Exam 23: Credit and Secured Transactions

Assume Bobby wants to buy a house priced at $150,000.He pays $50,000 down,and borrows $100,000 from First Bank.On January 2,Bobby gives First Bank a mortgage on the home for $100,000,but First Bank forgets to record the mortgage until August 1.On March 1 Bobby obtains a home equity loan of $100,000 from Second Bank.Bobby does not tell Second Bank that there is another loan outstanding on the house.Second Bank records a mortgage on the home on March 2.Bobby defaults on both loans and leaves town.Assuming the home can be sold for $150,000,who would be entitled to those funds,and why?

A lender who is unsure whether a debtor will have sufficient income or assets to repay a loan may require another person to guarantee payment.If the borrower fails to repay the loan,that person is responsible for paying it.This responsibility is called trusteeship.

Security interests may not be taken in intangible property.

John borrowed $20,000 from a bank,secured by his car.John allowed his insurance to lapse when the car was destroyed in a hurricane.John's only other assets are a boat that has no security interests associated with it,located in the garage at the house he rents,and a checking account at another bank with $600 in it.The bank sues John for payment of the $18,000 remaining balance on the car loan,and obtains a judgment against John for that amount.If John does not pay this judgment,what can the bank do at this point?

In a credit transaction,the borrower is the debtor,and the lender is the creditor.

Detachment means that the creditor has an enforceable security interest against the debtor,and can satisfy the debt out o the designated collateral.

Beth entered into a guaranty agreement with a furniture store in order for her sister,Sue,to be able to buy furniture on credit from the store.There was a security agreement,with the furniture pledged as collateral.Sue ceased making payments,claiming the furniture was defective.Several months later,Sue successfully filed bankruptcy,relieving her from all of her preexisting debts.Discuss this situation.

Which of the following would be granted the greatest priority?

A financing statement is generally good for one nonrenewable five-year term.

A debtor who does not have ownership or possessory rights to property cannot give a security interest in that property.

A perfected security interest will take priority over an unperfected security interest,regardless of when the perfected interest attached.

In order for a surety to be liable,the principal does not have to be in default on the debt,and the creditor does not have to have exhausted all its remedies against the principal debtor before seeking payment from the surety.

A type of security interest that does not just attach to a single piece of property,but can also cover after-acquired property,is known as a:

In terms of the right of redemption,most state laws provide that any party in interest,such as a second mortgage holder or another lienholder,may redeem the property during the redemption period.

Alice purchases a home for $150,000.She borrows $100,000 from Local Bank,using the house as collateral,and giving the bank a mortgage.The representative of Local Bank forgets to record the mortgage.Alice sells the house to Bill after Bill reviews records but finds no mortgage on the property.Alice does not tell him about the loan from the bank,and leaves town soon after receiving the purchase money from Bill.Alice does not pay Local Bank the remaining loan balance of her loan.Which of the following is true?

Which of the following is true about perfection of purchase money security interests?

In a mortgage,the creditor is the mortgagor.

Only one creditor can have a perfected security interest in specific collateral at any given time.

A filed financing statement remains in force for a period of:

________ means that the creditor has an enforceable security interest against the debtor and can satisfy the debt out of the designated collateral.