Deck 26: Creditor's and Debtor's Rights

Question 1

A deficiency in connection with a foreclosure is a determination that the debtor is in default.

Answer 1

False

Question 2

A deed of trust is an instrument that evidences the borrower's debt to the lender.

Answer 2

False

Question 3

Secured credit refers to credit where there is a second party to pay the debt in the event that the original debtor does not.

Answer 3

False

Question 4

Unsecured creditors may repossess the debtor's property if the debtor is in default on a loan.

Question 5

A debtor who is judgment-proof does not have a legal obligation for the payment of debts.

Question 6

If a creditor repossesses a debtor's property and sells it,the proceeds must be applied to the outstanding debt.

Question 7

If unsecured credit has been extended to a judgment-proof debtor,the creditor is unlikely to collect the debt.

Question 8

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

Question 9

All states permit foreclosure sales.

Question 10

No court action is necessary when a foreclosure is by power of sale.

Question 11

A deficiency judgment is one for the amount of a debt in excess of the value of any collateral.

Question 12

The right to redeem foreclosed property can extend beyond the date of the foreclosure sale.

Question 13

A deed of trust is a three-party arrangement to secure a loan with real property.

Question 14

If a borrower fails to repay the loan,the responsibility of a third-party to pay it back is called a surety arrangement.

Question 15

An improperly recorded mortgage document is effective against a subsequent purchaser.

Question 16

The recording of a mortgage does not affect the rights and duties of the borrower and lender with respect to one another.

Question 17

Foreclosure is another word for the taking of possession of collateral.

Question 18

Unsecured credit requires collateral to protect the payment of the debt.

Question 19

Generally,a creditor would rather be a secured creditor than an unsecured one.

Question 20

In a mortgage,the owner-debtor is the mortgagor.

Question 21

Which of the following is a three-party instrument?

A) deed of trust
B) mortgage
C) both a deed of trust and a mortgage
D) neither a deed of trust nor a mortgage

Question 22

When a debtor fails to pay a debt,and the value of the collateral is less than the full amount of the debt,which of the following is generally true?

A) The creditor can obtain a deficiency judgment against the debtor for the amount of the debt that was not satisfied from the collateral.
B) The creditor must absorb the remaining loss and has no further remedy.
C) The creditor must file a bankruptcy proceeding against the debtor in order to obtain further relief.
D) The creditor must record its security interest before proceeding further.

Question 23

Mechanic's liens are usually subject to the debtor's right of redemption.

Question 24

Which of the following is commonly used to create a security interest in real property to secure a loan?

A) deed of trust
B) mortgage
C) both a deed of trust and a mortgage
D) neither a deed of trust nor a mortgage

Question 25

What is a mortgage?

A) a loan to purchase a house or other real property
B) a contract to purchase a house or other real property
C) any loan associated with real property
D) a security agreement in which real property is pledged as collateral for the related debt

Question 26

A lien release is a document signed by a contractor,laborer,or material person enforcing his or her statutory lien against the property owner.

Question 27

Land sales contracts are often used for developed property.

Question 28

A second mortgage holder has no rights of redemption if the property goes into foreclosure.

Question 29

The concept of a deficiency judgment applies to:

A) secured debt only
B) unsecured debt only
C) both secured and unsecured debt
D) neither secured nor unsecured debt

Question 30

Which of the following is a two-party instrument?

A) deed of trust
B) mortgage
C) both a deed of trust and a mortgage
D) neither a deed of trust nor a mortgage

Question 31

An improperly recorded document is still effective against the purchasers of real property.

Question 32

The legal right in the debtor's property granted by the debtor to a creditor is known as:

A) collateral
B) a garnishment
C) a financing statement
D) a security interest
E) a right of redemption

Question 33

The non-recordation of a mortgage or deed of trust does not affect either the legality of the instrument between the mortgagor and the mortgagee or the rights and obligations of the parties.

Question 34

Which of the following best describes how a deed of trust works?

A) The state gives a deed to the lender to hold until the borrower satisfies the debt.
B) The borrower gives a deed to the lender to hold until the borrower satisfies the debt.
C) When a party borrows money to purchase property,the seller holds the deed until the debt is paid off,at which point it will be conveyed to the borrower.
D) When a trust is the owner of real property,a special type of deed is required.
E) The borrower conveys a deed to a third party who holds legal title until the debt is paid off or the borrower defaults.

Question 35

A land sales contract is often referred to as "carrying the paper."

Question 36

Which of the following must be recorded in order to gain priority over later security interests in the same parcel of property?

A) deed of trust
B) mortgage
C) both a deed of trust and a mortgage
D) neither a deed of trust nor a mortgage

Question 37

In order to obtain a mechanic's lien on a piece of property,a notice of lien must be filed in the proper place and notice must be given to the owner of the affected real property.

Question 38

Which of the following is true about the distinction between secured and unsecured credit?

A) Secured debt is debt that has already been paid,and unsecured has not yet been paid.
B) Secured debt is expected to be collected,whereas collection of unsecured debt is doubtful.
C) Secured debt will be collected over more than 1 year,whereas unsecured debt is expected to be collected within 1 year.
D) Secured debt has collateral associated with it,whereas unsecured debt has no associated collateral.
E) Secured debt results from a judgment of the court,whereas unsecured debt results from the agreement of the parties.

Question 39

How are mortgages and deeds of trust related to one another?

A) They are two different methods to give a lender a security interest in real property of the debtor.
B) They are two names for the same instrument,and thus can be used interchangeably.
C) They are two distinct aspects of a security agreement covering real property,both of which must be present for the security interest to be valid.
D) Mortgages are used for real property,and deeds of trust are used for personal property.
E) Mortgages are used to create a security agreement covering residential real property,and deeds of trust are used in connection with commercial real property.

Question 40

Which of the following must be recorded in order to be valid between the debtor and creditor?

A) deed of trust
B) mortgage
C) both a deed of trust and a mortgage
D) neither a deed of trust nor a mortgage

Question 41

What is a "power of sale" in connection with a mortgage?

A) It is a statute allowing the secured property to be sold in order to satisfy the related debt if it is not paid according to the stated terms.
B) It is a provision in a mortgage or deed of trust that allows a foreclosure process that does not involve court action.
C) It is a provision in a mortgage or deed of trust that allows the borrower to sell the property even though the loan associated with the mortgage has not been paid off.
D) It is the general principle that a mortgage or deed of trust cannot take away the borrower's legal right to sell property whether or not there is a security interest associated with it.

Question 42

Sharon borrowed $200,000 in order to purchase a home.She entered into a mortgage agreement with the lender,but the lender never recorded the mortgage.Sharon then borrowed additional money from a second lender and executed a mortgage,which the second lender recorded.Which of the following is true?

A) The first lender cannot enforce its mortgage against Sharon.
B) The rights of the second lender will be determined without regard to the mortgage of the first lender.
C) Neither mortgage is enforceable.
D) The recording of the second mortgage ahead of the first caused the second to be invalid.
E) Sharon will be unable to sell the home until all valid mortgages against it are properly recorded.

Question 43

Mike has a long history of purchasing items on credit.At the present time,Mike has six secured creditors to whom he owes a total of $60,000 and two unsecured creditors to whom he owes $30,000.Mike recently was laid off from his job.It appears that he will have a difficult time finding a new job,and any job he finds will likely carry a salary lower than the job that he recently lost.What factors should a secured creditor consider in deciding whether to enter into a composition agreement? How would the analysis be different for unsecured creditors?

Question 44

If the non-recordation of a mortgage or deed of trust does not affect either the legality of the instrument between the mortgagor and the mortgagee or the rights and obligations of the parties,then why bother having a recording statute?

Question 45

Under a land sales contract,which of the following is true?

A) A third-party lender provides financing for the purchase of a piece of property.
B) Credit is extended directly by the seller to the buyer,with the buyer not receiving a deed from the seller until the debt obligation is fully satisfied.
C) Credit is extended directly by the seller to the buyer,with the buyer receiving a deed immediately and that will become null and void upon default.
D) Land is sold that will not involve the use of a mortgage or deed of trust.

Question 46

A statute that prevents a mortgage holder from seeking recovery directly from the borrower any difference in the amount of debt owed and the amount that the property brings at a foreclosure sale is called a(n):

A) homeowner loss prevention statute
B) lender's satisfaction statute
C) antideficiency statute
D) partial lender recovery statute
E) modified debtor obligation statute

Question 47

Is a residential homeowner's right of redemption too great a protection for the homeowner? If someone has purchased a home at a foreclosure sale,why should the homeowner in default be able to redeem the property after the fact?

Question 48

A mechanic's lien can be obtained on real property by a contractor who has not been paid and who has:

A) provided materials used on the real property
B) provided labor on the real property
C) provided materials used on the real property or labor on the real property
D) provided materials or labor used on personal property that was located on the real property at the time of providing the materials or labor
E) C and D

Question 49

Are the various requirements for filing mortgages and other security interests too burdensome on creditors? Do they work too much to the benefit of debtors?

Question 50

Nora and Jed borrow $700,000 from Your Bank to purchase a house near the lake and they (Nora and Jed)give a mortgage to Your Bank as collateral in order to secure the loan.Nora and Jed prove to be poor money managers and thereafter default on their loan to Your Bank.Your Bank begins foreclosure proceedings and proceeds to sell the home at a judicial sale.Paul and Penelope fall in love with the house and purchase it for $850,000.What if anything must Your Bank remit to Nora and Jed?

Question 51

The process by which a lender uses the secured property to satisfy a debt in default is called:

A) enactment
B) deed entrustment
C) lien release
D) recording
E) foreclosure

Question 52

What does a right of redemption allow in connection with a mortgage or deed of trust?

A) It allows the granting of a second mortgage on the same property that is already secured.
B) It allows the lender to use the property to satisfy the debt if it goes into default.
C) It allows the use of a deed of trust arrangement in place of a conventional mortgage.
D) It allows the ability to foreclose on the property without court action.
E) It allows the borrower to recover foreclosed property by paying off the related debt.

Question 53

Jack has a construction company that specializes in home remodeling and renovation.He enters into a contract with Sandra to remodel her basement.Sandra agrees to pay in three installments,the third of which is due at the time of completion.Sandra makes the first two payments on schedule but refuses to make the final one even though the job has been completed.To preserve his rights,Jack files against the property.What type of filing has Jack most likely done?

A) a mechanic's lien
B) a mortgage
C) a deed of trust
D) a deficiency judgment
E) a foreclosure

Question 54

Bernie purchases a house for $100,000.He puts $20,000 down,and borrows $80,000 from ABC Bank.ABC Bank does not record the mortgage.Bernie has expensive taste.He later goes to DEF Bank and obtains another $80,000 loan on the house.DEF records the mortgage.Bernie subsequently defaults on both mortgages.What are the rights of the banks?

A) The first bank to file has the right to take the house.
B) ABC has a superior claim to the home because it made the first mortgage to Bernie.
C) DEF has a superior claim to the home because it recorded the mortgage.
D) Both banks are out of luck.