Mortgages & Financial Crisis Test Bank Ch.20 Sukys - Business Law with UCC 15e Complete Test Bank by Paul Sukys. DOCX document preview.
Business Law with UCC Applications, 15e (Sukys)
Chapter 20 Mortgages, Land Contracts, and the 21st-Century Financial Crisis
1) Only real property can be used to collateralize a debt.
Difficulty: 2 Medium
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-01 Differentiate between a secured and an unsecured loan.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
2) If Linda puts up her land as collateral for a loan from Small Bank, she is the mortgagor.
Difficulty: 3 Hard
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-01 Differentiate between a secured and an unsecured loan.
Bloom's: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
3) An adjustable-rate mortgage involves no government backing unless the interest rate rises by 1%.
Difficulty: 1 Easy
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-02 Identify the types of mortgages that are available to borrowers.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
4) If Jake signs a graduated-payment mortgage, he will pay a variable interest rate but make fixed monthly payments over the term of the loan.
Difficulty: 2 Medium
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-02 Identify the types of mortgages that are available to borrowers.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
5) A balloon-payment mortgage is a type of loan that allows older homeowners to convert some of the equity in their home into cash, while retaining ownership of their home.
Difficulty: 2 Medium
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-02 Identify the types of mortgages that are available to borrowers.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
6) A home equity loan does not require court action to sell property upon default of the debtor.
Difficulty: 1 Easy
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-02 Identify the types of mortgages that are available to borrowers.
Bloom's: Remember
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
7) When a borrower does not qualify for a conventional mortgage, he will automatically qualify for a subprime loan.
Difficulty: 2 Medium
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-02 Identify the types of mortgages that are available to borrowers.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
8) If a property owner executes a junior mortgage on a parcel with an existing mortgage, the junior mortgage is superior to the first.
Difficulty: 3 Hard
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-03 Explain the legal effect of recording a mortgage.
Bloom's: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
9) A mortgagor has the right to equity of redemption.
Difficulty: 3 Hard
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-04 Describe the rights and duties of the mortgagor and those of the mortgagee.
Bloom's: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
10) Fred Farmer, the mortgagor, is automatically entitled to a jury trial when Big Bank attempts foreclosure on his farm.
Difficulty: 3 Hard
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-04 Describe the rights and duties of the mortgagor and those of the mortgagee.
Bloom's: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
11) The mortgagor has the unrestricted right to sell, assign, or transfer the mortgage to a third party.
Difficulty: 2 Medium
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-04 Describe the rights and duties of the mortgagor and those of the mortgagee.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
12) If Carol purchases a home owned by Joe that has a mortgage, she agrees to assume Joe's debt.
Difficulty: 3 Hard
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-04 Describe the rights and duties of the mortgagor and those of the mortgagee.
Bloom's: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
13) A security interest is created by a security agreement, which identifies the goods and is signed by the creditor.
Difficulty: 2 Medium
Topic: The 21st Century Financial Crisis
Learning Objective: 20-06 Identify short term solutions to the 21st Century Financial Crisis.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
14) To be effective, a security interest must be legally enforceable against the debtor. This legal enforceability is known as perfection.
Difficulty: 2 Medium
Topic: The 21st Century Financial Crisis
Learning Objective: 20-07 Explain the long term solutions to the 21st Century Financial Crisis.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
15) A purchase money security interest (PMSI) in consumer goods is perfected the moment it attaches, that is when the good is merely possessed by the consumer.
Difficulty: 2 Medium
Topic: The 21st Century Financial Crisis
Learning Objective: 20-07 Explain the long term solutions to the 21st Century Financial Crisis.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
16) When two or more parties have unperfected security interests in the same collateral, the first to attach prevails over the other parties.
Difficulty: 2 Medium
Topic: Personal Property as Security
Learning Objective: 20-08 Describe how a security interest is created for personal property.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
17) Collateral may only be repossessed after going through a court with the creditor using available legal processes.
Difficulty: 2 Medium
Topic: Personal Property as Security
Learning Objective: 20-08 Describe how a security interest is created for personal property.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
18) A financing statement must give the names of the creditor and describe the collateral with precise legal terminology.
Difficulty: 3 Hard
Topic: Personal Property as Security
Learning Objective: 20-08 Describe how a security interest is created for personal property.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
19) A furniture store that puts up its inventory as collateral for a loan will grant the lender a floating lien.
Difficulty: 2 Medium
Topic: Personal Property as Security
Learning Objective: 20-08 Describe how a security interest is created for personal property.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
20) Generally, a buyer of goods in the ordinary course of business prevails over others who may have a security interest in the seller's inventory.
Difficulty: 3 Hard
Topic: Personal Property as Security
Learning Objective: 20-10 Determine priorities when parties claim a security interest in the same property.
Bloom's: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
21) A(n) ________ is a transfer of an interest in real property for the purpose of creating a security for a debt.
A) mortgage
B) secured loan
C) security interest
D) unsecured loan
Difficulty: 3 Hard
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-01 Differentiate between a secured and an unsecured loan.
Bloom's: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
22) A point is a one-time charge equal to ________ of the principal amount borrowed.
A) one-tenth
B) three percent
C) one percent
D) ten percent
Difficulty: 2 Medium
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-01 Differentiate between a secured and an unsecured loan.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
23) Which of the following is true of conventional fixed-rate mortgages?
A) It has a rate of interest that changes according to fluctuations in the index to which it is tied.
B) It involves no government backing by either insurance or guarantee.
C) It has a fixed interest rate during the life of the mortgage, where the monthly payments by mortgagor increase over the term of the loan.
D) It has comparatively low fixed payments during the life of the mortgage, followed by one large final payment.
Difficulty: 2 Medium
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-02 Identify the types of mortgages that are available to borrowers.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
24) Charles sold a house to Darla with Charles holding a recorded mortgage. Darla wants to sell the house and her purchaser, Cindi, obtains a financing commitment from Small Bank, provided Small Bank is able to hold a first mortgage on the house. How will Small Bank obtain the first mortgage?
A) By paying off Darla's mortgage.
B) Small Bank mortgages take priority over private mortgages.
C) Charles may give oral consent that Small Bank will have priority.
D) By paying off Charles' mortgage.
Difficulty: 3 Hard
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-02 Identify the types of mortgages that are available to borrowers.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
25) A(n) ________ loan is one in which creditors have something of value, usually called ________, which they can ________ if the debtor ________.
A) priority; collateral; sell; defaults
B) unsecured; collateral; sell; dies
C) unsecured; collateral; possess; defaults
D) secured; collateral; possess; defaults
Difficulty: 3 Hard
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-01 Differentiate between a secured and an unsecured loan.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
26) Iris is looking for a short-term mortgage that will allow her to pay fixed payments at a relatively low fixed interest rate during the life of the mortgage and one large payment at the end of the term. What kind of mortgage should Iris take?
A) A balloon-payment mortgage
B) A VA mortgage
C) A conventional mortgage
D) A graduated-payment mortgage
Difficulty: 3 Hard
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-02 Identify the types of mortgages that are available to borrowers.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
27) In which type of mortgage is the loan repaid when the borrower dies or the property is sold?
A) Variable-rate mortgage
B) Conventional mortgage
C) Balloon-payment mortgage
D) Reverse mortgage
Difficulty: 3 Hard
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-02 Identify the types of mortgages that are available to borrowers.
Bloom's: Evaluate
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
28) Under a ________, the mortgagor conveys his or her interest in the property to a disinterested third party, known as a trustee.
A) security agreement
B) mortgage
C) deed of trust
D) subordination agreement
Difficulty: 2 Medium
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-02 Identify the types of mortgages that are available to borrowers.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
29) Which of the following is true of recording a mortgage?
A) A failure to record the first mortgage would remove the obligation of the mortgagor to the first mortgagee.
B) The second mortgagee must know about the first mortgage and is exempted to record the mortgage.
C) If the mortgage is not recorded and a later mortgage is given on the same property, the old mortgage is superior to the second.
D) Recording a mortgage notifies any third party that the mortgagee has an interest in the real property covered by the mortgage.
Difficulty: 2 Medium
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-03 Explain the legal effect of recording a mortgage.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
30) The right to equity of redemption:
A) is the mortgagor's (debtor's) right to pay off the mortgage in full, including interest, and thus, discharge the debt in total.
B) states that a default on one installment payment will make the entire balance due immediately, giving the mortgagee the right to collect the full amount.
C) is the mortgagee's right to apply to a court to have the property sold.
D) gives the mortgagor the right to receive each installment payment as it falls due.
Difficulty: 2 Medium
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-04 Describe the rights and duties of the mortgagor and those of the mortgagee.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
31) If the mortgagor has defaulted or has failed to perform some other agreement in the mortgage, the mortgagee has the right to apply to a court to have the property sold. This is called the right to:
A) acceleration.
B) foreclosure.
C) perfection.
D) attachment.
Difficulty: 3 Hard
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-04 Describe the rights and duties of the mortgagor and those of the mortgagee.
Bloom's: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
32) An acceleration of the debt:
A) increases the interest rate.
B) makes the entire amount of the debt due for immediate payment.
C) increases the monthly payment amount.
D) makes the repayment period of the entire debt one year.
Difficulty: 2 Medium
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-04 Describe the rights and duties of the mortgagor and those of the mortgagee.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
33) The process of ________ occurs when many mortgages are bundled together and sold as bonds to institutions, such as pension funds.
A) perfection
B) foreclosure
C) acceleration
D) securitization
Difficulty: 2 Medium
Topic: The 21st Century Financial Crisis
Learning Objective: 20-06 Identify short term solutions to the 21st Century Financial Crisis.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
34) A ________ loan is that which deliberately misstates the qualifications of a borrower to push a loan through the approval process.
A) NINJA
B) liar
C) subprime
D) home equity
Difficulty: 2 Medium
Topic: The 21st Century Financial Crisis
Learning Objective: 20-07 Explain the long term solutions to the 21st Century Financial Crisis.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
35) Generally, a security interest is perfected when the:
A) secured party has done everything that the law requires to give the secured party greater rights to the goods than others have.
B) secured party has a legally enforceable right to take that property and sell it to satisfy the debt.
C) buyer takes the property subject to a mortgage and the seller agrees to continue paying the debt.
D) goods are sold, but regained as soon as the debtor takes possession of the new property.
Difficulty: 2 Medium
Topic: Personal Property as Security
Learning Objective: 20-08 Describe how a security interest is created for personal property.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
36) A(n) ________ agreement is a written contract which identifies the secured goods and is signed by the debtor.
A) subordination
B) security
C) consumer loan
D) equitable redemption
Difficulty: 2 Medium
Topic: Personal Property as Security
Learning Objective: 20-08 Describe how a security interest is created for personal property.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
37) A(n) ________ provision in the security agreement allows the security interest of the creditor to also apply to goods the debtor acquires at a later time.
A) forbearance
B) attachment
C) floating lien
D) acceleration
Difficulty: 2 Medium
Topic: Personal Property as Security
Learning Objective: 20-08 Describe how a security interest is created for personal property.
Bloom's: Understand
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
38) A(n) ________ occurs when the ________.
A) attachment; secured party does not sign a security agreement
B) securitization; debtor has no ownership rights in the collateral
C) attachment; secured party transfers something of value to the debtor
D) floating lien; secured party gives possession of the collateral
Difficulty: 3 Hard
Topic: Personal Property as Security
Learning Objective: 20-08 Describe how a security interest is created for personal property.
Bloom's: Apply
AACSB: Reflective Thinking
Accessibility: Keyboard Navigation
39) Carol borrows $50,000 to purchase seven industrial Xerox copying machines, and open up her own copy shop. The bank loan requires that Carol grant the bank a security interest in any property acquired after the original agreement is signed. After she shows the loan letter to Xerox, it agrees to sell her the copiers for $80,000 to be paid over five years. Who has priority in the copying machines?
A) The bank, if it filed and perfected its interest first
B) The bank because of the "floating lien" loan agreement
C) Xerox, if it filed the loan agreement before the bank did
D) Xerox, because this is a purchase money security interest
Difficulty: 3 Hard
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-09 Decide whether security interests are perfected.
Bloom's: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
40) According to the UCC, conflicting secured interests are generally resolved:
A) according to whether an attached security interest in inventory has priority over a conflicting security interest in the same inventory.
B) by consumers' perfected security interests of which they have no knowledge.
C) based on whether the seller's inventory prevails over buyers of goods in the ordinary course of business (except farm products).
D) according to priority in time of filing or perfection.
Difficulty: 3 Hard
Topic: Personal Property as Security
Learning Objective: 20-10 Determine priorities when parties claim a security interest in the same property.
Bloom's: Evaluate
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
41) Morey purchased a house for $150,000, paying $15,000 in cash and giving a mortgage to BigBank for the balance. When Morey defaulted on the loan, BigBank foreclosed and sold the house for $25,000 less than Morey owed. Morey believed he no longer owed BigBank any money. Discuss the case.
Difficulty: 3 Hard
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-01 Differentiate between a secured and an unsecured loan.
Bloom's: Evaluate
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
42) Holly bought a house for $200,000. She put down $40,000 in cash, and took out a $160,000 loan from the Midland Bank to cover the rest of the cost. However, Holly found that she could not make her mortgage payments. Midland Bank foreclosed on the mortgage, sold the house for $150,000, and told Holly that she was liable for the $10,000 difference between what she paid for it and what the bank sold it for. Did Midland act within its rights? Explain.
Difficulty: 3 Hard
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-01 Differentiate between a secured and an unsecured loan.
Bloom's: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
43) Iko purchased a house through Stockholm Bank Pvt., Ltd. A year later, Iko wanted to make improvements on the mortgaged property and borrowed money from Jeremy, mortgaging the same property again. Jeremy is unaware of the mortgage of the house by Stockholm Bank and records the mortgage. Analyze the situation in case Iko is unable to repay both the mortgagees.
Difficulty: 3 Hard
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-02 Identify the types of mortgages that are available to borrowers.
Bloom's: Evaluate
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
44) Hayley loans David $20,000 by taking a mortgage on David's land on February 1, but does not record a mortgage. On April 1, Gavin loans David $15,000 taking a mortgage on the same land and records the mortgage on April 4. Hayley then records her mortgage on April 8. Discuss the proceedings in case David is unable to pay either of the lenders.
Difficulty: 3 Hard
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-03 Explain the legal effect of recording a mortgage.
Bloom's: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
45) The Raymonds financed the purchase of their house through Reed Bank, a local bank with branches in Houston, where the Raymonds lived. The family made their mortgage payments punctually each month at the nearby branch. However, without prior warning, Reed Bank assigned the mortgage to Stanley Savings Bank located in Washington. Discuss the rights of Reed Bank in making this assignment and if the Raymonds can avoid the inconvenience of dealing with Stanley Savings Bank.
Difficulty: 3 Hard
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-04 Describe the rights and duties of the mortgagor and those of the mortgagee.
Bloom's: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
46) Rae's mortgage payment check is received a day late by Big Bank. Big Bank refuses the check and accelerates the mortgage debt. Rae is unable to pay this demand, and Big Bank brings action to foreclose the mortgage. Discuss what defenses, if any, Rae has to the foreclosure action.
Difficulty: 3 Hard
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-04 Describe the rights and duties of the mortgagor and those of the mortgagee.
Bloom's: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
47) Brianna is purchasing an apartment building from Austin that already has a $500,000 mortgage on it. Brianna is uncertain if she can make money on this purchase and certainly does not want the responsibility of paying the mortgage. Discuss how Brianna might structure this purchase to avoid responsibility for the preexisting mortgage.
Difficulty: 3 Hard
Topic: A Primer on Real Property Finance and Security
Learning Objective: 20-04 Describe the rights and duties of the mortgagor and those of the mortgagee.
Bloom's: Evaluate
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
48) Daly and Leva entered into an agreement whereby Leva borrowed $15,000 from Daly, and Daly took a security interest in Leva's next corn harvest. The financing statement identified Daly and Leva by name and included their mailing addresses. Leva signed the statement. Can the security interest, in this case, be perfected by the financing statement filed?
Difficulty: 3 Hard
Topic: Personal Property as Security
Learning Objective: 20-09 Decide whether security interests are perfected.
Bloom's: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
49) Suri purchased a new laptop for $2,500 from Gadget World. To pay for it, she borrowed money from ATS Finance, which took a security interest in the laptop by entering into a security agreement with Suri. How will the security interest be perfected in this case?
Difficulty: 3 Hard
Topic: Personal Property as Security
Learning Objective: 20-09 Decide whether security interests are perfected.
Bloom's: Analyze
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
50) Friendly Furniture Co. wants to repossess a sofa in Ed's living room, but Ed refuses to allow the repossession crew into his house. Discuss what options Friendly has.
Difficulty: 3 Hard
Topic: Personal Property as Security
Learning Objective: 20-10 Determine priorities when parties claim a security interest in the same property.
Bloom's: Evaluate
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation