Question 1

A party who borrows money to buy a home and signs an agreement giving the bank the right to repossess the home in case of default is called a:

Accepted Answer

A mortgage is a security interest in real property or a deed to real property that is given by the owner (the mortgagor)as security for a debt owed to the creditor.

Question 2

Under the ________ system,the subcontractors or materialmen have direct liens and are entitled to liens for the value of labor and materials furnished,irrespective of the amount due from the owner to the contractor.

Accepted Answer

Two distinct systems-the New York system and the Pennsylvania system-are followed by the states in allowing mechanic's liens on real estate to subcontractors and materialmen.Under the Pennsylvania system,the subcontractors or materialmen have direct liens and are entitled to liens for the value of labor and materials furnished,irrespective of the amount due from the owner to the contractor.

Question 3

In the case of ________,after the foreclosure,the proceeds of the sale are applied to the payment of the mortgage debt,and any surplus is paid over to the mortgagor.

Accepted Answer

In the case of foreclosure by action and sale,after the foreclosure,the proceeds of the sale are applied to the payment of the mortgage debt,and any surplus is paid over to the mortgagor.

Question 4

When a borrower deeds property that is to be put up as security to a trustee,this is called a ________.

Accepted Answer

In a deed of trust transaction,the borrower deeds to the trustee the property that is to be put up as security.

Question 5

Jerry wants to purchase a flat.So he borrows $50,000 from XYZ bank.He signs a note for $50,000 and gives the bank a $50,000 mortgage on the flat as security for his repayment of loan.Within a year and a half,Jerry repays the entire loan.After repayment of the loan,which of the following rights does Jerry have against XYZ bank?

Accepted Answer

The right of redemption gives a person the absolute right to discharge the mortgage when due and to have title to the mortgaged property restored free and clear of the mortgage debt.

Question 6

A ________ is a security interest in real property or a deed to real property that is given by the owner as security for a debt owed to the creditor.

Accepted Answer

A mortgage is a security interest in real property or a deed to real property that is given by the owner (the mortgagor)as security for a debt owed to the creditor (the mortgagee).

Question 7

Xavier deeds to Peter,a trustee,his property in the form of security for the loan,which is lent by Smith,the beneficiary of the trust.The nature of this transaction renders it as a deed of trust.Under these circumstances,if Xavier defaults to pay the loan,which of the following is the appropriate way in which Smith can recover his loan?

Accepted Answer

If the debtor fails to make a required payment on the debt,the trustee does not sell the property until the lender notifies him that the borrower is in default and demands that the property be sold.The trustee must notify the debtor that he is in default and that the land will be sold.

Question 8

Marie wants to buy Ted's farm.She agrees to pay Ted a monthly payment towards the farm,to take possession and to insure the property.Ted retains the legal title while Marie is making payments.This arrangement is called a:

Accepted Answer

A land contract is a device for securing the balance due the seller on the purchase of real estate.Essentially,it is an installment contract for the purchase of land.The buyer agrees to pay the purchase price over a period of time.The seller agrees to convey title to the property to the buyer when the full price is paid.

Question 9

Bob borrowed $200,000 from ABC Bank to purchase his residential house.A mortgage was used as the financing vehicle.Several years later Bob encountered financial difficulties.He did not pay his mortgage payments for 4 months and the bank foreclosed.At that time,the remaining loan balance was $170,000.Bob had not maintained the property well,and the winning bid at the foreclosure auction sale was only $150,000.Is Bob liable for the $20,000 deficiency that has resulted (using the majority rule)?

Accepted Answer

This is a case of a deficiency judgment.Such judgments are generally not permitted where the property sold is the residence of the debtor.

Question 10

A(n)________ is an installment contract for the purchase of land in which a buyer agrees to pay the purchase price over time and assumes many responsibilities of the owner,but the seller keeps legal title and does not turn over the deed until the purchase price is paid.

Accepted Answer

In a land contract,the seller keeps legal title and does not turn over the deed until the purchase price is paid by the buyer.If the buyer defaults,the seller usually has the right to declare a forfeiture and take over possession of the property.

Question 11

In the case of ________,the right must be expressly conferred on the mortgagee by the terms of the mortgage.

Accepted Answer

The right to foreclose under a power of sale must be expressly conferred on the mortgagee by the terms of the mortgage.

Question 12

What Article of the UCC deals with carriers' liens and warehousemen's liens?

Accepted Answer

Carriers' liens and warehousemen's liens are provided for in Article 7 of the Uniform Commercial Code (UCC).

Question 13

If a party in interest to a mortgage wishes to exercise his right of redemption in a foreclosure sale,he must ________.

Accepted Answer

If a party in interest wishes to redeem,he must pay the purchaser at the foreclosure sale the amount the purchaser has paid plus interest up to the time of redemption.

Question 14

Courts today view a mortgage as:

Accepted Answer

Today,the mortgage is viewed as a lien on land rather than a conveyance of title to the land.

Question 15

In a(n)________ transaction,the borrower keeps the title of his real property with a third party and in the event of default,the third party can sell the property so that the creditor can recover his loan.

Accepted Answer

In a deed of trust transaction,the borrower deeds to the trustee the property that is to be put up as security.The trust agreement usually gives the trustee the right to foreclose or sell the property if the debtor fails to make a required payment on the debt.

Question 16

Marie wants to buy Ted's farm.She agrees to pay Ted a monthly payment towards the farm,to take possession and to insure the property.Ted retains the legal title while Marie is making payments.What happens if Marie misses a payment?

Accepted Answer

If the buyer defaults on a land contract,the seller usually has the right to declare a forfeiture and take possession of the property.

Question 17

When a creditor keeps property in satisfaction of debt and the owner's rights are cut off,this is called ________.

Accepted Answer

A small number of states permit strict foreclosure.The creditor keeps the property in satisfaction of the debt and the owner's rights are cut off.

Question 18

Under which of the following systems of foreclosure does the creditor have no right to recover any deficiency between the value of the property and the amount of the debt?

Accepted Answer

In a strict foreclosure,the creditor keeps the property in satisfaction of the debt,and the owner's rights are cut off;this means that the creditor has no right to a deficiency and the debtor has no right to any surplus.

Question 19

Nancy is the mortgagor of a property subject to a mortgage.Can she sell the property?

Accepted Answer

The mortgagor of a property can sell the interest in the property without the consent of the mortgagee.However,the sale does not affect the mortgagee's interest in the property or the mortgagee's claim against the mortgagor.

Question 20

A clause in a mortgage specifies that "if the mortgaged property is sold,then the remaining balance becomes immediately due and payable." This clause is called:

Accepted Answer

If a mortgage provides that in the event of the property being sold,the remaining balance becomes immediately due and payable,it is a "due on sale" clause.

Quiz 28: Introduction to Credit and Secured Transactions