Deck 23: Credit, Real Property Financing, and Secured Transactions

Question 1

Roundwell,Inc.purchases a manufacturing plant for $15 million,by paying $5 million in cash as down payment,and borrowing the remaining $10 million from Home Providence Bank.To secure the loan,Roundwell gives the plant as collateral to Home Providence Bank.What kind of collateral arrangement is in place between Roundwell Motors and Home Providence Bank?

A) a mortgage
B) a lease
C) an expropriation
D) an accommodation

Answer 1

A

Question 2

To which of the following type of mortgages does the antideficiency statute apply?

A) foreign currency mortgages
B) home improvement mortgages
C) first purchase money mortgages
D) second purchase money mortgages

Answer 2

C

Question 3

An arrangement where an owner of real property borrows money from a lender and pledges the real property as collateral to secure the repayment of the loan is known as a(n)________.

A) consignment
B) foreclosure
C) mortgage
D) assignment

Answer 3

C

Question 4

A(n)________ is an instrument that evidences a borrower's debt to the lender for a real property.

A) note
B) consignment
C) accommodation
D) deed of trust

Question 5

The ________ prohibits deficiency judgments regarding certain types of mortgages,such as those on residential property.

A) foreclosure statute
B) mortgage statute
C) recording statute
D) antideficiency statute

Question 6

A(n)________ is a judgment of a court that permits a secured lender to recover other property or income from a defaulting debtor if the collateral is insufficient to repay the unpaid loan.

A) deficiency judgment
B) summary judgment
C) lien release
D) in rem judgment

Question 7

Which of the following is true of the recording statute?

A) It affects the legality of the instrument between the mortgagor and the mortgagee.
B) The mortgagor is not obligated to pay the amount if the document is not recorded.
C) The mortgagor is obligated to pay even if the document is not recorded.
D) An improperly recorded document is still effective against other mortgagees and purchasers.

Question 8

Which of the following real property transactions involves the use of transfer of legal title in real property to a trustee?

A) land sales contract
B) foreclosure
C) deed of trust
D) mortgage

Question 9

Which of the following is true of a deed of trust?

A) The legal right of the property is with the creditor until payment.
B) The legal rights to possession of real property lie with a trustee.
C) The trustor has full legal rights to possession of the real property.
D) The deed of trust is a two-party instrument.

Question 10

Who is the beneficiary in a deed of trust transaction?

A) the creditor
B) the debtor
C) the trustee
D) the trustor

Question 11

Ashton borrows $25,000 from Amanda.Amanda lends the money to Ashton without taking an interest in collateral for the loan.Amanda is relying on Ashton's credit standing when she makes the loan.What kind of creditor is Amanda?

A) an unsecured creditor
B) a secured creditor
C) an administrative claim creditor
D) a post-petition creditor

Question 12

The ________ requires a mortgage or deed of trust to be documented in the county recorder's office of the county in which the real property is located.

A) recording statute
B) real property statute
C) mortgage statute
D) compilation statute

Question 13

When is credit said to have occurred?

A) when one party reclaims money lent to another party
B) when one party sells goods to another party for cash
C) when one party gives a loan to another party
D) when one party pays back money that he owes to another party

Question 14

A legal procedure by which a secured creditor causes the judicial sale of a secured real estate property to pay a defaulted loan is known as ________.

A) attachment
B) refinancing
C) land sales contract
D) foreclosure sale

Question 15

A ________ is an instrument that gives a creditor a security interest in the debtor's real property that is pledged as collateral for a loan.

A) credit report
B) letter of credit
C) remittance advice
D) deed of trust

Question 16

Credit that requires collateral that protects payment of the loan is referred to as ________.

A) revolving credit
B) secured credit
C) equal credit
D) fair credit

Question 17

Which of the following is true of unsecured credit?

A) It relies on the debtor's promise to repay the principal.
B) It is protected by collateral for the repayment of debt.
C) It has no interest charge on the principal amount.
D) It is possible to reclaim the amount even if the debtor is judgment proof.

Question 18

Wesley buys a house for $1,000,000.He puts $400,000 down,and borrows $600,000 from a bank against the property as collateral.When Wesley defaults,the bank decides to foreclose the property.However,the property depreciated significantly and it is worth is only $500,000 now.The bank brings a legal action against Wesley to claim the $100,000 shortage.Which of the following court doctrines can help the bank recover the shortage from Wesley?

A) right of redemption
B) lien release
C) deficiency judgment
D) summary judgment

Question 19

Which of the following procedures permits foreclosure without court proceedings and sale of the property through an auction?

A) deficiency sale
B) remortgage
C) power of sale
D) refinancing sale

Question 20

Ethan purchases a house for $250,000.He borrows $200,000 from StarCross Bank and gives the bank a mortgage on the house for this amount.StarCross Bank fails to record the mortgage.Ethan then applies to borrow $200,000 from Pentalon Bank.Pentalon Bank reviews the real estate recordings and finds no mortgage recorded against the property,so it lends Ethan $200,000.Pentalon Bank records its mortgage.Later,Ethan defaults on both loans.In this case,which of the following would be true in case of the foreclosure,if possible,on the collateral?

A) StarCross Bank can foreclose because they made the first loan.
B) Pentalon Bank can foreclose because they made a record of the mortgage.
C) The collateral has to be returned to Ethan since there is a violation of the recording statute.
D) None of the parties involved can claim ownership of the collateral as it passes into the public domain.

Question 21

Which of the following is true of the right of redemption for mortgages?

A) The mortgagor has to pay the full amount of the debt incurred by the mortgagee.
B) The title of possession is passed on to the mortgagee upon completion of redemption.
C) The mortgagee is allowed to pay back partial interest until the statutory period of redemption.
D) The amount payable by the mortgagor is free of interest charges and other charges.

Question 22

________ is a situation in which a creditor agrees to extend credit only if the purchaser pledges some personal property as collateral for the loan.

A) Floating lien
B) Attachment
C) Lien release
D) Secured credit

Question 23

A ________ has an ownership or other interest in the collateral and owes payment of a secured obligation.

A) creditor
B) debtor
C) seller
D) lender

Question 24

The term ________ refers to a written document signed by a contractor,subcontractor,laborer,or material person,waiving his or her statutory lien against real property.

A) mortgage
B) supplier's lien
C) lien release
D) notice of lien

Question 25

Which of the following is true of financing statements?

A) They cannot be electronically filed.
B) They are effective for one year from the date of filing.
C) They cannot be extended for another term before expiry.
D) They are available for review by the public.

Question 26

Which of the following refers to the resulting assets from the exchange or disposal of collateral subject to a security agreement?

A) sale proceeds
B) future advances
C) floating lien
D) after-acquired property

Question 27

Kimberly owns a company that sells industrial tools.She borrows $50,000 from a bank with her company's accounts receivable as the collateral.This means that if Kimberly defaults on the loan,the bank can reclaim the borrowed amount from her company's accounts receivable.This is an example of ________.

A) mortgage
B) foreclosure
C) mechanic's lien
D) floating lien

Question 28

A ________ refers to a document filed by a secured creditor with the appropriate government office that constructively notifies the world of his or her security interest in personal property.

A) security disclosure
B) financing statement
C) possession statement
D) custodial statement

Question 29

What is the statutory period of redemption?

A) The time limit that a trustee can claim legal title to the real property.
B) The time allotted to a mortgagor to redeem the property even after foreclosure.
C) The time by which the mortgagor has to pay his debts before foreclosure.
D) The time allotted by which a mortgagee must start legal proceedings against a defaulter.

Question 30

A ________ is a written document signed by a debtor that creates a security interest in personal property.

A) license
B) lease agreement
C) security agreement
D) chattel paper

Question 31

Which of the following transactions occurs when a seller sells goods to a buyer on credit and retains a security interest in the goods?

A) two-party secured
B) three-party secured
C) two-party unsecured
D) three-party unsecured

Question 32

A ________ is a record that evidences both a monetary obligation and a security interest in specific goods and software used in the goods.

A) chattel paper
B) citation
C) financing statement
D) document of possession

Question 33

Which article of the Uniform Commercial Code governs secured transactions in personal property?

A) Article 8
B) Article 9
C) Article 18
D) Article 19

Question 34

A(n)________ is a situation in which a creditor has an enforceable security interest against a debtor and can satisfy the debt out of the designated collateral.

A) floating lien
B) acquisition
C) attachment
D) redemption

Question 35

A(n)________ is property that a debtor acquires post the execution of a security agreement.

A) repossessed property
B) after-acquired property
C) attachment
D) future advance

Question 36

William buys a house for $500,000 from Keith Geller through a realtor.He makes a down payment of $200,000.He borrows the rest from Smith and Sons,a lending firm,and places his new house as collateral for the loan.Who is the creditor in this case?

A) William
B) Keith Geller
C) Smith and Sons
D) the realtor

Question 37

________ allows a mortgagor to regain real property after default and before foreclosure.

A) Foreclosure
B) Right of redemption
C) Lien release
D) Power of sale

Question 38

________ is a process that establishes the right of a secured creditor against other creditors who claim an interest in the collateral.

A) Disposition of collateral
B) Retention of collateral
C) Perfection of a security interest
D) Repossession of a security interest

Question 39

A business purchases an airplane from an airplane manufacturer.The business obtains a loan from a bank to purchase the airplane.The bank obtains a security interest in the airplane.The airplane manufacturer is paid for the airplane from of the proceeds of the loan.This is an example of a ________ transaction.

A) two-party secured
B) three-party secured
C) three-party unsecured
D) two-party unsecured

Question 40

A(n)________ refers to a security interest in property that was not in the possession of the debtor when the security agreement was executed.

A) floating lien
B) mortgage
C) attachment
D) future advance

Question 41

Which of the following is true of surety arrangement?

A) The surety is not liable for paying the principal debtor's debt when it is due.
B) The creditor should have exhausted all other remedies before seeking payment from the surety.
C) The creditor has the right to initiate legal actions only against the principal debtor and not against the surety.
D) The principal debtor does not have to be in default on the debt before seeking payment from the surety.

Question 42

Kelly borrows $12,000 from Terry Oswald to pay for her mother's surgery.The debt-repayment period is 15 months but Kelly manages to repay it in 11 months.Which of the following must be filed by Oswald after receiving the final installment of his money?

A) a financing statement
B) a statement of collateral claim
C) a termination statement
D) a continuation statement

Question 43

Which of the following is true of a guarantor in a guaranty arrangement?

A) The guarantor is secondarily liable to the principal debtor's debt when it is due.
B) The guarantor can be approached even if the principal debtor is not in default.
C) The creditor can seek first remedy from a guarantor.
D) The guarantor has full legal rights to possession of the real property in this type of arrangement.

Question 44

Which of the following federal laws allows debtors who are subject to a writ of garnishment to retain 75 percent of their weekly disposable earnings?

A) Title III of the Consumer Credit Protection Act
B) Title II of Fair Credit Billing Act
C) Title III of Fair Credit Reporting Act
D) Title IV of Fair Debt Collection Practices Act

Question 45

Which of the following best describes repossession?

A) A right granted to the debtor to take possession of the collateral after repayment of the debt.
B) A right granted to the debtor to take possession of the collateral before repayment of the debt.
C) A right granted to a secured creditor to take possession of the collateral upon default by the debtor.
D) The act of possession of the collateral by the court owing to default by both debtor and creditor.

Question 46

Trevor wants to buy a new refrigerator from the local dealer Ace Electronics for $5,000,on credit.The dealer asks for someone to guarantee the payment before selling it on credit.His sister Cindy agrees to sign the agreement as a guarantor.Which of the following is true in this case?

A) Cindy is primarily responsible for the payment.
B) Cindy is secondarily responsible for the payment.
C) Cindy is responsible even if Trevor doesn't default on the payment.
D) Cindy is not liable for payment.

Question 47

Which of the following best describes writ of attachment?

A) It is a prejudgment court order that permits the seizure of a debtor's property that is in the possession of third parties.
B) It is a postjudgment court order that permits the seizure of a debtor's property that is in the possession of third parties.
C) It is a postjudgment court order that permits the seizure of a debtor's property that is in the debtor's possession.
D) It is a prejudgment court order that permits the seizure of a debtor's property that is in the debtor's possession.

Question 48

Which of the following is true of priority of claims?

A) If two or more secured parties claim an interest in the same collateral but only one has perfected his or her security interest, the perfected security interest has priority.
B) Although one of the parties to claim an interest in the collateral has perfected his or her security interest, all the parties are given fair and equal priority over the collateral.
C) If two or more secured parties claim an interest in the same collateral but neither has a perfected claim, they are given equal priority irrespective of attachments.
D) If two or more secured parties claim an interest in the same collateral but neither has a perfected claim, the first to claim has priority.

Question 49

Alan won a $50,000 judgment against Henderson.However,Henderson refused to pay the amount to Alan.To counter Henderson,Alan obtained a postjudgment writ from the court whereby the court directed the town sheriff to seize Henderson's automobile and other property and have them publicly auctioned off to cover the amount owed to Alan.Which of the following writs did Alan motion the court to seize Henderson's property?

A) writ of attachment
B) writ of garnishment
C) writ of execution
D) writ of repossession

Question 50

________ is a document filed by a secured party that ends a secured interest because the debt has been paid.

A) Financing statement
B) Claims statement
C) Perfection statement
D) Termination statement

Question 51

A(n)________ is an arrangement in which a third party promises to be secondarily liable for the payment of another's debt.

A) insolvency arrangement
B) surety arrangement
C) guaranty arrangement
D) accommodation

Question 52

Stan bought a motorcycle for $4,000 on credit extended by the seller Cooper Motors.Stan signed a security agreement with the seller for the credit he obtained.Cooper Motors didn't file a financing statement for the credit offered.In this case,Cooper Motors automatically obtained the creditor's security interest through ________.

A) perfection by possession of collateral
B) perfection by financing
C) perfection by attachment
D) perfection by claim

Question 53

What of the following is true about perfection by possession of collateral?

A) A creditor cannot take possession of the collateral until a financing statement is filed.
B) A creditor that has physical possession of the collateral does not have to file a financing statement.
C) A creditor with financing statement has more privilege on the collateral than a creditor with physical possession.
D) A financing statement can be filed only against intangible personal property placed as collateral.

Question 54

________ is a situation in which the creditor does not have to file a financing statement or take possession of the goods to perfect his or her security interest.

A) Perfection by possession of collateral
B) Perfection by attachment
C) Perfection by claim
D) Perfection without statement

Question 55

Darrel,Smith,Keith and Aaron are claimants to a collateral interest.All four have secured their interests on the collateral.Aaron takes physical possession of the collateral.Keith files a financing statement some time later.Who among the four would have highest priority of claim to the collateral?

A) Darrel
B) Smith
C) Keith
D) Aaron

Question 56

The term ________ refers to a secured creditor's repossession of collateral upon a debtor's default and selling,leasing,or otherwise disposing of it in a commercially reasonable manner.

A) repossession
B) disposal of the goods
C) disposition of collateral
D) retention of collateral

Question 57

An arrangement in which a third party promises to be primarily liable with the borrower for the payment of the borrower's debt is referred to as ________.

A) foreclosure arrangement
B) disposition arrangement
C) surety arrangement
D) guaranty arrangement

Question 58

Greg approaches a local dealer to buy a new car which costs $10,000.He wishes to seek finance to buy the car.The auto dealer asks for a co-signer as surety to sell the car on credit.Greg approaches his friend Claire to co-sign on the agreement.Claire agrees and becomes a surety for Greg's car.Which of the following is true in this case?

A) Claire is primarily liable for the payment.
B) Claire is secondarily liable for the payment.
C) Claire is liable only if the auto dealer has exhausted all other remedies.
D) Claire is not liable for the payment.

Question 59

________ is an interest a creditor automatically obtains when he or she extends credit to a consumer to purchase consumer goods.

A) Purchase money security interest
B) Cumulative security interest
C) Future advance monetary interest
D) Default interest

Question 60

Which of the following is true of disposition of collateral?

A) Disposition of collateral must be a public proceeding.
B) The debtor is entitled to receive any surplus collateral that remains after disposition.
C) The debtor need not be notified of the disposition as the creditor has complete claim on the collateral.
D) Disposition of collateral occurs when the default is by the creditor.

Question 61

The Revised Article 9 of the Uniform Commercial Code governs unsecured transactions in personal property.

Question 62

A mortgage refers to an arrangement where an owner of real property borrows money from a lender and pledges the real property as collateral to secure the repayment of the loan.

Question 63

After-acquired property refers to a property that a debtor acquires after a security agreement is executed.

Question 64

A deficiency judgment permits a secured lender to recover other property or income from a defaulting debtor if the collateral is insufficient to repay the unpaid loan.

Question 65

The nonrecordation of a mortgage does not affect the legality of the instrument between the mortgagor and the mortgagee.

Question 66

In a deed of trust arrangement,the legal title to a real property is placed with a trustee.

Question 67

A mortgage is a three-party instrument.

Question 68

A security agreement refers to a written document signed by a debtor that creates a security interest in personal property.

Question 69

An improperly recorded document is effective against other mortgagees or lienholders on the same property who have no notice of the prior mortgages.

Question 70

When a debtor defaults on a secured real estate mortgage,it triggers a legal court action for foreclosure of that property.

Question 71

Two-party secured transactions occur when a seller sells goods to a buyer on credit and retains a security interest in the goods.

Question 72

In an unsecured credit,the creditor relies on the debtor's promise to repay the principal when it is due.

Question 73

A deed of trust is the instrument that gives the debtor a security interest in the creditor's property.

Question 74

A power of sale proceeding should be initiated only with court proceedings.

Question 75

Financing statements are effective for one year from the date of filing.

Question 76

The right to redemption allows mortgagors to pay partial interest on the mortgage amount after default.

Question 77

Foreclosure sale is initiated when a debtor successfully repays the mortgage amount.

Question 78

Floating lien refers to a security interest in property that was possessed by the debtor when the security agreement was executed.

Question 79

Secured credit does not require any collateral from the debtor to minimize the risk.

Question 80

Antideficiency statutes are used to prohibit deficiency judgments on second mortgages.