Question 1

United Contractors Inc. holds a lien on Vista Estate's real property. This property can be sold to satisfy the debt if, before the sale, notice is given to

Accepted Answer

A lien gives the holder the right to sell the property of a debtor to satisfy a debt. However, before the sale, notice must be given to the property owner, in this case, Vista Estate, to allow them the opportunity to satisfy the debt or dispute the lien.

Question 2

Building Company adds a shipping dock to the property of Corporate Complex, but the owner does not pay. Building files a lien on Corporate's property. The property

Accepted Answer

A lien on a property, like the one filed by Building Company, serves as a legal claim against the property to secure payment of the debt. It does not automatically require the sale of the property but can be used to guarantee payment.

Question 3

Brew Pub Company's debt to Credit Service is past due. Credit obtains a judgment against Brew, but the firm refuses to pay. Credit asks the court to order the seizure of Brew's property. This is a request for

Accepted Answer

A writ of execution is a court order that allows a creditor to seize and sell a debtor's property to satisfy a judgment.

Question 4

To buy a townhouse, Becky obtains a mortgage loan from Countywide Bank. The lender should record the mortgage to

Accepted Answer

Recording the mortgage officially establishes the lender's interest in the property, ensuring legal recognition and priority over subsequent claims.

Question 5

Because a mortgage conveys an interest in property to the lender, to protect the lender's investment, the mortgage typically requires the borrower to

Accepted Answer

Maintaining the property ensures that its value, which secures the loan, does not diminish, protecting the lender's investment.

Question 6

To buy a ranch house, Frieda obtains a mortgage loan from Grove Loans LLC. Later, Frieda informs Grove that she may default on the payments. The lender agrees to delay taking possession of the property and selling it. The parties negotiate a payment plan for the amount due on the loan. This is

Accepted Answer

A workout agreement is a negotiated plan between a borrower and lender to restructure the borrower's debt obligations, often involving new payment terms to avoid default or foreclosure.

Question 7

Petro Refinery asks Quality Bank for a loan to increase its inventory. Quality requires Roma, Petro's president, to sign a personal guaranty to pay the debt if Petro defaults. The guaranty is required to be in writing because

Accepted Answer

The requirement for the guaranty to be in writing is due to the Statute of Frauds, which mandates certain agreements, including guaranties, to be in writing to be enforceable. The main purpose rule, which allows an oral guaranty if the guarantor's primary intent is to secure a personal benefit, does not apply here, indicating the need for a written guaranty.

Question 8

To buy a house, Tom obtains a mortgage loan with Universal Credit Union. Later, Tom defaults on the loan. Universal informs him that the property will be sold in a foreclosure proceeding. Before the sale, to gain title and regain possession, Tom can

Accepted Answer

Redeeming the property allows the borrower (Tom) to pay off the outstanding loan balance and any additional costs to regain title and possession of the property before the foreclosure sale. This is known as the right of redemption.

Question 9

Dion has a mortgage loan with Eagle Bank that includes a prepayment penalty clause. If Dion repays his mortgage in full within the period specified in the clause, he will most likely be

Accepted Answer

Prepayment penalty clauses in mortgage loans require the borrower to pay a penalty if they repay the loan in full before a specified period. This compensates the lender for the loss of expected interest income.

Question 10

To purchase an apartment, Les borrows funds from Metro Bank. The terms of the loan give the lender a lien on the property being acquired by the borrower as security for payment of the debt. This is

Accepted Answer

A mortgage is a loan where the property being purchased is used as collateral, meaning the lender has a lien on the property until the loan is paid off.

Question 11

Equipment Company holds a lien on Fertile Farm's equipment. The equipment can be sold to satisfy the debt

Accepted Answer

A lienholder can sell the collateral (in this case, equipment) to satisfy the debt, but they must give notice to the debtor (Fertile Farm) before doing so. This ensures that the debtor is aware of the impending sale and has a chance to respond or satisfy the lien before the sale occurs. Notice to other creditors or the general public is not a legal requirement for the sale of collateral under a lien.

Question 12

Ari obtains a mortgage loan from Bayside Bank so that he can buy a house. The house costs $200,000. Ari makes a down payment of $20,000. Based on the amount of the price paid up front, Bayside will likely require Ari to

Accepted Answer

Mortgage insurance is typically required by lenders when the down payment is less than 20% of the home's purchase price. In this case, Ari's down payment of $20,000 on a $200,000 home is exactly 10%, which is below the 20% threshold, thus likely necessitating mortgage insurance.

Question 13

Because a mortgage involves the transfer of real property, to comply with the Statute of Frauds, it must be

Accepted Answer

The Statute of Frauds requires certain contracts, including those for the sale or transfer of real property, to be in writing to be enforceable. This is to ensure that there is clear evidence of the agreement and its terms.

Question 14

To purchase a house, Elma obtains a mortgage loan from Fidelity Bank. Later, Elma is unable to make payments on the loan. Meanwhile, the market value of the house has declined. Fidelity agrees to a sale of the property for less than the amount due on the loan. This is

Accepted Answer

A short sale occurs when a lender agrees to the sale of a property for an amount less than the balance owed on the mortgage loan, typically due to the borrower's inability to continue making payments and when the property value has declined below the remaining loan balance.

Question 15

To purchase a farmhouse, Clay obtains a mortgage loan from Debit Bank. Clay defaults on the payments on the loan. The bank has

Accepted Answer

When a borrower defaults on a mortgage loan, the lender (in this case, Debit Bank) has the right to foreclose on the mortgaged property. This means the bank can take legal steps to take possession of the property and sell it to recover the loan amount. Options B, C, and D are not rights automatically granted to the bank upon default; they may be negotiated or offered under certain circumstances, but are not obligations or automatic options.

Question 16

To buy a home, Lois pays part of the purchase price up front in cash and borrows the rest of the funds from Members Credit Union. The part of the purchase price paid up front is

Accepted Answer

A down payment is the portion of the purchase price of a home that the buyer pays upfront in cash, and it is not financed through a loan. This contrasts with a mortgage, which is the loan itself, a short sale, which is selling the home for less than the mortgage owed (with the lender's permission), and a prepayment penalty, which is a fee that might be charged if a loan is paid off early.

Question 17

Bach borrows funds from City Bank to pay his tuition. Dvorak co-signs the credit application. After the loan agreement is signed, Bach agrees to a higher rate of interest without telling Dvorak, who is thereby

Accepted Answer

When a co-signer agrees to a loan, they are agreeing to the terms as they are at the time of signing. If those terms are changed without the co-signer's knowledge or consent, such as increasing the interest rate, the co-signer is typically discharged from their obligation because the agreement they signed has been altered.

Question 18

To buy a condo, Mary obtains a thirty-year mortgage with an interest rate that is fixed for three years and then adjusts annually. Mary's mortgage is

Accepted Answer

Mary's mortgage is an adjustable-rate mortgage because the interest rate is fixed for only the first three years and then adjusts annually thereafter.

Question 19

Coastal Bank agrees to lend Dobie the funds to buy a beach house. The loan has an unchanging rate of interest-the amount of each payment will be the same for the duration of the loan. In this deal, the borrower is

Accepted Answer

In this scenario, Dobie is the borrower who is taking out a loan to purchase a beach house, making Dobie the mortgagor. The mortgagor is the individual or entity that borrows money, secured by a mortgage, to purchase property.

Question 20

Business Inc.'s debt to Cartage Company is past due. Cartage brings a legal action against Business to collect. To ensure that a judgment in the creditor's favor will be collectible, Cartage asks the court to order the seizure of the debtor's property. This is a request for

Accepted Answer

A writ of attachment is a court order to seize a debtor's property before the final outcome of a case, to ensure that the property will be available to satisfy a judgment. This is what Cartage Company is seeking to secure the debt owed by Business Inc.

Quiz 29: Creditors Rights and Remedies