Chapter 9—Mortgage and Note
MULTIPLE CHOICE
1. A promissory note
a.
describes the property being hypothecated.
b.
is the primary evidence of a loan.
c.
is an agreement not to do a certain thing.
d.
is not negotiable when secured by a mortgage.
2. In the United States, the instrument most commonly used to evidence a debt on real property is
a.
a promissory note.
b.
a mortgagee’s title policy.
c.
a bill of sale.
d.
an earnest money agreements.
3. A borrower who wanted to make a monthly payment larger than that called for by the note, could do
so if the note contains a
a.
prepayment privilege.
b.
grace period.
c.
prepayment penalty.
d.
subordination clause.
4. The phrase “jointly and severally liable” in a note or bond applies when there are two or more
a.
makers.
b.
obligees.
c.
trustees.
d.
holders.
5. Of the following parties to a mortgage, whose interest is benefited by an acceleration clause?
a.
The mortgagor
b.
The mortgagee
c.
A future owner
d.
The trustee
6. When a borrower gets behind on his loan payments, the lender could call for the entire balance due
immediately based on the
a.
alienation clause.
b.
acceleration clause.
c.
subordination clause.
d.
pre-payment clause.
7. A mortgage or trust deed is considered to be
a.
an estate in land.
b.
a promissory note.
c.
chattel.
d.
debt security.
8. When a loan evidenced by a note is secured by a mortgage, the funds are furnished by the
a.
grantor.
b.
beneficiary.
c.
grantee.
d.
lender.
9. Which is an example of pledged property?
a.
Estoppel
b.
Covenant
c.
Dedication deed
d.
Real estate given as security
10. The parties to a mortgage are called
a.
mortgagor and grantor.
b.
mortgagee and beneficiary.
c.
beneficiary and trustee.
d.
mortgagor and mortgagee.
11. In some states, a mortgage is considered to be a lien on real property. In other states a mortgage is
interpreted as
a.
a bona fide purchase.
b.
a transfer of title.
c.
a sales contract.
d.
equitable title.
12. A mortgagee in a lien theory state holds
a.
legal title.
b.
a note.
c.
naked title.
d.
naked legal title.
13. A “due on sale” clause
a.
may be called a subordination clause.
b.
gives the lender the right to call the entire loan balance upon alienation.
c.
is the right of a mortgagor to repay a loan.
d.
gives the mortgagor the right to sell his property with a loan assumption by the buyer.
14. An alienation clause in a mortgage loan is to the advantage of the
a.
borrower.
b.
lender.
c.
mortgagor.
d.
seller.
15. Barry purchased Bob’s home without accepting obligation for the existing loan. Barry is said to be
buying the house
a.
subject to the loan.
b.
with an assumption of the loan.
c.
with an assumption by substitution of the loan.
d.
by contract for equitable title.
16. A property is sold and the buyer promises the seller in writing that he, the buyer, will repay the
existing loan. This is called
a.
assuming the loan.
b.
buying down the loan.
c.
loan satisfaction.
d.
a partial release.
17. Which lien would have highest priority?
a.
Property tax lien
b.
Mechanic’s lien
c.
First mortgage or trust deed
d.
The lien which is recorded first
18. Unless there is a specific agreement to the contrary, the mortgage having first priority will be the
a.
mortgage first recorded.
b.
mortgage for the highest amount.
c.
original construction loan.
d.
mortgage with the earliest signature date.
19. A second mortgage is
a.
a seller’s lien.
b.
a smaller loan.
c.
paid off 50/50 with a first mortgage at foreclosure.
d.
junior to a superior mortgage lien.
20. Which of the following claims against a real property interest would be the first to be satisfied?
a.
First trust deed
b.
Second trust deed
c.
Property taxes
d.
Newly filed IRS tax lien
21. Who benefits the most by the inclusion of a subordination clause in a mortgage?
a.
Borrower
b.
Lender
c.
Selling broker
d.
Trustee
22. A beneficiary allows a clause in his contract stating that another lender’s interest will be allowed to
take precedence over his at some later date. This clause is known as
a.
a subrogation clause.
b.
a rogata clause.
c.
a subordination clause.
d.
hypothecation.
23. If an owner of a single-family residence defaults on his mortgage, it can
a.
not be foreclosed if an ALTA title insurance policy insured it.
b.
be foreclosed on.
c.
not be foreclosed on if the mortgage went into effect before 1978.
d.
only be foreclosed on if an ALTA title insurance policy insured it.
24. Which of the following requires a public sale?
a.
Strict foreclosure
b.
Entry and possession
c.
Deed in lieu of foreclosure
d.
Power of sale
25. Betty is six months behind on her mortgage payments. Foreclosure by public auction has been
ordered. The sale has not been completed. Betty may redeem her property by paying the
a.
last six months payments.
b.
full amount of the loan balance.
c.
loan balance plus accrued interest.
d.
loan balance, accrued interest and the accumulated cost of the foreclosure action and sale.
26. The right of the mortgagor to reclaim his property upon payment in full of the obligation is
a.
reconveyance.
b.
redemption.
c.
recapture.
d.
right of deficiency.
27. When a clause in a mortgage allows the lender to proceed against a borrower’s other assets if the
foreclosure sale does not satisfy the debt, the result is called a
a.
statutory redemption.
b.
deficiency judgment.
c.
equity of redemption.
d.
foreclosure redemption.
28. If a foreclosed property has sold for less than the loan amount, the difference between the indebtedness
and the sale price of the real estate at the foreclosure sale is called the
a.
net price.
b.
deficit.
c.
net market value.
d.
deficiency.
29. The right, which allows the mortgagor to regain his property following a mortgage foreclosure, is
known as
a.
right of redemption.
b.
due on sale.
c.
satisfaction of mortgage.
d.
defeasance.
30. A mortgagor signs a deed conveying title to the mortgagee, leaving the mortgagee without recourse.
This is an example of
a.
deed of surrender.
b.
deed in lieu of foreclosure.
c.
satisfaction of mortgage.
d.
defeasance.
TRUE/FALSE
1. A legal description of the property typically appears in a promissory note.
2. In a promissory note, the term “principal” refers to the borrower.
3. An acceleration clause most nearly means to speed up the payments.
4. To use property as security for a debt without giving up possession is called hypothecation.
5. Provisions for the defeat of a mortgage are found in the defeasance clause.
6. That portion of a mortgage that requires the borrower to preserve and maintain the pledged property is
called the covenant of good repair.
7. A borrower wants provisions written into his mortgage whereby the lender will remove a portion of
the property from the mortgage upon partial repayment of the loan. The borrower would ask for an
alienation clause.
8. Mogan and David buy a furnished house. They assume and agree to the existing mortgage. They will
need a note and mortgage.
9. The mortgage holding the highest priority would be the one that is recorded first.
10. A mortgagee allows a clause in his contract stating that another lender’s interest will be allowed to
take precedence over his own. This clause is a subordination clause.
11. A lawsuit, filed by the lender, requesting that a borrower’s interest in his property be cut off is called a
defeasance suit.
12. In a foreclosure, a surplus money action would be filed by the junior mortgage holder.
13. A nonjudicial foreclosure does not go to court and is not heard by a judge.
14. At the same time that a lawsuit is filled with the court, a notice of lis pendens is also filed with the
court.
15. Strict foreclosure is a nonjudicial foreclosure without a judicial sale and usually without a statutory
redemption period.
16. A power of sale in a mortgage gives the lender the power to take ownership and sell the mortgaged
property without taking the issue to court.
17. A deed in lieu of foreclosure relieves the lender of foreclosing and waiting out any required
redemption period.
18. In the covenant of good repair the borrower promises not to remove or demolish any buildings or
improvements.
19. A deed of trust differs from a traditional mortgage in that it is a three-party agreement.
20. A partial release would allow a developer to release some of the mortgaged property from the
mortgage collateral.
COMPLETION
1. In a promissory note the entity to which the debt is owed is known as the ____________________ or
____________________.
2. A clause that allows the lender to demand immediate payment of the entire balance on a note if the
borrower misses the obligatory payments is known as a(n) ____________________ clause.
3. ____________________ means the borrower retains the right to possess and use the property while it
serves as collateral.
4. In ____________________ theory states, the mortgage gives only a lien right to the lender and the
borrower retains title.
5. The covenant of _________________________ requires the borrower to keep the mortgaged property
in good condition.
6. A(n) ____________________ clause allows the lender to call the entire balance due if the borrower
sells or conveys the mortgaged property.
7. Any mortgage with a lower priority than the first mortgage is known as a ____________________
mortgage.
8. When a lender voluntarily takes a lower position than he would normally be entitled to the process is
known as ____________________.
9. A(n) ____________________ foreclosure does not go to court and is not heard by a judge.
10. When a property sells at a foreclosure sale for less than the debt, a(n)
______________________________ may allow the lender to proceed against the borrower’s other
unsecured assets.
MATCHING
Choose the one most appropriate answer for each.
a.
acceleration clause
k.
foreclosure
b.
alienation clause
l.
junior mortgage
c.
assumption
m.
mortgage
d.
chattel mortgage
n.
mortgagor
e.
deed of trust
o.
partial release
f.
defeasance clause
p.
power of sale
g.
deficiency judgment
q.
promissory note
h.
equitable mortgage
r.
public auction
i.
equity of redemption
s.
subject to
j.
first mortgage
t.
subordination
1. a document by which property secures the repayment of the debt
2. a clause in a mortgage stating that the mortgage is defeated if the borrower repays the accompanying
note on time
3. a lawsuit filed by a lender that asks a court to set a time limit on how long a borrower has to redeem
her property
4. an agreement that is considered to be a mortgage in its intent even though it may not follow the usual
mortgage wording
5. a document wherein personal property is used as security for a promissory note
6. the evidence of debt; contains amount owed, interest rate, repayment schedule, and a promise to pay
7. one who gives a mortgage; the borrower
8. a clause in a mortgage that allows a lender to call the loan due if the property changes ownership; also
known as a due-on-sale clause
9. release of a portion of a property from a mortgage
10. the buyer personally obligates himself to repay an existing mortgage loan as a condition of the sale
11. the buyer of an already mortgaged property makes the payment but does not take personal
responsibility for the loan
12. any mortgage lower than a first mortgage in priority
13. a clause in a mortgage that gives the mortgagee the right to conduct a foreclosure sale without first
going to court
14. a judgment against a borrower if the sale of a mortgaged property at foreclosure does not bring enough
to pay the balance owing
15. the right of a borrower, after a foreclosure sale, to reclaim the property by repaying the defaulted loan
16. voluntary acceptance of a lower mortgage priority position than one would otherwise be entitled to
17. a deed given to a trustee as security for a loan
18. the mortgage loan with highest priority for repayment in the event of foreclosure
19. the usual procedure by which foreclosed properties are sold
20. allows the lender to declare the loan due if the borrower defaults