Deck 23: Credit and Secured Transactions

Question 1

Credit may be extended on either an unsecured or a secured basis.

Answer 1

True

Question 2

Security interests may not be taken in intangible property.

Answer 2

False

Question 3

A deficiency judgment can be issued in all states any time that a debtor has been deficient in repaying a debt.

Answer 3

False

Question 4

Mechanic's liens are exempt from the rules permitting defaulting debtor's the right of redemption.

Question 5

Prima Company goes to Urban Bank and borrows $100,000.In this case,Prima Company is the creditor,and Urban Bank is the debtor.

Question 6

The debtor is the party that extends credit,and to whom the debt is owed.

Question 7

Security interests may be taken in personal property.

Question 8

Some states' laws provide for the use of a deed of trust and note instead of a mortgage.

Question 9

In a mortgage,the creditor is the mortgagor.

Question 10

Many states have enacted recording statutes that require a mortgage or deed of trust to be recorded in the county recorder's office in the county in which the real property is located.

Question 11

In a transaction involving unsecured credit,the lender may sell the collateral pledged by the borrower to satisfy the debt obligation.

Question 12

Security interests may be taken in real property.

Question 13

Secured credit refers to credit where there is a second party to pay the debt in the event that the original debtor does not.

Question 14

A lender who is unsure whether a debtor will have sufficient income or assets to repay a loan may require another person to guarantee payment.If the borrower fails to repay the loan,that person is responsible for paying it.This responsibility is called trusteeship.

Question 15

In a mortgage,the debtor is the mortgagee.

Question 16

Unsecured credit does not require any collateral to protect the payment of the debt.

Question 17

In a credit transaction,the borrower is the debtor,and the lender is the creditor.

Question 18

Because lenders are sometimes reluctant to lend large sums of money simply on the borrower's promise to repay,many of them take a security interest in the property purchased or some other property of the debtor.

Question 19

In general,with regard to a loan connected with real property,a deed of trust can be used to accomplish the same result as a mortgage,since the deed of trust is an instrument that gives the creditor a security interest in the debtor's property that is pledged as collateral.

Question 20

Recording statutes give potential lenders or purchasers of real property the ability to determine whether there are any existing liens on the property.

Question 21

A television purchased for your home and a television purchased for your business would both be considered "goods."

Question 22

Revised Article 9 (Secured Transactions)of the Uniform Commercial Code (UCC)governs secured transactions in personal property.

Question 23

Intangible personal property includes equipment,vehicles,furniture,computers,clothing,and jewelry,while tangible personal property includes securities,patents,trademarks,and copyrights.

Question 24

A transaction involving a security interest generally must include three parties.

Question 25

A security interest must be in writing,unless the creditor has possession of the collateral.

Question 26

In terms of the right of redemption,most state laws provide that any party in interest,such as a second mortgage holder or another lienholder,may redeem the property during the redemption period.

Question 27

Josh buys a home and finances it through Smyrna National Bank with a Deed of Trust.Smyrna National Bank has legal title to the home.

Question 28

Some states permit a mortgagee to bring a separate legal action to recover a deficiency from the mortgagor.If the mortgagee is successful,the court will award an equitable judgment that entitles the mortgagee to recover the amount of the judgment from the mortgagor's other property.

Question 29

Most states permit foreclosure by power of sale,and this right is implicitly conferred in the mortgage or deed of trust.

Question 30

A security interest may not be given in accounts receivable.

Question 31

The purpose of a mechanic's lien is to give the homeowner a way to collect against a person who provides inadequate materials for home building or repair.

Question 32

The non-recordation of a mortgage or deed of trust affects the legality of the instrument between the mortgagor and the mortgagee.

Question 33

In a foreclosure sale,any surplus must be paid to the mortgagee.

Question 34

A mortgagor is obligated to pay the amount of the mortgage according to the terms of the mortgage,even if the document is not recorded.

Question 35

Under a power of sale,the procedure for that sale is provided in the mortgage or deed of trust,and no court action is necessary.

Question 36

If there is a default on a secured credit transaction,the only remedy is litigation.

Question 37

An improperly recorded document is not effective against either subsequent purchasers of the real property,or other mortgagees or lienholders who have no notice of the prior mortgages.

Question 38

If a mortgage is not recorded,the rights and obligations regarding the mortgage are not enforceable against the parties to the mortgage.

Question 39

All states except Nevada and Wyoming permit foreclosure sales.

Question 40

Anti-deficiency statutes usually apply only to non-purchase money mortgages.

Question 41

A security agreement may provide that the security interest attaches to property that was not originally in the possession of the debtor when the agreement was executed.This interest is usually referred to as a transparent lien.

Question 42

A person who perfects a security interest by possession of the collateral is not required to file a formal financing statement,but must publish notice in a newspaper announcing the existence of the lien.

Question 43

No financing statement must be filed for perfection of a security interest if the creditor has physical possession of the collateral.

Question 44

Perfection does not always protect a secured party from third-party claims.

Question 45

The automatic perfection rule applies to a purchase money security interest in consumer goods.

Question 46

A purchase money security interest takes priority over perfected security interests in after-acquired property,even if the perfected interest predates the purchase money security interest.

Question 47

Only one creditor can have a perfected security interest in specific collateral at any given time.

Question 48

If two or more secured parties claim an interest in the same collateral,but neither has a perfected claim,the first to attach has priority.

Question 49

Federal law specifies where a financing statement must be filed in order for it to be valid.

Question 50

A perfected security interest will take priority over an unperfected security interest,regardless of when the perfected interest attached.

Question 51

A debtor who does not have ownership or possessory rights to property cannot give a security interest in that property.

Question 52

A mechanic's lien will take priority over a perfected lien that predates the creating of the mechanic's lien.

Question 53

A financing statement is generally good for one nonrenewable five-year term.

Question 54

In order to perfect a security agreement,a security agreement must be filed.

Question 55

Detachment means that the creditor has an enforceable security interest against the debtor,and can satisfy the debt out o the designated collateral.

Question 56

Perfection is necessary in order for a creditor to have a valid security interest.

Question 57

Financing statements must be filed to perfect security interests in motor vehicles,trailers,boats and fixtures.

Question 58

If the collateral is inventory,the perfected purchase money security interest prevails if the purchase money secured party gives written notice of the perfection to the perfected nonpurchase money secured party.

Question 59

To be valid,there is no requirement that a written security agreement be signed by the creditor.

Question 60

Unless otherwise stated in a security agreement,if a debtor sells,exchanges,or disposes of collateral subject to such an agreement,the secured party automatically has the right to receive the sale proceeds of the sale,exchange,or disposition.

Question 61

A surety is secondarily liable for paying the principal debtor's debt when it is due.

Question 62

In a guaranty arrangement,the guarantor is primarily liable on another person's debt.

Question 63

Common garnishees include employers who possess wages due a debtor.

Question 64

Embellishment is a post-judgment order that permits the seizure of a debtor's property that is in the possession of third parties.

Question 65

Frank has agreed to be a surety for his daughter's loan.If she defaults,the lender must attempt to collect the debt from the daughter first,and may only sue Frank if the daughter refuses to pay.

Question 66

State law limitations on garnishment control are often less stringent than federal law.

Question 67

Common garnishees include banks in possession of funds belonging to a debtor.

Question 68

Generally,if the sale of collateral is insufficient to repay a secured loan plus interest,the creditor may bring a lawsuit against the debtor to recover a ________ judgment for the difference.

A) default
B) deficiency
C) directed
D) summary
E) declaratory

Question 69

Title III of the Consumer Credit Protection Act allows debtors who are subject to a writ of garnishment to retain a total of (1)75 percent of their weekly disposable earnings and (2)an amount equal to thirty hours of work paid at federal minimum wage.

Question 70

Attachment is a post-judgment court order that permits the seizure of a debtor's property that is in the debtor's possession.

Question 71

A writ of execution is a court order directing the sheriff or other government official to seize the debtor's property in the debtor's possession and authorizing a judicial sale of that property.

Question 72

To obtain a writ of attachment,a creditor must follow the procedures of state law,give the debtor notice,and post a bond with the court.

Question 73

Sometimes,a creditor refuses to extend credit to a debtor unless a third party agrees to become liable on the debt.The third person's credit becomes the security for the credit extended to the debtor.This relationship may be either a surety arrangement or a guaranty arrangement.

Question 74

In a strict surety arrangement,the surety assumes primary liability on another person's debt.

Question 75

A person who acts as a surety is commonly called an accommodation party or co-signer.

Question 76

Buyers in the ordinary course of business who purchases goods from a merchant take the goods free from any perfected or unperfected security interest in the merchant's inventory,even if the buyer knows of the existence of the security interest.

Question 77

In order for a surety to be liable,the principal does not have to be in default on the debt,and the creditor does not have to have exhausted all its remedies against the principal debtor before seeking payment from the surety.

Question 78

Execution is a pre-judgment court order that permits the seizure of a debtor's property that is in the debtor's possession while a lawsuit against the debtor is pending.

Question 79

The terms "accommodation party" and "cosigner" are synonymous.

Question 80

If the collateral is something other than inventory,a perfected purchase money security interest prevails over a perfected nonpurchase money security interest in after-acquired property if it is perfected when the debtor receives possession of the collateral,or within twenty days after the debtor receives possession of the collateral.