Foreclosure and Mortgage Default Quiz

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Questions and Answers

What happens to the loan amount if the borrower defaults on payment according to the acceleration clause?

The loan amount remains at the current principal balance.

A grace period is provided before the loan becomes due.

The entire loan amount becomes due immediately. (correct)

The loan becomes due in installments.

Which of the following is a key step in the foreclosure process?

Reviewing the borrower's income eligibility

Appraising the property value

Notifying the borrower of default (correct)

Conducting a home inspection

In the context of foreclosure, what right does a lender have regarding the property?

To reduce the principal of the loan during foreclosure

To take possession of the property immediately upon default

To initiate legal proceedings to reclaim the property (correct)

To sell the property without any notifications to the borrower

What typically occurs after a foreclosure is finalized?

A public auction is held to sell the property. Signup and view all the answers

What is a significant implication of taking out a high ratio mortgage?

Increased insurance requirements due to higher risk. Signup and view all the answers

Which legal document is primarily prepared by the lender and outlines the terms of a mortgage?

Mortgage deed Signup and view all the answers

What is regarded as a remedy for the lender in the event of a mortgage default?

Seeking repayment through wage garnishment Signup and view all the answers

Which of the following actions is the lender NOT allowed to take after a default occurs?

Refinance the mortgage at a lower rate Signup and view all the answers

What is a key reason lenders ensure the loan amount is less than the current value of the land?

To account for potential depreciation in property value Signup and view all the answers

What is one of the changes introduced by the government in Canada to tighten mortgage regulations?

Requiring borrowers to pass a financial stress test Signup and view all the answers

What happens if a borrower defaults on their mortgage?

The lender may initiate a foreclosure process Signup and view all the answers

Why have lenders developed practices to verify borrower identity and documentation?

To address the risk of fraud Signup and view all the answers

In the context of high-ratio mortgages, what implication is often considered?

Increased risk of negative equity for borrowers Signup and view all the answers

What right does the lender have if the mortgagor fails to adequately insure the property?

To secure the proper insurance and charge the borrower Signup and view all the answers

What financial behavior contributed to the disaster in the financial sector associated with subprime mortgages?

High default rates as property values declined Signup and view all the answers

Which aspect of a mortgage focuses on maintaining the value of the land?

Terms of the mortgage Signup and view all the answers

What is the primary concern of a lender when a borrower defaults on a mortgage?

The lender needs to recover the loaned amount and protect its investment. Signup and view all the answers

Which of the following is NOT a remedy available to a lender if a borrower defaults on their mortgage?

Issuing a new loan with lower interest rates Signup and view all the answers

In the case of foreclosure, what is a lender's option concerning the property?

The lender can sue the borrower for the unpaid balance even after selling the property. Signup and view all the answers

What is likely to happen if a borrower attempts to sell the property during the mortgage term?

The borrower must either repay the mortgage in full or negotiate an assumption. Signup and view all the answers

When a borrower pays off the mortgage early, what charge may they incur based on the mortgage document?

A penalty fee as stipulated in the mortgage terms Signup and view all the answers

What risk does the original borrower face when a mortgage is assumed by a new buyer?

The original borrower remains liable if the new buyer defaults. Signup and view all the answers

What is the impact of a high ratio mortgage on the lender's perspective?

It increases the lender's risk as the borrower has a lower equity stake. Signup and view all the answers

What procedural option does a lender have when exercising their legal remedies for mortgage default?

The lender must follow state-specific laws and procedures for foreclosure. Signup and view all the answers

Study Notes

Chapter 19: Real Property

Real property refers to land, including interests like mineral rights and leases
Real property law has constitutional, statutory, and common law features
It is impacted by various statutes, such as environmental protection or zoning laws
Private ownership includes the surface, everything above, and below the land.
Structures and items attached are considered real estate
Fixtures include heating, plumbing, and lights
Fee simple is the highest level of land ownership, closest to absolute ownership
A life estate lasts only for the duration of a person's life with ownership reverting later
Condominium ownership is part ownership of a unit and shared ownership of common areas
Mineral rights can be owned separately from surface rights
Quiz Question 19.1: Fee simple
Division of Ownership: As co-owners, each has an undivided interest and each co-owner is a tenant
Quiz Question 19.2: A tenancy in common is when one tenant's interest passes to the heir upon death, a joint tenancy is when one tenant's interest passes automatically to the other tenant upon death

Registration of Interests in Land

Each province has a registration system
Enables investigating ownership and identifying if an interest is subject to certain interests, easements, or mortgages for example
The registry system allows searching land records to evaluate ownership
A land titles system evaluates each document registered and maintains a record of all documents related to property
Land titles systems have an insurance fund to compensate for errors
The certificate of title is sufficient for investigating ownership
The priority of claims is determined by registration date.

Purchasing Land

Caveat Emptor: A buyer-beware situation where the risk of purchasing land is significant
Title search: Examining interests registered in the land registry or land titles system
Investigating the “chain of title”: This process confirms ownership and identifies any known claims against the land preventing a clear title
Environmental contamination should be investigated
Prior agreements on a property, such as leases, can affect the new owners
Environmental hazards, such as contaminated wells or land, should be investigated
Investigating the possibility of squatters on the property
Legal investigation of the physical characteristics of the property, such as location, size, and boundaries
Obtaining legal counsel from experienced professionals

Financing Land

Mortgages: Borrowing money to purchase land.
Mortgagor: The borrower
Mortgagee: The Lender A mortgage is used as security for repayment
Mortgages are often registered to give notice to other creditors or potential purchasers of the mortgage-holder's prior claim on the land
Under the land titles system, mortgage registration creates a legal charge on the land.

Obligations of Sellers

Sellers must disclose significant latent defects
Sellers should be honest when answering buyer questions
Misrepresentations may be oral or written and also may include concealment of defects

Landlord-Tenant Relationship

Lease: A contract between a landlord and tenant, an interest in land.
Residential leases are heavily regulated by legislation
Commercial leases are negotiated by both parties
Key features of a lease include: identification of the parties, description of the premises, permitted alterations, ownership of improvements, calculation of rent, responsibility for repairs, responsibility for utilities, security, and damage deposits, tenant's hours of operation, limits on landlord's ability to lease to competitors time period, and remedies

Retail Leases in Changing Marketplaces

The power balance between landlords and tenants has shifted with the rise of e-commerce
E-commerce is increasing
Co-tenancy agreements are more common for landlords and tenants, allowing retail tenants to get out of their lease or pay lower rents if another tenant leaves
Retail leases are becoming shorter-term and more flexible.

Termination of the Lease

Leases can end by natural expiration
A lease can be terminated early due to a cause such as a breach of contract from either the tenant or landlord or if the property has a supervening event, like a major natural disaster.

Critical Legal Issues

There are risks to both landlords and tenants from a pandemic.
The court may be able to enforce an agreement if there's a significant impact
Property rights are an important aspect of business

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Description

Test your knowledge on the implications of defaulting on a mortgage and the foreclosure process. This quiz covers key concepts such as acceleration clauses, lender rights, and mortgage documents. Perfect for finance students or anyone looking to understand real estate laws.