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Flashcards in Chapter 29 Deck (55)
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1
Q

Liens

A

an encumbrance on property to satisfy a debt or protect a claim for the payment of a debt

2
Q

Mechanic’s Liens

A

creditor makes improvements to REAL property and isn’t paid immediately by the property owner. Lien is secured by real property.

3
Q

Can builders and subcontractors file a lien on a homeowner’s property when they are not paid by the general contractor?

A

Yes (true story…happened to Hailey’s parents)

4
Q

Kirk contracts to paint Tanya’s house for an agreed-on price to cover labor and materials. If Tanya refuses to pay or pays only a portion of the charges after the work is completed, a _________________ against the property can be created.

A

Mechanic’s Lien.
Kirk is then a lienholder, and the real property is encumbered (burdened) with the mechanic’s lien for the amount owed.

5
Q

Artisan’s Liens

A

creditor does improvements or repairs to personal property and isn’t paid by the owner. Lienholder must have possession and have expressly or impliedly agreed to provide services on a cash basis.

6
Q

Real property

A

Consists of land and everything permanently attached to it, including structures and other fixtures.
Real property encompasses airspace and subsurface rights, as well as rights to plants and vegetation.
In essence, real property is immovable.

7
Q

Polaris four-wheeler to be repaired. If I don’t pay the repair bill right there, then they can keep the four-wheeler.

What kind of lien’s apply?

A

Artisan’s Liens

8
Q

Carrollton Exempted Village School District (in Ohio) hired Clean Vehicle Solutions America, LLC (CVSA, based in New York), to convert ten school buses from diesel to compressed natural gas. The contract price was $660,000. The district paid a $400,000 deposit and agreed to pay installments of $26,000 to CVSA after the delivery of each converted bus. After the first two buses were delivered, the district refused to continue the contract, claiming that the conversion made the two buses unsafe to drive.

Both parties filed breach-of-contract lawsuits. CVSA also asserted an artisan’s lien over two other buses that it still had in its possession because it had started converting them to natural gas and spent $65,000 doing so.

A

Regardless of the outcome in the parties’ lawsuits, CVSA has an artisan’s lien that gives it a priority claim to those two buses so long as they remain in its possession. The buses will act as security for the district’s payment of at least the amount CVSA has spent converting them to natural gas.

9
Q

In Texas - mechanics liens and artisan’s liens (constitutional provisions), there are rules about…

A

how quickly liens have to be filed

10
Q

Judicial Liens

A

creditor wins a judgment (could be winner in any lawsuit trying to collect on the judgment)

11
Q

Writ of Attachment

A

(prejudgment remedy) cease property of a debtor – to hold it, so the property can be used if and when the creditor wins the lawsuit.

12
Q

Writ of Execution

A

Selling of the property. If the creditor wins, the property is liquidated. (Execution can be used in any creditor/debtor situation).

13
Q

Garnishment

A

(usually of wages)
permits a creditor to collect on a debt by seizing property of the debtor that is being held by a 3rd party

14
Q

Texas doesn’t allow the garnishment of wages UNLESS it is for…

A

child support

15
Q

Mortgage

A

A written instrument that gives the creditor a lien on the debtor’s real property as security for payment of a debt.

16
Q

Fixed-rate Mortgage

A

Fixed, or unchanging, rate of interest, so the payments remain the same for the duration of the loan.

17
Q

What are some of the factors that determine a fixed-rate mortgage?

A

The borrower’s credit history, credit score, income, and debts.

18
Q

Adjustable-Rate Mortgages (ARM)

A

The rate of interest paid by the borrower changes periodically.
Initial rate is low, after a specified period of time (usually 3-5 years), the rate adjusts periorically (usually annually).

19
Q

How is the interest rate adjustment calculated for ARMs?

A

Adding a certain number of percentage points (called the margin) to an index rate (one of various government interest rates).

20
Q

ARMs contractually shift the risk that the interest rate will change from …

A

the lender to the borrower

21
Q

What are the 6 basic mortgage provisions?

A
  1. The terms of the underlying loan
  2. Prepayment penalty clause *very common, lender protection
  3. Provisions relating to the maintenance of the property
  4. Statement obligating the borrower to maintain homeowner insurance on the property
  5. A list of the non-loan financial obligations to be borne by the borrower (ie. Property taxes, assessments, HOA fees)
  6. Creditor protections (ie. mortgage insurance)
22
Q

Foreclosure

A

a legal process where the lender is repossessing and auctioning off the property

23
Q

What are lenders’ feelings about foreclosure?

A

It is expensive and time consuming, it is not a prefered method

24
Q

What are the 3 ways to avoid foreclosure?

A
  1. Forbearance
  2. Workout Agreement
  3. Short Sale
25
Q

Forbearance

A

postponement (delay payment), interest accrues, could be required to pay the interest but not the full payment, etc.

26
Q

Workout Agreement

A

like a settlement. The debtor is typically in default. The creditor wants to get something so they get a settlement.

27
Q

Short Sale

A

sale of property for less than the balance due on the mortgage. The creditor could forgive the rest of what is owed, but they aren’t required to do that. Usually the creditor has to be involved in the short sale decision.

28
Q

If all efforts to find another solution fail, the lender will proceed to foreclosure. The lender must strictly comply with…

A

the state statute governing foreclosures

29
Q

Equitable Right of Redemption

A

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.

30
Q

Statutory Right of Redemption

A

the homeowner has a right to buy the property back from a third party who bought it at a foreclosure sale. (AFTER judicial foreclosure)

31
Q

Generally, the borrower may exercise The Statutory Right of Redemption for up to…

A

One year from the time the house is sold at a foreclosure sale.

32
Q

The borrower may retain possession of the property after the foreclosure sale until the statutory redemption period ends. If the borrower does not exercise the right of redemption…

A

The new buyer receives title to and possession of the property.

33
Q

Suretyship and Guaranty

A

any time a 3rd party agrees to pay a debt owed by another (debtor) in the event the debtor does not pay

34
Q

Suretyship

A

a promise made by a 3rd person where the 3rd person agrees to be responsible (immediately) for the debtor’s obligation.

35
Q

An __________ contract is formed between the Surety (3rd party) and the creditor.

A

express

36
Q

How is the Surety liable?

A

Primarily liable

37
Q

Roberto Delmar wants to borrow from the bank to buy a used car. Because Roberto is still in college, the bank will not lend him the funds without a cosigner. Roberto’s father, José Delmar, who has dealt with the bank before, agrees to cosign the note, thereby becoming a…

A

SURETY who is jointly liable for payment of the debt. When José Delmar cosigns the note, he becomes primarily liable to the bank. On the note’s due date, the bank can seek payment from either Roberto or José Delmar, or both jointly.

38
Q

Guaranty

A

a promise made by a 3rd person to pay the debt if the debtor does not pay (after).

39
Q

Guarantor can only be required to pay…

A

after the principal debtor defaults and usually after Creditor has attempted collection against the principal debtor.

40
Q

How is the Guarantor liable?

A

Secondarily liable

41
Q

BX Enterprises, a small corporation, needs to borrow funds to meet its payroll. BX’s president is Diane Dawson, a wealthy businessperson who owns 70% of the company. The bank is skeptical about the creditworthiness of BX and requires Dawson to sign an agreement making herself personally liable for payment if BX does not pay off the loan.

A

As a guarantor of the loan, Dawson cannot be held liable until BX is in default.

42
Q

3 Actions that Release Surety/Guarantor

A
  1. Material Modification
  2. Surrender of Property
  3. Payment or Tender of Payment
43
Q

Material Modification

A

Making any material modification to the terms of the original contract without the surety’s consent will discharge the surety’s obligation.

44
Q

Surrender of Property

A

If a creditor surrenders the collateral to the debtor or impairs the collateral without the surety’s consent, these acts can reduce the obligation of the surety. If the creditor’s actions reduce the value of the property used as collateral, the surety is released to the extent of any loss suffered.

45
Q

Payment or Tender of Payment

A

Naturally, any payment of the principal obligation by the debtor or by another person on the debtor’s behalf will discharge the surety from the obligation.

46
Q

Defenses of the Surety/Guarantor (essentially the same defenses available to the debtor are available to the surety/guarantor)

A

Reasons why the surety/guarantor should not have to pay.
1. Breach of contract
2. Breach of warranty
3. Statute of frauds
4. Mistake
5. Fraud

47
Q

What are the exceptions to the defenses of the surety/guarantor?

A
  1. Incapacity/Bankruptcy of the original debtor (different if surety/guarantor is incapacitated or bankrupt) the surety/guarantor could claim THEIR OWN incapacity/bankruptcy, they cannot claim it on the debtor’s behalf
  2. Statute of Limitations 4 years on the collection of debt.
  3. Fraud on the original debtor (Surety/Guarantor can claim fraud on themselves)
48
Q

What are the 3 rights of the surety/guarantor?

A
  1. Subrogation
  2. Reimbursement
  3. Contribution
49
Q

Subrogation

A

any right that the creditor had against the debtor now becomes the right of the surety

50
Q

Reimbursement

A

the surety is entitled to receive from the debtor all outlays made on behalf of the suretyship arrangement

51
Q

Contribution

A

the co-surety is entitled to recover from the other co-sureties the amount paid above the surety’s obligation

52
Q

Co-Sureties

A

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

53
Q

Protection for Debtors

A
  1. Exempted Real Property
  2. Exempted Personal Property
54
Q

Homestead Exemption (exempted real property)

A

Texas allows the full homestead as an exemption from creditor’s claim (except in bankruptcy subject to New Bankruptcy Reform Act rule as it relates to purchases of a homestead within 3½ years of filing for bankruptcy)

55
Q

5 Most Often Exempted Items of Personal Property

A
  1. Household furniture up to a specific dollar amount
  2. Clothing and certain personal possessions, such as family or bible
  3. A vehicle(s) for transportation up to a specified dollar amount
  4. Certain classified animals, usually livestock but including pets
  5. Equipment that the debtor uses in a business or trade up to a certain dollar amount (tools, professional instruments.)