Unit 7

Question 1

What basically happens in a foreclosure?

Answer 1

Lienors force a property owner to give up title. This may involve either the lienors’ forcing the owner to sell and pay off the creditors, or taking title directly.

Question 2

What are the basic differences between the three types of foreclosure?

Answer 2

Judicial foreclosure: sale under court supervision
Non-judicial foreclosure: sale without court supervision
Strict foreclosure: no sale; immediate transfer to lienholder.

Question 3

What are the differences between the two kinds of right of redemption and the right of reinstatement?

Answer 3

Equitable right of redemption gives the borrower the right to pay off loan amounts and reclaim a foreclosed property up until the completion of the foreclosure sale.

Statutory right of redemption allows the borrower to pay the debt and reclaim the property for a statutory period which may go beyond the completion of the sale (up to a year, in some states).

Statutory right of reinstatement allows the borrower to cure the default and reinstate the loan during a statutory period before the law suit is concluded.

Question 4

What happens to the sale proceeds in a judicial sale?

Answer 4

Proceeds are used to pay 1) costs of the sale; 2) special assessment and ad valorem taxes; 3) first mortgage; 4) other mortgages and liens in order of recording; 5) remainder to the borrower.

Question 5

What is the purpose of a deficiency judgment?

Answer 5

It enables a lienor to attach the personal and real property of a lienee when the foreclosure sale has not produced enough funds to pay what the lienor is owed.

Question 6

What power does a lender have if a mortgagor defaults in a state that allows non-judicial foreclosure and the mortgage document includes a “power of sale” clause?

Answer 6

The lender can give the borrower notice of the default and a chance to cure it, after which the lender may auction the property.

Question 7

What happens to the title to a foreclosed property in a strict foreclosure?

Answer 7

It transfers immediately to the lienholder.

Question 8

What is the function of a deed in lieu of foreclosure?

Answer 8

It avoids foreclosure by transferring legal title to the mortgagee.

Question 9

Foreclosure

Answer 9

is a legal process by which a defaulting borrower loses their interest in the property used as collateral for a mortgage loan or deed of trust.

Question 10

When a borrower loses a home to foreclosure:

Answer 10

Any equity which existed is most likely lost.
The foreclosure becomes public record.
The borrower’s credit is damaged.

Question 11

Lacking the “power of sale” provision, a lender must file a _____ and undertake a court proceeding to enforce the lien.

Answer 11

foreclosure suit

Question 12

Lacking the “power of sale” provision, a lender must file a foreclosure suit and undertake a court proceeding to enforce the lien. The suit asks the court to:

Answer 12

Terminate the defendant’s interests in the property
Order the property sold publicly to the highest bidder
Order the proceeds applied to the debt

Question 13

If a borrower has failed to meet loan obligations, the lender can ____ the loan.

Answer 13

accelerate

Question 14

A _____ gives public notice that the mortgaged property may soon have a judgment issued against it.

Answer 14

lis pendens

Question 15

A _____ is only legal notice of a pending action that involves the title to, or possession of, a specific piece of real estate. It could not be used in a suit to recover attorney fees or broker commissions.

Answer 15

notice of pendency

Question 16

right of redemption

Answer 16

The borrower’s right of redemption is the right to reclaim a property that has been foreclosed by paying off amounts owed to creditors.

Question 17

equitable right of redemption.

Answer 17

The right to redeem property between the time of the default and the foreclosure sale is the equitable right of redemption.

Question 18

statutory right of redemption.

Answer 18

Statutory periods of up to a year following the sale for the owner of a foreclosed property to redeem the estate are known as statutory right of redemption.

Question 19

Statutory right of reinstatement

Answer 19

is available when the borrower wants to cure the default (bring payments up to date) and reinstate the loan as if the loan had not been accelerated at all.

Question 20

writ of execution

Answer 20

The court’s writ of execution authorizes an official to seize and sell the foreclosed property.

Question 21

Judicial sale

Answer 21

All parties are notified in writing of the sale.
The sale is advertised in a newspaper with general circulation.
The property is sold to the highest bidder.

Question 22

The winning bidder receives a ____ not a deed.

Answer 22

certificate of sale,

Question 23

The person holding the certificate will receive a _____ only after the sale has been confirmed.

Answer 23

sheriff’s deed

Question 24

Sale proceeds - order of payment:

Answer 24

1 - the cost of the sale
2- any special assessment taxes and general (or ad valorem) taxes
3- the first mortgage (determined by the order of recording)
4 -whatever is recorded next

Question 25

deficiency judgment

Answer 25

A deficiency judgment enables the lender to attach and foreclose a judgment lien on other real or personal property the borrower owns.

Question 26

When there is a “power of sale” provision in the mortgage or trust deed document, a _______ can force the sale of the liened property without a foreclosure suit. The “power of sale” clause in effect enables the mortgagee to order a public sale without court decree.

Answer 26

non-judicial foreclosure

Question 27

If the borrower fails to cure the default or use other legal means to stop the sale, the lender may conduct a_________.

Answer 27

public auction

Question 28

There is no________ in non- judicial foreclosure.

Answer 28

redemption right

Question 29

If proceeds do not cover the debt, the lender does not obtain a deficiency judgment or lien, but must file a new ____ against the borrower.

Answer 29

deficiency suit

Question 30

A court proceeding that gives the lender title directly instead of giving cash proceeds from a public sale.

Answer 30

First, the lender must give appropriate notice to the delinquent borrower.
Next, the lender prepares and records the paperwork.
After a prescribed period, the lender files suit in court.
The court orders the borrower to pay the mortgage debt by a certain date.

Question 31

A ____________ transfers legal title to the lienholder. A lender may accept a deed in lieu of foreclosure from a borrower the lender deems financially incapable of making mortgage payments.

Answer 31

deed in lieu of foreclosure

Question 32

A _____ occurs when a lender allows a borrower in default on mortgage loan payments to sell the mortgaged property for less money than necessary to satisfy the loan in order to avoid the delay and expense of a foreclosure sale.

Answer 32

short sale

Question 33

All of the following are common consequences suffered by a mortgagor in a foreclosure procedure EXCEPT
a) all or most equity is lost.
b)the mortgagor is embarrassed by public knowledge of the foreclosure.
c) the borrower’s credit is damaged for a long time.
d)the borrower is not allowed to apply for another mortgage for the rest of their life.

Answer 33

d)the borrower is not allowed to apply for another mortgage for the rest of their life.

Question 34

Which of the following statements best defines equitable right of redemption?
a) The legal right of a borrower to seek a reduction in payments on a property mortgage.
b) The legal right of a borrower to redeem property between the time of default and the foreclosure sale.
c) The legal right of a borrower to seek a statutory right of reinstatement.
d) The legal right of a borrower to appeal a deficiency judgment within 7 months of notice.

Answer 34

b) The legal right of a borrower to redeem property between the time of default and the foreclosure sale.

Question 35

Ronald defaulted on his home mortgage payments. The lender obtained a court order to foreclose on the property. At the foreclosure sale, Ronald’s house sold for $29,000 and the unpaid balance of his loan is $40,000. What must the lender do to recover the $11,000 Ronald still owes?

Answer 35

Seek a deficiency judgment.

Question 36

If a property sold at a court foreclosure does not sell for an amount sufficient to satisfy the outstanding mortgage loan debt, the mortgagee may sue for

Answer 36

a deficiency judgment.

Question 37

The completion of a foreclosure sale would terminate which of the following?

Answer 37

Equitable redemption rights

Question 38

Which type of foreclosure involves a court-ordered transfer of the mortgaged property to the lender?

Answer 38

Strict

Question 39

Which of the following is NOT one of the means of enforcing a lien against real estate?

Answer 39

Direct takeover

Question 40

In a strict foreclosure,

Answer 40

a lender takes title to the liened property directly.

Question 41

Which type of foreclosure involves a court-ordered transfer of the mortgaged property to the lender?

Answer 41

Strict