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Real Estate Finance, 4th Edition Study Guide

From: first tuesday, PO Box 20069, Riverside, CA. 92516 1.800.794.0494 General Information Thank you for enrolling in our home study course. Your personal satisfaction with this course will be greatest if you complete the course soon. However, the course is good for one year from the date of your enrollment. If you do not complete your course within one year, you must re-enroll in the course. A re-enrollment fee will apply. This study guide is voluntary and for your personal benefit. Answers are included so you can determine your reading comprehension. Final Examination On completion of your studying, fax or mail us the enclosed Request to Take Final Exam form. The Department of Real Estate (DRE) requires the final examination to be administered by a Test Administrator. You may select a Test Administrator of your choice. The Test Administrator can be anyone except a relative or co-worker. DRE Disclaimer This course is approved by the California Department of Real Estate (DRE) for continuing education courses. However, DRE approval does not constitute endorsement of the views or opinions expressed by the course sponsor or book authors. Refund Policy We will accept refunds on courses if returned within 15 days of your invoice date. Return postage will not be refunded. Please return all course materials to: first tuesday Attn: Returns PO Box 20069 Riverside, CA. 92516

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Real Estate Finance, 4 Edition

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Real Estate Finance, 4th Edition


Course Description Mortgage financing of any real estate interest requires a broad based understanding of the trust deed and numberous notes, their provisions, required brokerage disclosures and rules and guidelines for their use. Exploring all the common buyer/borrower loan situations, this licensee course explains in-depth the historical real estate relationship between lender and borrower, their debt and trust deed obligations, types of lenders and their loans, seller carryback loan brokerage, subordination, foreclosure and equity financing. Course Outline Three hours are designated for each quiz for a total of 45 hours for the entire course. Completion of the course requires passing an open book final exam consisting of 100 questions. Assignment 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Chapters 1 to 5 6 to 8 9 to 14 15 to 18 19 to 25 26 to 29 30 to 32 33 to 35 36 to 38 39 to 41 42 to 44 45 to 48 49 to 50 51 to 54 55 to 57 Pages 3 to 37 39 to 62 63 to 106 107 to 140 141 to 184 187 to 216 217 to 240 241 to 262 265 to 289 291 to 316 317 to 338 341 to 371 373 to 397 399 to 416 417 to 437 Quiz 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Real Estate Finance, 4 Edition

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Real Estate Finance, 4th Edition Instructions: Quizzes are open book. All questions are either True or False. Answer key is located on the last page. Quiz 1 Pages 3-37 _____ 1. State restrictions on due-on clauses are preempted by federal law. _____ 2. A due-on clause is triggered only on the completion of the sale of real estate. _____ 3. Lenders are more inclined to call loans due when interest rates rise for an extended period of time. _____ 4. A promissory note must be secured by a trust deed. _____ 5. Under a straight note, no periodic payments of principal are scheduled; the entire amount of principal is paid in one lump sum. _____ 6. The all-inclusive trust deed note (AITD) requires the carryback seller to receive part of the propertys appreciated value as contingent interest when the property is sold or the note is due. _____ 7. California usury laws limit the interest rate on non-exempt loans to 15%. _____ 8. A real estate loan made or arranged by a real estate broker is exempt from usury limitations. _____ 9. In the case of a nonrecourse loan, the debtor is personally liable for the debt. _____ 10. A seller who carries back a note on the sale of property is legally required to charge at least 10% interest on the note. Quiz 2 Pages 39-62 _____ 1. On a note secured by owner-occupied, one-to-four unit residential property, a prepayment penalty may be imposed for up to ten years after closing. _____ 2. A guarantor is a third party who becomes liable for repayment of amounts owed on a note due to default. _____ 3. A carryback seller and borrower can agree to an adjustable rate note. _____ 4. A written modification attached to a note is called forbearance. _____ 5. A novation occurs when the lender, buyer and seller agree to the buyers assumption of the loan and the sellers release of any further liability on the loan. _____ 6. A waste situation occurs when property value is impaired due to the failure to complete new improvements. _____ 7. A modification of the interest, payments or due date of a debt by a first trust deed holder cannot be so substantial an economic change as to put the second trust deed holder at a greater risk of loss than already exists. _____ 8. A lender has a duty to a second trust deed holder when the secured property is sold without the lenders prior consent. _____ 9. A carryback note is subject to usury laws on modification of the note. _____ 10. A carryback note is subject to usury laws upon modification when secured by the property sold.

Real Estate Finance, 4 Edition

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Quiz 3 Pages 63-106 _____ 1. A carryback note secured by one-to-four residential units cannot contain a loan lock-in clause. _____ 2. Under no circumstances may a seller carrying back a note secured by a trust deed on one-to-four unit residential property bar prepayment of the note in the calendar year of the sale. _____ 3. On a private loan secured by an owner-occupied, single-family residence, only one late charge per delinquent payment may be charged, regardless of the number of months the payment is delinquent. _____ 4. If a carryback note includes a balloon payment, the note must include the balloon payment due-date notice. _____ 5. A balloon payment must be paid on its due date even if the buyer does not receive the required balloon payment notice from the seller. _____ 6. The owner who places a trust deed lien on his real estate is called the trustor. _____ 7. Under a trust deed, the trustee is transferred the possessory right to the property. _____ 8. The modern California trust deed gives the beneficiary a lien and a security interest in the real estate. _____ 9. On full repayment of a debt secured by a trust deed, the beneficiary must reconvey the trust deed. _____ 10. A power-of-sale provision must be included in the trust deed if the lender wants the right to sell the property at a private sale on a default in the loan payments by the borrower. Quiz 4 Pages 107-140 _____ 1. Even though an owner intends to reconstruct destroyed improvements and restore the property to its value, the lender can automatically refuse to release hazard insurance proceeds to the owner. _____ 2. A future advances clause in a trust deed allows the lender to advance payments for fire insurance premiums if the borrower fails to maintain adequate insurance. _____ 3. Hazard and mortgage insurance premiums may be placed in an impound account. _____ 4. A financial institution making loans secured by one-to-four unit residential property must pay at least 2% annual simple interest on an impound account. _____ 5. Carryback sellers are required to pay 1% simple interest on impound accounts established by the carryback trust deed. _____ 6. As assignment of rents clause in a trust deed recorded before 1997 must be perfected to by enforceable. _____ 7. Under a pre-1997 conditional assignment provision, the owner of the secured real estate is entitled to collect and keep rents until the lender appoints a receiver or takes physical possession of the real estate.

Real Estate Finance, 4 Edition

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8. A receiver is never considered the owner-operator of a property from which he is collecting rents. _____ 9. A lender qualifies as an entitled person to receive a beneficiary statement. _____ 10. A lender must furnish an owner-in-foreclosure with an accounting of the amount due to redeem the loan. Quiz 5 Pages 141-184 _____ 1. A grant deed is a security interest in real estate and does not convey ownership to the property. _____ 2. A private lender using a grant deed as a security device is not subject to usury laws. _____ 3. A due-on clause is not triggered by a lease with an option to purchase. _____ 4. A lease with a term of 35 years will trigger a due-on clause. _____ 5. A junior lien which further encumbers an owner-occupied, one-to-four unit residential property triggers the due-on clause in the first trust deed. _____ 6. Purchase money, nonrecourse debt includes seller carryback financing on the sale of any type of real estate which is secured only by the property sold. _____ 7. The Department of Housing and Urban Development (HUD) prohibits investors from acquiring residences financed by loans from the Federal Housing Administration (FHA) originated on or after December 15, 1989. _____ 8. Borrowers under programs insured by the FHA or the Veterans Administration (VA) receive California anti-deficiency protection. _____ 9. A recorded trust deed imposes a perfected lien not only on real estate but also on any personal property described in the trust deed. _____ 10. Standing timber and unharvested crops may be sold or encumbered as personal property with a security agreement and a UCC-1. Quiz 6 Pages 187-216 _____ 1. In a carryback sale, the promissory note states the exact amount of the buyers debt to the seller, while the trust deed provides security for payment of the debt. _____ 2. In an all-inclusive note and trust deed (AITD), a seller carries back a note secured by a junior trust deed for the entire amount of the senior financing on the property, plus the sellers equity. _____ 3. A buyer is prohibited from creating a note for a brokers fee, payable to the broker and secured by a trust deed on the property being purchased. _____ 4. When an unsecured note for a brokers fee is signed by the seller of real estate, the note is nonrecourse paper. _____ 5. A waiver of a lenders right to call a loan due on a transfer must be in writing to be enforceable. _____ 6. A broker must only disclose title conditions affecting the value and marketability of the property to the brokers client. _____ 7. All brokered transactions involving carryback financing to purchase one-tofour unit residential property require statutory financing disclosures be made.

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Real Estate Finance, 4 Edition

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8. Escrow officers are required to ensure the carryback financing disclosures are made to the parties to the transaction. 9. A buyer may rescind a transaction if escrow closes and the buyer does not receive the carryback financing disclosures. 10. When a broker prepares a carryback financial disclosure form, the broker must provide exact dollar figures and may not approximate unknown figures.

Quiz 7 Pages 217-240 _____ 1. A carryback seller who accepts a deed-in-lieu receives title to the property in exchange for cancelling the debt. _____ 2. At an unlawful detainer (UD) hearing, a carryback seller must show the property was acquired at a trustees sale and all statutory requirements for the sale and UD action are met. _____ 3. A broker will be liable for a carryback sellers losses if the broker intentionally misrepresents to the carryback seller the buyers ability to pay. _____ 4. Written disclosure of the buyers credit information is not mandated on a sale involving one-to-four unit residential property. _____ 5. An individuals net worth is the total value of the individuals assets minus total debt obligations. _____ 6. A carryback seller may not use income-to-debt ratios to determine a buyers creditworthiness. _____ 7. An all-inclusive trust deed (AITD) is always a junior trust deed. _____ 8. In an AITD transaction, the down payment requires a special Notice of Down Payment be delivered to all existing noteholders. _____ 9. When a seller agrees to carryback an AITD, the buyer becomes responsible for making payments on the underlying loan. _____ 10. Negative amortization occurs when accrued and unpaid monthly interest is added to the principal balance on the loan. Quiz 8 Pages 241-262 _____ 1. Carryback financing supports the sellers price and facilitates the sale. _____ 2. Under a graduating all-inclusive trust deed (AITD), the seller agrees to a reduced interest rate on the AITD during the first few years. _____ 3. A reverse assumption occurs when the lender agrees to waive its right to call the loan due and consent to an AITD in exchange for a modification of the debt by the seller. _____ 4. A promissory note accepted by a carryback seller as part payment of the purchase price of the property sold is called an installment sale. _____ 5. Masked security devices include land sales contracts, contract escrows, lease-option sales and unexecuted purchase agreements with interim occupancy. _____ 6. The trend is toward regarding a land sales contract with a power-of-sale provision as a mortgage. _____ 7. Under a land sales contract, title is conveyed to the buyer when the buyer pays half the remaining unpaid amount on the purchase price.

Real Estate Finance, 4 Edition

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8. A lease entered into for under three years triggers the due-on clause. 9. A broker is required to report a sale of real estate to the Internal Revenue Service (IRS) on a 1099-S form is a formal escrow is not used to handle documents and funds. 10. The IRS will recognize a transaction as a sale if the economic benefits and burdens of ownership shift from the seller to the buyer, even though record title has not been transferred from the seller to the buyer.

Quiz 9 Pages 265-289 _____ 1. A buyer is prohibited from simultaneously submitting loan applications to two separate lenders. _____ 2. Under a graduated payment loan (GPM), a borrower receives a low initial interest rate which is periodically increase, with monthly payments adjusted to a fixed rate within a few years. _____ 3. Lender falling under the Real Estate Settlement Procedures Act (RESPA) must provide a borrower with a copy of a Special Information Booklet published by the Department of Housing and Urban Development (HUD) within three days of the lenders receipt of the borrowers application. _____ 4. Lenders may use debt-to-income ratios to evaluate a buyers ability to make timely payments. _____ 5. A borrower can enforce a lenders oral loan commitment. _____ 6. The Real Estate Settlement Procedures Act is a federal law which states a real estate licensee may not accept two fees for one service. _____ 7. Points and discounts are money paid to offset the costs of a lenders noninterest earning services. _____ 8. A broker is prohibited from knowingly underestimating lender closing costs to a borrower. _____ 9. A lender may not alter the loan terms on a Truth in Lending Act (TILA) statement has been given to the borrower. _____ 10. Escrow may charge a processing fee for filing an IRS 1099 form on close of the sales escrow. Quiz 10 Pages 291-316 _____ 1. The Federal Housing Administration (FHA) directly lends money to homebuyers. _____ 2. Buyers obtaining a loan under FHA's One-to-Four Family Home Mortgage Insurance Program, Section 203(b), must occupy the property as their primary residence. _____ 3. Gift funds from the seller or the broker are an acceptable source for a down payment in a transaction involving an FHA-insured loan. _____ 4. Unless the FHA approves the call, a lender may not call an FHA-insured loan due on sale. _____ 5. A purchase-assist loan which is guaranteed by the Veterans Administration (VA) must be secured by a first trust deed on the property.

Real Estate Finance, 4 Edition

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6. On a VA loan, all closing costs except the funding fee, sometimes called the guaranty fee, must be paid as out-of-pocket expenses of the borrower or the seller. 7. A veteran who resides in a rural area and has difficulty finding a lender to help originate his VA loan may obtain a direct loan from the VA. 8. The security device used for a Cal-Vet loan is a trust deed. 9. A veteran cannot fund the construction of a single-family residence under the Cal-Vet loan program. 10. Under the Cal-Vet loan program, a veteran is prohibited from transferring the property into a revocable inter vivos trust for the benefit of the veteran and the veterans spouse.

Quiz 11 Pages 317-338 _____ 1. A real estate lender may require a borrower to obtain private mortgage insurance (PMI) as a condition for making a trust deed loan. _____ 2. Private mortgage insurance will not cover the refinancing of existing loans. _____ 3. Usury laws regulate the amount of interest a non-exempt lender may charge. _____ 4. Interest charged on a loan includes the payment of fees to a lender for loan origination services. _____ 5. Late charges due on a loan default or prepayment penalties are considered interest. _____ 6. A common penalty a lender suffers for usury is the nullifying of all interest for the loan. _____ 7. A salesperson who is employed by a broker and arranges a loan will exempt the loan from usury limitations. _____ 8. A carryback debt is subject to interest limitations. _____ 9. Restructuring the debt on a carryback sale will cause the note to be subject to usury limitation laws. _____ 10. A carryback note which holds an unconscionable interest rate is unenforceable. Quiz 12 Pages 341-371 _____ 1. The amount recoverable as a deficiency judgment is the difference between the court-established fair market value of the property and the amount due on the note. _____ 2. A carryback seller secured by the property sold is entitled to a deficiency judgment on completion of a judicial foreclosure sale. _____ 3. If a lender obtains a letter of credit from a borrower, the lender may draw on the letter of credit without violating either the one-action rule or antideficiency law. _____ 4. A separate agreement signed by the borrower which waives the borrowers anti-deficiency protection is void. _____ 5. A carryback trust deed loan subordinated to a construction loan is not subject to anti-deficiency law.

Real Estate Finance, 4 Edition

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6. In a nonjudicial foreclosure, the borrowers reinstatement period terminates five business days before the trustees sale. 7. A borrowers right of redemption period ends one year after completion of the trustees sale. 8. Should the buyer knowingly commit waste in bad faith on a nonrecourse debt, the lender can obtain a deficiency judgment after foreclosure. 9. Before judgment is entered in a judicial foreclosure action, the borrower is allowed to bring delinquencies current during the reinstatement period. 10. On completion of a sheriffs sale of an owner-occupied, one-to-four unit residential property secured by a purchase-assist loan, the borrower has up to 18 months after the sale to redeem the property.

Quiz 13 Pages 373-397 _____ 1. A real estate broker cannot be named as the trustee in a trust deed. _____ 2. The trustees sale process is initiated by the recording of a Notice of Default (NOD). _____ 3. At least 30 calendar days before a trustees sale, the Notice of Trustees Sale (NOTS) must be sent to each party sent the NOD. _____ 4. A trustee under a trust deed owes a fiduciary duty to the beneficiary under the trust deed. _____ 5. A trustees sale is considered final on the acceptance of the last and highest bid. _____ 6. On completion of a trustees sale, the trustee transfers title to the highest bidder by using a grant deed. _____ 7. Property tax liens are extinguished on completion of a trustees sale. _____ 8. On completion of a trustees sale, the maximum fee the trustee is authorized to charge for providing its services is $250. _____ 9. A Request for Notice of Default (NOD) ensures a carryback seller will receive notice within 15 days after four months of delinquencies in payments to the senior lienholder. _____ 10. In a carryback sale transaction, the buyer must consent to a sellers Request for Notice of Delinquency (NODq). Quiz 14 Pages 399-416 _____ 1. A lender waives its right to complete a foreclosure sale on acceptance of partial payments after a Notice of Default (NOD) has been recorded. _____ 2. A deed-in-lieu of foreclosure can be prepared on any grant deed form and does not require a special deed-in-lieu form. _____ 3. A deed-in-lieu is voidable if it is given at the time the carryback trust deed is originated and given for the purpose of waving the borrowers reinstatement and redemption rights. _____ 4. A change of ownership for reassessment purposes does not occur when the lender or carryback seller accepts a deed-in-lieu. _____ 5. The commencement of one foreclosure remedy does not prevent the prior completion of another foreclosure process.

Real Estate Finance, 4 Edition

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6. Attorney fees are not collectible in a judicial foreclosure action if the owner reinstates the note. 7. Points paid on the origination of a loan are prepaid interest. 8. Homebuyers can deduct seller-paid points. 9. Points paid on a loan obtained to refinance a purchase or improvement loan are written off annually as they accrue over the life of the new loan. 10. Points paid on the long-term refinancing of a short-term balloon note are not deductible in the year the points are paid.

Quiz 15 Pages 417-437 _____ 1. Substantial improvements include repairing and maintaining a residence. _____ 2. A principal residence is a taxpayers home. _____ 3. Both the owners primary residence and second home qualify for the home loan interest deduction provided the owner occupies the second home at least 14 days a year. _____ 4. Profit is reported in the year of sale unless excluded or exempt. _____ 5. A carryback seller may not elect out of installment sale reporting by reporting the profit in the year of sale. _____ 6. Net equity is also called the contract price. _____ 7. Under an all-inclusive trust deed (AITD), profit is not taxed until the carryback seller receives principal payments on the AITD and the responsibility for payments shifts from the seller to buyer. _____ 8. The threshold amount for applying the 9% ceiling is adjusted every three years. _____ 9. Interest is imputed at 125% of a notes applicable federal rate (AFR) for sale-leaseback financing. _____ 10. Carryback notes with a due date of less than 12 months are exempt from imputed interest reporting.

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Real Estate Finance, 4 Edition

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The following are the answers to the quizzes for Real Estate Finance, 4th Edition and the page numbers where they are located. Quiz 1. T 2. F 3. T 4. F 5. T 6. F 7. F 8. T 9. F 10. F Quiz 1. T 2. T 3. F 4. F 5. T 6. F 7. T 8. F 9. F 10. F 1 13 15 18 23 24 26 28 28 32 34 6 188 188 203 204 206 209 211 212 214 215 Quiz 2 1. F 40 2. T 45 3. T 47 4. F 53 5. T 54 6. T 54 7. T 58 8. F 58 9. F 59 10. F 59 Quiz 7 1. T 218 2. T 220 3. T 226 4. F 227 5. T 231 6. F 231 7. T 234 8. F 234 9. F 236 10. T 237 Quiz 12 1. T 342 2. F 342 3. T 345 4. T 349 5. T 351 6. T 358 7. F 358 8. T 361 9. T 365 10. F 367 Quiz 3 1. T 65 2. F 65 3. T 81 4. T 85 5. F 88 6. T 91 7. F 93 8. T 94 9. T 95 10. T 105 Quiz 8 1. T 245 2. T 246 3. T 247 4. T 255 5. T 256 6. F 257 7. F 257 8. F 259 9. T 262 10. T 262 Quiz 13 1. F 374 2. T 375 3. F 383 4. F 385 5. T 386 6. F 387 7. F 388 8. F 391 9. F 393 10. T 395 Quiz 4 1. F 108 2. T 110 3. T 113 4. T 118 5. F 118 6. T 123 7. T 125 8. F 130 9. F 136 10. T 138 Quiz 9 1. F 272 2. T 273 3. T 274 4. T 276 5. F 277 6. T 283 7. F 284 8. T 285 9. F 287 10. F 288 Quiz 14 1. F 399 2. T 403 3. T 403 4. F 406 5. T 408 6. F 408 7. T 413 8. T 415 9. T 416 10. F 416 Quiz 5 1. T 141 2. F 144 3. F 153 4. T 155 5. F 157 6. T 164 7. T 171 8. F 171 9. F 175 10. T 182 Quiz 10 1. F 291 2. T 292 3. F 296 4. T 300 5. T 302 6. T 306 7. T 307 8. F 310 9. F 311 10. F 315 Quiz 15 1. F 418 2. T 419 3. T 419 4. T 421 5. F 422 6. T 424 7. T 428 8. F 433 9. F 437 10. F 437

Answer References

Quiz 11 1. T 317 2. F 325 3. T 327 4. F 328 5. F 328 6. T 332 7. T 334 8. F 335 9. F 336 10. T 338

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