Q&A Hero

Q: The act of state doctrine provides that the executive branch of one country will not examine the validity of public acts committed by a recognized foreign government within its own territory.

Q: Under the principle of comity, all foreign governments are subject to all U.S. laws.

Q: Under the principle of comity, one nation may defer and give effect to the laws and judicial decrees of another country.

Q: International law is a body of law that governs relations between and among citizens, not countries.

Q: Umberto and Tiara, who are married, borrow $110,000 from Sterling Credit Union to buy a home. The loan is a fixed-rate mortgage at 5.25 percent with a thirty-year term, subject to an acceleration clause, and secured by the home, which is their principal residence. When Umberto and Tiara have paid off $10,000 of the mortgagestill owing $100,000they lose their jobs and stop making payments. Sterling Credit makes numerous attempts to contact the couple, but they do not respond. Meanwhile, the market value of their home has declined to $85,000. After six months, Sterling Credit decides to take steps to recover the unpaid amount of the loan. What are the lender's options? Which option seems most likely? Why? What are the steps are involved?

Q: Sierra borrows $175,000 from Regional Home Finance Corporation to buy a home. The loan is a twenty-year, 3/1, adjustable-rate mortgage, with an initial interest rate of 4.0 percent for three years and potential increases of up to 3.0 percent to a cap of 11.0 percent. Before the loan is completed, the lender discloses the amount of the loan principal, the initial interest rate, the initial annual percentage rate, and associated fees and costs. Not disclosed are material details about the amounts of the payments when the interest rate changes. Before the first increase takes effect, Sierra decides that she wants to rescind the loan. What is a "twenty-year, 3/1, adjustable-rate mortgage"? Can Sierra rescind this loan? Why or why not?

Q: Gena borrows $350,000 from Fish Island Bank to buy a home, which secures the mortgage. In the seventh year of the loan, Gena stops making payments. After the bank repossesses the property but before it is sold, Gena may buy it by paying a. an amount that equals the potential proceeds from the property's sale. b an amount that exceeds the potential proceeds from the property's sale. c. the amount of the missed payments, but not more. d. the full amount of the debt, plus any interest and costs.

Q: Upton borrows $150,000 from Valley Credit Union to buy a home, which secures the loan. Three years into the term, Upton stops making payments on it. Valley Credit repossesses and auctions off the property to Wesley. The sale proceeds are not enough to cover the unpaid amount of the loan. In most states, Valley Credit can ask a court for a. a deficiency judgment. b. a reverse mortgage. c. a short sale. d. nothing.

Q: Seymour borrows $350,000 from Reliable Bank to buy a home. Seymour stops making payments on the loan ten months later. After the bank repossesses the property securing the loan but before it is sold, Seymour wants to buy it. This is a. a deficiency judgment. b. a reverse mortgage. c. a violation of the law. d. the right of redemption.

Q: Reed borrows $150,000 from Suburban Credit Union to buy a home, which secures the loan. Three years later, Reed stops making payments on the loan. After Suburban Credit repossesses and auctions off the property to Tyler, equity remains. This amount most likely belongs to a. Reed. b. Suburban Credit Union. c. Tyler. d. the county in which the property is located.

Q: Darwin borrows $200,000 from Evermore Bank to buy a home. Less than six months into the term, Darwin stops making payments on the loan. To initiate the process to repossess and auction off the property securing the loan, Evermore must a. issue a notice of sale to the borrower. b. offer the property for sale in an auction on the courthouse steps. c. record a notice of default with the appropriate county office. d. resort to litigation to establish clear ownership of the property.

Q: Agnes borrows $110,000 from Bay Harbor Bank to buy a home under a mortgage with an acceleration clause. After eighteen payments, Agnes stops making payments on the mortgage. Bay Harbor a. can foreclose once on the entire amount of the loan. b. may seek only the amount of the missed payments, not the entire loan. c. must foreclose on small amounts over time as each payment comes due. d must notify Agnes to accelerate the steps to cure the default.

Q: Harbor Bay Bank has made mortgage loans to consumers that qualify for the Home Affordable Modification Program (HAMP), which offers incentives to lenders to change the terms of certain loans. The purpose of HAMP is to a. convey property through lenders to consumers who can afford it. b. force lenders to forgive all high-risk mortgages. c. reduce monthly payments to levels that homeowners can pay. d. transfer affordable property to investors to lease to consumers.

Q: Erin and Dooley, a married couple, borrow $120,000 from Capital & Credit Bank to buy a home. When Erin and Dooley divorce, they are unable to make payments on the mortgage. The market value of the home has declined to less than the balance of the loan. Capital & Credit agrees to a sale of the property for this amount. This is a. a deed in lieu of foreclosure. b. a home equity loan. c. a reverse mortgage. d. a short sale.

Q: Velma borrows $110,000 from Watershed Bank to buy a home. If she fails to make payments on the mortgage, the bank has the right to repossess and auction off the property securing the loan. This is a. a short sale. b. forbearance. c. foreclosure. d. the equitable right of redemption.

Q: Denise borrows $90,000 from Clear Lake Credit Union to buy a home. Denise loses her job and fails to make payments on the mortgage, but assures Clear Lake Credit that she will soon secure a new job. The lender agrees to postpone the payments. This is a. foreclosure. b. forbearance. c. a reamortization. d. a restructure.

Q: Money Mortgage Mart makes a mortgage loan to Natalie to allow her to buy a home and establishes an escrow account. Most likely, this account holds payments for a. homeowners' insurance and property taxes. b. property repairs and maintenance. c. commissions and other costs related to the purchase of the home. d. the lender's administrative expenses.

Q: Property Financial Corporation makes loans that qualify, under a Federal Reserve Board amendment to Regulation Z, as Higher-Priced Mortgage Loans (HPMLs). Quinn applies to Property Financial for an HPML. To make the loan, the lender must a. convince an appraiser to inflate the value of the property. b. impose a prepayment penalty for the duration of the loan. c. structure the loan to specifically evade the HPML protections. d. verify the borrower's ability to repay the loan.

Q: Hill & Dale Credit Corporation makes mortgage loans to consumers secured by their principal homes. For a Hill & Dale loan to qualify as a Higher-Priced Mortgage Loan (HPML), its annual percentage rate must exceed, by a certain amount, a. the average prime offer rate for a comparable transaction. b. the consumer's income-to-debt ratio. c. the percentage of income that a consumer can devote to its payment. d. the projected increase in market value of the consumer's home.

Q: Community Trust Bank provides Devlin with a mortgage to buy a home. The rate of interest is fixed for seven years. At the end of that period, a large payment for the entire balance of the mortgage loan is due. This payment is a. a balloon payment. b. a short sale. c. an escrow account. d. a violation of the law.

Q: 24-Hour Credit Corporation issues high-cost and high-fee mortgage products to people, including Benny, who could not easily obtain credit under other loan programs. Under federal law, disclosures with respect to one of 24-Hour Credit's loans must be provided a. a certain number of days after the loan is finalized. b. a certain number of days before the loan is finalized. c. at the same time at which the loan is finalized. d. at whatever time is most rational and appropriate.

Q: 24-Hour Credit Corporation issues high-cost and high-fee mortgage products to people, including Benny, who could not easily obtain credit under other loan programs. Under federal law, if 24-Hour Credit fails to provide certain material disclosures with respect to the loan, Benny's right to rescind the loan a. expires at midnight on the day the loan is finalized. b. is immediately revoked. c. is extended for up to three years. d. is tolled for the duration of the loan payments.

Q: Shade Tree Lending Corporation advertises loans as fixed-rate loans but, in fact, their rates or payment amounts will change. This is a. a legal and ethicalbut morally arguablefinancial ruse. b. a legalbut unethicalbusiness practice. c. a necessary tactic to generate a profitable loan in today's market. d. a violation of the law.

Q: Violet negotiates with Urban Credit Corporation to obtain a loan for $85,000 to buy a home. During the negotiations, Urban Credit orally misrepresents the terms, but provides the required documents, which accurately state the terms. Violet does not read the documents. The party or parties most likely liable for a violation of the law is a. neither party. b. Urban Credit. c. Urban Credit and Violet. d. Violet.

Q: Riverview Bank makes a mortgage loan of $95,000 to Pomeroy to buy a home. Under federal law, if Riverview fails to provide certain material disclosures with respect to the loan, Pomeroy's right to rescind the loan a. expires at midnight on the day the loan is finalized. b. is canceled immediately. c. is extended for up to three years. d. is tolled for the duration of the mortgage payments.

Q: Northeast Bank makes mortgage loans to consumers, including Mai, to buy homes. For Mai's loan, Northeast provides all required disclosures. Mai has a right to rescind the mortgage a. at any time. b. under no circumstances. c. within three business days. d. within whatever period is most rational and appropriate.

Q: Northeast Bank makes mortgage loans to consumers, including Mai, to buy homes. Under federal law, disclosures with respect to one of Northeast's loans must be provided a. a certain number of days after the loan is finalized. b. a certain number of days before the loan is finalized. c. at the same time at which the loan is finalized. d. at whatever time is most rational and appropriate.

Q: Virgil borrows $175,000 from United Finance Bank to buy a home. Federal law regulates primarily a. mortgage terms that must be disclosed in writing. b. oral representations with respect to the terms of a loan. c. the lowest prices for which real property can be sold. d. who can buy real property, where they can buy it, and why.

Q: Main Street Lenders, Inc., attempts to coerce Nolanwho specializes in determining the value of real and personal propertyinto misstating the value of a property on which a loan is to be issued. This is a. a legal and ethicalbut morally arguablefinancial ploy. b. a legalbut unethicalbusiness practice. c. a necessary tactic to generate a profitable loan in today's market. d. a violation of the law.

Q: Dahlia borrows $125,000 from Clearview Credit Union to buy a home. The interest rate and other terms that are required to be disclosed under federal law must be a. based on uniform formulas of calculation. b. expressed in lenders' language. c. set out in a formula unique to each loan. d. stated in "legalese."

Q: Hubert borrows $100,000 from Integrity Mortgage Mart to buy a home. Soon after obtaining the mortgage, Integrity convinces Hubert to refinance. This is a. a short sale. b a subprime mortgage. c. loan flipping. d. steering and targeting.

Q: Lorna borrows $175,000 from Mountainside Credit Union to buy a home. Among the terms that must be disclosed under federal law is the annual percentage rate. This is a. the actual cost of the loan on a yearly basis. b. the average prime offer rate. c. the interest rate at which the loan is made. d. the loan principal.

Q: Duran applies to EZ Credit Mortgage Company for $100,000 to buy a home. EZ Credit steers Duran toward an adjustable-rate mortgage even though he qualifies for a fixed-rate mortgage. This is a. a short sale. b a subprime mortgage. c. loan flipping. d. steering and targeting.

Q: Milo borrows $125,000 from North State Bank to buy a home. Because a mortgage involves a transfer of real property, the mortgage must be a. a highly formal document. b. a particular form. c. in the same format as the lender's other loans. d. in writing.

Q: Laurel borrows $150,000 from Marketplace Mortgage Loans to buy a home. The financing documents require Laurel to maintain the property, obtain homeowners' insurance, and pay all property taxes and other assessments through the lender. With respect to these terms, a court is most likely to a. enforce them. b. refuse to enforce them. c. rescind them. d. rewrite them.

Q: Rita borrows $30,000 from South State Credit Union. South State accepts Rita's equity in her home as collateral, which can be seized if the loan is not repaid on time. This is a. a home equity loan. b. an adjustable-rate mortgage. c. an interest-only mortgage. d. a violation of the law.

Q: Consumer Mortgage Loans provides Demi with a mortgage to buy a home. Under the terms, Demi can choose to pay only the interest portion of the monthly payments and forgo paying of the principal for five years. This is a. a fixed-rate mortgage. b. an adjustable-rate mortgage. c. an interest-only mortgage. d. a violation of the law.

Q: Tracy borrows $30,000 from Secure State Bank. The lender accepts Tracy's equity in her home as collateral, which can be seized if the loan is not repaid on time. With respect to any proceeding that occurs if Tracy fails to make the payments, this loan is subordinated. This means that it a. takes a higher priority. b. takes a lower priority. c. has the same priority as the primary mortgage. d. fluctuates with the market value of the property.

Q: Franz asks Gateway Mortgage Credit for a loan to pay for the purchase of a home. With a poor credit score and a high current debt-to-income ratio, Franz does not qualify for a standard mortgage. Gateway is most likely to provide a. a deed in lieu of foreclosure. b. a home equity loan. c. a subprime mortgage. d. a workout agreement.

Q: Ridgeline Bank provides Stanley with a mortgage to buy a home. The rate of interest is fixed for three years and then adjusts annually. This is a. a fixed-rate mortgage. b. an adjustable-rate mortgage. c. an interest-only mortgage. d. a violation of the law.

Q: Liberty Bank provides Michelle with a standard mortgage with an unchanging rate of interest to buy a home. Payments on the loan remain the same for the duration of the mortgage. This is a. a fixed-rate mortgage. b. an adjustable-rate mortgage. c. an interest-only mortgage. d. a violation of the law.

Q: A deficiency judgment requires a borrower to pay the amount of debt remaining after the collateral is sold.

Q: A borrower has the right to purchase the property after default by paying the full amount of the debt, plus any interest and costs that have accrued.

Q: If a loan is not paid within a reasonable time after a notice of default, the borrower will receive a notice of sale.

Q: In a judicial foreclosure, the lender is allowed to foreclose on and sell the property without judicial supervision.

Q: Under a deed in lieu of foreclosure, the property is conveyed to the lender in satisfaction of the mortgage.

Q: When an owner is unable to make mortgage payments, a lender may agree to a short sale.

Q: Forbearance is a process that allows a lender to legally repossess and auction off the property securing a loan.

Q: Federal law encourages private lenders to modify mortgages so as to lower the monthly payments of borrowers who are in default.

Q: Foreclosure is the postponement, for a limited time, of part or all of the payments on a loan in jeopardy of repossession and sale.

Q: If a homeowner defaults, the lender has the right to foreclose on the mortgaged property.

Q: Prepayment penalties are severely restricted for a higher-priced mortgage loan.

Q: A lender can make a higher-priced mortgage loan based on the value of the consumer's home without verifying the consumer's other credit obligations.

Q: The average prime offer rate is the rate offered to the least qualified borrowers as established by a survey of potential borrowers.

Q: A lender can make a higher-priced mortgage loan based on the value of the consumer's home without verifying the consumer's ability to repay the loan.

Q: There are additional disclosure requirements for a loan that carries a high rate of interest or entails high fees for the borrower.

Q: Negative amortization occurs when the monthly payments are insufficient to cover the interest due on a loan.

Q: Lenders can require balloon payments for loans with terms of five years or less.

Q: A borrower has a right to rescind a mortgage within three business days.

Q: A lender's failure to comply with federal mortgage disclosure requirements extends the borrower's right to rescind the loan to no more than seven days.

Q: Federal mortgage disclosure requirements apply to the written materials that a lender provides and to any oral representations.

Q: If a lender fails to provide certain material disclosures, a borrower has up to seven years to rescind the mortgage.

Q: Steering and targeting occur when a lender manipulates a borrower into accepting a loan product that benefits the lender but is not the best loan for the borrower.

Q: The annual percentage rate is the actual cost of a loan on a yearly basis.

Q: Loan flipping occurs when a lender convinces a homeowner to refinance soon after obtaining a mortgage.

Q: Borrowers can avoid the clear meaning of terms in financing documents.

Q: A prepayment penalty clause requires a borrower to pay a penalty if a mortgage is repaid in full within a certain period.

Q: Recording a mortgage protects the creditor's security interest in the property.

Q: Home equity is the portion of a home's value that is "paid off."

Q: A home equity loan starts as a fixed-rate mortgage and then converts into an adjustable-rate mortgage.

Q: A subprime mortgage is a loan made to a borrower who does not qualify for a standard mortgage.

Q: With an interest-only mortgage, the borrower can choose to pay only the interest portion of the monthly payment for a specified period of time.

Q: An adjustable-rate mortgage is a standard mortgage with an unchanging rate of interest.

Q: A fixed-rate mortgage is a standard mortgage with a rate of interest that changes periodically.

Q: The initial interest rate is the part of a purchase price that is paid up front in cash.

Q: The loan that a lender provides to enable a borrower to purchase real property is a mortgage.

Q: Shippers Dispatch Corporation orders office equipment from Office Outfitters, Inc., which has an unperfected security interest in the equipment until it is paid for. Meanwhile, Shippers Dispatch takes out a loan from Capital Credit, Inc., subject to a security interest in Shippers Dispatch's building and equipment, which Capital perfects. Shippers Dispatch files a bankruptcy petition under Chapter 7. If the petition is granted, in what order will Shippers Dispatch's creditors be paid?

Q: Sunn Energy, Inc., needs funds to meet its payroll, to make other current operating expenses, and to pay its creditors. Terence, Sunn's only shareholder, loans the company $100,000 and accepts a promissory note signed on behalf of Sunn by Ulrich, the firm's accountant. Sunn's financial problems continue, however, and the firm's creditors file an involuntary petition to force it into bankruptcy. Is Terence entitled to repayment of the loan to Sunn? If so, what is the priority of the claim?

Q: Philo files a petition in bankruptcy for relief through an individual's repayment plan. He is granted a discharge. Debts that will not be discharged include claims for a. all debts provided for by the plan. b. money owed for services rendered. c. claims not provided for by the plan. d. credit-card debt.

Q: Dorothy files a petition for bankruptcy under Chapter 13. If she is granted a discharge, debts that will most likely be discharged include a. claims not provided for by the plan. b. payments on retirement accounts. c. claims for domestic support obligations. d. credit-card debt incurred more than one year before filing.