Chapter 20 - Creditors' Rights and Remedies Flashcards Preview

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Flashcards in Chapter 20 - Creditors' Rights and Remedies Deck (47):
1

artisan's lien

- a possessory lien given to a person who has made improvements and added value to another person's personal property as security for payment for services performed

2

attachment

(1) in the context of secured transactions, the process by which a security interest in the property of another becomes enforceable
(2) in the context of judicial liens, a court-ordered seizure and taking into custody of property prior to the securing of a judgement for a past-due debt

3

co-surety

- a joint security
- one who assumes liability jointly with another surety for the payment of an obligation

4

creditors' composition agreement

- an agreement formed between a debtor and his or her creditors in which the creditors agree to accept a lesser sum than that owed by the debtor in full satisfaction of the debt

5

default

- failure to pay debt when it is due

6

down payment

- the part of the purchase price of real property that is paid in cash up front, reducing the amount of the loan or mortgage

7

forbearance

- the act of refraining from exercising a legal right
- an agreement between the lender and the borrower in which the lender agrees to temporarily cease requiring mortgage payments, to delay foreclosure, or to accept smaller payments than previously scheduled

8

foreclosure

- a proceeding in which a mortgagee either takes a title to or forces the sake of the mortgagor's property in satisfaction of a debt

9

garnishment

- a legal process used by a creditor to collect a debt by seizing property of the debtor (such as wages) that is being held by a third party (such as the debtor's employer)

10

guarantor

- a person who agrees to satisfy the debt of another (the debtor) only after the principal debtor defaults; a guarantor's liability is thus secondary

11

homestead exemption

- a law permitting a debtor to retain the family home, either in its entirety or up to a specified dollar amount, free from the claims of unsecured creditors or trustees in bankruptcy

12

lien

- a claim against specific property to satisfy a debt

13

mechanic's lien

- a statutory lien on the real property of another, created to ensure payment for work performed and materials furnished in the repair or improvement of real property, such as a building

14

mortgage

- a written instrument that gives a creditor (the mortgagee) an interest in, or lien in, the debtor's (mortgagor's) real property as security for debt
- if the debt is not paid, the property can be sold by the creditor and the proceeds used to pay the debt

15

prepayment penalty

- a provision in a mortgage loan contract that requires the borrower to pay a penalty if the mortgage is repaid in full within a certain period

16

right of contribution

- the right of a co-surety who pays more than his or her proportionate share on a debtor's default to recover the excess paid from other co-sureties

17

right of redemption

- the right of a defaulting borrower to redeem property before a foreclosure sale by paying the full amount of the debt, plus any interest and costs that have accrued

18

right of reimbursement

- the legal right of a person to be restored, repaid, or indemnified for costs, expenses, or losses incurred or expended on behalf of another

19

right of subrogation

- the right of a person to stand in the place of (be substituted for) another, giving the substituted party the same legal rights that the original party had

20

short sale

- a sale of real property for an amount that is less than the balance owed on the mortgage loan, usually due to financial hardship
- both the lender and the borrower must consent to a short sale
- following the short sale, the borrower still owes the balance of the mortgage debt (after the sale proceeds are applied) to the lender unless the lender agrees to forgive the remaining debt

21

surety

- a person, such as a consigner on a note, who agrees to be primarily responsible for the debt of another

22

suretyship

- an express contract in which a third party to a debtor-creditor relationship (the surety) promises to be primarily responsible for the debtor's obligation

23

workout agreement

-

24

writ of attachment

- a court's order, prior to a trial to collect a debt, directing the sheriff or officer to seize non exempt property of the debtor; if the creditor prevails at trial, the seized property can be sold to satisfy the judgement

25

writ of execution

- a court's order, after a judgement has been entered against the debtor, directing the sheriff to seize (levy) and sell any of the debtor's non exempt real or personal property
- the proceeds of the sale are used to pay off the judgement, accrued interest, and costs of the sale; any surplus is paid to the debtor

26

SAMPLE TEST QUESTIONS
1. Builders Construction Company performs a contract with Christina to add a sun porch to her house, but she does not pay. In most states, Builders Construction could create a lien and place it on Christina's property by filing :
a. a creditor's composition agreement
b. a writ of attachment
c. a writ of execution
d. a written notice of lien

ANSWER :
(D)
CORRECT :
(D)

27

SAMPLE TEST QUESTIONS
2. Portia owes Bon $500 on their roof repair contract, but refuses to pay. To collect, Bon files a mechanic's lien. Under a mechanic's lien, security for the debt is represented by :
a. Portia's personal property
b. Portia's real estate
c. the $500 owed under the contract
d. the contract

ANSWER :
(C)
CORRECT :
(B)

28

SAMPLE TEST QUESTIONS
3. Lyndon owes $10,000 to Metro Bank. As a pre judgement remedy to collect the debt, Metro could use a writ of :
a. contribution
b. attachment
c. execution
d. subrogation

ANSWER :
(B)
CORRECT :
(B)

29

FACT PATTERN 20-1B
Michael contracts with Jill to fix the brakes on her Honda Civic. Jill leaves her car with Michael. But refuses to pay when the work is done.

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30

FACT PATTERN 20-1B
4. Refer to Fact Pattern 20-1B. Michael refuses to return the car to Jill until she pays for the brake work. This is :
a. a garnishment order
b. a mechanic's lien
c. an artisan's lien
d. a violation of most states' laws

ANSWER :
(C)
CORRECT :
(C)

31

FACT PATTERN 20-1B
5. Refer to Fact Pattern 20-1B. If Michael imposes a lien on Jill's car, it will end :
a. in thirty days
b. in sixty days
c. when Michael voluntarily surrenders possession of the car
d. when Jill obtains a court order requiring Michael to return the car

ANSWER :
(B)
CORRECT :
(C)

32

SAMPLE TEST QUESTIONS
6. A court awards a judgement to Loan Collection Agency, who is the creditor, against Margaret, who is the debtor. After the judgement, the creditor requests a court order to seize Margaret's property to ensure that the judgement will be collectible. This is :
a. a judicial lien
b. a writ of attachment
c. a writ of execution
d. a violation of most state laws

ANSWER :
(C)
CORRECT :
(C)

33

SAMPLE TEST QUESTIONS
7. Stanley's debt to Town Bank is past due. Town Bank obtains a judgement against Stanley to collects the debt, but he refuses to pay. Town Bank asks the court to order Stanley's employer to pay a portion of his paycheck to the bank. This is a request for :
a. a mechanic's lien
b. an order of garnishment
c. an order that would violate most state laws
d. a writ of attachment

ANSWER :
(B)
CORRECT :
(B)

34

SAMPLE TEST QUESTIONS
8. Ronaldo's debt to Sophia is past due. Ronaldo obtains a judgement against Sophia to collect the debt, but Sophia will not pay. Ronaldo requests a writ of execution. The property that is seized under the writ of execution must be :
a. in Ronaldo's possession
b. in Sophia's possession
c. in the possession of Sophia's employer or other third party
d. located within the court's geographic jurisdiction

ANSWER :
(D)
CORRECT :
(D)

35

SAMPLE TEST QUESTIONS
9. George borrows funds from Hometown Credit Union (HCU) to buy real property. George signs a written instrument that gives HCU an interest in the property as security for the debt's payment. This is :
a. a mortgage
b. an artisan's lien
c. a workout agreement
d. a suretyship agreement

ANSWER :
(A)
CORRECT :
(A)

36

SAMPLE TEST QUESTIONS
10. Ridgeline Bank provides Shirley with a mortgage to buy a home. The rate of interest is fixed for three years and then adjusts annually. This is :
a. a fixed-rate mortgage
b. an adjustable-rate mortgage
c. a creditor's composition agreement
d. a guaranty agreement

ANSWER :
(B)
CORRECT :
(B)

37

SAMPLE TEST QUESTIONS
11. Vito borrows $110,000 from Watershed Bank to buy a new home. If he fails to make payments on the mortgage, the bank has the right to repossess and auction off the property securing the loan. This is :
a. a short sale
b. forbearance
c. foreclosure
d. the right of redemption

ANSWER :
(C)
CORRECT :
(C)

38

SAMPLE TEST QUESTIONS
12. Erin and Dooley, a married couple, borrow $120,000 from Capital & Credit Bank to buy a home. When Erin and Dooley divorce, they are unable to make payments on the mortgage. The market value of the home has declined to less than the balance of the loan. Capital & Credit agrees to a sale of the property for this amount. This is :
a. a prepayment penalty
b. forbearance
c. foreclosure
d. a short sale

ANSWER :
(D)
CORRECT :
(D)

39

SAMPLE TEST QUESTIONS
13. Gina borrows $350,000 from Fish Island Bank to buy a home, which secured the mortgage. In the seventh year of the loan, Gina stops making payments. After the bank repossesses the property but before it is sold, Gina may buy it by paying :
a. an amount that equals the potential proceeds from the property's sale
b. an amount that exceeds the potential proceeds from the property's sale
c. the amount of missed payments, but not more
d. the full amount of the debt, plus any interest and costs

ANSWER :
(D)
CORRECT :
(D)

40

SAMPLE TEST QUESTIONS
14. Pippin signs a lease on behalf of Quixotic Games, Inc., with Riverview Office Suites. As part of the lease, Pippin signs a document titled "GUARANTY." If Quixotic Games stops paying the rent, it is most likely that liability or loss for the unpaid amount with rest with :
a. no one
b. Pippin and Quixotic Games
c. Riverview Office Suites
d. the other tenants on the same property

ANSWER :
(B)
CORRECT :
(B)

41

SAMPLE TEST QUESTIONS
15. Dina asks Eddie to co-sign a credit application so that she can borrow money and buy a piano from First Chair, a musical instruments and supplies seller. If, after the loan agreement is signed, Dina agrees to a higher rate of interest without telling Eddie, then Eddie is :
a. discharged from the agreement
b. liable at a higher rate of interest
c. liable at a lower rate of interest
d. liable for the principal only

ANSWER :
(A)
CORRECT :
(A)

42

SAMPLE TEST QUESTIONS
16. Jordan is a surety for Kelly's loan from Lenders Credit Corporation. When the loan comes due, Kelly tries to pay Lenders Credit, but the creditor rejects the payment. Jordan is :
a. released from any obligation to the debt
b. required to pay the amount of debt to Lenders Credit
c. required to pay up to half of the amount of the debt to Lenders Credit
d. required to pay the amount of the debt to Kelly

ANSWER :
(A)
CORRECT :
(A)

43

FACT PATTERN 20-2B
Robin's home is in a state that has a $30,000 homestead exemption. Robin defaults on a $60,000 debt that she owes to Suburban Mortgage Company. Robin's home is sold at auction for $80,000.

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44

FACT PATTERN 20-2B
17. Refer to Fact Pattern 20-2B. Suburban Mortgage may recover :
a. $0
b. $30,000
c. $50,000
d. $60,000

ANSWER :
(C)
CORRECT :
(C)

45

FACT PATTERN 20-2B
18. Refer to Fact Pattern 20-2B. Robin will receive :
a. $0
b. $30,000
c. $50,000
d. $60,000

ANSWER :
(B)
CORRECT :
(B)

46

FACT PATTERN 20-2B
19. Refer to Fact Pattern 20-2B. If Suburban Mortgage recovers less than what is owed, it can realize the different from :
a. any property that Robin owns
b. only exempt property that a Robin owns
c. only nonexempt property that Robin owns
d. property that any other member of Robin's family owns

ANSWER :
(C)
CORRECT :
(C)

47

SAMPLE TEST QUESTIONS
20. Beatrix defaults on a debt to Credit Loan Corporation (CLC). As a creditor, CLC can place liens on all of Beatrix's property except :
a. motor vehicles used to commute to work
b. stock in various corporations
c. items that the debtor selects
d. vacant commercial property

ANSWER :
(A)
CORRECT :
(A)