Morgan's (IV - E, F, G; V - A)

Question 1

Secured instruments for real estate property loans

Answer 1

Mortgages

Question 2

A mortgage typically as a ___ which is the financing instrument that serves as evidence of the debt and details the terms of repayment; the mortgage is the security instrument that creates a lien on the property as security for the loan.

Answer 2

Note (aka promissory note)

Question 3

To pledge property as security for a debt while retaining possession and use of the property

Answer 3

Hypothecate

Question 4

To provide something as security for a debt, generally by surrendering possession but not full title

Answer 4

Pledge

Question 5

What are the 3 most common ways of structuring mortgages?

Answer 5

1. Ordinary mortgage - two-party instrument between a borrower and an institutional lender
2. Deed of trust (aka trust deed) - three-party instrument under which a borrower (trustor) and an institutional lender (beneficiary) have a third aprty (trustee) who holds the property’s legal title “in trust” until the debt is repaid
3. Contract for deed (aka contract for deed, land contract, installment contract) - two-party instrument between buyer and seller under which the seller agrees to accept payments until the purchase price + interest is satisfied

Question 6

What is a key difference between mortgage and deed of trust?

Answer 6

Deed of trust - non-judicial; handled by the financing contract provisions
Mortgage - requires court enforcement of lien rights

Question 7

Clause that allows the lender to call the entire balance of the loan due-and-payable upon the transfer of the property

Answer 7

Alienation (due-on-sale) clause

Question 8

Clause that allows the lender to call the entire remaining debt due on default

Answer 8

Accerlation clause

Question 9

Clause that allows the lender to attach only the collateral in the event of default, leaving all other borrower assets judgment-proof

Answer 9

Non-recourse clause

Question 10

Clause that requires the lender to provide a release of mortgage, or satisfaction of mortgage, document when the loan has been repaid

Answer 10

Defeasance clause

Question 11

Clause that either prohibits or allows a borrower to pass along the loan obligation to a subsequent buyer

Answer 11

Assumption clause

Question 12

The process of substituting one party to a contract for another, thus releasing the first party from further obligation while shifting that obligation to the new party alone

Answer 12

Novation

Question 13

Clause which helps lenders increase their return when a borrower pays off a loan ahead of schedule by charging a fee for early payoffs

Answer 13

Prepayment clause (or prepayment penalty clause)

Question 14

Clause which serves to clarify that a loan will accept a subordinate, or junior, position and remain behind another loan in the priority order of loans

Answer 14

Subordination clause

Question 15

This federal law is a part of the Consumer Credit Protection Act and has a detailed set of loan disclosure and advertising requirements for lenders who originate residential loans

Answer 15

Truth in Lending ACt (TILA)

Question 16

The regulation that implements TILA and explains how lenders are to comply with those parts of TILA that bear on consumer credit

Answer 16

Regulation Z

Question 17

Federal law that governs lender practices; applies to most loans on one-to-four family residential properties when they involve a federally related residential mortgage loan in any lien position

Answer 17

Real Estate Settlement Procedures Act (RESPA)

Question 18

Who enforces RESPA?

Answer 18

HUD

Question 19

What are the #2 keypurposes of RESPA?

Answer 19

1. Help consumers become better shoppers for settlement services
2. Eliminate kickbacks and referral fees

Question 20

___ is a standard form that clearly shows all charges imposed on borrowers and sellers in connection with a settlement. It is used nationwide for loan transactions covered by RESPA to make loan information uniform for ease in the secondary market.

Answer 20

HUD-1

Question 21

List the 3 disclosures required by RESPA.

Answer 21

1. Costs associated with settlement
2. Lender practices in loan servicing and impound/escrow accounts
3. Business relationships between settlement service providers

Question 22

List the documents that must be provided to purchase a RESPA-covered residential property.

Answer 22

1. Good Faith Estimate (GFE) of settlement costs
2. Mortgage Servicing Disclosure Statement
3. Special Information Booklet

Question 23

Which federal law requires lender to ignore specific facts about an applicant when reviewing a credit applicant?

Answer 23

Equal Credit Opportunity Act (ECOA)

Question 24

List the categories protected by ECOA.

Answer 24

1. Race
2. Color
3. Religion
4. National origin
5. Sex
6. Marital status*
7. Age*
8. Receipt of income from public assistance programs such as food stamps*

*Unique to ECOA

Question 25

This law is designed to protect consumers from inaccurate credit reporting by ensuring the right of consumers to inspect their credit reports and make corrections or attach explanations where necessary; also requires lenders to notify an applicant which reporting agency’s report is used

Answer 25

Fair Credit Reporting Act (1970)

Question 26

Which federal law applies to high LTV loans and requires PMI coverage and payments to terminate automatically once the mortgage has amortized to 78% of the original value of the property (if current on all mortgage payments and does not have a high-risk loan) AND the lender must tell the borrower at closing when the mortgage will hit that mark?

Answer 26

Homeowner’s Protection Act of 1998 (aka Private Mortgage Insurance Act)

Question 27

A lender’s charging an illegally high rate of interest

Answer 27

Usury

Question 28

A term that refers to a wide array of practices by which borrowers are taken unfair advantage of, such as extremely severe penalty fees and interest rate hikes after a late payment

Answer 28

Predatory lending

Question 29

Body of “general” laws that are based on custom, conventions, and case law rather than statutory or civil law

Answer 29

Common law

Question 30

The category of common law that applies to relationships and responsibilities created when one person acts as a representative for another

Answer 30

Common law of agency

Question 31

A person who is authorized to act on behalf of another and bind them their decisions and actions

Answer 31

Agent (aka fiduciary, person in a position of trust)

Question 32

Person who grants the authority for another to act on their behalf

Answer 32

Principa

Question 33

Agent of an agent

Answer 33

Subagent

Question 34

Person who is not in an agency relationship with a licensee

Answer 34

Custerom

Question 35

Person who is an agency relationship with a licensee, generally as a principal

Answer 35

Client

Question 36

Any person who has been granted a POA to act on behalf of someone else

Answer 36

Attorney-in-fact

Question 37

Stand-in for another and has limited, generally very temporary authority

Answer 37

Proxy

Question 38

List 5 basic fiduciary duties.

Answer 38

Loyalty, obedience, accounting disclosure, confidence

Question 39

Licensees acting as agents have specific fiduciary duties; however, they always owe what 2 obligations to all parties, including customers?

Answer 39

Honesty

Fair dealing

Question 40

List the 3 broad categories of agent authority within agency relationships.

Answer 40

1. Universal - represent the principal in all matters
2. General - broad authority to act continuously on behalf of the principal in all authorized business matters
3. Special - typically limited to a particular transaction

Question 41

Type of agency in which the agent is representing only one party, buyer, or seller in a transaction

Answer 41

Single agency

Question 42

Type of agency in which the agent represents both parties

Answer 42

Dual agency