Deck 19: Creditors Rights and Remedies

Question 1

Foreclosure is the legal process by which a lender repossesses and auctions off property that has secured a loan.

Answer 1

True

Question 2

An attachment is a court-ordered seizure and taking into custody of property before a judgment is obtained on a past-due debt.

Answer 2

True

Question 3

An artisan's lien is effective only if a creditor has possession of the property.

Answer 3

True

Question 4

To use attachment as a remedy, a creditor must have an enforceable right to payment of the debt.

Question 5

A creditor's composition agreement is usually held to be enforceable.

Question 6

Recording a mortgage perfects the lender's security interest in the mortgaged property.

Question 7

A court's order to seize a debtor's property after a judgment is referred to as a writ of execution.

Question 8

Federal law alone governs garnishment actions.

Question 9

A short sale is a sale of only part of the whole property subject to a mortgage.

Question 10

An artisan's lien is possessory.

Question 11

A default occurs when a debtor fails to pay a creditor as promised.

Question 12

An employer can dismiss an employee because his or her wages are being garnished.

Question 13

If a debtor does not pay a mechanic's lien, the debtor's property can be sold to satisfy the debt.

Question 14

In some states, a judgment creditor must obtain a separate order of garnishment to cover each of the debtor's pay periods.

Question 15

Liquidated debts are debts that are indefinite, or not fixed, in amount.

Question 16

An artisan's lien is a security device created at statutory law through which a creditor can recover payment for labor and materials used to increase the value of real property.

Question 17

There is no limit to the amount that can be taken from a debtor's weekly take-home pay through garnishment.

Question 18

No state allows a defaulting debtor to redeem the property before a foreclosure sale.

Question 19

A defaulting debtor cannot redeem nonexempt property before a sale under a writ of execution.

Question 20

A lien is an encumbrance on property to satisfy a debt or protect a claim for the payment of a debt.

Question 21

Custom Cabinets & Carpentry Company has a claim against Duane's property to satisfy a debt that takes priority over other claims against the same property. This is​

A) a lien.
B) ​a violation of most state laws.
C) ​a composition agreement.
D) ​a contract of suretyship.

Question 22

A creditor must exhaust all legal remedies against the principal debtor before holding a surety responsible for payment.

Question 23

A homestead exemption allows a debtor to subtract the value of the family home from the amount of a debt.

Question 24

A guarantor is secondarily liable on an obligation.

Question 25

A guarantor can be required to pay an obligation only after the principal debtor defaults.

Question 26

In a few states, statutes allow the homestead exemption only if the judgment debtor has a family.

Question 27

If a homeowner defaults, or fails to make the mortgage payments, the lender loses the right to foreclose on the mortgaged property.

Question 28

A creditor's surrender of collateral to a debtor without the guarantor's consent can reduce the guarantor's obligation.

Question 29

A surety cannot assert the principal debtor's bankruptcy as a defense to avoid liability on the debtor's obligation.

Question 30

Sasha's debt to Tully is past due. Tully brings a legal action against Sasha to collect the debt. To ensure that a judgment in Tully's favor will be collectible, he asks the court to order the seizure of Sasha's property. This is a request for​

A) ​a contract of suretyship.
B) ​an order that would violate most state laws.
C) ​a writ of attachment.
D) ​an order of receivership.

Question 31

A debtor's vehicle is never exempt from satisfaction of a judgment debt.

Question 32

In a suretyship relationship, a third person's credit becomes the security for a debt.

Question 33

A creditor can demand payment from the surety before the debt is due.

Question 34

A guaranty contract must normally be in writing to be enforceable.

Question 35

Portia owes Bjorn $500 on their roof repair contract, but refuses to pay. To collect, Bjorn files a mechanic's lien. Under a mechanic's lien, security for the debt is represented by​

A) ​Portia's personal property.
B) ​Portia's real estate.
C) ​the $500 owed under the contract.
D) ​the contract.

Question 36

Personal property that is most often exempt from satisfaction of judgment debts does not include equipment that the debtor uses in a business or trade.

Question 37

Loni delivers her Mazda to be repaired at Nile's Body Shop. Loni agrees to pay cash. Nile performs, but Loni does not pay. Nile tells Loni that he will keep the car until she pays. This is​

A) ​a judicial lien.
B) ​a mechanic's lien.
C) ​an artisan's lien.
D) ​a violation of most states' laws.

Question 38

Frank performs a contract with Gene to add a garage to Gene's property, but Gene does not pay. Frank can file a lien on Gene's property if, from the last date labor or materials were provided, he acts​

A) ​immediately.
B) ​within 60 to 120 days.
C) ​within two years.
D) ​within a reasonable time.

Question 39

A lender does not have to strictly comply with the state statute governing foreclosure-substantial compliance is sufficient.

Question 40

A surety is primarily liable for the debt of a principal.

Question 41

Denise borrows $90,000 from Clear Lake Credit Union to buy a home. Denise loses her job and fails to make payments on the mortgage, but assures Clear Lake Credit that she will soon secure a new job. The lender agrees to postpone the payments. This is​

A) ​a right of redemption.
B) ​a forbearance.
C) ​a short sale.
D) ​a workout agreement.

Question 42

George borrows funds from Hometown Credit Union (HCU) to buy real property. George signs a written instrument that gives HCU an interest in the property as security for the debt's payment. This is​

A) ​a mortgage.
B) ​an artisan's lien.
C) ​a workout agreement.
D) ​a suretyship arrangement.

Question 43

Olive borrows money from Capital Loan Company. For Capital to obtain a writ of execution, Olive must​

A) ​be unable or refuse to pay the amount of a judgment.
B) ​be unable to redeem her exempt property.
C) ​be notified in writing (in a "writ") of the lender's intent.
D) ​surrender possession of her property to a court.

Question 44

Ronaldo's debt to Sofia is past due. Ronaldo obtains a judgment against Sofia to collect the debt, but Sofia will not pay. Ronaldo requests a writ of execution. The property that is seized under the writ of execution must be​

A) ​in Ronaldo's possession.
B) ​in Sofia's possession.
C) ​in the possession of Sofia's employer or other third party.
D) ​within the court's geographic jurisdiction.

Question 45

Edgar refuses to pay Delia $500 for the cost to repair Edgar's washing machine and dryer, which Delia still possesses. Delia has a lien on the machines, which will terminate​

A) ​if she continues to maintain possession.
B) ​if she does not file a written notice of lien within thirty days.
C) ​if she voluntarily surrenders possession.
D) ​at the end of the machines' warranty period.

Question 46

Ridgeline Bank provides Shirley with a mortgage to buy a home. The rate of interest is fixed for three years and then adjusts annually. This is​

A) ​a fixed-rate mortgage.
B) ​an adjustable-rate mortgage.
C) ​a creditor's composition agreement.
D) ​a guaranty agreement.

Question 47

Fleet Trucking, LLC, buys a white van from Go Motors, Inc. , on credit under a guaranty signed by Herbie, Fleet's president, making him personally liable if the company does not pay. Herbie is​

A) ​a surety.
B) ​a lienor.
C) ​a guarantor.
D) ​a creditor.

Question 48

Jessie's debt to Kayla is past due. Kayla brings a legal action against Jessie to collect the debt. Kayla asks the court to order Liberty Bank, in which Jessie has an account, to pay a portion of the funds to Kayla. This is a request for​

A) a writ of execution.
B) ​an order of garnishment.
C) ​an order that would violate most state laws.
D) ​a composition agreement.

Question 49

Julie owes Ryan $10,000. When the debt comes due, Julie refuses to pay. Ryan obtains a judgment to collect the debt. Using a writ of execution, the court orders the sheriff to seize Julie's boat and sell it to pay the debt. The boat sells for $15,000. Ryan will receive​

A) ​$15,000.
B) ​$10,000.
C) ​$7,500.
D) ​$15,000 minus the collection costs.

Question 50

Laurel borrows $150,000 from Marketplace Mortgage Loans to buy a home. The financing documents require Laurel to maintain the property, obtain homeowners' insurance, and pay all property taxes and other assessments through the lender. With respect to these terms, a court is most likely to​

A) ​enforce them.
B) ​refuse to enforce them.
C) ​rescind them.
D) ​rewrite them.

Question 51

Fact Pattern 19-1
Petro Oil Refinery asks Quality Bank for a loan to increase its oil inventory. Quality requires Robin, Petro's president, sign a personal guaranty to pay the debt if Petro defaults. Meanwhile, to sell fifty barrels of refined oil to Slick Lubricants, Inc., Petro asks its outside accountant Tina to co-sign a credit application.
Refer to Fact Pattern 19-1.If, after the loan agreement is signed, Slick agrees to a higher rate of interest without telling Tina, then Tina is​

A) ​discharged from the agreement.
B) ​liable at the higher rate of interest.
C) ​liable at the lower rate of interest.
D) ​liable for the principal only.

Question 52

Fact Pattern 19-1
Petro Oil Refinery asks Quality Bank for a loan to increase its oil inventory. Quality requires Robin, Petro's president, sign a personal guaranty to pay the debt if Petro defaults. Meanwhile, to sell fifty barrels of refined oil to Slick Lubricants, Inc., Petro asks its outside accountant Tina to co-sign a credit application.
Refer to Fact Pattern 19-1.If Tina signs the application but fails to condition her signature on Petro's agreement to pursue its legal remedies against Slick before looking to her, then Tina is​

A) ​a surety.
B) ​a lienor.
C) ​a guarantor.
D) ​a creditor.

Question 53

Fact Pattern 19-1
Petro Oil Refinery asks Quality Bank for a loan to increase its oil inventory. Quality requires Robin, Petro's president, sign a personal guaranty to pay the debt if Petro defaults. Meanwhile, to sell fifty barrels of refined oil to Slick Lubricants, Inc., Petro asks its outside accountant Tina to co-sign a credit application.
Refer to Fact Pattern 19-1.If Tina signs the application only after language is included that requires Petro to exhaust its legal remedies against Slick before looking to her, then Tina is​

A) ​a surety.
B) ​a lienor.
C) ​a guarantor.
D) ​a creditor.

Question 54

Nell's debt to Olsen is past due. Olsen obtains an order of garnishment to require Nell's employer Pro Transmission Service, Inc., to pay part of Nell's paycheck to Olsen. The law​

A) limits the amount that can be taken from Nell's take-home pay.
B) ​permits Olsen to dismiss Nell because her wages are garnished.
C) ​practically does not allow Olsen to collect the awarded amount.
D) ​requires Pro to retain Nell as an employee until the debt is paid.

Question 55

Helen's debt to Imprint Printers is past due. Imprint obtains a judgment against Helen, but she refuses to pay it. Imprint asks the court for an order that directs the sheriff to seize and sell any of Helen's nonexempt real or personal property that is within the court's geographic jurisdiction. This is a request for​

A) ​a writ of execution.
B) ​a composition agreement.
C) ​an order that would violate most state laws.
D) ​an order of garnishment.

Question 56

Lenders Loan Company and Mortgage Service Corporation-Nadya's creditors-contract with Nadya for the discharge of her liquidated debts on payment of a lesser sum. This is​

A) ​a composition agreement.
B) ​a subrogation.
C) ​a suretyship agreement.
D) ​in violation of most states' laws.

Question 57

Countryside Bank provides Dhani with a standard mortgage with an unchanging rate of interest to buy a home. Payments on the loan remain the same for the duration of the mortgage. This is

A) ​a fixed-rate mortgage.
B) ​an adjustable-rate mortgage.
C) ​a workout agreement.
D) ​a violation of the law.

Question 58

Rico borrows $110,000 from Sterling Bank to buy a home. If he fails to make payments on the mortgage, the bank has the right to repossess and auction off the property securing the loan. This is​

A) ​attachment.
B) ​execution.
C) ​foreclosure.
D) ​redemption.

Question 59

Edie fraudulently induces Franco, a consumer, to sign a promissory note to buy a speedboat. Edie sells the note to Gus, who takes it for value, in good faith, and without knowledge of the fraud. With respect to the defense against payment on the note to Edie, Franco can​

A) ​assert this defense against Gus.
B) ​file for a property exemption.
C) ​exercise the right of subrogation.
D) ​obtain a deficiency judgment.

Question 60

Fact Pattern 19-1
Petro Oil Refinery asks Quality Bank for a loan to increase its oil inventory. Quality requires Robin, Petro's president, sign a personal guaranty to pay the debt if Petro defaults. Meanwhile, to sell fifty barrels of refined oil to Slick Lubricants, Inc., Petro asks its outside accountant Tina to co-sign a credit application.
Refer to Fact Pattern 19-1.If Robin is a guarantor, then the guaranty is required to be in writing because of​

A) ​the debtor's right of redemption.
B) ​the co-signer's right of contribution.
C) ​the creditor's transfer of possession.
D) ​the Statute of Frauds.

Question 61

Refer to Fact Pattern 19-2.If Suburban Mortgage recovers less than it is owed, it can realize the difference from​

A) ​any property that Robin owns.
B) ​only exempt property that Robin owns.
C) ​only nonexempt property that Robin owns.
D) ​property that any other member of Robin's family owns.

Question 62

Daphne defaults on a debt to Country Loan Corporation. As a creditor, Country Loan can place liens on all of Daphne's property except​

A) ​motor vehicles used to commute to work.
B) ​stock in various corporations.
C) ​items that the debtor selects.
D) ​vacant commercial property.

Question 63

The roof in Rosalyn's house springs a leak. She contracts with Shelter Roofing & Restoration Company to repair the roof and fix the damage to the house. Rosalyn pays 10 percent of the price in advance. Shelter Roofing does the work, but Rosalyn refuses to pay the rest of the price. What can Shelter Roofing do, and how is it done?

Question 64

Rashi is a student at State University. In need of funds to pay for tuition and books, Rashi asks Tiempo Loans, Inc., for a short-term loan. The lender agrees to make a loan if Rashi will have someone who is financially responsible guarantee the loan payments. Umberto, a well-known businessperson and a friend of Rashi's family, calls Tiempo and agrees to pay the loan if Rashi cannot. Because of Umberto's reputation, the loan is made. Rashi is making the payments, but because of illness he is unable to work for one month. He asks Tiempo to extend the loan for three months. The lender agrees, raising the interest rate for the extended period. Umberto is not notified of the extension (and thus does not consent to it). One month later, Rashi drops out of school. All attempts to collect the remainder of the loan from Rashi fail. Can Tiempo assert a claim against Umberto on the debt?

Question 65

Maggie is a surety for Jo's debt to Bill. Bill and Jo decide to make material changes to the original contract without informing Maggie. Maggie is​

A) ​bound by the contract including the changes.
B) ​discharged completely.
C) ​bound by the contract according to the original terms.
D) ​bound by the contract unless she objects within thirty days.

Question 66

Fact Pattern 19-2
Robin's home is in a state that has a $30,000 homestead exemption. Robin de-faults on a $60,000 debt that she owes to Suburban Mortgage Company. Robin's home is sold at auction for $80,000.
Refer to Fact Pattern 19-2.Suburban Mortgage may recover​

A) $0.
B) ​$30,000.
C) ​$50,000.
D) ​$60,000.

Question 67

Jay is a surety for Karen's loan from Little Bank. Jay's right to be reimbursed by Karen after having paid her debt is the right of​

A) ​contribution.
B) ​redemption.
C) ​reimbursement.
D) subrogation.

Question 68

Dan defaults on a debt to Rachel. Rachel will not be able to recover the debt from​

A) ​the sale of Dan's prize-winning pet dog.
B) ​the sale of Dan's investments in stocks.
C) ​Dan's wages.
D) ​Dan's lottery winnings.

Question 69

Raoul is a surety for Suzie's loan from Turnkey Credit, Inc. Raoul's right to "step into the shoes" of Turnkey, after paying Suzie's debt, and exercise any of the Turnkey's rights against Suzie is the right of​

A) ​contribution.
B) ​redemption.
C) ​reimbursement.
D) ​subrogation.

Question 70

Refer to Fact Pattern 19-2.Robin will receive​

A) ​$0.
B) ​$30,000.
C) ​$50,000.
D) ​$60,000.

Question 71

EZ Credit, Inc., lends $1,000 to Joe. Kay acts as Joe's surety. If Kay pays the loan, she gets​

A) ​any right that EZ had against Joe, but not a right to be repaid by Joe.
B) ​a right to be repaid by Joe, but not any right that EZ had against Joe.
C) ​any right that EZ had against Joe and a right to be repaid by Joe.
D) ​none of the choices.

Question 72

Bert, Chaka, and Doug are co-sureties of Erica's debt to Finance Loan Company. Bert pays Erica's entire debt. Bert's right to seek proportionate payments from Chaka and Doug is the right of​

A) ​contribution.
B) ​exemption.
C) ​reimbursement.
D) ​subrogation.