Custom Quiz Financing

Question 1

When a trust deed is properly prepared and executed, the power of sale of the secured property is given by
A) beneficiary to seller.
B) buyer to trustor.
C) trustor to trustee.
D) trustee to lender.

Answer 1

C) trustor to trustee.
The owner of the property (trustor) conveys the bare legal title to the trustee with the provision that in the event of default the trustee can sell the property.

Question 2

A woman purchases a home for $80,000 and executes a note for $78,000 secured by a first trust deed. The balance she pays in cash. Subsequently, a period of economic inflation sets in. This would benefit
A) the trustor.
B) neither the beneficiary nor the trustor.
C) the trustee.
D) the beneficiary.

Answer 2

A) the trustor.
Inflation will cause the trustor’s (borrower’s) equity to increase faster than it would from principal payments alone. Since inflation will not affect the interest rate on the note, this is an advantage to the trustor but a definite disadvantage to the beneficiary (lender). The trustee is not affected in any measurable way.

Question 3

A purchase money mortgage may be defined as one
A) that provides for additional advances to the mortgagor without the necessity of writing a new mortgage.
B) taken on several parcels.
C) that includes chattels, such as household appliances, as additional collateral.
D) taken on all or part of the purchase price.

Answer 3

D) taken on all or part of the purchase price.
A purchase money mortgage applies to any money used to purchase the ownership of property, either from credit extended by the seller (“soft money”) or a cash loan from a lender (“hard money”).

Question 4

An individual borrowed $5,000 and made equal monthly payments over a 20-year period. If the interest rate was 5% and she paid the lender a total of $7,920, the principal payment in the first month was
A) $33.00.
B) $20.83.
C) $53.83.
D) $12.18.

Answer 4

D) $12.18.
1. $7,920 ÷ 240 = $33.00
(total paid) (mo.) (monthly payment)
2. $5,000 × 5% = $250 ÷ 12 = $20.83
(loan) (rate) (interest) (mo.) (monthly interest)
3. $33.00 – $20.83 = $12.17 Closest: $12.18
(payment) (interest) (principal)

Question 5

A developer bought 10 lots valued at $1,000 each with a 20% down payment, and the seller carried back the mortgage. The developer wants additional financing from a lender for construction purposes. What would LEAST likely protect the lender of the construction loan?
A) Physical inspection of the property
B) A posted notice of nonresponsibility
C) A subordination agreement in the purchase money deed of trust
D) An ALTA title insurance policy

Answer 5

B) A posted notice of nonresponsibility
A notice of nonresponsibility (for mechanics’ liens) would have no effect on the construction lender. A physical inspection of the property is very important to a construction lender to make certain that no work has started on the construction project before the construction loan trust deed is recorded. A subordination clause in the purchase money trust deed is required for the construction loan to have first priority. An ALTA title insurance policy is normally required by all institutional lenders.

Question 6

In setting up a release schedule under a blanket encumbrance the beneficiary will usually require a disproportionate amount of money to release a particular lot
A) because the best lots usually sell first.
B) to have better security on the remaining lots.
C) for all of these reasons.
D) to protect the investment as individual lots are sold.

Answer 6

C) for all of these reasons.

Question 7

A buyer is taking title subject to the first trust deed lien. Who is liable for the loan in the event of default?
A) Buyer
B) Both buyer and seller
C) Neither buyer nor seller
D) Seller

Answer 7

D) Seller
When a buyer takes title subject to an existing lien, he or she assumes no personal liability for the debt but merely takes the title knowing that the lien exists and must be paid. The buyer’s only risk is his or her equity. If there is a possibility of a deficiency judgment upon foreclosure, only the seller could be held liable for such a judgment.

Question 8

In a purchase of real property in which a land sales contract is used, the buyer has
A) an estate of inheritance.
B) all of these.
C) possessory rights.
D) a fee simple estate.

Answer 8

C) possessory rights.
A land sales contract is a form of financing the sale of real property in which the buyer (vendee) is given possession of the property, but the legal title is held by the seller (vendor) until the full purchase price is paid. The buyer has only equitable title to the property, which is not the fee simple estate. While many property interests are capable of being inherited, only the fee estate is properly classified as an estate of inheritance.

Question 9

In a period of inflation, the Federal Reserve Board would take which action to curb inflation?
A) Reduce reserve requirements
B) Raise reserve requirements and sell bonds
C) Lower discount rates
D) Raise discount rates and buy bonds

Answer 9

B) Raise reserve requirements and sell bonds
To curb inflation, the Federal Reserve Board would raise the reserve requirements for its member banks and enter into the bond market in a selling capacity. If the Federal Reserve Board reduced reserve requirements, lowered discount rates, or bought bonds, it would make more money available and create greater inflation.

Question 10

In real estate financing, reference is sometimes made to take-out loans. This refers to
A) a blanket encumbrance.
B) a construction loan.
C) a long-term loan after construction.
D) the net amount after points and prepaid interest are deducted.

Answer 10

C) a long-term loan after construction.
A take-out loan is the long-term financing that replaces the interim construction loan. It “takes” the construction lender “out” of the financing picture.

Question 11

The Jacksons bought a residence with a first trust deed loan from a savings and loan. The Londons bought a residence with a first trust deed loan from a bank. The Londons refinanced, obtaining a first trust deed loan from a savings and loan, to get money for a business opportunity. Which statement is correct?
A) The Londons do not have the right of rescission, the Jacksons do.
B) Both have the right of rescission.
C) The Jacksons do not have the right of rescission, the Londons do.
D) Neither has the right of rescission.

Answer 11

D) Neither has the right of rescission.
The right of rescission under the federal Truth-in-Lending Act never applies to purchase-money loans. Therefore, the Jacksons do not have a right of rescission. The Truth-in-Lending Act applies only to loans for personal, family, or household purposes, never to business loans regardless of what collateral is put up. Therefore, the Londons have no right of rescission.

Question 12

A broker who negotiates a real estate loan to which the Brokers Loan Law is applicable must deliver the mortgage loan disclosure statement to the borrower
A) after close of escrow.
B) at signing.
C) three days previous to signing.
D) within 24 hours.

Answer 12

B) at signing.
A Mortgage Loan Disclosure Statement must be presented, and the borrower’s signature obtained, before the borrower becomes obligated.

Question 13

Which lender participates and supervises construction loans, solicits loans from anyone, involves itself in the secondary money market, and represents other lending institutions?
A) Mortgage company
B) Commercial bank
C) Savings and loan association
D) 
Insurance company

Answer 13

A) Mortgage company
Mortgage companies characteristically: (1) participate and supervise construction loans (and “take-out” loans); (2) solicit loans from anyone (institutional or noninstitutional lenders), represent them, and also seek out borrowers for such loans; (3) sometimes have money of their own to lend; (4) accumulate loans (“warehousing”) that can be sold in groups and that are readily saleable in the secondary money market; and (5) service loans that are arranged by their correspondents.

Question 14

A trustor, under a deed of trust, defaults on a note and refuses to reinstate the loan. The most expedient thing for the beneficiary to do is to institute a
A) lien sale.
B) foreclosure sale.
C) sheriff's sale.
D) judicial foreclosure.

Answer 14

B) foreclosure sale.
A trustee’s foreclosure takes approximately four months and is referred to as foreclosure sale. A sheriff’s sale would be a court foreclosure known as a judicial foreclosure and could take up to four years.

Question 15

The lenders that invest a major portion of their assets in long-term real estate loans, do not like to service their own loans, and like large loans on newer high-priced homes as well as large loans on commercial property would be
A) mutual mortgage companies.
B) insurance companies.
C) savings and loan associations.
D) commercial banks.

Answer 15

B) insurance companies.

Question 16

The factor that exerts the greatest influence on mortgage interest rates is the
A) offsetting influence of conservative vs. nonconservative lenders.
B) value of the property.
C) condition of the money market.
D) term of the loan.

Answer 16

C) condition of the money market.

Question 17

Which factor would be least likely to influence the level and movement of mortgage rates?
A) Inflation
B) Tight money
C) Unemployment
D) Demand for funds

Answer 17

C) Unemployment
Inflation, tight money, and demand for funds are all factors that directly influence interest rates. Unemployment has the least effect among the choices presented.

Question 18

Which would NOT likely cause a loss to a lender?
A) Prepayment without a penalty
B) Inflation
C) Recession
D) Unemployment

Answer 18

A) Prepayment without a penalty
When a lender gets his principal back in full, he suffers no direct loss, even though he may not gain as much as expected in terms of future interest not paid. Inflation can result in a lender’s being paid back with money of lower buying power. Recession and unemployment can result in borrower’s going into default with loss to a lender

Question 19

When a trust deed is foreclosed in judicial foreclosure and the trustor fails to exercise his or her right to redeem, possession during the period of redemption would be held by the
A) trustee.
B) mortgagor.
C) trustor.
D) beneficiary.

Answer 19

C) trustor.
The trustor is the borrower, the one who has the right to the possession of the property during any redemption period that may exist in judicial foreclosure. Even though the security instrument is a trust deed, the lender has the option of foreclosing in a judicial proceeding, giving the borrower the right of redemption. Most lenders exercise the “power of sale” in the trust deed to avoid the expense and time involved in a judicial foreclosure.

Question 20

Mr. and Mrs. Snyder have sold their home to the Binghams using a real property sales contract. From a financing standpoint, the Snyders' relationship to the Binghams is like a
A) grantor to grantee.
B) lessor to lessee.
C) renter to tenant.
D) beneficiary to trustor.

Answer 20

D) beneficiary to trustor.

From a financing standpoint, the Snyders are extending credit to the Binghams. A beneficiary does the same to a trustor.

Question 21

What is the maximum period of time an owner might be able to stay in possession after judicial foreclosure?
A) 1 year
B) 120 days
C) 90 days
D) None of these

Answer 21

A) 1 year
A “judicial foreclosure” means that the foreclosure was held in court. This is the typical procedure for a mortgage. In some circumstances, court-held foreclosures entitle the delinquent borrower to a maximum of one year in which to remain in possession and to redeem (equity of redemption).

Question 22

Which would hold equitable title?
A) Trustor under a deed of trust
B) Vendee under a land sales contract
C) Both trustor under a deed of trust and vendee under a land sales contract
D) Neither trustor under a deed of trust nor vendee under a land sales contract

Answer 22

C) Both trustor under a deed of trust and vendee under a land sales contract
Equitable title is the right to any equity in the property. Both the vendee (buyer) and trustor (buyer) would hold or retain equitable title.

Question 23

A builder is selling a house that he had built under a blanket encumbrance. Under normal procedure, the instrument that would be requested of the beneficiary would be a
A) warranty deed.
B) quitclaim deed.
C) grant deed.
D) partial reconveyance deed.

Answer 23

D) partial reconveyance deed.
A partial reconveyance deed would reconvey the legal title to a specified lot or lots to the trustor in return for a partial payment on the trust note balance, thus releasing a specified lot or lots from under the blanket encumbrance.

Question 24

The secondary money market creates a marketplace for the transfer of mortgages between which parties?
A) Trustors and mortgagees
B) Mortgagors and mortgagors
C) Mortgagees and mortgagees
D) Mortgagees and mortgagors

Answer 24

C) Mortgagees and mortgagees
The secondary mortgage market is the marketplace where existing loans are bought and sold by and to mortgagees. The term mortgagee means lender or holder/owner of the security instrument. Because there are no borrowers (mortgagors/trustors) in the secondary market, the other answer choices can be eliminated.

Question 25

Interest rates will normally decline when A) the federal budget deficit is high. B) the Federal Reserve Board increases reserve requirements. C) inflationary trends accelerate. D) there is an excess of mortgage funds available.

Answer 25

D) there is an excess of mortgage funds available.

Question 26

Points are NOT charged on which type of home loans? A) California Department of Veterans Affairs B) None of these C) Federal Housing Administration D) Veterans Administration

Answer 26

A) California Department of Veterans Affairs

Question 27

``` Smith asked a broker to help secure a $19,000 loan for five years using his house as collateral. The appraised value of the residence was $80,000 and was completely free of liens and encumbrances. The broker would likely fail to succeed if she attempted to secure the loan through a(n) A) commercial bank. B) private lender. C) insurance company. D) savings and loan. ```

Answer 27

C) insurance company. Since 1965, insurance companies have steadily withdrawn from mortgage lending on individual residences. Smith would have a better chance of receiving his loan from one of the other three lenders.

Question 28

A real property sales contract is defined as an agreement wherein one party agrees to convey title to another party upon the satisfaction of specified conditions set forth in the contract and that A) must be recorded to be enforceable. B) must be acknowledged by both buyer and seller to be eligible for recording. C) is not required to be in writing if contract period is for one year or less. D) does not require conveyance of title within one year from date of formation of the contract.

Answer 28

D) does not require conveyance of title within one year from date of formation of the contract.

Question 29

Under which loan transaction would the lender have the best opportunity to secure a deficiency judgment in the event of a default and foreclosure? A) A first trust deed and note taken back by a subdivider as part of the purchase price of an unimproved lot B) A first trust deed and note executed in favor of a conventional lender, the proceeds being used to purchase a single-family residence C) A first trust deed and note executed in favor of a private lender to secure a loan, the proceeds of which were used to purchase an automobile D) A second trust deed and note executed by the buyer in favor of the seller of a 10-unit apartment

Answer 29

C) A first trust deed and note executed in favor of a private lender to secure a loan, the proceeds of which were used to purchase an automobile The law will not permit a deficiency judgment on any type of loan in which the seller is the beneficiary, nor will it permit an outside lender to obtain a deficiency judgment on a loan used to purchase an owner-occupied residential property of four or fewer units.

Question 30

If the Federal Reserve Bank tightens reserve requirements of member banks, it would usually result in A) favorable news from a broker's standpoint. B) making more marginal loans available. C) a fewer number of private second trust deeds. D) a greater number of private second trust deeds.

Answer 30

D) a greater number of private second trust deeds. By tightening the reserve requirements, the Federal Reserve Bank can decrease the amount of money that is available for loans. This action would create a demand for more private loans in the form of second trust deeds.

Question 31

All of these are secondary benefits of the Federal Housing Administration as established by the National Housing Act of 1934 EXCEPT A) a loan amount appropriate for the borrower's income. B) elimination of short-term financing. C) establishment of improved building standards. D) mortgage guarantee insurance with low premiums to protect the borrower.

Answer 31

D) mortgage guarantee insurance with low premiums to protect the borrower. FHA insurance is for the benefit of lenders, not borrowers. A loan amount appropriate for the borrower's income, elimination of short-term financing, and establishment of improved building standards are all advantages developed by the FHA plan.

Question 32

``` A person purchased a property for $70,000 and made a $14,000 down payment. If the person borrowed the balance of the purchase price, it would be considered a purchase money trust deed if the borrower received this amount from A) a lender. B) a friend. C) any of these. D) the seller. ```

Answer 32

D) the seller. If a deed of trust (or mortgage) is executed in the act of and for the purpose of purchasing property that is the security, it is a purchase money deed of trust (or mortgage), regardless of whether the beneficiary (lender) is the seller or a third party.

Question 33

RESPA applies to certain federally related loans secured by liens on owner-occupied one- to four-unit dwellings. Who is federally related under RESPA? A) A lender whose deposits are insured by a federal agency B) A private lender making a loan C) A seller taking back a note and deed of trust D) None of these

Answer 33

A) A lender whose deposits are insured by a federal agency Coverage through RESPA is applicable only if financing is with federally related mortgages. This includes FHA, VA, or other government-assisted loans and loans made by institutions with federally insured deposits.

Question 34

Which would be covered by the Real Estate Settlement Procedures Act (RESPA)? A) An addition of a room in a single-family residence B) An initial lien on a one- to four-unit residential building C) Land for development D) A commercial building

Answer 34

B) An initial lien on a one- to four-unit residential building

Question 35

When a deed of trust is foreclosed by court sale, the action A) provides for a one-year redemption period in some cases. B) bars the possibility of a deficiency judgment. C) is the same as a foreclosure by trustee's sale. D) is not legal in California.

Answer 35

A) provides for a one-year redemption period in some cases. A trust deed foreclosed through court (judicial sale) follows the same proceedings as a mortgage foreclosure. In some cases, the borrower would have one year after the sale to redeem the property.

Question 36

In which situation would a package mortgage be used? A) When covering more than one parcel of land in a subdivision B) When including the obligations of a first and second trust deed under one instrument C) When securing additional financing from the lender at a later date without rewriting the mortgage D) When encumbering real property and using personal property as additional collateral

Answer 36

D) When encumbering real property and using personal property as additional collateral A package mortgage covers both real and personal property. Including the obligations of a first and second trust deed under one instrument is an all-inclusive deed of trust. Covering more than one parcel of land in a subdivision is a blanket encumbrance and securing additional financing from the lender at a later date without rewriting the mortgage is an open-end mortgage.

Question 37

The loan-to-value ratio in a mortgage is defined as A) amount of a loan as a percentage of the assessed value. B) monthly payment of the loan on a mortgage. C) amount of a loan as a percentage of the purchase price. D) amount of a loan as a percentage of the appraised value.

Answer 37

D) amount of a loan as a percentage of the appraised value.

Question 38

Under a power of sale clause, the trustee has a minimum of three months from recording a Notice of Default before A) taking possession. B) deed of reconveyance is made to the beneficiary. C) foreclosure is final. D) publication of sale.

Answer 38

D) publication of sale. The law states that a minimum of three months must elapse after the recording of the Notice of Default before the publication phase of the foreclosure proceedings can begin.

Question 39

``` A buyer purchasing real property using a conditional sales contract (also called a real property sales contract) would acquire A) an estate of inheritance. B) a freehold estate. C) all of these. D) a possessory interest. ```

Answer 39

``` D) a possessory interest. The buyer (vendee), under the terms of a conditional sales contract, receives an (1) "equitable" title together with (2) possession of the property. In addition the vendee receives the (3) right to acquire the fee title after all of the conditions of the contract have been met. ```

Question 40

``` When a home is mortgaged, the equity belongs to A) the beneficiary. B) the trustee. C) none of these. D) the trustor. ```

Answer 40

D) the trustor. This question uses the word mortgaged in its generic sense, so a mortgage is any device that puts property up as security for a loan. In that sense it is correct to say that in California we commonly use the trust deed as our form of mortgage. The equity in a mortgaged home belongs to the owner, or borrower. When a trust deed is used, the borrower is the trustor.

Question 41

``` A bank made a loan and charged a 4-point loan fee. Later, the banker sold the note at a 3½-point discount and received a check for $69,580. What was most nearly the face amount of the loan? A) $72,100 B) $70,000 C) $73,000 D) $74,500 ```

Answer 41

B) $70,000

Question 42

``` Of which two types of financing are synonymous? A) Obligatory advances-Installment loan B) Construction loan-Take-out loan C) Take-out lease-Secondary financing D) Interim loan-Construction loan ```

Answer 42

D) Interim loan-Construction loan A construction loan is an interim loan that is in effect during the construction period. Once the building is completed, the long-term financing or take-out loan is negotiated.

Question 43

``` An owner wishes to sell the home and has arranged with a lender to finance the purchase, but has not yet obtained a buyer. This situation would be termed a(n) A) conditional commitment. B) option. C) interim commitment. D) firm commitment. ```

Answer 43

A) conditional commitment. A loan commitment given before a buyer is obtained and subject to approval of the buyer by the lender is termed a conditional commitment.

Question 44

``` What is the most important influence affecting the interest rates on trust deed loans? A) Exchange rate overseas B) Gross national product C) Supply and demand of funds D) None of these ```

Answer 44

C) Supply and demand of funds The "price" of money, commonly expressed as interest rates, is determined in the market, where the principle of supply and demand is the dominant factor.

Question 45

``` A developer wants to purchase land and later secure financing for improvements. What clause is most beneficial to the developer in the original trust deed used to purchase the land? A) Subordination clause B) Acceleration clause C) Exculpatory clause D) Alienation clause ```

Answer 45

A) Subordination clause Since construction lenders require first priority, the previously recorded trust deed must have a clause that requires it to relinquish priority to a subsequent trust deed.

Question 46

``` The trustor under a trust deed is the party who A) lends the money. B) receives the note. C) holds the property in trust. D) signs the note as maker. ```

Answer 46

D) signs the note as maker. The trustor is the one who receives the money or the extension of credit. The trustor signs the note as a promise to repay and gives the lender security by signing the trust deed conveying the legal title to the trustee.

Question 47

``` Which type of financing would LEAST likely create a need for a cash down payment from a borrower? A) Cal-Vet B) Conventional C) VA D) FHA ```

Answer 47

C) VA A down payment is not a requirement of a Veterans Administration guaranteed loan (unless the certificate of reasonable value is less than the purchase price). However, the lender may require one. Conventional loans nearly always require some down payment, and FHA and Cal-Vet loans do require down payments.

Question 48

``` Most real estate syndicates in California are A) corporations. B) joint ventures. C) limited partnerships. D) real estate investment trusts. ```

Answer 48

C) limited partnerships. Investors usually find the limited partnership to be the best means of forming a syndicate. A corporation is subject to double taxation and the investment trust requires at least 100 members.

Question 49

``` If a person wanted to transfer equitable title and retain legal title, he or she would use a A) mortgage. B) land contract. C) grant deed. D) security agreement. ```

Answer 49

B) land contract. A conditional/installment sales contract, commonly called a land contract, transfers equitable title to the buyer, but the seller keeps the legal title until the contract has been fulfilled.

Question 50

Junior loans that are available today can be secured through A) all of these. B) individual lenders or private lenders. C) commercial banks. D) savings and loans.

Answer 50

A) all of these. While banks, savings and loan associations, and mortgage bankers are more interested in primary loans, they have expanded their market of junior loans with home equity loans and lines of credit. Many junior loans are also placed through individual lenders or private lenders.

Question 51

``` In a real estate transaction, a prepayment penalty may be paid by A) none of these. B) the seller. C) the lender. D) the buyer. ```

Answer 51

B) the seller.

Question 52

``` A person who is an innocent purchaser of a negotiable note for value without knowledge of any defect is customarily called a(n) A) assignor. B) holder in due course. C) endorser in blank. D) receiver in trust. ```

Answer 52

B) holder in due course. Holder in due course: One who has taken a note, check, or bill of exchange in due course (1) before it was overdue, (2) in good faith and for value, and (3) without knowledge that it has been previously dishonored and without notice of any defect at the time it was negotiated.

Question 53

A conventional lender considering a real estate loan would be most concerned with A) economic and financial conditions of the nation. B) degree of risk involved. C) amount of mortgage funds available. D) federal and state regulations.

Answer 53

B) degree of risk involved.

Question 54

In the sale of real property, all of these statements concerning financing are true EXCEPT A) a mortgage is a lien on real property; an execution of a mortgage does not transfer title. B) an owner who borrows and executes a trust deed is a trustor. C) selling a note for less than its face value is known as discounting. D) a promissory note is security for the trust deed.

Answer 54

D) a promissory note is security for the trust deed. The statement is completely reversed. The trust deed is the security for the promissory note and incidental to the debt. The other three statements are true.

Question 55

Which is NOT included in the total finance charge under the Truth-in-Lending Act? A) Appraisal and credit report fees B) Finder's fee and similar charge C) Premium for mortgage guaranty or similar insurance D) Points paid by the buyer on a FHA/VA loan

Answer 55

A) Appraisal and credit report fees

Question 56

``` The person who would benefit the most from appreciation of a mortgaged property would be A) the beneficiary. B) the trustee. C) none of these. D) the trustor. ```

Answer 56

D) the trustor.

Question 57

``` Impounds are used as a safety measure to insure payment of certain recurring bills. A lender might require a borrower to make deposits into an impound account with each monthly payment. Which payment would LEAST likely be part of the impound deposit? A) Homeowners' association fees B) Property taxes C) Assessment bond payments D) Mortgage interest ```

Answer 57

D) Mortgage interest Mortgage interest is paid to the lender as income to the lender and is not held in an impound account. Property taxes, homeowners' association fees, and assessment bond payments are owed to someone other than the lender and might result in a default if not paid. To protect against that risk the lender might ask that deposits for each of these be made into an impound account controlled by the lender to ensure that such obligations be paid.

Question 58

The National Housing Act of 1934, in addition to providing for the insuring of loans, has had a number of secondary benefits, including all of these EXCEPT A) instituting scientific subdivision planning to reduce neighborhood deterioration. B) establishing maximum standards of construction. C) stimulating mortgage investment on a nationwide basis. D) creating a comprehensive system of valuing property and rating mortgage risk.

Answer 58

B) establishing maximum standards of construction. The National Housing Act of 1934 created the FHA. The other three choices are all secondary benefits plus establishing minimum standards of construction, not maximum.

Question 59

What is an advantage to the seller of real property in using a conditional sales contract in the sale of property instead of giving a grant deed and taking back a large trust deed? A) None of these B) The seller can prohibit the vendor from recording the contract if the contract includes a clause prohibiting such recording. C) Foreclosure proceedings are faster thereby permitting the vendor to recover possession quickly from the buyer. D) A deficiency judgment can be obtained in the event of default.

Answer 59

A) None of these The other three choices do not offer a benefit to a seller using a land contract. There are probably no advantages since law changes in 1985.

Question 60

A bank will usually make a conventional loan and charge a higher interest rate than the interest rate charged on an FHA loan on the same property. What would be the determining factor in choosing to make an FHA loan instead of a conventional loan? A) Higher return B) Needs of the borrower for lower interest C) Degree of risk D) Number of properties sold by the seller

Answer 60

C) Degree of risk

Question 61

The interest rate for an FHA loan is negotiated by A) FHA. B) agreement between seller and buyer. C) agreement between borrower and lender. D) the lender.

Answer 61

C) agreement between borrower and lender. The interest rate for an FHA loan is negotiated by agreement between the borrower and the lender. FHA no longer sets limits as they once did in years past.

Question 62

``` A statement provided by the payor on a promissory note that would list payments, term period of the note, principal balance, interest, et cetera is called A) request for partial reconveyance. B) offset statement. C) release clause. D) beneficiary statement. ```

Answer 62

B) offset statement. An Offset Statement is customarily obtained from the property owner when existing mortgages or trust deeds are assigned to an investor. It sets forth the true condition of the mortgage lien and states whether the property owner has any claims that do not appear in the instrument being purchased by the investor. The offset statement is obtained in addition to the beneficiary statement from the lender.

Question 63

``` The minimum crawl space under a single-family residence according to FHA regulations is A) 16″. B) 18″. C) 24″. D) 20″. ```

Answer 63

B) 18″.

Question 64

``` Which term relates specifically to the secondary money market? A) First mortgages B) Junior loans C) Purchase money D) Discounting of mortgages ```

Answer 64

D) Discounting of mortgages Mortgages (including notes and trust deeds) are frequently sold and exchanged in the secondary money market. They are usually sold at a discount.

Question 65

``` A developer built a home on speculation, selling it for $90,000 with $18,000 cash and a note for $72,000. Later he used the $72,000 note as security to borrow $50,000 to build another house. The note in this instance is a A) holding agreement. B) purchase money mortgage. C) chattel mortgage. D) pledge. ```

Answer 65

D) pledge. A pledge consists of transferring to the lender the possession of personal property (in this case the note) as security for the loan.

Question 66

``` Discount points on financing under the California Farm and Home Purchase Act are paid by A) the state. B) no one. C) the buyer. D) the seller. ```

Answer 66

B) no one. | No discount points are charged on a Cal-Vet loan.

Question 67

``` Who benefits most from a subordination clause in a trust deed? A) Trustee B) Beneficiary C) Trustor D) None of these ```

Answer 67

C) Trustor A subordination clause benefits the trustor (borrower) by making it easier for the borrower to obtain additional financing using the title of the same property as security. The lender of a prior loan that includes such a clause agrees to relinquish the priority of his or her trust deed to specified financing to be obtained by the borrower at a later date. Without a subordination clause, a construction lender, desiring first position, would be unwilling to finance the improvements unless the first loan was paid.

Question 68

``` What is the lender's best protection against default if the purchaser makes no down payment? A) Low interest rate B) Appreciation of the property C) Low monthly payments D) Length of loan ```

Answer 68

B) Appreciation of the property

Question 69

``` The document used when the seller extends credit to the buyer and the buyer receives equitable title is identified as A) none of these. B) a conditional/installment contract. C) a grant deed. D) a mortgage. ```

Answer 69

B) a conditional/installment contract. A conditional/installment sales contract transfers equitable title to the buyer but the seller keeps the legal title until the contract has been fulfilled.

Question 70

``` Savings and loan institutions obtain most of their money for making loans from A) individual savings. B) FNMA. C) corporation savings. D) corporation profits. ```

Answer 70

A) individual savings.

Question 71

As the first line of defense in lending money on a residential property, a lender would look to A) loan-to-value ratio. B) property value. C) installment payments of the amortized loan. D) income of the borrower.

Answer 71

B) property value.

Question 72

``` A portfolio risk manager (financial manager) would be most concerned with A) any of these. B) reserves. C) liquidity. D) diversification. ```

Answer 72

A) any of these.

Question 73

Annual percentage rate is defined as A) direct loan costs only. B) all loan costs, direct or indirect, expressed as a percentage rate. C) direct and indirect costs plus taxes and closing costs. D) relative amount of credit costs expressed as a dollar total.

Answer 73

B) all loan costs, direct or indirect, expressed as a percentage rate.

Question 74

Which loan costs are NOT required to be disclosed as a finance charge to the customer under federal Truth-in-Lending Act? A) Finder's fees B) Time-price differential C) Buyer's points D) Credit investigation fees when part of an application fee

Answer 74

A) Finder's fees

Question 75

``` What does NOT represent a demand source of mortgage money? A) Refinancing B) FNMA C) Sales financing D) Construction ```

Answer 75

B) FNMA The demand sources of mortgage money are entities or activities that borrow money or cause money to be borrowed for mortgage loans. Sales financing, construction, and refinancing all create a demand for mortgage money. Fannie Mae (FNMA) does not borrow mortgage money, but is a supply source.

Question 76

Under the Truth-in-Lending Act, the three-day right of rescission would begin with which event, if they occurred on different days in the sequence stated? A) The date the disclosure statement is delivered B) The date the note is signed C) The date the funds are disbursed D) The date the loan application is made

Answer 76

B) The date the note is signed The three-day right of rescission that applies to some loans under the federal Truth-in-Lending Act begins with the delivery of the disclosure statement or the signing of the promissory note, whichever occurs later.

Question 77

``` Under which loan would the borrower be required to apply for term life insurance? A) Savings and loan company B) FHA C) VA D) Cal-Vet ```

Answer 77

D) Cal-Vet

Question 78

What is NOT a result of a subordination clause? A) More of a risk to seller and may cause increased cost of the land and more stringent release clause B) Permits a first trust deed to be refinanced and extended without losing priority C) Causes hardship on the buyer by placing the lender of a larger sum in the favored position D) Allows for a construction loan to take priority

Answer 78

C) Causes hardship on the buyer by placing the lender of a larger sum in the favored position The other three choices are all conditions that may result from a subordination clause. Causes hardship on the buyer by placing the lender of a larger sum in the favored position is incorrect because it does not create a hardship for the buyer but would assist the buyer in obtaining a construction loan.

Question 79

``` A certain lender has the following lending policies and characteristics: makes many loans on commercial properties; makes relatively few construction loans; usually seeks to avoid administering loans; prefers to make long-term loans. This describes which lender? A) Life insurance companies B) Mortgage companies C) Federal savings and loans D) Savings and loan associations ```

Answer 79

A) Life insurance companies

Question 80

Under the Truth-in-Lending Act, a "Notice of Cancellation" could be given when the loan was A) used for business expansion. B) secured by a commercial building. C) secured by the owner's residence. D) more than $25,000 and was not secured.

Answer 80

C) secured by the owner's residence.

Question 81

A man listed a property for $760,000 and was willing to take back a trust deed and note for $20,000. FHA appraised the property for $700,000 and the broker secured a buyer who wanted to secure an FHA loan for $700,000, pay $40,000 cash and execute a second trust deed and note in favor of the seller. The broker should counsel the seller to A) write up the offer subject to FHA loan and second trust deed. B) write up the offer subject to a $70,000 FHA loan and a personal loan for $6,000. C) refuse to accept the offer. D) write up the offer "subject to better financing."

Answer 81

C) refuse to accept the offer. FHA will not permit secondary financing on the initial purchase of the home. Since the buyer does not have enough cash to use FHA financing, it will be impossible to secure FHA financing and the broker should counsel the seller to refuse to accept this offer.

Question 82

``` In a purchase money mortgage, the mortgagor is identified as the party who A) receives the note. B) signs the note. C) holds the property in trust. D) lends the money. ```

Answer 82

B) signs the note. The mortgagor is the buyer of the property who is borrowing the money and would therefore sign the note. The mortgagee is the receiver of the note who lends the money or extends credit.

Question 83

A mortgage loan is identified as A) a loan collateralized by real property. B) any recorded instrument related to financial transfer. C) an unsecured note. D) a promissory note.

Answer 83

A) a loan collateralized by real property.

Question 84

``` A balloon payment would be a characteristic of a(n) A) standing loan. B) amortized loan. C) partially amortized loan. D) self-liquidating loan. ```

Answer 84

C) partially amortized loan.

Question 85

``` The lender under a trust deed is called the A) trustor. B) mortgagee. C) trustee. D) beneficiary. ```

Answer 85

D) beneficiary.

Question 86

The term default in most mortgages means that the mortgagor A) failed to maintain the property. B) is delinquent in monthly payments. C) did any of these. D) is not using the property for its intended purpose.

Answer 86

C) did any of these.

Question 87

``` A clause in a second trust deed that permits the first trust deed to be refinanced without affecting its priority would be known as a(n) A) subordination clause. B) lien waiver. C) alienation clause. D) acceleration clause. ```

Answer 87

A) subordination clause.

Question 88

``` Most lending institutions are limited as to the amount they can lend, the types of loans they offer, and the length of loans. Because of certain limitations, some lenders are not interested or are unable to give construction loans, but are willing to issue long-term financing after the construction is completed. Long-term loans, to be issued by one lender upon completion of the interim construction financing by another lender, are known as A) redemption loans. B) take-out loans. C) discount loans. D) renewal loans. ```

Answer 88

B) take-out loans.

Question 89

An acceleration clause was inserted in a negotiable note. The inclusion of the acceleration clause would A) make it less negotiable. B) not have any effect on its negotiability nor would it be of any benefit. C) cause it to lose its negotiability. D) not have any effect on its negotiability.

Answer 89

D) not have any effect on its negotiability. If a note is negotiable, the insertion of an acceleration clause will not affect its negotiability. It could enhance its value to a holder in due course.

Question 90

``` Lenders frequently will lend up to 95% on conventional residential mortgages due to the availability of A) private mortgage guaranty insurance. B) Fannie Mae insurance. C) mortgage cancellation insurance. D) guaranteed mortgage insurance. ```

Answer 90

A) private mortgage guaranty insurance. Private mortgage guaranty insurance (more commonly called private mortgage insurance, or PMI) protection is available to lenders approved by a mortgage insurance company as additional security for low-down-payment home loans. It guarantees the lender that should the borrower default in loan repayment, the insurer will reimburse the lender for the dollar loss suffered or for the insured amount, whichever is less.

Question 91

``` A land sales contract is sometimes referred to as a substitute for a note and trust deed when discussing financing. In this context, a land sales contract is considered A) an option. B) the same as a lease. C) identical to a mortgage. D) a security device. ```

Answer 91

D) a security device. A land sales contract (also called a land contract, conditional sales contract, real property sales contract, etc.) is a security device sometimes used in place of the more commonly used note and trust deed when a seller extends credit. Both trust deeds and land sales contracts are security for the debt.

Question 92

In real estate finance, a beneficiary statement refers to the A) amount of money an heir would inherit. B) amount of profit realized by a lender. C) amount of principal due on a loan. D) terms of a lease.

Answer 92

C) amount of principal due on a loan.

Question 93

``` A broker negotiates a hard money loan secured by a deed of trust for which he receives a commission. In this transaction, hard money most nearly means a A) secondary loan. B) tight money loan. C) purchase-money loan. D) cash loan. ```

Answer 93

D) cash loan.

Question 94

In which situation could a beneficiary of a trust deed acquire an interest in an after-acquired title? A) All of these B) Trustor purchased additional property C) Personal property later became affixed to the real property D) Trustor added improvements to the property

Answer 94

A) All of these

Question 95

``` A deed of reconveyance would be signed by the A) beneficiary. B) grantee. C) trustee. D) trustor. ```

Answer 95

C) trustee. The trustee holds the legal title in trust. The one who conveys the title must sign the instrument. When the loan is paid in full, the trustee conveys legal title to the trustor using a deed of reconveyance, and therefore must sign.

Question 96

``` Which is the lender whose loan policies are characterized by a preference for short-term loans, a heavy reliance on its past association with the borrower, loans on property situated close to the lender's office, and some interim construction loans? A) Insurance company B) Mortgage banker C) Savings and loan association D) Commercial bank ```

Answer 96

D) Commercial bank

Question 97

``` A clause in a second trust deed that permits the first trust deed to be refinanced without affecting its priority would be known as A) an acceleration clause. B) an alienation clause. C) none of these. D) a submortgage. ```

Answer 97

C) none of these.\A subordination clause is a clause that allows for such a change in lien priority.

Question 98

A buyer seeking an FHA loan would be LEAST likely to A) agree to pay mutual mortgage insurance. B) agree to make amortized payments. C) find a lender willing to give him the loan. D) go to the nearest FHA office for an appraisal.

Answer 98

D) go to the nearest FHA office for an appraisal.

Question 99

On FHA loans, mutual mortgage insurance A) is paid for by the mortgagee. B) pays off the mortgage if the mortgagor dies. C) insures mortgagees against fire. D) insures the mortgagee against loss through foreclosure.

Answer 99

D) insures the mortgagee against loss through foreclosure.

Question 100

Under the provisions of the Real Estate Settlement Procedures Act, which would NOT be considered a violation? A) Unearned fees B) Seller designating title insurance company C) Buyer designating lender D) Kickbacks

Answer 100

C) Buyer designating lender Kickbacks, unearned fees, and the seller designating (not the same as requesting) the title insurance company are all violations under RESPA. Buyers may, however, designate the lenders of their choice.

Question 101

``` A promise by the lender to make a permanent loan on the demand of a borrower is known as A) incremental loan commitment. B) interim loan commitment. C) standby loan commitment. D) backup loan commitment. ```

Answer 101

C) standby loan commitment.