CHAPTER TWELVE
True-False
Any element of falsity renders the statement false.
1. All other things being equal, the longer the repayment term, the lower the monthly payments
required to amortize (repay) a typical mortgage loan and the larger the total amount of cumulative
interest that must be paid.
2. All other things being equal, the lower the interest rate; the lower the monthly payments required to
amortize (repay) a typical mortgage loan.
3. A homeowner’s monthly mortgage payment often includes or combines sums of money for
payment of property taxes and casualty insurance with the sum for principal and interest on the
mortgage.
4. Money borrowed and secured with a home equity loan can only be used for home improvements.
5. The size of each payment required to amortize an adjustable interest rate mortgage (ARM) may
remain constant even though the adjustable interest rate may increase from time to time.
6. Interest rates required by a variable interest rate mortgage (VIRM) typically are capped (i.e.,
limited) as to how much they can be adjusted at any one time.
7. A variable interest rate mortgage (VIRM) is the same thing as an adjustable rate mortgage (ARM).
8. One advantage to an adjustable interest rate mortgage (ARM) is that the lender typically will not
charge the borrower any loan origination fee.
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9. One advantage to a fixed-rate mortgage is that the lender typically will not charge the borrower any
loan origination fee.
10. It is illegal for a person to sell their own home themselves unless they possess a real estate license.
11. For 20 years, homeowner A and homeowner B both paid $1,500 per month on their 30-year, seven
percent mortgages. Homeowner A lived in the same home and paid on the same mortgage the entire
period. Homeowner B moved three times, but each time obtained a 30-year, seven percent
mortgage and paid $1,500 per month. A’s home and B’s home both rose in value by two percent
per year. After the 20 years, A and B will have the same amount of wealth from their home
investments.
12. In general, home sales have changed from a “Let the buyer beware” to a “Let the seller beware”
market.
13. The market practices governing home sales are tightly governed by the National Association of
Realtors.TM
14. After a sales agreement is signed, the buyer may thoroughly inspect the home (personally or by
using professional inspectors) and demand the seller make any “necessary” repairs. Serious disputes
can follow if the surprised seller objects to making such repairs, because a contract already has been
signed.
15. Commonly regarded advantages of home ownership are the sense of community, stability and
security.
16. It is generally believed and a common saying that the most important factor in selecting a home is
price, price, price.
Test Bank 3
17. A real estate agent employed by the buyer to find attractive homes to purchase is called the listing
agent.
18. The offer to buy real estate is usually made on a standard form document called a purchase
agreement and deposit receipt.
19. The term impound account is another term used to describe a homeowners equity.
20. One advantage of a non-judicial foreclosure to the buyer is the debtor lacks the right of redemption.
21. A foreclosure is a process by which secured real property is confiscated at the direction of the
unpaid creditor and sold to the highest bidder
22. A judgment against a debtor for the unpaid balance still due after judicial foreclosure of a real estate
mortgage is called a right of redemption.
23. Although mechanics liens are used to protect automobile repair facilities that type of protection is
not available to material suppliers to real property.
24. Homestead laws are uniform through the states.
25. A document used to transfer ownership interest in real property is called a deed and it has different
legal significance than a contract.
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Fill-ins
Complete each sentence or statement.
1. All of the repayment terms of a home loan are found in two documents, the __________________
and the __________________.
2. A homeowner must pay a substantial penalty if the mortgage lender does not receive the required
monthly payment by the stated __________________ date.
3. Monthly payments on home mortgages often include, PITI, Principal, Interest, Property Taxes, and
__________________.
4. Sometimes a homeowner who becomes wholly unable to make mortgage payments can protect his
or her credit rating by giving the lender a(n) __________________.
5. After a home mortgage loan is made by a bank or savings and loan, it may be sold (assigned) to
investors who participate in what is called the __________________. These buyers essentially are
purchasing a stream of future income represented by the monthly payments made on the home
mortgages they purchased.
6. Some lenders do not sell all of their home mortgage loans. Rather, they keep them as an investment
to earn the stated interest rate. These lenders rely upon the credit-worthiness of their borrowers
instead of upon federal guarantees or repayment of private mortgage insurance. Such banks and
savings and loans are called __________________ lenders.
7. All the money necessary to complete the purchase of a home, above and beyond the net amount of
the new mortgage loan, and whether used for payment of “garbage fees,” reimbursement to seller of
prepaid property taxes, or for part of the purchase price, is called the __________________.
8. When a home buyer agrees to continue to make monthly payments to the seller’s existing mortgage
lender, a(n) __________________ occurs.
Test Bank 5
9. The difference between the market value of a home and the sum of all mortgages and liens against
it is called the owner’s __________________. What is ignored in this calculation is the impact of
__________________ on the owner’s true economic interest in the property.
10. The annualized percentage rate (APR) of a home purchase mortgage may be larger than the interest
rate stated in the note if __________________ are paid by the borrower to the lender.
11. State laws provide that all documents that affect the ownership of, or possession of, real estate may
be __________________ in public official records.
12. A(n) __________________ gives a person the right to make limited use of another person’s real
property, such as driving a car over it.
13. A(n) __________________ gives a person revocable permission to make limited use of another
person’s real property, such as driving a car over it.
14. A debtor who fully reimburses the person who made the winning bid at the judicial-foreclosure sale
within one year can reclaim the property through a called the __________________.
15. If a lender (creditor) wishes to claim a(n) __________________ they should chose a judicial
foreclosure over a non-judicial foreclosure.
16. A ________________deed is the deed that provides the new owner the greatest protection.
17. Tran conveyed to Liu all his ownership interest in his real property but when he did so he made no
promise that he had conveyed anything. Liu received a __________________.
18. An obstacle to clear title in real estate is called a __________________.
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19. __________________is money or other property made available as security by a debtor to a
creditor, through physical possession or legal right, to guarantee repayment of a loan.
20. A real estate employment contract in which the owner of real property agrees to pay a licensed
agent a certain commission regardless of who finds the buyer to whom the property is sold is called
__________________.
Multiple Choice
Select the one best answer.
1. Which of the following is not an economic benefit of home ownership?
a. buildup of ownership equity
b. appreciation in value
c. deduction of property taxes on income-tax returns
d. tax deduction of principal on income-tax returns
2. Which of the following typically represents the largest cash expenditures incident to home
ownership?
a. utility services (water, electricity, gas)
b. maintenance costs
c. PITI (principal, interest, insurance, and taxes)
d. property taxes
3. The listing real estate agent is an employee of
a. the buyer.
b. the seller.
c. both the buyer and seller.
d. the multiple-listing service.
4. The document that is usually called a listing is best described as
a. a multiple-listing service.
b. an offer to purchase.
c. a deposit receipt.
d. an employment contract.
Test Bank 7
5. The document that is usually called a deposit receipt is best described as
a. a multiple-listing service.
b. an offer to purchase.
c. an employment contract.
d. a listing.
6. The document that constitutes evidence of a debt and contains the essential terms of the financing,
is called
a. a loan application.
b. a deed of trust.
c. a mortgage.
d. a note, or technically, a promissory note.
7. The document that constitutes a power to foreclose upon collateral and apply its value to
satisfaction of the underlying debt, is called
a. a note.
b. a deed of trust.
c. a mortgage.
d. both b and c
8. Creative financing involves
a. FHA financing.
b. VA financing.
c. seller’s financing.
d. none of the above
9. A typical title insurance policy will protect a new homeowner from losses caused by
a. conflict over access to neighbor’s property by easement.
b. claims of others supported by unrecorded documents.
c. boundary dispute with neighbors.
d. none of the above
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10. A homeowner desires to sell his or her home and signs an exclusive-listing agreement, requiring
payment of a six percent commission to the real estate agent. If shortly thereafter, but before the
agent has time to do anything to sell the property, the owner surprisingly finds a couple who
purchases it for $400,000, the homeowner
a. must pay $24,000 to the listing agent.
b. is legally required only to reimburse the agent for out-of-pocket expenses.
c. has lucked out and need not pay any commission to the agent, because the agent hadn’t done
anything yet.
d. must pay the $24,000 commission only if the agent had acted with due diligence by placing the
listing in the local multiple-listing service.
11. A homeowner desires to sell his or her home and signs an exclusive-agency listing agreement,
requiring payment of a six percent commission to the real estate agent. If shortly thereafter, before
the agent has time to do anything to sell the property, the owner surprisingly finds a couple who
purchases it for $400,000, the homeowner
a. must pay a commission of $24,000 to the listing agent.
b. is not obligated to pay a commission.
c. is not obligated to pay a commission, unless the agent has placed the listing in the local
multiple-listing service.
d. must pay a commission of $12,000, but is entitled to retain the other half because he or she
found the buyer.
12. Which of the following documents will not be signed by a buyer as part of the purchase of a home?
a. promissory note
b. mortgage or deed of trust
c. loan application
d. grant or warranty deed
13. Many renters would purchase homes, except they
a. cannot qualify for a mortgage.
b. cannot find appropriate homes for sale.
c. cannot come up with sufficient down payment.
d. want to retain the advantages of renting.
Test Bank 9
14. The grantor promises that he or she will transfer all they own, but do not guarantee they own
anything. They have transferred property with a
a. quitclaim deed.
b. as is deed.
c. grant deed.
d. warranty deed.
15. A debtor fails for several months to pay creditor money due on a loan secured by a mortgage.
Which of the following may happen?
a. nonjudicial foreclosure
b. right of reinstatement
c. judicial foreclosure
d. all of the above
16. Houses owned by institutional lenders through foreclosure are referred to as
a. commission free properties.
b. reinstatement positioned.
c. damaged properties.
d. real estate owned (REO).
17. Which of the following documents will be signed by a seller as part of the purchase of a home?
a. promissory note
b. mortgage or deed of trust
c. loan application
d. grant or warranty deed
18. A due on sale clause
a. triggers payment of any unpaid balance on home loan.
b. requires a seller to pay for title insurance.
c. requires a seller to sign an appropriate deed.
d. is a form of quiet title action.
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19. Cassey wished to convey a 40-acre tract of land to his two children, George and Martha, so each
would own the property equally and be free to transfer their interest to anyone they wished during
life or at death. What form of joint ownership should Cassey choose?
a. joint tenancy
b. community property
c. tenancy in common
d. tenancy by the entirety
20. Chang, Ruth and Reggie were joint tenants. Reggie dies.
a. One-third goes to Chang, one-third goes to Reggie and one-third goes to Reggie’s heirs.
b. The property goes to whoever Reggie gave it to in her will.
c. The property goes to Reggie’s heirs.
d. Reggie’s property goes to Chang and Ruth.
21. The standard real estate commission paid a listing broker/agent is 6%. That amount is;
a. negotiable
b. standard by federal law.
c. standard by state law.
d. standard by HUD administrative rule.
22. A real estate employment contract is generally a:
a. Listing agreement
b. exclusive listing
c. deposit receipt
d. multiple-listing service
23. Peter, the seller, and Sendhil. The buyer, enter into a real estate purchase agreement. The property
is put into _________ while Sendhil applies for a loan. After Sendhil qualified, he changed his
mind. Undoubtedly Peter’s recovery would be ___________ based on the _____________in the
purchase agreement.
a. escrow, specific performance, coinsurance clause.
b. deposit, compensatory damages, escrow.
c. escrow, liquidated damages, deposit
d. assessment, points, disclosure.
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24. The forced sale of real property following a court proceeding is called a:
a. judicial foreclosure.
b. deficiency judgment.
c. right of redemption.
d. real estate owned.
25. Nicki is a debtor who defaulted on a real loan and is facing a foreclosure proceeding. Among the
protections the debtor might have is a;
a. nonjudicial foreclosure
b. easement
c. judicial foreclosure
d. homestead
26. In 1985, George Weasley owned a parcel of land that extended down to the Quixote River. He
conveyed the strip of the property fronting the river to Draco Malfoy. The deed included the following
statement: “Reserve being kept for said Draco Malfoy. I grant the right of way by land or water.” The
strip of property is now owned by Sirius Black, and the portion retained by George Weasley now
belongs to Cornelius Fudge. Fudge is denying Black access to the river.
a. the parties own the property in joint tenancy
b. Black has right to the interest which is an easement
c. the is a tenancy in the entirety
d. Black cannot access the property as it is Fudge’s homestead
27. A two party instrument stating on its face “Pay to Tom Smith” is:
a. A promissory note with Tom Smith as the payee.
b. A quitclaim deed with Tom Smith a grantor
c. a mortgage with the bank as the beneficiary
d. a deed of trust with Smith as the beneficiary
Short Answer Essays
1. Describe the difference between an exclusive listing and an exclusive-agency listing.
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2. How do anti-deficiency statutes protect homeowners?
3. Briefly describe private mortgage insurance (PMI).
4. Lee and Patricia Cheema own a house in California. The house was owned by Lee Cheema as his
separate property before his marriage to Patricia. Improvements were made to the house after the
marriage and paid for with community property funds. California is a community property state and
therefore most property acquired during a marriage is community property. Assume that Don
Burgunder wishes to buy the property from Lee Cheema. Don will want to be sure that all interests
in the property are conveyed to him. Ownership records will show that Lee Cheema is the sole
owner. Don, however, would be right to be concerned that Patricia may have some interest in the
house because of the community property improvements to it. What type of deed should Don
expect from the Cheema’s to protect his interests?
5. Harvey Hadley conveyed a parcel of property in the city of Fairlywell Downs to Carl Bland and
Dirk Pitts. The granting clause of the deed stated that Carl and Dirk take the property jointly.
Neither Carl nor Dirk signed the deed.
a. What is the nature of the joint ownership interest of Carl and Dirk? Explain?
b. Of what impact is it that neither Carl nor Dirk signed the deed? Explain?
c. If the property were still in escrow, of what effect would a recorded tax lien be?
Test Bank 13
6. Assume that a quiet, young, loving couple that is three years out of college with one small child
lives in a subdivision home, but is disturbed nightly by the activities of the neighbors. These
activities include a loud stereo playing very undesirable music; many cars coming and going at all
hours of the night, many of which squeal their tires; loud voices in the middle of the night, both in
front and in back of the neighbor’s home; and vulgar epithets shouted day and night. Further, the
neighbors neglect to remove litter of all kinds (automobile parts, papers, boxes, jars, etc.) from their
front and side yards. What economic consequences are involved, and what legal remedies does the
young couple have?