Deck 29: Creditors Rights and Remedies

Question 1

Homeowners' insurance does not protect the lender's interest in the event of a loss due to certain hazards, such as fire or storm damage.

Answer 1

False

Question 2

Because a writ of attachment is a prejudgment remedy, a debtor does not need to be given notice and an opportunity to be heard before the property is seized.

Answer 2

False

Question 3

A mortgage gives a creditor a lien on a debtor's real property as security for payment of a debt.

Answer 3

True

Question 4

Mortgage insurance compensates a debtor for losses due to a default on a mortgage loan.

Question 5

Because a mortgage involves a transfer of real property, it need not be in writing.

Question 6

The loans made by companies that provide credit cards are not backed by collateral.

Question 7

Most liens have little practical use, because liens generally do not take priority over other claims to the same property.

Question 8

Any loan for which repayment is ensured by collateral pledged by the borrower is a secured transaction .

Question 9

Foreclosure is a process that allows a lender to legally repossess and auction off the property that is securing a loan.

Question 10

An individual who borrows funds from a financial institution to purchase real property by taking out a mortgage is a mortgagee .

Question 11

A prepayment penalty clause helps to protect the borrower should the lender sell the loan within a short time after issuing a mortgage.

Question 12

A small-amount mechanic's lien typically stays on record until the property against which it has been filed is sold when it is paid out of the sale proceeds.

Question 13

Federal law provides a minimal framework to protect debtors from losing all their income in order to pay judgment debts.

Question 14

The borrower is typically required to pay all property taxes, assessments, and other claims against the property.

Question 15

A lender can require a borrower to maintain the property in such a way that the lender's investment is protected.

Question 16

Recording a mortgage ensures that the creditor is officially on record as holding an interest in the property.

Question 17

Mortgage loans are contracts.

Question 18

Most creditors require a borrower to purchase mortgage insurance if the borrower makes a down payment of at least 20 percent of the purchase price.

Question 19

The rate of interest paid by the borrower stays fixed with an adjustable-rate mortgage .

Question 20

A fixed-rate mortgage is a standard mortgage with an adjustable rate of interest.

Question 21

To initiate a foreclosure, a lender must pay the full amount of the debt, plus any costs that have accrued.

Question 22

Generally, any defenses available to a principal debtor cannot be used by a surety or guarantor to avoid liability on the obligation to the creditor.

Question 23

The borrower need not obtain the lender's permission for a short sale.

Question 24

No state allows a defaulting borrower to repurchase the property after a judicial foreclosure sale.

Question 25

South Bank lends funds to Trucking Corporation to add a maintenance garage to Trucking's property. Payment of the loan is guaranteed by the building. The law covering this transaction is provided by

A)local building ordinances.
B)state shipping regulations.
C)federal banking rules.
D)the Uniform Commercial Code.

Question 26

Auto Sales & Finance wants to get paid for its goods and services, so it will not sell goods or lend funds unless payment is guaranteed. To obtain those goods or services, a customer or borrower might pledge

A)allegiance.
B)forbearance.
C)collateral.
D)a composition agreement.

Question 27

When a co-surety pays more than his or her proportionate share on a debtor's default, he or she is entitled to recover from the debtor the excess amount paid.

Question 28

Construction Company has a claim against Diners Café to satisfy a debt that takes priority over other claims against the same property. This is

A)a lien.
B)a fraud.
C)a guaranty.
D)a garnishment.

Question 29

Ranch West owes Silo & Barn Inc. $5,000 on their contract, but refuses to pay. To collect, Silo files a mechanic's lien, under which security for the debt is represented by

A)Ranch's personal property.
B)Ranch's real estate.
C)the $5,000 owed on the contract.
D)property held by a third party.

Question 30

In a few states, if a judgment debtor does not have a family, a creditor may be entitled to collect the full amount realized from the sale of the debtor's home.

Question 31

A guarantor is entitled to receive from the debtor all outlays made on behalf of the guaranty arrangement.

Question 32

Bankruptcy statutes were not designed specifically to assist debtors in need of help.

Question 33

Every state allows a defaulting borrower to redeem the property before the foreclosure sale.

Question 34

Rose applies for a credit card at Sell-Mart. The terms do not include a pledge of certain property to ensure the repayment of charges to the card, but it does provide that Sell-Mart can assess interest on the unpaid amount of a monthly statement. In this situation, the unsecured party is

A)Rose.
B)Sell-Mart.
C)the credit card.
D)the goods that are bought with the credit card.

Question 35

The purpose of a homestead exemption is to ensure that a debtor will retain some form of shelter.

Question 36

Today, there is no significant difference in the liability of a surety and a guarantor in any state at common law or otherwise.

Question 37

Any payment of the principal obligation by the debtor will discharge the surety or the guarantor from the obligation.

Question 38

Equitable redemption allows a lender to gain title and regain possession of a property.

Question 39

A short sale is a sale of property for less than the balance due on a mortgage loan.

Question 40

Personal property that is most often exempt from satisfaction of judgment debts does not include a vehicle for transportation.

Question 41

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

A)Vista Estate.
B)Vista Estate's other creditors.
C)the general public.
D)the state in which the property is located.

Question 42

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

A)can be held to guarantee payment of the debt.
B)must be sold to provide payment of the debt.
C)must be returned to the debtor within a certain period of time.
D)none of the choices.

Question 43

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

A)an artisan's lien.
B)a mechanic's lien.
C)a writ of attachment.
D)a writ of execution.

Question 44

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

A)be officially on record as holding an interest in the property.
B)secure itself in the position of an unsecured creditor.
C)preserve a copy of the loan in a separate location.
D)obtain reimbursement for a portion of the loan if the debtor defaults.

Question 45

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

A)maintain the property.
B)ensure that the mortgage complies with the law.
C)refinance within a short time after obtaining the mortgage.
D)record the loan.

Question 46

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

A)forbearance.
B)a short sale.
C)a workout agreement.
D)a foreclosure.

Question 47

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

A)the debtor has a right of redemption.
B)the co-signer has a right of contribution.
C)the main purpose rule applies.
D)the main purpose rule does not apply.

Question 48

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

A)obtain mortgage insurance.
B)demand a workout agreement.
C)force a short sale.
D)redeem the property.

Question 49

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

A)required to pay a penalty.
B)reimbursed by the bank for the amount of the down payment.
C)credited with the amount of the unpaid interest on the loan.
D)penalized by the county where the property is located.

Question 50

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

A)a mortgage.
B)a foreclosure.
C)a short sale.
D)a workout agreement.

Question 51

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

A)if, before the sale, notice is given to Fertile Farm.
B)if, before the sale, notice is given to Fertile Farm's other creditors.
C)if, before the sale, notice is given to the general public.
D)without notice.

Question 52

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

A)obtain mortgage insurance.
B)record the mortgage loan.
C)agree to a prepayment penalty clause.
D)pay all claims against the property.

Question 53

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

A)in good faith.
B)recorded.
C)written.
D)witnessed by a disinterested third party.

Question 54

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

A)forbearance.
B)a short sale.
C)a workout agreement.
D)a foreclosure.

Question 55

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

A)the right to foreclose on the mortgaged property.
B)the obligation to forbear part or all of the payments for a limited time.
C)the duty to refinance the loan.
D)the option to show a hardship and force a short sale of the property.

Question 56

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

A)a down payment.
B)a short sale.
C)a prepayment penalty.
D)a mortgage.

Question 57

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

A)discharged from the agreement.
B)liable at the higher rate of interest.
C)liable at the lower rate of interest.
D)liable for the principal only.

Question 58

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

A)a fixed-rate mortgage.
B)an adjustable-rate mortgage.
C)a workout agreement.
D)a short sale.

Question 59

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

A)a surety.
B)a guarantor.
C)a mortgagor.
D)a mortgagee.

Question 60

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

A)an artisan's lien.
B)a mechanic's lien.
C)a writ of attachment.
D)a writ of execution.

Question 61

Rashi is a student at State University. To pay tuition, Rashi asks Tempo Loans Inc. for a short-term loan. The lender agrees to make a loan if Rashi will have someone who is financially responsible guarantee the loan payments. Upton, a well-known businessperson and a friend of Rashi's family, calls Tempo and agrees to pay the loan if Rashi cannot. Because of Upton's reputation, the loan is made. Rashi is making the payments, but because of illness he is unable to work for one month. He asks Tempo to extend the loan for three months. The lender agrees, raising the interest rate for the extended period. Upton is not notified of the extension (and thus does not consent to it). One month later, Rashi drops out of school. All attempts to collect the remainder of the loan from Rashi fail. Can Tempo assert a claim against Upton on the debt?

Question 62

Carly defaults on a debt to Debit Loans. As a creditor, Debit can satisfy a judgment debt on the default from all of Carly's property except

A)collateral possessed by the creditor.
B)exempt property.
C)collateral possessed by the debtor.
D)non-exempt property.

Question 63

To make a sale to Gourmet Inc., Hill Valley Commodities asks Gourmet's outside accountant Ingre to co-sign a credit application. According to the terms, if Gourmet defaults, Hill Valley can look to Ingre for payment without first pursuing legal remedies against Gourmet. Ingre is

A)a surety.
B)a lienor.
C)a guarantor.
D)a creditor.

Question 64

Ran is a surety for Su's loan from Tempo Credit. When Su pays the debt owed to the lender, Ran's right of subrogation entitles the surety to

A)any right that the creditor had against the debtor.
B)a proportionate share of any overpayment due to the loan's prepayment.
C)all outlays made on behalf of the suretyship arrangement.
D)title to and possession of the property serving as collateral for the loan.

Question 65

Kari is a surety for Lore's loan from Metro Bank. As a surety, Kari's right of reimbursement entitles her to receive from the debtor

A)any right that the creditor had against the debtor.
B)a proportionate share of any overpayment due to the loan's prepayment.
C)all outlays made on behalf of the suretyship arrangement.
D)title to and possession of the property serving as collateral for the loan.

Question 66

Coco and Delany borrow $110,000 from Employees Credit Union to buy a home. The loan is a fixed-rate mortgage at 3.38 percent with a thirty-year term, subject to an acceleration clause, and secured by the home. When the borrowers have paid off $10,000 of the mortgage-still owing $100,000, plus interest-they stop making payments. Meanwhile, the home's market value declines to $85,000. After six months, the lender decides to take steps to recover the unpaid amount of the loan. What are the lender's options? Which option seems most likely? Why? What steps are involved?

Question 67

Brie, Cam, and Dei are co-sureties of Edie's debt to Finance LLC. Brie pays the entire debt. Her right of contribution entitles her to recover any amount paid above the surety's obligation from

A)Cam and Dei.
B)Edie.
C)Finance LLC.
D)none of the parties.

Question 68

Credit Inc. lends $10,000 to Dace. Egan acts as Dace's surety. When the loan becomes due, Egan pays it in full. As a consequence, the surety gets

A)the creditor's rights in bankruptcy.
B)rights to collateral possessed by the creditor.
C)rights to judgments obtained by the creditor.
D)all of the choices.

Question 69

Qian resides in a state that has a $50,000 homestead exemption. She defaults on a loan extended by Rely Bank, owing $60,000. Her home is sold at auction for $90,000. The creditor is entitled to

A)0)
B)$30,000.
C)$50,000.
D)$60,000.

Question 70

Personal property that is most often exempt from satisfaction of a creditor's judgment debt on a debtor's default, up to a specified amount, includes

A)certain classified animals, usually including livestock.
B)equipment used in a business or trade, such as tools.
C)all of the choices.
D)a vehicle for transportation.

Question 71

Because the homestead exemption interacts with other areas of the law that relate to creditors' rights and remedies, it can sometime operate to cancel out

A)a portion of a lien on a debtor's real property.
B)the creditor's rights in bankruptcy.
C)rights to collateral possessed by the creditor.
D)any right that the creditor has against the debtor.

Question 72

On a debtor's default, to ensure that the debtor will retain some form of shelter, most familiarly exempt from execution or attachment by an unsecured creditor is the value of

A)collateral possessed by the creditor.
B)a family home to a specified amount.
C)non-collateral possessed by the debtor.
D)non-exempt property.