Real Estate Finance & Investments, 16e (Brueggeman)
1) A mortgage is the same thing as a note.
2) A non-recourse loan is one in which the borrower is personally liable for payment of all
amounts due under the terms of the note.
3) Prepayment of a loan without penalty is a right of all borrowers.
4) A second mortgage is a junior lien mortgage that is sometimes used to bridge the gap between
the price of a property and the sum of the first mortgage and down payment.
5) A remainder cannot be mortgaged.
6) A clause which specifies that the mortgagor will pay all property taxes and other charges
assessed against the property, even if theses charges have priority over the mortgage is typically
included in a mortgage.
7) A clause which specifies that the mortgagee will obtain and maintain property insurance is
typically included in a mortgage.
8) Under lien theory, title and the right to possession pass from the mortgagor to the mortgagee
when the mortgage is executed.
9) A due on sale clause which specifies that the mortgage can accelerate the debt if the property
is sold without the mortgagee’s permission is a typical clause in a mortgage document.
10) It is a federal law that a mortgage must be recorded to be valid.
11) A mortgage default can result from failure to pay property taxes.
12) A technical default can result from failure to keep the property in repair.
13) When a purchaser takes a property “subject to” an existing mortgage, the purchaser becomes
personally liable for repaying the debt.
14) When a deed is given in lieu of foreclosure of the mortgage, the mortgagor no longer has an
obligation to pay the mortgage note.
15) Junior liens are eliminated by a voluntary conveyance of a property to the mortgagee.
16) If a property encumbered by a mortgage is sold at a foreclosure sale for an amount more than
the value of the mortgage, the mortgagor is not obligated to pay the mortgagee the remaining
balance.
17) A purchaser at a tax sale receives a deed to the property at the time of the sale in nearly all
states.
18) The process of confirming a plan of reorganization under Chapter 11, even if one or more
creditor classes dissent, is known as a “cramdown.”
19) If a debtor, under Chapter 7 bankruptcy, is not behind on his mortgage payments, he does not
have the give up the property.
20) Unless stated otherwise, the borrower is personally liable for payment of all amounts due
under the terms of the note.
21) A short sale occurs when a buyer does not bring adequate funds to a mortgage closing.
22) A loan in which the borrower arranges in advance with a mortgagee for a total amount that
will be advanced, in stages, under the mortgage to meet the part of the costs of construction as it
progresses:
A) Assumption
B) Non-recourse
C) Open-end
D) Subordination
23) A “short sale” of real estate is:
A) A sale that closes in less than 30 days
B) The sale of a house by someone who is not the owner; it is a way to profit from an anticipated
decline in real estate prices
C) A sale in which the proceeds from the sale are less than the balance owed on the loan secured
by the property sold
D) A sale in which the balance owed on the loan secured by the property sold is less than the
proceeds from the sale
24) Which of the following situations is NOT a common cause for the use of a purchase-money
mortgage?
A) The buyer cannot come up with the down payment needed to qualify for a mortgage
B) The seller wants to receive the gain from the sale in installments
C) Third-party mortgage financing is too expensive or unavailable
D) The seller desires to artificially raise the price of the property by receiving a higher-than-
market interest rate
25) Which of the following is NOT a minimum mortgage requirement?
A) Description of the property
B) Covenant of warranty
C) Prepayment clause
D) Covenant of seizin
26) A mortgage is BEST defined as a legal document that:
A) Creates an obligation to repay a loan under specific terms
B) Names real estate as the security or collateral for the repayment of a loan
C) Defines a possessory interest in real estate
D) Conveys ownership of a property to its purchaser
27) Which of the following solutions is LEAST likely to be acceptable to a mortgagee when
discussing alternatives to foreclosing a property?
A) Permanently extending the amortization period
B) Finding someone else to assume the mortgage
C) Providing a temporary grace period during which principal and interest are not paid
D) Permanently reducing the interest rate
28) Which of the following terms refers to an owner’s right to redeem a property after
foreclosure?
A) Equity of redemption
B) Statutory redemption
C) Attachment
D) Execution
29) In jurisdictions where a deed of trust is used to finance real estate, there are three parties to
the loan secured by the deed of trust. Which of the following is NOT one of those three parties?
A) Borrower
B) Trustee
C) Holder of the note
D) Grantor
30) A senior mortgage holder is owed a mortgage balance of $140,000 and brings a foreclosure
suit which includes all junior claimants in the suit. If the senior mortgage holder purchases the
property for $140,000 at the foreclosure sale, what happens to the claim of the junior claimants?
A) The liens of the junior claimants are unaffected and the debt is due upon sale
B) The liens of the junior claimants are extinguished, but the debt owed to the junior claimants is
unaffected
C) The liens of the junior claimants and the debt owed to them are extinguished
D) The liens of the junior claimants are unaffected, but the debt owed to them is extinguished
31) A property is encumbered as follows:
First mortgage, A: $250,000
Second mortgage, B: $40,000
Third mortgage, C: $10,000
How much can mortgagee B pay for the property at a foreclosure sale without having to raise
additional funds?
A) $290,000
B) $40,000
C) $300,000
D) $50,000
32) Which of the following types of bankruptcy is filed with the end result of liquidating the
debtor’s assets?
A) Chapter 7
B) Chapter 11
C) Chapter 13
D) Chapter 17
33) Which of the following types of bankruptcy is available to a business to reorganize and
rehabilitate the debtor?
A) Chapter 7
B) Chapter 11
C) Chapter 13
D) Chapter 17
34) A mortgage agreement provides the lender with ________ interests.
A) Unsecured
B) Secured
C) Nonpossessory
D) Possessory
35) What is usually executed at the same time as a mortgage and creates the obligation to repay
the loan in accordance with its terms?
A) Recording acts
B) Ownership interests
C) Method of payment
D) Promissory note
36) Which of the following gives the lender the right or option to demand the loan balance owed
if a default occurs.
A) Nonrecourse clause
B) Assignment clause
C) Acceleration clause
D) Default clause
37) Which of the following is NOT an alternative to foreclosure?
A) Restructuring the mortgage loan
B) Transfer of the mortgage to a new owner
C) Redemption
D) Prepackaged bankruptcy
38) Which of the following types of default LEAST often results in foreclosure?
A) Failure to fulfill financial obligation
B) Failure to pay taxes
C) Failure to pay insurance premiums when due
D) Failure to keep the security in repair
39) Which of the following statements is FALSE regarding foreclosure?
A) In judicial foreclosure, property subject to attachment and execution is limited to the
mortgaged property
B) If the sale of the mortgaged property realizes a price above the claims of the mortgage and
expense of the sale, the balance goes to the mortgagor
C) Redemption can be accomplished by paying 95% of the debt, interest and costs due to
mortgage
D) All of the above
40) When would seller financing NOT be used?
A) The seller desires to take advantage of the installment method of reporting the gain from sale
B) The buyer does not qualify for long term mortgage credit because of low down payment or
difficulty meeting monthly payments
C) Third-party mortgage financing is less expensive or easily available
D) The seller desires to artificially raise the price of the property by offering a lower-than-market
interest rate on the mortgage
41) A situation in which a borrower agrees to a court’s jurisdiction and cooperates with the
lender during litigation to resolve the situation:
A) Prepackaged bankruptcy
B) Judicial foreclosure
C) Friendly foreclosure
D) Voluntary conveyance
42) A transaction in which a borrower sells a property for less than the current balance of the
loan and then provides all of the proceeds to the sale to the lender, typically in full satisfaction of
the loan.
A) Prepackaged bankruptcy
B) Short sale
C) Judicial foreclosure
D) Friendly foreclosure
43) What term BEST describes the borrower who is personally liable for a debt obligation
related to the purchase of a home?
A) Mortgagor
B) Grantor
C) Mortgagee
D) Grantee
44) The term to describe a piece of tangible personal property that is affixed to a property, such
that it may be considered part of the property?
A) Cramdown
B) Workout
C) Redemption
D) Chattel
45) Which of the following documents conveys title to a property at the time the purchaser
completes the performance of the obligation called for in the document?
A) Junior mortgage
B) Package mortgage
C) Purchase-money mortgage
D) Land contract