Question 1

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?

Accepted Answer

The answer of Assume Bobby wants to buy a house...

Question 2

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.

Accepted Answer

A) True 
 B)False

Question 3

Security interests may not be taken in intangible property.

Accepted Answer

A) True 
 B)False

Question 4

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?

Accepted Answer

A)  nothing, because the collateral has been destroyed 
B)  obtain a writ of garnishment on the boat and the bank account 
C)  have the sheriff attach the property 
D)  obtain a writ of execution on the boat, and a writ of garnishment on the bank account 
E)  obtain a writ of garnishment on the boat and the bank account.

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

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.

Accepted Answer

The answer of Beth entered into a guaranty agreement with...

Question 8

Which of the following would be granted the greatest priority?

Accepted Answer

A)  a secured lien 
B)  a perfected secured lien 
C)  a mechanic's lien 
D)  an unsecured lien 
E)  a purchase money security interest

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

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:

Accepted Answer

A)  temporary lien. 
B)  fixed lien. 
C)  transitory lien. 
D)  floating lien. 
E)  partial lien.

Question 14

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.

Accepted Answer

A) True 
 B)False

Question 15

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?

Accepted Answer

A)  Bill is liable on Alice's loan to Local Bank, but the bank cannot foreclose on the property. 
B)  Local Bank can foreclose on the property if it wants. 
C)  Local Bank can foreclose on the property only if it can establish that an honest mistake was involved, and that its business practice was to record mortgages. 
D)  Bill takes free of the claim of the bank only if he can show that the bank had a habit of not recording mortgages, and that the bank was negligent. 
E)  Bill owns the house free of any interest of Local Bank.

Question 16

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

Accepted Answer

A)  They perfect automatically, for any type of goods, upon attachment. 
B)  For something other than inventory, a perfected purchase money security interest prevails over a perfected nonpurchase money security interest in after-acquired property if it is perfected when the debtor receives possession or with twenty days after the debtor receives possession of the collateral. 
C)  There is no special treatment for purchase money security interests in inventory. 
D)  For consumer goods, any purchase money security interest in them perfects without attachment. 
E)  The perfected purchase money security interest prevails if the purchase money secured party gives written notice of the perfection to the perfected nonpurchase money secured party before the debtor receives possession of the collateral.

Question 17

In a mortgage,the creditor is the mortgagor.

Accepted Answer

A) True 
 B)False

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

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

Accepted Answer

A)  five years from the date of filing, unless it is extended. 
B)  four years from the date of filing, unless it is extended. 
C)  six months from the date of filing, unless it is extended. 
D)  ninety days from the date of filing, unless it is extended. 
E)  ten years from the date of filing, unless it is extended

Question 20

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

Accepted Answer

A)  Detachment 
B)  Parchment 
C)  Attachment 
D)  Origination 
E)  Generation

Exam 23: Credit and Secured Transactions

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.

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.

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.

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.