Question 1

In the case of _____, the right to foreclose under a power of sale must be expressly conferred on the mortgagee by the terms of the mortgage.

Accepted Answer

The term "foreclosure by power of sale" refers to a process where the mortgagee has the right to sell the property without court intervention. In this type of foreclosure, the right to foreclose must be explicitly stated in the mortgage agreement.

Question 2

Who are party to a deed of trust?

Accepted Answer

The answer of Who are party to a deed of...

Question 3

Xavier deeds to Peter, a trustee, his property in 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

In a deed of trust, the beneficiary (Smith) can recover his loan by notifying the trustee (Peter) to sell the property if the borrower (Xavier) defaults on the loan. This process is known as a non-judicial foreclosure. Option A is incorrect because an action and sale contract is not applicable in this situation. Option B is incorrect because the right of exoneration allows a guarantor to seek reimbursement from the debtor, not the beneficiary. Option C is also incorrect because the right of reimbursement is applicable when a guarantor pays on behalf of the debtor, not the beneficiary.

Question 4

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

Foreclosure by action and sale is the most common type of foreclosure in which the property is sold through a public auction and the proceeds are used to pay off the mortgage debt. Any surplus amount is then given to the mortgagor.

Question 5

In the case of _____, a buyer takes possession of the property, pays the taxes, insures the property, and assumes several obligations of an owner. However, the seller keeps legal title and does not turn over the deed until the purchase price is paid.

Accepted Answer

The description matches the terms of a land contract. In a land contract, the buyer takes possession and assumes several responsibilities of a property owner, but the seller retains legal title until the purchase price is fully paid.

Question 6

Explain the difference between an accommodation surety and a compensated surety.

Accepted Answer

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Question 7

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 the repayment of the loan, which of the following right does Jerry have against XYZ bank?

Accepted Answer

Jerry has the right of redemption, which allows him to reclaim his property after the loan has been fully repaid. This is because he gave a mortgage on the flat as security for the loan, and once the loan is repaid, he has the right to reclaim his property. The other options are not applicable in this scenario - the right of foreclosure would allow the bank to take possession of the property in case of default on the loan, the right of reimbursement would allow the bank to seek reimbursement of any expenses it incurred, and the right of subrogation would allow the bank to step into Jerry's shoes and take on his rights and obligations.

Question 8

Jones hired Smith, a general contractor, to build a garage as an addition to Jones' home. Smith hired Adam to do the roofing work on this garage. All the work was done satisfactorily, and at the completion of the work, Jones paid Smith the agreed price. However, Smith never paid Adam for his work. Three weeks after Adam finished his work, he filed a mechanics' lien against the property and demanded that Jones pays him for his work. Which of the following is most correct?

Accepted Answer

In this scenario, Adam has the right to file a mechanics' lien against the property because Smith, the contractor, did not pay him for the work that he completed on the property. As per the law, the lien can be enforced against the property until the debtor pays off the lien. Therefore, Jones should pay Adam for his work because Adam has the right to enforce his lien claim against the property.

Question 9

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 common type of security interest in real property where the owner uses the property as collateral for a loan. The creditor, typically a bank or lender, holds the mortgage until the loan is paid off, at which point the mortgage is released and the owner has full ownership of the property. A bill of sale is a document used to transfer ownership of personal property, a note of trust does not exist, and a quasi-contract is a legal theory used to enforce an obligation even when there is no formal contract in place.

Question 10

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

The clause that is described in the question is known as a due on sale clause. This clause states that if the mortgaged property is sold, the remaining balance on the mortgage becomes immediately due and payable. This protects the lender's interests in the property and ensures prompt payment of the loan.

Question 11

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

This is the definition of a deed of trust, where the borrower retains possession of the property title but agrees to have it held by a third party (trustee) who can sell the property in the event of default. This is a common type of mortgage security instrument used in many states.

Question 12

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

Under strict foreclosure, the creditor takes ownership of the property and the debtor loses all rights to redeem or repurchase the property, but the creditor has no right to recover any deficiency between the value of the property and the amount of the debt.

Question 13

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 14

What is an equity of redemption?

Accepted Answer

The answer of What is an equity of redemption?...

Question 15

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 mortgagor is a person who borrows money to buy a home and signs an agreement giving the bank the right to repossess the home in case of default. A guarantor is someone who pledges to take responsibility for the debt if the borrower defaults, a creditor is someone who lends money or extends credit, and a trustee is someone who holds legal title to property for the benefit of another party.

Question 16

Give two reasons why the surety-guarantor distinction is important.

Accepted Answer

The answer of Give two reasons why the surety-guarantor distinction...

Question 17

Submaterialmen are entitled to a lien only when:

Accepted Answer

Submaterialmen are not parties to the construction contract and may not have a direct contract with the owner, so a state statute specifically including them in the list of those entitled to a lien would be necessary in order for them to have a lien right.

Question 18

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 19

Which of the following is generally true about state statutes establishing mechanic's and materialman's liens?

Accepted Answer

State statutes establishing mechanic's and materialman's liens generally require that work be done in the performance of a contract to improve real property. The other options are not generally true.

Question 20

As a condition of giving Doyle a thirty-year loan for $100,000, the Caldwell Bank requires that Doyle procure a surety. Doyle pays Sal $5000 to serve in this role. Later, Doyle and the bank make a binding contract to extend the term of the debt from thirty years to thirty years and three months. Will this change discharge Sal from his obligation? Make no assumptions except those stated here.

Accepted Answer

The answer of As a condition of giving Doyle a...

Quiz 28: Introduction to Credit and Secured Transactions