Deck 10: Legal Aspects of Real Estate Finance

Question 1

A nonnegotiable note may be enforceable.

Answer 1

True

Question 2

An unqualified endorsement contains no warranties.

Answer 2

False

Question 3

Generally, a note cannot be prepaid before the date established in the note for payment.

Answer 3

True

Question 4

A note signed by both A and B on which they have joint and several liability is one on which A is responsible for one-half of the note and B is responsible for one-half of the note.

Question 5

A state statute that establishes a ceiling or maximum rate of interest to be charged on a loan is called a usury statute.

Question 6

Each co-maker of a note is fully responsible for the payment of the note.

Question 7

Forgery of a maker's signature is a defense to a holder in due course.

Question 8

Notes are often transferred by their makers.

Question 9

A nonnegotiable note is not capable of being transferred.

Question 10

An unqualified endorsement imposes upon the endorser the obligation to pay the note in the event the maker does not.

Question 11

A maker of a note is released by the sale of the collateral securing the note.

Question 12

A maker of a note is not released by the sale of the collateral securing the note.

Question 13

An endorser who endorses a note without recourse warrants that all signatures on the note are genuine and authorized.

Question 14

Incapacity of the maker is not a defense to a holder in due course.

Question 15

Only a nonnegotiable note can be transferred to a holder in due course.

Question 16

An endorsement without recourse negates any obligation on the part of the endorser to pay the note.

Question 17

Only a negotiable note can be transferred to a holder in due course.

Question 18

The method of transferring a note is by endorsement.

Question 19

Usury statutes establish a minimum rate of interest that can be charged on the loan.

Question 20

Nonnegotiable notes are not enforceable.

Question 21

An oral guaranty is enforceable.

Question 22

The mortgagor of a mortgage is the lender or creditor.

Question 23

The penalty for usury in some states may be forfeiture of the entire loan amount.

Question 24

A mortgage cannot be given to secure a future debt.

Question 25

Most notes are witnessed and notarized.

Question 26

The legal means of requiring that real property conveyed in a mortgage be sold and the proceeds used to pay the debt is called foreclosure.

Question 27

Power of sale foreclosure is generally a judicial foreclosure proceeding.

Question 28

A guaranty of a note must be written.

Question 29

The mortgagee of a mortgage is the owner of the property.

Question 30

A promise to pay the debt of another person is called a guaranty.

Question 31

All foreclosures must take place through judicial proceedings.

Question 32

Property sold with a mortgage assumption means that the purchaser does not have personal liability to pay the debt.

Question 33

A foreclosure of a first mortgage will generally terminate a second mortgage lien on the secured property.

Question 34

Foreclosures may take place either judicially or nonjudicially.

Question 35

A change in the terms of a guaranteed note made without the guarantor's consent generally releases the guarantor.

Question 36

A mortgage securing a note can be transferred separately from the note.

Question 37

Notes are rarely witnessed and notarized.

Question 38

To have a valid mortgage, a valid debt must exist.

Question 39

If property is sold subject to a debt, it means that the purchaser does not have personal liability to pay the debt.

Question 40

Power of sale foreclosure is generally a nonjudicial foreclosure proceeding.

Question 41

A borrows $50,000 from Bank and pledges real property as security. After the loan, A sells the property to B, who buys subject to the mortgage. B then defaults on the mortgage loan. Under the following example, which of the following statements is/are true?

A) The bank may foreclose on the property.
B) The bank can sue A to recover debt.
C) The bank cannot sue B to recover debt.
D) A cannot sue B for reimbursement if A pays the bank.
E) All of the above.
F) None of the above.

Question 42

Which of the following is not a defense to a holder in due course?

A) Fraud in the inducement
B) Forgery of the maker's signature
C) Payment to the wrong person
D) Duress of the maker in signing the note

Question 43

A foreclosure sale by a trustee of a deed of trust is called a deed in lieu of foreclosure.

Question 44

Acme Bank is the payee on a negotiable note made by Taylor Reed. Acme Bank sells the note to XYZ Investment Company. The note is endorsed by Acme "without recourse" to XYZ. After the sale, XYZ discovers that the signature of Taylor Reed on the note is a forgery. Taylor refuses to pay the note. Can XYZ recover its loss from Acme Bank?

Question 45

Which of the following is not a mortgagee's remedy for a debtor's default on a mortgage?

A) Judicial foreclosure
B) Nonjudicial foreclosure
C) Appointment of a receiver
D) Injunction

Question 46

Anti-deficiency laws generally provide that a mortgage creditor cannot sue a mortgage debtor for a deficiency owed on the debt unless the creditor can establish that the property sold for fair market value at the foreclosure sale.

Question 47

A debtor's rights in bankruptcy are determined by:

A) the law of the state where the debtor resides.
B) the law of the state where the creditor resides.
C) federal law.
D) the law of the state where the property is located.

Question 48

A deed in lieu of foreclosure is not a remedy for default stated in the mortgage.

Question 49

Josie Cohen borrowed money from Second Bank and Trust to buy her home. She gave Second Bank a mortgage on the home. Josie loses her job and is unable to make the payments on the mortgage. Second Bank gives Josie notice that the delinquent payments must be paid by July 1 or the bank will foreclose on the mortgage. Josie does not make the payments and Second Bank starts foreclosure proceedings. Josie obtains a loan from her aunt in an amount sufficient to pay off entirely the debt owed to Second Bank. Josie tenders the full amount to Second Bank, but Second Bank refuses to accept the money. Second Bank says that Josie was too late to stop the foreclosure. Can Josie require Second Bank to accept payment of its loan in full?

Question 50

A deed in lieu of foreclosure in most states is illegal.

Question 51

A mortgage given to secure any and all debt between the mortgagor and the mortgagee is called a(an):

A) deed of trust.
B) wrap mortgage.
C) open-end mortgage.
D) installment mortgage.

Question 52

A person other than the debtor or maker of a note who promises the payee of the note that the debtor's note will be paid is called a(an):

A) endorser.
B) receiver.
C) guarantor.
D) co-maker.

Question 53

Which of the following is/are true about a bankrupt debtor?

A) Bankruptcy enjoins all foreclosure proceedings against the debtor.
B) A bankrupt debtor can terminate executory contracts to purchase real property.
C) A bankrupt debtor can terminate unexpired leases.
D) All of the above.
E) (A) and (C).

Question 54

A deed in lieu of foreclosure may cause a merger of estates that terminates the lender's mortgage.

Question 55

Post-foreclosure redemption is permitted in all states.

Question 56

A debtor always has the right to pay off the debt and redeem the real property from foreclosure prior to the sale.

Question 57

A state statute that establishes a ceiling or maximum rate of interest to be charged on a loan is a(n):

A) usury statute.
B) foreclosure statute.
C) redemption statute.
D) endorsement statute.

Question 58

Which of the following is/are requirements for a valid mortgage?

A) Names of the parties
B) A valid description of the property
C) Effective delivery to the lender
D) All of the above
E) (A) and (B)

Question 59

A foreclosure sale generally has the effect of divesting and terminating all junior encumbrances on the real property.

Question 60

An endorser of a note who endorses without recourse warrants the following:

A) The endorser will pay the note.
B) The note has not been materially altered.
C) The note can be collected in full from the maker.
D) The endorser has good title to the note.
E) (A) and (C) above.
F) (B) and (D) above.

Question 61

Great Land Investment Company owned vacant land that it intended to develop into a residential subdivision. Great Land had borrowed money to buy the land from Big Town Bank and had given Big Town Bank a mortgage on the land. Great Land sells the property to Quality Homes who intends to develop the land. The land is transferred to Quality Homes "subject to" the Big Town Bank Mortgage. Quality gets into financial trouble and cannot pay the loan. Big Town Bank wants to su e Quality Homes for the full amount of the unpaid debt. Will Big Town Bank be successful in this action?