Business Law, 8e (Cheeseman)
Chapter 26 Credit, Mortgages, and Debtor’s Rights
1) The property on which a security interest is taken is called collateral.
2) Unsecured credits require collateral to protect the payment of the debt.
3) Legal action cannot be bought against a debtor who is judgment proof.
4) The primary function of collateral is to secure payment of the loan.
5) The creditor who has to rely on collateral to secure payment is known as an unsecured
creditor.
6) The debtor can sue the creditor if the foreclosure sale was less than the value of the property.
7) A mortgage is a two-party instrument.
8) In a mortgage transaction, the creditor is known as the mortgagee.
9) In a deed of trust, the creditor is the beneficiary.
10) A deed of trust is a two-party instrument.
11) In a deed of trust, the trustee has full legal rights to possession of the real property.
12) A written reconveyance transfers the title of a real property from the trustee.
13) The recording statute gives potential purchasers of real property the ability to determine
whether there are any existing liens on the property.
14) An improperly recorded document is effective against subsequent purchasers of the real
property.
15) Default is a situation where the debtor has not made payment when it is due.
16) Surplus money obtained from a foreclosure sale must be given to the mortgagor.
17) The power of sale foreclosure is implied in mortgages and deeds of trust.
18) A court action is necessary for a power of sale foreclosure to be considered valid.
19) The deficiency judgment protects the mortgagor from being recovered further in case there is
a foreclosure sale deficiency.
20) The right to redemption doctrine only allows redemption of partial interest for the mortgagor.
21) Notice of the lien must be given to the owner of the real property for it to be valid.
22) A lien release discharges a material person from a mechanic’s lien.
23) The surety is primarily liable for paying the principal debtor’s debt when it is due in a surety
arrangement.
24) Payment can be obtained from a guarantor even if the principal debtor has not defaulted.
25) In a guaranty agreement, the guarantor is primarily liable on the debt.
26) The writ of attachment releases a property in the creditor’s possession to the debtor.
27) Execution is a postjudgment court order that permits the seizure of the debtor’s property that
is in the possession of the debtor.
28) The proceeds writ of execution sale is used to pay the creditor the amount of the final
judgment.
29) Garnishment is a court order that permits the seizure of a debtor’s property that is in the
debtor’s possession.
30) The garnishor is the party that is in possession of the debtor’s property.
31) Regulation of mortgage lending comes under the purview of the Dodd-Frank Wall Street
Reform and Consumer Protection Act.
32) The Fair Credit Billing Act requires that creditors promptly acknowledge in writing
consumer billing complaints and investigate billing errors.
33) Casual leases between consumers are subject to the Consumer Leasing Act.
34) The Fair and Accurate Credit Transactions Act of 2003 permits credit reporting companies to
place fraud alerts in their credit files.
35) The Equal Credit Opportunity Act does not have provisions for consumers to recover
damages against the creditor.
36) When is credit said to have occurred?
A) when a promissory note for payment is issued
B) when one party sells goods to another party
C) when one party gives a loan to another party
D) when one party pays back money that he owes to another party
37) Credit that does not require any collateral to protect the payment of the debt is referred to as
________.
A) unsecured credit
B) secured credit
C) fair credit
D) equal credit
38) Credit that requires collateral that protects payment of the loan is referred to as ________.
A) unsecured credit
B) secured credit
C) equal credit
D) fair credit
39) Ashton borrows $25,000 from Amanda. Amanda lends the money to Ashton without taking
an interest in collateral for the loan. Amanda is relying on Ashton’s credit standing when she
makes the loan. What kind of creditor is Amanda?
A) an unsecured creditor
B) a secured creditor
C) an administrative claim creditor
D) a post-petition creditor
40) When is a creditor referred to as a secured creditor?
A) when the creditor has been guaranteed payment by a trustee
B) when the creditor gives a loan without security
C) when the creditor has been paid back his debt
D) when the creditor has acquired collateral
41) An arrangement where an owner of real property borrows money from a lender and pledges
the real property as collateral to secure the repayment of the loan is known as a(n) ________.
A) consignment
B) foreclosure
C) mortgage
D) assignment
42) What kind of collateral arrangement is in place between Roundwell Motors and Home
Providence Bank?
A) a mortgage
B) a garnishment
C) a land sales contract
D) an accommodation
43) If Roundwell defaults on their payment, what recourse is available to Home Providence with
respect to recovery of the loan?
A) buy it from Roundwell
B) return it to Roundwell
C) foreclose it
D) hand it over to the government
44) A ________ is an instrument that gives a creditor a security interest in the debtor’s real
property that is pledged as collateral for a loan.
A) credit report
B) letter of credit
C) remittance advice
D) deed of trust
45) Which of the following is true of a deed of trust?
A) The legal right of the property is with the creditor until payment.
B) The legal rights to possession of real property lie with a trustee.
C) The trustor has legal rights to possession of the real property.
D) The deed of trust is a two-party instrument.
46) A(n) ________ is an instrument that evidences a borrower’s debt to the lender for a real
property.
A) note
B) consignment
C) accommodation
D) deed of trust
47) Which of the following real property transactions involves the use of transfer of legal title in
real property to a trustee?
A) land sales contract
B) garnishment
C) deed of trust
D) mortgage
48) Who is the beneficiary in a deed of trust transaction?
A) the creditor
B) the debtor
C) the trustee
D) the trustor
49) The ________ requires a mortgage or deed of trust to be recorded in the county recorder’s
office of the county in which the real property is located.
A) recording statute
B) real property statute
C) mortgage statute
D) compilation statute
50) Ethan purchases a house for $250,000. He borrows $200,000 from StarCross Bank and gives
the bank a mortgage on the house for this amount. StarCross Bank fails to record the mortgage.
Ethan then applies to borrow $200,000 from Pentalon Bank. Pentalon Bank reviews the real
estate recordings and finds no mortgage recorded against the property, so it lends Ethan
$200,000. Pentalon Bank records its mortgage. Later, Ethan defaults on both loans. In this case,
which of the following would be true in case of the foreclosure, if possible, on the collateral?
A) StarCross Bank can foreclose because they made the first loan.
B) Pentalon Bank can foreclose because they made a record of the mortgage.
C) The collateral has to be returned to Ethan since there is a violation of the recording statute.
D) None of the parties involved can claim ownership of the collateral as it passes into the public
domain.
51) A legal procedure by which a secured creditor causes the judicial sale of the secured real
estate to pay a defaulted loan is known as ________.
A) attachment
B) accountability
C) land sales contract
D) foreclosure sale
52) A power stated in a mortgage or deed that permits foreclosure without court proceedings and
sale of the property through an auction is known as ________.
A) reconveyance
B) foreclosure sale
C) power of sale
D) garnishment
53) A ________ is a judgment of a court that permits a secured lender to recover other property
or income from a defaulting debtor if the collateral is insufficient to repay the unpaid loan.
A) deficiency judgment
B) garnishment
C) lien release
D) foreclosure
54) Wesley buys a house for $1,000,000. He puts $400,000 down and borrows $600,000 from a
bank, which takes a mortgage on the property to secure the loan. Wesley defaults, and when the
bank forecloses on the property, it is worth only $500,000. There is a shortage of 100,000, as the
foreclosure sale price was $500,000. The bank brings a legal action against Wesley. Which of the
following court doctrines can help the bank recover the shortage from Wesley?
A) right of redemption
B) lien release
C) deficiency judgment
D) garnishment
55) The ________ prohibits deficiency judgments regarding certain types of mortgages, such as
those on residential property.
A) foreclosure statute
B) mortgage statute
C) recording statute
D) antideficiency statute
56) To which of the following type of mortgages does the antideficiency statute apply?
A) foreign currency mortgages
B) home improvement mortgages
C) first purchase money mortgages
D) second purchase money mortgages
57) A right that allows the mortgagor to redeem real property after default and before foreclosure
is known as ________.
A) garnishment
B) right of redemption
C) lien release
D) power of sale
58) Which of the following is true of the right of redemption for mortgages?
A) The mortgagor has to pay the full amount of the debt incurred by the mortgagee.
B) The title of possession is passed on to the mortgagee upon completion of redemption.
C) The mortgagee is allowed to pay back partial interest until the statutory period of redemption.
D) The right to redemption is enacted after the foreclosure is complete.
59) An arrangement in which the owner of real property sells property to a purchaser and extends
credit to the purchaser is known as ________.
A) lien release
B) credit release
C) accommodation
D) land sales contract
60) What is the statutory period of redemption?
A) The time limit that a trustee can claim legal title to the real property.
B) The time allotted to a mortgagor to keep the property even after foreclosure.
C) The time by which the mortgagor has to pay his debts.
D) The time allotted by which a mortgagee must start legal proceedings against a defaulter.
61) The term ________ refers to a contractor’s, laborer’s, and material person’s statutory lien that
makes the real property to which services or materials have been provided security for the
payment of the services and materials.
A) material lien
B) judgment lien
C) tax liens
D) mechanic’s lien
62) The term ________ refers to a written document signed by a contractor, subcontractor,
laborer, or material person, waiving his or her statutory lien against real property.
A) garnishment
B) accommodation
C) lien release
D) notice of lien
63) An arrangement in which a third party promises to be primarily liable with the borrower for
the payment of the borrower’s debt is referred to as ________.
A) garnishment
B) accommodation
C) surety arrangement
D) guaranty arrangement
64) Which of the following is true about the surety’s liability to pay in a surety arrangement?
A) The surety is secondarily liable for payment.
B) The surety is primarily liable for payment.
C) The principal debtor must be in default before the surety can be approached.
D) The surety can only be approached as a last resort to the creditor.
65) A(n) ________ is an arrangement in which a third party promises to be secondarily liable for
the payment of another’s debt.
A) guaranty arrangement
B) surety arrangement
C) insolvency arrangement
D) accommodation
66) Which of the following is true of a guarantor in a guaranty arrangement?
A) The guarantor is primarily liable to the principal debtor’s debt when it is due.
B) The guarantor can be approached even if the principal debtor is not in default.
C) The creditor can seek first remedy from a guarantor.
D) The guarantor has full legal rights to possession of the real property in this type of
arrangement.
67) A prejudgment court order that permits the seizure of a debtor’s property while a lawsuit is
pending is known as the ________.
A) writ of exigent
B) writ of attachment
C) writ of execution
D) writ of garnishment
68) Tara lost a large sum of money to Judy when she invested in what she alleged was a
fraudulent investment scheme run by Judy. So Tara sued Judy for fraud. However, as it would
take more than a year before the case was heard, Tara was afraid that Judy would transfer any
money or property she had to avoid having to pay a judgment if she lost at trial. Which of the
following writ motions would help Tara stop Judy from doing so?
A) writ of attachment
B) writ of execution
C) writ of garnishment
D) writ of exigent
69) The ________ is a postjudgment court order that permits the seizure of the debtor’s property
that is in the possession of the debtor.
A) writ of execution
B) writ of garnishment
C) writ of exigent
D) writ of attachment
70) Alan wins a $50,000 judgment against Henderson. But Henderson refuses to pay the amount
of the judgment to Alan. To counter Henderson, Alan obtained a postjudgment writ from the
court whereby the court directs the town sheriff to seize Henderson’s automobile and other
property and have them publicly auctioned off to satisfy the judgment he owes Alan. Which of
the following writs did Alan motion the court to seize Henderson’s property?
A) writ of attachment
B) writ of garnishment
C) writ of execution
D) writ of exigent
71) A postjudgment court order that permits the seizure of a debtor’s property that is in the
possession of third parties is known to as the ________.
A) writ of attachment
B) writ of prohibition
C) writ of exigent
D) writ of garnishment
72) Gunther wins a $25,000 judgment against Krissa. Krissa refuses to pay the amount of the
judgment to Gunther. Krissa works for Iniversal Electronics. Gunther obtains a postjudgment
writ of garnishment from the court whereby the court orders Iniversal Electronics to pay 25
percent of Krissa’s weekly disposable earnings directly to Gunther. However, Gunther is not
satisfied with the verdict and tries to motion the court to increase Krissa’s pay deduction to 50
percent, but his request is denied. Which federal Act allows Krissa to retain 75 percent or more
of her earnings in a writ of garnishment?
A) Fair Credit Reporting Act
B) Fair Credit Billing Act
C) Title III of the Consumer Credit Protection Act
D) Fair Debt Collection Practices Act
73) Stanley lost a court case against Wade and was ordered to pay $50,000 in compensation to
Wade. But the day after the judgment, Stanley went missing, leaving Wade with no direct
contact to recover the money. Wade then obtained a writ that allowed the government to order
the bank in which Stanley had his savings to pay Wade. Which of the following writ did Wade
motion to obtain the payment order?
A) writ of garnishment
B) writ of attachment
C) writ of prohibition
D) writ of exigent
74) Which of the following Acts protects debtors who are subject to writ of garnishment from
excessive action?
A) Fair Credit Billing Act
B) Consumer Leasing Act
C) Truth-in-Lending Act
D) Title III of the Consumer Credit Protection Act
75) Which of the following writs is a prejudgment writ?
A) writ of garnishment
B) writ of execution
C) writ of attachment
D) writ of exigent
76) The ________ Act of 2010 is a federal statute that requires increased disclosure of credit
information and terms to consumers and regulates consumer credit providers and others.
A) Fair Credit Billing
B) Consumer Leasing
C) Mortgage Reform and Anti-Predatory Lending
D) Consumer Financial Protection
77) Which of the following Acts is particularly designed to regulate the home loan market, and
put the burden on lenders to verify that a borrower can afford to repay the loan for which he or
she has applied?
A) Fair Credit Reporting Act
B) Consumer Financial Protection Act of 2010
C) Truth-in-Lending Act
D) Mortgage Reform and Anti-Predatory Lending
78) Which of the following federal statutes requires creditors to disclose finance charge,
including interest, points, and other fees paid for the extension of credit to debtors?
A) Fair Debt Collection Practices Act
B) Consumer Financial Protection Act of 2010
C) Mortgage Reform and Anti-Predatory Lending Act of 2010
D) Truth-in-Lending Act
79) Regulation Z is an administrative agency regulation that sets forth detailed rules for
compliance with the ________ Act.
A) Fair Credit Reporting
B) Truth-in-Lending
C) Fair Credit Billing
D) Fair Debt Collection Practices
80) Creditors that violate the Consumer Lease Act are subject to the civil and criminal penalties
provided in the ________ Act.
A) Truth-in-Lending
B) Fair Credit Billing
C) Fair Credit and Charge Card Disclosure
D) Fair Debt Collection Practices
81) Which of the following legislations protects consumers in challenging information contained
in a credit file?
A) Fair Credit Billing Act
B) Equal Credit Opportunity Act
C) Fair Debt Collection Practices Act
D) Fair Credit Reporting Act
82) The ________ Act of 2003 permits consumers to place fraud alerts in their credit files.
A) Fair Debt Collection Practices
B) Fair Credit Billing
C) Fair and Accurate Credit Transactions
D) Fair Credit Reporting
83) Melissa owes her bank money for her credit card bills. For the past two weeks, debt
collectors have been harassing her for bill payment by sending people over to her workplace. Her
boss expressly asks her to not have such meetings at the workplace. But despite requesting the
collection agency, the collectors continue to visit her at her workplace. Which of the following
Acts has provisions that would help protect Melissa from such harassment?
A) Fair and Accurate Credit Transactions Act
B) Fair Credit Reporting Act
C) Fair Debt Collection Practices Act
D) Fair Credit and Charge Card Disclosure Act
84) Tim has been approached by Kent regarding Tim’s credit card bill payment. Kent is aware of
Tim’s debt, and says he has come on behalf of the bank he owes to get assurance from Tim that
he will repay the credit bill within a specific period of time. Kent is an outside agent who does
not work for the bank. Which of the following legislations has the bank violated by contracting
Kent to contact Tim?
A) Fair Credit Reporting Act
B) Fair and Accurate Credit Transactions Act
C) Fair Credit and Charge Card Disclosure Act
D) Fair Debt Collection Practices Act
85) The ________ Act is a federal statute that prohibits discrimination in the extension of credit
based on sex, marital status, race, color, national origin, religion, age, or receipt of income from
public assistance programs.
A) Fair Debt Collection Practices
B) Equal Credit Opportunity
C) Fair Credit Billing
D) Truth-in-Lending
86) What are foreclosure sales?
87) What is the antideficiency statute?
88) Notice of the lien must be given to the owner of the real property.
89) How does the Mortgage Reform and Anti-Predatory Lending Act of 2010 help regulate
mortgage transactions?
90) Give an account of the Consumer Financial Protection Act of 2010.