Question 1

If a property encumbered by a mortgage is sold at a foreclosure sale for an amount less than the value of the mortgage,the mortgagor is not obligated to pay the mortgagee the remaining balance.

Accepted Answer

This statement is false. In many states, the mortgagee can seek a deficiency judgment against the mortgagor for the remaining balance. However, some states have anti-deficiency laws that prevent this. It is important to check the laws in your state regarding foreclosure and deficiency judgments.

Question 2

When a purchaser takes a property "subject to" an existing mortgage,the purchaser becomes personally liable for repaying the debt.

Accepted Answer

When a purchaser takes a property "subject to" an existing mortgage, they are not personally liable for repaying the debt. The existing mortgage is still the responsibility of the original borrower. However, the purchaser is still responsible for making timely mortgage payments in order to avoid foreclosure.

Question 3

A due on sale clause which specifies that the mortgage can accelerate the debt if the property is sold without the mortgagee's permissions is a typical clause in a mortgage document.

Accepted Answer

A due on sale clause is a common provision in mortgage documents that allows the lender to demand full payment of the outstanding loan balance if the property is sold without obtaining prior approval from the mortgagee. This clause serves to protect the lender's interests by ensuring that they have control over the collateral if ownership of the property changes hands.

Question 4

Under lien theory,title and the right to possession pass from the mortgagor to the mortgagee when the mortgage is executed.

Accepted Answer

Under lien theory, the mortgagor retains the right to possession of the property, and the mortgagee only has a lien or security interest in the property. The right to possession would only pass to the mortgagee in the event of default and foreclosure.

Question 5

A purchaser at a tax sale receives a deed to the property at the time of the sale.

Accepted Answer

The answer of A purchaser at a tax sale receives...

Question 6

Unless stated otherwise,the borrower is personally liable for payment of all amounts due under the terms of the note.

Accepted Answer

This is a standard provision in most promissory notes. It means that the borrower is responsible for paying back the entire amount borrowed, plus any interest and fees, regardless of whether the underlying project or investment is successful. It also means that the lender can pursue legal action against the borrower if they fail to make payments on time.

Question 7

A clause which specifies that the mortgagor will pay all property taxes and other charges assessed against the property,even if theses charges have priority over the mortgage is typically included in a mortgage.

Accepted Answer

This clause is known as the "tax and insurance clause" or "escrow clause" and is commonly included in mortgage agreements to ensure that the property taxes and other charges are paid in a timely manner to avoid any potential liens or foreclosure actions.

Question 8

Junior liens are eliminated by a voluntary conveyance of a property to the mortgagee.

Accepted Answer

Junior liens are not automatically eliminated by a voluntary conveyance of a property to the mortgagee. The mortgagee can choose to pay off or negotiate with the holders of the junior liens, but it is not automatic.

Question 9

If a debtor,under Chapter 7 bankruptcy,is not behind on his mortgage payments,he does not have the give up the property.

Accepted Answer

This is because under Chapter 7 bankruptcy, the debtor has the option to reaffirm the mortgage debt and keep the property, as long as the debtor can continue to make the monthly mortgage payments.

Question 10

A clause which specifies that the mortgagee will obtain and maintain property insurance is typically included in a mortgage.

Accepted Answer

The answer of A clause which specifies that the mortgagee...

Question 11

A mortgage default can result from failure to pay property taxes.

Accepted Answer

Property taxes are typically included in the homeowner's monthly mortgage payment and if they are not paid, it can lead to a default on the mortgage.

Question 12

It is a federal law that a mortgage must be recorded to be valid.

Accepted Answer

A mortgage does not need to be recorded to be valid between the parties involved; however, recording a mortgage provides legal protections and ensures its enforceability against third parties.

Question 13

The process of confirming a plan of reorganization under Chapter 11,even if one or more creditor classes dissent,is known as a "cramdown."

Accepted Answer

This is true. A cramdown occurs when a bankruptcy court confirms a reorganization plan even though one or more creditor classes have not agreed to it, as long as certain requirements are met.

Question 14

When a deed is given in lieu of foreclosure of the mortgage,the mortgagor no longer has an obligation to pay the mortgage note.

Accepted Answer

Giving a deed in lieu of foreclosure means the mortgagor is handing over ownership of the property to the mortgage lender to satisfy the debt. Therefore, the mortgagor no longer has an obligation to pay the mortgage note.

Question 15

A technical default can result from failure to keep the property in repair.

Accepted Answer

A technical default can occur when a borrower fails to meet certain technical requirements, such as keeping the property in good repair or adequately insuring it. Therefore, failure to keep the property in repair can lead to a technical default.

Quiz 2: Real Estate Financing: Notes and Mortgages