Unit 14 Real Estate Financing: Principles

Question 1

North Carolina is characterized as
A a lien theory state.
B a title theory state.
C a mortgage theory state.
D an escrow theory state.

Answer 1

B a title theory state.

Question 2

Which of the following statements is TRUE of a prepayment penalty in a mortgage instrument?
A It usually penalizes early payment of the mortgage loan.
B It is prohibited in all residential and commercial mortgage loans in North Carolina.
C It can never be waived, even if the buyer’s mortgage is with the same lender as the seller’s.
D It penalizes the lender when the mortgagor pays off the loan early.

Answer 2

A It usually penalizes early payment of the mortgage loan.

Question 3

A deed of trust
A is evidence of a debt.
B uses real estate as security for the repayment of a debt.
C is sometimes called a promissory note.
D is evidence of both legal and equitable title.

Answer 3

B uses real estate as security for the repayment of a debt.

Question 4

The person who obtains a real estate loan by signing a deed of trust is called the
A grantee.
B grantor.
C trustee.
D beneficiary.

Answer 4

B grantor.

Question 5

All of the following components are common in an adjustable rate mortgage EXCEPT
A a payment cap.
B a life of the loan cap.
C an escrow cap.
D an anniversary cap.

Answer 5

C an escrow cap.

Question 6

Laws that limit the amount of interest that can be charged to the borrower are called
A truth-in-lending laws.
B usury laws.
C equal credit opportunity laws.
D RESPA legislation.

Answer 6

B usury laws.

Question 7

Before the foreclosure sale, the borrower who has defaulted on the loan seeks to pay off the debt plus any accrued interest and costs under the right of
A redemption.
B defeasance.
C reentry.
D survivorship.

Answer 7

A redemption.

Question 8

The clause in a promissory note that gives the lender the right to demand that all future installment payments become due on default is the
A escalation clause.
B defeasance clause.
C alienation clause.
D acceleration clause.

Answer 8

D acceleration clause.

Question 9

Which of the following statements is/are TRUE about a deed of trust?
I Foreclosure is conducted through the power of sale clause.
II It pledges the property as collateral for securing the loan.
A I only
B II only
C Both I and II
D Neither I nor II

Answer 9

C Both I and II

Question 10

Pledging property for a loan without giving up possession is best described as
A hypothecation.
B defeasance.
C alienation.
D novation.

Answer 10

A hypothecation.

Question 11

Discount points on a mortgage are computed as a percentage of the
A selling price.
B amount borrowed.
C closing costs.
D down payment.

Answer 11

B amount borrowed.

Question 12

The clause in a deed of trust that allows the lender to call in the loan when the property is transferred is called the
A acceleration clause.
B prepayment penalty clause.
C alienation clause.
D defeasance clause.

Answer 12

C alienation clause.

Question 13

Proceeds from a foreclosure sale first pay
A mortgages in the order of recordation.
B outstanding property taxes.
C junior liens in the order of recordation.
D the cost of the foreclosure sale.

Answer 13

D the cost of the foreclosure sale.

Question 14

In a deed in lieu of foreclosure situation,
A the lender is obligated to accept the deed.
B the lender takes the real estate subject to all junior liens.
C a civil action is required.
D all encumbrances on the property are extinguished.

Answer 14

B the lender takes the real estate subject to all junior liens.

Question 15

A deficiency judgment on a promissory note may be granted to a
A holder of a purchase money mortgage.
B creditor whose loan was satisfied by the foreclosure sale.
C lender whose note was not fully satisfied by the foreclosure sale.
D mortgagor of the note.

Answer 15

C lender whose note was not fully satisfied by the foreclosure sale.

Question 16

Which of the following statements is/are TRUE if a buyer purchases property subject to the seller’s loan and then defaults on the loan?
I The buyer is personally liable for the underlying debt.
II The seller remains personally liable for the underlying debt.
A I only
B II only
C Both I and II
D Neither I nor II

Answer 16

B II only

Question 17

A term loan requires that the borrower pay
A only the interest during the loan term.
B both principal and interest during the loan term.
C an interest rate that adjusts during the loan term.
D increasing amounts of principal during the loan term.

Answer 17

A only the interest during the loan term.

Question 18

A mortgage loan that calls for a substantially larger than normal payment at the end of the loan term is
A an index loan.
B a graduated payment loan.
C a balloon payment loan.
D an adjustable rate loan.

Answer 18

C a balloon payment loan.

Question 19

Interest charges by the lender on a fixed-rate conventional level payment loan are
A subject to periodic changes.
B almost always simple interest.
C usually paid in advance.
D all of these.

Answer 19

B almost always simple interest.

Question 20

A deficiency judgment is
A a court decision declaring that a debt is excused if a foreclosure sale does not satisfy the debt.
B a court decision for the balance owed on a debt after the security has been sold to apply toward the debt.
C a specific lien.
D a general lien with a life of five years.

Answer 20

B a court decision for the balance owed on a debt after the security has been sold to apply toward the debt.

Question 21

Which of the following mortgages features increasing payments with the increases applied directly to the principal?
A Shared appreciation
B Growing equity
C Adjustable rate
D Graduated payment

Answer 21

B Growing equity

Question 22

A promissory note must be signed by the
I borrower.
II lender.
A I only
B II only
C Both I and II
D Neither I nor II

Answer 22

A I only

Question 23

A deed of trust is a
A two-party instrument.
B three-party instrument.
C promissory note.
D security instrument that requires a judicial foreclosure.

Answer 23

B three-party instrument.

Question 24

A buyer has purchased a home under an agreement that made the buyer personally obligated to continue making payments under the seller’s existing mortgage. If the buyer defaults and the court sale does not satisfy the debt, the buyer will be liable for making up the deficiency. The buyer has
A purchased the home subject to the seller’s mortgage.
B assumed the seller’s mortgage.
C adjusted the alienation clause in the seller’s mortgage.
D benefited from the defeasance clause in the seller’s mortgage.

Answer 24

B assumed the seller’s mortgage.

Question 25

A charge to a borrower of three discount points on a $120,000 loan is
A $450.
B $3,600.
C $4,500.
D $116,400.

Answer 25

B $3,600.

Question 26

If a borrower pays $2,700 for points on a $90,000 loan, how many points is the lender charging for this loan?
A Two
B Three
C Five
D Six

Answer 26

B Three

Question 27

A couple is in the process of buying a new home with a $148,400 mortgage loan. The lender is charging a 1% loan origination fee and is lending the money with 2 discount points. The buyers must pay an attorney $400 to handle the closing. How much money will the lender be paid in fees?
A $1,484
B $2,226
C $3,710
D $4,452

Answer 27

D $4,452