Question 1

A construction loan can include all of the following conditions EXCEPT:&#10;A) disbursement only after certain construction has been completed&#10;B) a release of that portion of the collateral on which disbursement of funds has been made&#10;C) a method of assuring the lender that money disbursed to a borrower/builder is used to pay a project's bills&#10;D) a requirement for periodic inspection to assure the lender that all plans and specifications are being met

Accepted Answer

Construction loans typically do not include a condition that releases the portion of the collateral on which disbursement of funds has been made. Instead, the entire project usually serves as collateral for the loan until the loan is fully repaid.

Question 2

Speculative financing of a construction loan for houses usually requires the borrower to arrange:&#10;A) for a pre-sale of all housed to be financed&#10;B) endorsement of the loan by the future homebuyers&#10;C) an acceptable take-out commitment&#10;D) a Builder with over $1 million in assets

Accepted Answer

Speculative financing of a construction loan for houses requires the borrower to arrange for an acceptable take-out commitment. This is a commitment from a permanent lender to provide take-out financing once the construction of the houses is complete. This commitment assures the construction lender that once the houses are built, the borrower will be able to pay off the construction loan with the proceeds from the take-out loan. Pre-sales and endorsement by future homebuyers are not necessary for speculative financing, and the builder's assets are not relevant to the financing arrangement.

Question 3

The top designation for a accountant preparing a financial statement is:&#10;A) Certified Management Accountant&#10;B) Certified Public Accountant&#10;C) Federal Approved Accountant&#10;D) Designated Accountant

Accepted Answer

The top designation for an accountant preparing a financial statement is a Certified Public Accountant (CPA). A CPA is a licensed professional who has passed the Uniform CPA Examination and meets the education and experience requirements for their state or jurisdiction. CPAs have a thorough understanding of accounting principles and are held to high ethical and professional standards.

Question 4

Which of the following is not one of the more common risks of investing in commercial real estate contemplated by the mortgagee and mortgagor?&#10;A) Financial risk&#10;B) Liquidity risk&#10;C) Regulatory risk&#10;D) Management risk

Accepted Answer

Financial risk, liquidity risk, and management risk are all common risks that the mortgagee and mortgagor consider when investing in commercial real estate. Regulatory risk, however, is not as common and may not be a primary concern for many investors. Regulatory risk refers to the risk of changes in laws and regulations that may impact the value or profitability of the property. While this risk can be present in some situations, it is not as prevalent as the other risks listed.

Question 5

A release clause in a real estate development loan agreement is one that:&#10;A) allows the borrower to withdraw from the agreement&#10;B) defines the conditions under which lots can be released from the mortgage for resale to builders&#10;C) calls for releasing collateral back to the lender&#10;D) triggers the release of a lender from any further participation in the loan

Accepted Answer

A release clause in a real estate development loan agreement defines the conditions under which lots can be released from the mortgage for resale to builders. This clause allows developers to sell individual lots to builders, allowing them to begin building homes on the lots before the entire mortgage is paid off. This can help generate cash flow for the developer, as well as increase the value of the overall development.

Question 6

A study that projects the potential success or failure of a proposed project is called:&#10;A) feasibility study&#10;B) an appraisal&#10;C) a pro forma study&#10;D) a future possibility study

Accepted Answer

A feasibility study is a detailed analysis of a proposed project to determine its potential success or failure. It includes an assessment of factors such as market demand, competition, technical feasibility, financial viability, and potential risks and challenges. The study provides valuable information that can help stakeholders make informed decisions about whether or not to proceed with the project.

Question 7

An application for a commercial loan would include all of the following items EXCEPT:&#10;A) information on the applicant company and the individuals involved&#10;B) complete financial statements and property evaluation&#10;C) a statement of compliance with RESPA requirements&#10;D) projection of income to show source of loan repayment

Accepted Answer

A statement of compliance with RESPA requirements is not typically included in an application for a commercial loan, as RESPA (the Real Estate Settlement Procedures Act) primarily covers residential transactions. The other items listed (information on the applicant company and individuals involved, financial statements and property evaluation, and projection of income to show source of loan repayment) are common components of a commercial loan application.

Question 8

The financial statement most commonly used in preliminary examination of real property investment that show some detail on income and operating expenses is the:&#10;A) Balance Sheet&#10;B) Accrual Statement&#10;C) Profit and Loss Statement&#10;D) Operating Statement

Accepted Answer

The Operating Statement, also known as an Income Statement or Statement of Operations, provides information on the income and operating expenses of a property. It is commonly used in real estate investment analysis to determine the property's net operating income (NOI) and potential cash flow. The other options, such as the Balance Sheet and Accrual Statement, do not provide as much detail on income and expenses. The Profit and Loss Statement is similar to the Operating Statement, but typically used for smaller businesses rather than real estate investments.

Question 9

Unlike the permanent loan, a construction loan usually requires the endorsement of the:&#10;A) Owner/builder&#10;B) Future tenants&#10;C) Landowner&#10;D) Mortgagee

Accepted Answer

A construction loan is a short-term loan used to finance the construction of a property. In most cases, the owner/builder must endorse the loan since they are responsible for overseeing the construction process and ensuring it is completed on time and within budget. The lender wants to ensure that the borrower has sufficient experience and expertise in construction to minimize the risk of default.

Question 10

Restating financial information on a standard form accomplishes which of the following?&#10;A) Adds billable hours to an accountant's fee&#10;B) Increases the amount of information that can be filed&#10;C) Makes comparisons easier and shows up missing information&#10;D) Makes a good impression on clients

Accepted Answer

Restating financial information on a standard form makes comparisons easier and shows up missing information. Standard forms typically have uniform sections that allow for easy comparison between different statements, while restating information makes it easier to identify any missing or incomplete sections of the report. This helps ensure that the financial information is accurate and complete. Adding billable hours to an accountant's fee or making a good impression on clients are not the primary purposes of restating financial information on a standard form.

Question 11

The major difficulty in obtaining a raw land purchase loan is:&#10;A) the land is hard for the lender to inspect&#10;B) the value is difficult to determine&#10;C) it is not certain that its value will increase&#10;D) it produces no income while expenses like taxes and insurance continue

Accepted Answer

The answer of The major difficulty in obtaining a raw...

Question 12

Failure to properly carrying forward approved work-in-place on the Mortgagors Draw Requisition occurs in which of the following type of mortgage loan?&#10;A) Single Family Conforming Loan&#10;B) FHA REO Property Loan&#10;C) Deed for Contract Loan&#10;D) Construction Loan

Accepted Answer

The answer of Failure to properly carrying forward approved work-in-place...

Deck 11: Commercial Loans: Construction and Land Loans