loan.
(4) an interest in land.
2
In September of 1994, Hilary borrowed money from Big Bucks Bank to finance the launching of her new health food store. As security for the loan, Hilary mortgaged her house. In 1997, Christine bought
the house and assumed the mortgage. One year later she stopped making payments on the mortgage.
Which of the following statements is TRUE?
(1) Big Bucks Bank cannot sue Christine because she was not a party to the original mortgage agreement.
(2) If Big Bucks Bank fails to demand the outstanding payment from Hilary by December 1999, her
liability will be extinguished by virtue of the Property Law Act provisions.
(3) After an order absolute, Hilary would only be liable for any amount still outstanding after
foreclosure on the property.
(4) None of the above
4
Beasely owns a house subject to a 5 year mortgage granted to Mah’s Finance Co. The mortgage provides that it can be assumed with the permission of the lender. Willy wants to buy Beasely’s house
and assume the mortgage which still has three years left to run. Mah’s agrees to the assumption but informs Beasely that it still intends to hold Beasely liable if Willy defaults.
Which of the following statements about the Property Law Act is TRUE?
(1) The Property Law Act does not apply on these facts since the mortgage involved is a residential mortgage.
(2) If Beasely telephones Mah’s and Mah’s give oral consent to the assumption of the mortgage, then Beasely is free from all liability under the mortgage.
(3) Mah’s may not refuse unreasonably to grant the assumption, and if Beasely satisfies the requirements of the Act then Mah’s will not be able to continue to hold Beasely responsible for Willy’s performance of the mortgage obligations.
(4) Both (2) and (3) are true.
3
An equitable mortgage can be created in each of the following ways EXCEPT:
(1) by registration in the land title office of the duplicate certificate of title.
(2) by mortgage of the equity of redemption.
(3) by an agreement to give a mortgage.
(4) by disguising a mortgage as a transfer.
1
Because she has been transferred, Velma lists her home for sale at a price of $100,000. She bought the house only 6 months ago, and at that time financed the purchase by means of an $80,000 mortgage
with a 3 year term. She receives an offer from ABC Ltd. for the full purchase price, payable by $20,000 cash, and the balance by ABC Ltd. assuming the $80,000 mortgage. The president and sole
shareholder of ABC Ltd. is a very wealthy real estate developer easily able to afford the payments.
Which of the following statements is TRUE?
(1) The financial profile of ABC Ltd. is crucial because the company, not its president, is assuming
the mortgage.
(2) If house prices are clearly going to remain stable over the balance of the term of the mortgage,
Velma need not worry about the assumption of the mortgage.
(3) The financial profile of ABC Ltd. is irrelevant if the rent it can collect on the house will cover the mortgage payment.
(4) All of the above
1
Which of the following statements about section 10 of the Interest Act are TRUE?
A. Section 10 only applies to residential mortgages of $150,000 or less.
B. Section 10 provides an absolute right to prepay a mortgage after 5 years from the date of the
mortgage.
C. Section 10 does not provide corporate mortgagors with the right to tender prepayment of a
mortgage.
D. After the mortgagor has made a tender in accordance with section 10 the mortgagee may not
claim any additional interest.
E. An individual mortgagor will be able to make a tender under section 10 after 5 years have
elapsed from the date of the mortgage.
F. If, at the end of the term, the parties renew the mortgage for an additional 5 years and move the
date of the mortgage forward, the mortgagor will not be eligible to prepay his mortgage in
accordance with section 10., until another 5 years has elapsed.
(1) C, D, E, and F only
(2) A, C, and D only
(3) B and D only
(4) A, B, and D only
1
Vendor “take back” mortgages:
(1) may be used when the purchaser cannot obtain a loan through a bank.
(2) are limited to a maximum loan value of 75% of each subject property’s value.
(3) are ranked lower in priority than mortgages held by institutional lenders.
(4) are secured both by the land and by the vendor’s guarantee of the lending institution’s loan.
1
The Interest Act provides that:
(1) if a document does not mention interest, then only 5% per annum is chargeable.
(2) if a document mentions interest, but does not specify the rate of interest chargeable, then the
rate prevailing in the community is chargeable.
(3) if a mortgage document does not mention interest, then no interest is chargeable.
(4) if a mortgage does not require interest at a set rate after maturity or default, the lender can only
collect interest at the rate of 5%.
3
When an order absolute is obtained by a petitioner who is in the position of a second mortgagee:
(1) the petitioner may sell the property after taking title to it and the petitioner does not have to account to the mortgagor for any profit made.
(2) the petitioner will be entitled to recover the mortgage debt upon sale of the property, but must account to the borrower for any surplus amount.
(3) in the case of a shortfall between the sale proceeds and the mortgage debt, the petitioner can sue the borrower on the borrower’s personal covenant to pay.
(4) in order to sell the property, the petitioner must obtain the approval of the court.
1
The Interest Act provides a number of rules relating to the charging of interest.
Which of the following is not one of them?
(1) Where a mortgage calls for blended payments of principal and interest, a statement must appear in the mortgage showing the principal amount and the rate of interest calculated annually or
semi-annually not in advance.
(2) Where a mortgage term provides for the payment of interest on default, unless the term specifies the rate of interest payable, the lender will be limited to 5%.
(3) The interest rate on arrears may not exceed the rate payable on the principal not in arrears.
(4) Where interest is not mentioned in a mortgage, only a rate of 5% can be charged.
4
Maurice operates a beauty salon in a small shop which he owns. He decided to expand the size of his shop by doing a renovation. To finance the renovation Maurice granted a mortgage on his shop to Beauty Corp., an international manufacturer of hair and skin care products. Beauty Corp. loaned Maurice $150,000 for a period of 8 years at an interest rate of 15.5% calculated yearly not in advance. The mortgage contained the following terms:
CLAUSE A: In case the borrower defaults and the mortgagee has to take legal action to recover the
mortgage monies, the mortgagee may retain an amount equal to three months at the specified rate of interest by way of indemnity.
CLAUSE B: In consideration of one dollar receipt of which is hereby acknowledged, the borrower grants
to the mortgagee an irrevocable option to purchase the mortgaged property at any time within the mortgage term for a payment of $200,000.
CLAUSE C: The borrower agrees to use and sell only the mortgagee’s lines of hair and skin care products for a period of 10 years from the date of this mortgage.
CLAUSE D: In the event the borrower sells or agrees to sell the mortgaged property, the full amount of
principal and interest owing shall become due and payable immediately, at the mortgagee’s option.
Which of the following statements is TRUE?
(1) Clause A is an enforceable clause designed to protect a mortgagee from bearing expenses related
to recovering its money where a borrower defaults.
(2) Clause A is a clog on the equity of redemption and for that reason is unenforceable.
(3) Clause A is a collateral advantage which is unenforceable under the Consumer Protection Act.
(4) Clause A is an indemnity clause which is unenforceable because it offends against the Interest
Act.
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