THE MISSISSIPPI

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THE MISSISSIPPI Powered By Docstoc
					                   MODULE 3: SAMPLE REVIEW TEST
               The Decision to Finance the Transaction
                           Chapters 8,9,10

                                        Part 1a
1.   Under the Uniform Mortgage, the insurance and property tax payment:
     a.     may be split such that one is paid directly by the borrower and the other
            escrowed
     b.     may be paid by the borrower with written permission from the lender
     c.     must be escrowed with no exceptions
     d.     says nothing about the escrowing of these two payments

2.   Under this same mortgage instrument:
     a.     the lender is required to record the mortgage
     b.     the borrower must pay for an appraisal at closing
     c.     the borrower must pay for a survey at closing
     d.     the borrower must purchase a hazard insurance policy

3.   Under the same mortgage instrument:
     a.     the borrower is required to purchase title insurance
     b.     the borrower must approve of the property condition prior to the sale
     c.     the lender must charge for the application
     d.     the lender may take what action is necessary to protect its value

4.   The purpose of the promissory note is to:
     a.     require the borrower to place hazard insurance on the property
     b.     identity the location of the place of payment only
     c.     give a personal bond (IOU) to repay the debt from the borrower
     d.     require the borrower to actually live in the property

5.   The alienation (due-on-sale) clause:
     a.      allows the seller to call the loan due when the buyer defaults
     b.      allows the lender to increase the interest rate when the prime rate changes
     c.      allows the lender to call the entire loan due when refinancing occurs
     d.      allows the lender to call the entire loan due or raise the interest upon
             assumption

6.   Which of the following is true about the deficiency judgement?
     a.    occurs when the market value is greater than the mortgage amount
     b.    occurs when the market value is less than the mortgage amount
      c.     occurs when the monthly payment has not reduced the debt to zero by maturity
      d.     occurs when the escrow account will not pay the taxes

7.    The equitable right of redemption gives:
      a.     the borrower the right to correct a default prior to foreclosure
      b.     the lender the right to claim the equity upon foreclosure
      c.     the lender the right to claim the equity after foreclosure
      d.     the borrower the right to correct a default after the foreclosure

8.    Which of the following is true about the acceleration clause:
      a.    states that the borrower’s obligation to the contract is eliminated once all
            payments are made
      b.    allows the borrower to retain possession of the property as long as payments are
            made
      c.    allows the lender to adjust the interest rate before approving an assumption
      d.    gives the lender the option of moving the maturity date to a current date

9.    A true statement concerning terms of an existing first mortgage is:
      a.      the due on sale clause has become a means to foreclose the loan if the owner
              sells the property without informing the lender
      b.      the due on sale clause allows the lender to raise the mortgage interest rate in
              the event of late payments
      c.      a punitive penalty for late payments encourages the seller to look for an equity
              buyer
      d.      a low interest rate causes the seller to desire refinancing

10.   Which of the following statements is true concerning a first mortgage?
      a.    it never contains consideration
      b.    the covenants or commitments between borrower and lender vary from state to
            state in a uniform mortgage
      c.    the document contains all of the legal terms that govern the loan
      d.    applicable state laws cannot be printed in the mortgage

                                       SOLUTIONS
1.    b
2.    d
3.    d
4.    c
5.    d
6.    b
7.    a
8.    d
9.    a
10.   c


                                          Part 2b
1.    The difference between an "assumption" and "subject to" is:
      a.      the new mortgagor typically does not sign a promissory note under "subject to"
      b.      the mortgagor signs a new mortgage under an "assumption" but
              does not under "subject to"
      c.      a new first mortgage is placed on the property in an "assumption"
              and not in "subject to"
      d.      an "assumption" means that the buyer is not responsible for the debt

2.    The acceleration clause in the mortgage agreement allows the lender to:
      a.     increase the rate of interest charged to the borrower
      b.     foreclose the equity if the property is sold without telling the lender
      c.     increase the monthly payment charged the borrower
      d.     execute release clauses on the security

3.    Which of the following is true about an assumption?
      a.    the current first mortgage is replaced by a new first mortgage
      b.    the seller extends credit to the purchaser for part of the selling price
            with the buyer receiving possession and its benefits, and the deed
            when the last payment is made
      c.    the buyer agrees to rent the property until a future date when it will be
      purchased
      d.    the buyer agrees to purchase the owner's equity in the property and
            take over the debt payments

4.    The lender may assess the borrower additional interest if any payments are
      made in advance of the due date under which of the following clauses?
      a.     interest escalation
      b.     maturity
      c.     acceleration
      d.     prepayment penalty

5.    Which of the following is true about a deed of trust:
      a.    it is second in line as a claim to the value of the property
      b.    it is used in combination with a first mortgage
      c.    it is an arrangement among three parties
      e.    it is the trustor's personal bond to repay the debt
      f.
6.    Which of the following statements concerning a deed of trust is false?
      a.     the trustee is a third, independent party
      b.     the lender is the beneficiary
      c.     the document is a means of financing
      d.     the grantor deeds the property to the trustee

7.    Which of the following is true about a deed of trust?
      a.    it involves three parties--the borrower, lender, and a disinterested third party
      b.    it gives the buyer the legal right to cancel the credit arrangement within three
            days
      c.    it can be used to avoid the purchase of the PMI if the downpayment
            amounts to 30-35% of the property value
      d.    it is the borrower's personal obligation to repay the debt

8.    Which of the following is true about a deed of trust?
      a.    it is a document prepared by the borrower, which states the precise
            amount of the remaining debt owed and any outstanding claims on
            the property.
      b.    it is an instrument used in lieu of a mortgage in some states because
            it provides faster foreclosure.
      c.    it is a document given to the lender by the buyer which states that
            the buyer is assuming the liability for the remaining debt.
      d.    it is a document which transfers the rights in all or a portion of the
            property to another owner.

9.    An assumption:
      a.     is a document prepared by the mortgagor, which states the precise
             amount of the remaining debt owed and any outstanding claims on
             the property
      b.     is an instrument used in lieu of a mortgage in some states because it
             provides faster foreclosure
      c.     is a document which transfers the right in all or a portion of the
             property to another owner
      d.     tells the lender who is responsible for the remaining debt

10.   In a fixed rate mortgage:
      a.       the mortgage debt is typically short term such as 5-10 years
      b.       periodic payments to the debt service result in higher mortgage
               reduction and interest in the early years
      c.       the interest rate and payment remain constant
      d.       the interest is partially paid



                                      SOLUTIONS
1.    a
2.    b
3.    d
4.    d
5.    c
6.    d
7.    a
8.    b
9.    d
10.   c
                                          Part 3c

1.    A veteran may be released from a VA loan and have the guarantee restored by:
      a.     not paying the mortgage payment when due
      b.     having a qualified veteran assume the debt
      c.     having any citizen assume the debt
      d.     abandoning the property

2.    A private mortgage insurer (PMI) sells mortgage insurance:
      a.      on 100% of the loan, like VA
      b.      on the whole loan
      c.      on the top 20-25% of the loan only against default
      d.      on the downpayment amount only to insure that the borrower will recover this
              amount upon resale

3.    VA does which of the following:
      a.     loans money to a qualified vet for a residence
      b.     loans money to a qualified vet to establish a business
      c.     loans money to a qualified vet for a construction loan
      d.     guarantees the loan to a maximum limit

4.    The GI bill of rights gives an eligible veteran the opportunity to buy housing with a VA-
      guarantee that:
      a.      loans the veteran from the bank a guaranteed sum of money
      b.      loans the veteran a sum of money from the VA
      c.      guarantees the entire purchase price against default
      d.      assures the local lender that the loan will be protected against default up to a
              prescribed amount

5.    The current FHA insurance guidelines for a maximum mortgage are:
      a.     $65,000 in all housing markets
      b.     the purchase price
      c.     the borrower's line of credit
      d.     none of these

6.    Under the current VA guidelines, what is the maximum guarantee?
      a.     the purchase price
      b.     the cost of construction
      c.     the appraised value
      d.     $44,000

7.    What are discount points charged?
      a.     to reimburse FHA for the loan
      b.     for a title report
      c.     for additional interest
      e.     for an additional administrative charge


8.    An adjustable rate loan:
      a.     allows the interest rate to change but not the payment
      b.     allows the payment to change but not the interest rate
      c.     allows both the interest rate and payment to change
      d.     allows the maturity date to change

9.    All of the following are true about the Federal Housing Administration except:
      a.       it loans money directly to the customer
      b.       it supports the improvement of housing conditions and standards
      c.       it sells default insurance
      d.       it promotes a stabilizing influence on the mortgage market

10.   Which of the following is true about the Federal Housing Administration?
      a.    it offers insurance on loans with higher downpayments and shorter maturity
            dates than most conventional loans
      b.    it is basically self-supporting from insurance premiums
      c.    it supports their loan programs with tax dollars
      d.    it loans money through their insurance program

                                        SOLUTIONS
1.    b
2.    c
3.    d
4.    d
5.    d
6.    d
7.    c
8.    c
9.    a
10.   b

                                         Part 4d
1.    The payments of a graduated payment mortgage (GPM) must increase by a
      predetermined schedule which is:
     a.     lower in the initial years to encourage more homeowners to enter the
            market
     b.     solely determined by the payment plan the borrower wants to offer
     c.     determined by any plan that the lender wants to offer
     d.     negotiable between the borrower and the lender

2.   A basic characteristic of a fixed rate mortgage is that:
     a.     it does not allow negative amortization
     b.     the payments in the early years are lower than payments in the later
            years
     c.     the mortgage balance is reduced quickly in the early years
     d.     it is designed to allow lenders to collect additional interest over the
            life of the loan

3.   The fixed rate mortgage:
     a.      allows the lender to change the maturity date
     b.      requires that the payment to the debt decline with each payment
     c.      requires that the interest payment increase with each payment
     d.      requires the remaining debt to equal 0 after the last payment

4.   Which of the following is a characteristic of a fixed rate mortgage?
     a.    adjustable interest rate
     b.    adjustable maturity date
     c.    declining monthly payments
     d.    steadily declining mortgage balance

5.   Which of the following would is a benefit of an adjustable rate loan?
     a.    the mortgage rate is set by the market
     b.    lenders are able to collect additional interest over the life of the loan
     c.    some buyers could purchase more expensive properties
     d.    all of the above are benefits

6.   The adjustable rate has which of the following benefits?
     a.     guarantees the loan in case of default
     b.     reduces the lender's profitability
     c.     tailors payments to fit the borrower's income
     d.     has a shorter period of amortization

7.   An adjustable rate loan means that:
     a.     the interest rate and payment will change relative to market interest rates
     b.     the borrower has the alternative of refinancing into a second mortgage any time
     c.     the lender may refinance the existing debt at any time providing the interest rate
            remains constant
     d.     the borrower may skip monthly payments without notice to the lender
8.    Which of the following is a disadvantage of the fixed rate mortgage?
      a.    if interest rates fall, the borrower will receive a new, low rate and monthly
            payment
      b.    it may be too high for new first-time homeowners
      c.    it imposes a heavier financial burden on the borrower in the later
            years of the loan when the homeowner is preparing for retirement
      d.    it requires a fixed payment that may not change with a change in family income

9.    A graduated payment plan:
      a.     allows the lender to increase the interest rate periodically
      b.     allows the lender to change the maturity date
      c.     allows the payments to increase at a predetermined schedule
      d.     allows the borrower to refinance at any time without penalty

10.   Adjustable rate mortgages:
      a.     attempt to adjust with changes in the economy
      b.     allow the lender to adjust the rate whenever it considers it appropriate
      c.     allows the lender to require the loan to be paid off earlier
      d.     may have a remaining debt balance after the last payment is made




                                      SOLUTIONS
1.    a
2.    a
3.    d
4.    d
5.    d
6.    c
7.    a
8.    d
9.    c
10.   a
                                         Part 5e
1.    The Equal Credit Opportunity Act:
      a.     is a federal act which prohibits the lender from denying credit on the basis of
             sex, marital status, age, race, national origin, color or religion
      b.     is a federal law which requires the lender to disclose the financial charge and
            the APR to the borrower in order that the cost of credit is known by the borrower
            in advance
     c.     is a federal act designed to protect the buyer from harmful loan practices,
            provide relevant cost information prior to the closing, and other information
            statistics on closing costs and procedures
     d.     is a federal law which requires the buyer to purchase default insurance and
            furnish proof thereof to the lender on loans made directly to the borrower

2.   The Truth in Lending Act:
     a.     is a federal law which requires the buyer to purchase default insurance and
            furnish proof thereof to the lender on loans made directly to the borrower
     b.     is a federal law which requires the lender to disclose the finance charge and the
            APR to the borrower in order that the cost of credit is known by the borrower in
            advance
     c.     is a federal act designed to protect the buyer from harmful loan practices,
            provide relevant cost information prior to the closing, and other information
            statistics on closing costs and procedures
     d.     is a federal act which prohibits the lender from denying credit on the basis of
            sex, martial status, age, race, national origin, color, or religion

3.   The RESPA:
     a.     is a federal act which prohibits the lender from denying credit on the basis of
            sex, martial status, age, race, national origin, color, or religion
     b.     is a federal act designed to protect the buyer from harmful loan practices,
            provide relevant cost information prior to the closing, and other information
            statistics on closing costs and procedures
     c.     is a federal law which requires the lender to disclose the finance charge and the
            APR to the borrower in order that the cost of credit is known by the borrower in
            advance
     d.     is a federal law which requires the buyer to purchase default insurance and
            furnish proof thereof to the lender on loans made directly to the borrower

4.   The purpose of Real Estate Settlement Procedures Act is to:
     a.     limit the mortgage amount to low income borrowers
     b.     establish disclosure requirements for the advertising of real estate
     c.     allow the borrower to know ahead of time the cost of closing
     d.     regulate interest rates

5.   Under the 1968 Federal Fair Housing Act:
     a.     discrimination was defined to be non-Caucasian only
     b.     discrimination was limited to buying only
     c.     discrimination was limited to selling only
     d.     housing should be made available without regard to personal factors
6.   Under the Federal Fair Housing Act of 1968:
     a.     the real estate agent is allowed to discriminate under special circumstances
     b.     steering is permitted
     c.     block busting is permitted
     d.     the Congress attempted to enforce civil rights in ownership and rental

7.   Which of the following should not be included when calculating the annual percentage
     rate (APR)?
     a.      amortization payments
     b.      interest
     c.      credit life insurance premiums
     d.      finance charges

8.   Which of the following advertisements would be in violation of Truth in Lending?
     a.    easy credit
     b.    zero downpayment
     c.    low downpayment
     d.    "0" downpayment



                                     SOLUTIONS
1.   a
2.   b
3.   b
4.   c
5.   a
6.   d
7.   d
8.   d

                                        Part 6f

1.   Mortgage bankers:
     a.    are individuals or firms who take a mortgage application and attempt
           to find an investor who will purchase it
     b.    includes only lenders who accept deposits
     c.    are a state or federally chartered organization of people with a common bond
            who pool their
           savings and make loans to members
     d.    are found primarily in the northeastern part of the U.S.
2.   Credit unions:
     a.      are individuals or firms who take a mortgage application and attempt to find an
             investor who will purchase it
     b.      approve short-term personal loans only
     c.      are a state or federally chartered organization or people with a common bond
             who pool their savings and make loans to members
     d.      accumulate a number of mortgages and sells the package to an investor

3.   The most important source of loan money for real estate is:
     a.    a savings and loan
     b.    the commercial bank
     c.    insurance companies
     d.    through individual sellers

4.   The secondary mortgage market:
     a.     enables the housing sector of the economy to compete for funds with other
            investment outlets
     b.     refers to a type of loan that is a second lien on property and carried primarily by
            the previous owner
     c.     includes the local, origination group of lenders
     d.     refers only to Fannie Mae and Ginnie Mae

5.   The secondary mortgage market:
     a.     allows for the movement of housing capital to those areas of the country that
            need it
     b.     gives local lenders a place to sell their loans
     c.     helps to stabilize the local housing market
     d.     all of the above are true

6.   The Federal National Mortgage Association:
     a.     is the regulatory agency for all federally chartered savings and loans, and
            determines policy that is carried out by the 12 district banks
     b.     is an institution controlled by the Federal Home Loan Bank Board which
            participates in the secondary mortgage market
     c.     is an institution created as part of the Farm Credit System to provide
            credit for the highly specialized needs of farmers and their marketing, supply,
            and business service operations
     d.     is an association that is publicly controlled and privately owned which
            participates in the secondary mortgage market

7.   The Federal Home Loan Mortgage Corporation:
     a.     is the regulatory agency of all federally chartered savings and loans, and
            determines policy that is carried out by the 12 district banks
      b.     is an institution controlled by the Federal Home Loan Bank Board which
             participates in the secondary mortgage market
      c.     is an institution created as part of the Farm Credit System to provide credit for
             the highly specialized needs of farmers and their marketing, supply, and
             business service operations
      d.     is an association that is publicly controlled and privately owned which
             participates in the secondary mortgage market

8.    The Government National Mortgage Association (Ginnie Mae):
             concentrates on the purchase of loans that assist specialty programs such as
             low-income areas and remote regions
      b.     is an institution controlled by the Federal Home Loan Bank Board which
             participates in the secondary mortgage market
      c.     is an institution created as part of the Farm Credit System to provide
             credit for the highly specialized needs of farmers and their marketing, supply,
             and business service operations
      d.     is an association that is publicly controlled and privately owned which
             participates in the secondary mortgage market

9.    A mortgage-backed bond is:
      a.     a bond issued by a lender which is backed by a pool of residential
             mortgages with the lender guaranteeing the principal and interest payment
      b.     a loan given by the district Federal Home Loan Bank to a federally chartered
             savings and loan
      c.     a certificate issued by a lender which is backed by a pool of residential
             mortgages in which the lender serves as a conduit and transmits principal and
             interest payments from the underlying loans to the investors
      d.     a security issued by a lender which is backed by a pool of commercial and
             industrial mortgages and the lender guarantees the principal and Interest
             payments

11.   Which of the following correctly describes the Federal National Mortgage
      Association (Fannie Mae):
      a.     it is the regulatory agency for all federally chartered savings and loans, and
             determines policy that is carried out by the 12 district banks
      b.     it is an institution controlled by the Federal Home Loan Bank Board which
             participates in the secondary mortgage market
      c.     it is a participant in the secondary mortgage market that buys and sells loans
             from primary lenders
      d.     it is an association that that concentrates on the purchase of loans from lenders
             to specialize in low income areas and remote regions

                                       SOLUTIONS
1.    a
2.    c
3.    b
4.    a
5.    d
6.    d
7.    d
8.    a
9.    a
10.   c
                                          Part 7g
1.    If the loan-to-value ratio is 75%, and the property was appraised for $42,250 and sold for
      $43,500, how much would the purchaser usually be allowed to borrow?
       a.      $31,688.
       b.      $39,975.
       c.      $34,800.
       d.      $42,250.

2.    A borrower signs a loan agreement for $45,000. The lender deducts a $600 loan
      origination fee and 2 discount points. How much net cash does the borrower receive?
      a.     $43,500.
      b.     $45,000.
      c.     $46,400.
      d.     $43,610.

3.    If a house is sold under an FHA loan for $55,000, and the required down payment was set
      at 3% for the first $25,000 and 5% for any amount over $25,000, what is the amount of
      the down payment?
       a.     $2,250.
       b.     $2,750.
       c.     $1,250.
       d.     $1,500.

4.    How much interest is paid over the entire term of a $60,000, 30 year loan at 13%, if it has
      fixed monthly principal and interest payments of $663.72?
       a.    $238,940.
       b.    $60,000.
       c.    $234,000.
       d.    $178,939.
5.    What is the loan balance owed at the end of month one on a $60,000 loan at 12% if it has
      fixed monthly principal and interest payments of $663.72 for 30 years?
       a.    $60,000.
       b.    $59,936.00
       c.    $52,800.00
       d.    $59,415.92

6.    On a term loan of $10,500. at 12% annual interest, what will be the interest payment for 3
      years, 10 months, and 20 days? (Use a 30-day month.)
      a.      $1,260.
      b.      $2,380.
      c.      $4,900.
      d.      $5,100.

7.    Joachim closed a loan on July 1 for $57,200 amortized over 25 years at $666.75 per
      month. The interest rate is 13.5% and interest is payable in arrears. On August 1, what
      would be the principal amount of the mortgage?
       a.    $56,533.25
       b.    $57,176.75
       c.    $55,982.20
       d.    $56,556.50

8.    Shawn bought a house with a mortgage loan of, $21,500. The monthly principal and
      monthly interest payment will be $7.70 per $1,000 of the loan amount. The annual
      property taxes are $496.20. The homeowner's policy is $240 per year. What is the
      monthly payment including principal, interest, taxes and insurance?
      a.     $226.90
      b.     $165.55
      c.     $235.18
      d.     $189.42

9.    Luwanna bought a property for $25,000., and paid $2,000 as earnest money. She has a
      loan commitment for 70% of the purchase orice. The balance of cash needed by her to
      close the transaction is:
       a.     $3,500.
       b.     $4,000.
       c.     $4,500.
       d.     $5,500.

10.   A property sold for $48,000, is financed with a 90% mortgage, and the seller has agreed
      to pay 4 points. What amount will the seller pay?
       a.     $1728.
       b.     $2592.
       c.     $2743.
      d.   $2880.

                                       SOLUTIONS
1.    a    $42,250. x .75 = $31,687.50 allowed to borrow

2.    a    $45,000 x .02 = $900.
           $900. + $600. = $1500.
           $45,000. - $1,500. = $43,500. net cash to borrower

3.    a    $25,000. x .03 = $750.
           $30,000. x .05 = $1,500.
           $750. + $1,500. = $2,250. down payment

4.    d    $663.72 payment x 360 months = $238,939.20 total
           $238,939.20 - $60,000. debt repaid = $178,939.20 total
           interest

5.    b    $60,000. x .12/12 mo. = $600. interest in month 1
           $663.72 - $600. interest = $63.72 debt paid
           $60,000. loan - $63.72 paid = $59,936.28 remaining debt

6.    c    .12/12 mo. = .01 rate per mo.
           .01 x 10.6667 months = .106667
           .106667 x $10,500. = $1,120. interest for 10 mo. 20 days
           $10,500. x .12 rate = $1,260. x 3 yrs. = $3,780 int. for 3 yrs
           $3,780. interest + $1,120. interest = $4,900. total

7.    b    .135/12 mo. = .01125 rate per mo.
           $57,200. debt x .01125 = $643.50 interest for 1 month
           $666.75 payment - $643.50 interest = $23.25 paid to debt
           $57,200. loan - $23.25 debt = $57,176.75 remaining debt

8.    a    $21,500./$1,000. = 21.5 x $7.70 = $165.55 p and i
           $496.20 taxes + $240. ins. = $736.20 total
           $736.20 / 12 mo. = $61.35 t and i
           $165.55 + $61.35 = $226.90 piti

9.    e    $25,000. x .70 1/v = $17,500. loan = $2,000 earnest money =
           $19,500. total
           $25,000 - $19,500. = $5,500. cash needed to close

l0.   b    $48,000. x .90 1/v = $43,200 loan x .04 = $1,728. Points
                                     Part 8h
1.   A limited partnership:
     a.      is composed of two general partners with equal liability.
     b.      is distinguished from a corporation for tax purposes.
     c.      is only distinguished from a corporation by limited liability.
     d.      allows limited partners to manage the investment with limited liability.

2.   A general partnership:
     a.     does not dissolve upon the death of a partner.
     b.     treats each partner equally as limited partners.
     c.     gives each partner equal management rights over the organization.
     d.     distributes profits and losses equally among the partners despite the size of
            their individual investments.

3.   A REIT:
     a.        passes losses through to the individual investor like a limited partnership.
     b.        pools investment funds under the guidance of a real estate specialist.
     c.        is viewed as a corporation with some of the tax benefits of a partnership.
     d.        does not elect special tax privileges.

4.   Commercial loan(s):
     a.   are given on properties that produce an income stream from the sale of a
          product.
     b.   are repaid from investments of capital.
     c.   are evaluated equally by location of the site and the number of potential buyers
          in the market.
     d.   applications are easier to evaluate than residential loan applications.

5.   Commercial financing:
     a.   is viewed as an output for investment funds.
     b.   is generally underwritten by single commercial lenders.
     c.   is basically non-essential to the local economy since a majority of the local
          income is received from residential properties.
     d.   is seen as an outlet that seeks the highest return on investment.

6.   Equity financing:
     a.      is the amount of a buyer’s own assets used to purchase a property.
     b.      is the amount of another party’s asset used to help purchase a property.
     c.      can come from a lender or a group of lenders.
     d.      is distinguished from debt financing by expected return on each individual
             investment.




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7.    Leverage:
      a.     is favorable when the cost of the money exceeds the return on equity.
      b.     can be used in small amounts to purchase lower priced properties.
      c.     is unfavorable when the return on equity is larger than the cost of the money.
      d.     is a loan used to magnify the amount of return on the equity in a project.

8.    Income lost from vacancy divided by gross potential income is the:
       a.   building area ratio
       b.   default ratio
       c.   loan-to-value ratio
       d.   stabilized vacancy ratio

9.    Gap financing:
      a.     is a short-term loan for improvements on a property.
      b.     covers the entire cost of the mortgage until the new building attains a certain
             usage level.
      c.     covers the difference in cost of the mortgage until the new building attains a
             predetermined occupancy level.
      d.     is the first lien mortgage on the property.

10.   A second mortgage is used for the following except:
      a.     to raise additional cash to pay the purchase price.
      b.     to borrow against the property without touching the original loan.
      c.     to pay the down payment.
      d.     because a lender will usually make the second loan at a lower interest rate.

11.   An estoppel certificate requires:
      a.     the seller to state the exact balance of the mortgage that the mortgagor is
             paying.
      b.     to give the buyer the right to collect the property’s income stream.
      c.     the seller to disclose the balance of the mortgage, but not any unknown claims
             against the property’s income stream.
      d.     protection of the seller’s income stream from the buyer.

12.   The commercial lease:
      a.    is a non-binding agreement between a landlord and private businessperson for
            the rental of commercial space.
      b.    stipulates that the rent payment will be stated as a flat fee.
      c.    is written strictly for professionals who need office space.
      d.    may be written to stipulate any of a variety of payment schemes.

13.   Under a net lease:
      a.     the tenant periodically pays a predetermined, fixed amount for the space.
      b.     the tenant and landlord agree that the rent payment will reflect gross sales of


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             the tenant’s commercial establishment.
      c.     a tenant agrees to periodically pay a fixed sum and some of the expenses the
             landlord incurs against the property.
      d.     the landlord and tenant must come to an agreement about the space usage.

14.   The lease in which a landlord’s income is affected by the success of the establishment
      is a (n):
       a.       escalated or indexed lease
       b.       graduated payment lease
       c.       gross lease
       d.       percentage lease

15.   With a ground lease:
      a.     the structure legally becomes the property of the landlord completes the
             construction of the structure.
      b.     the landlord typically pays property taxes and the insurance on the
             improvement.
      c.     the conditions are typically short-term, or less than ten years.
      d.     the landlord assumes all responsibility for personal injury to third parties.

16.   An owner must consider the following for a sale and leaseback agreement except:
      a.    the equity in the property.
      b.    the rate of return to be obtained from the investment.
      c.    fixed asset holdings.
      d.    income tax consideration.

17.   Without a subordinate clause in the lease, a tenant can:
      a.    be subjected to the effects of a future mortgage situation.
      b.    have his/her lease terminated and be evicted if the landlord defaults on a future
            mortgage.
      c.    only be subjected to the effects of current mortgages at the time the lease is
            signed.
      d.    expect to limit a current mortgage with a non-disturbance clause.

18.   The option to purchase clause:
      a.     allows a landlord to raise the price of the leased property at the time of the sale.
      b.     does not usually require the tenant to give advanced notice of intent.
      c.     allows the tenant and landlord to agree on a future purchase price.
      d.     may not include protection for the rights of either party to withdraw from the
             agreement.

19.   Loan amount divided by the value of the property or sales price is the:
      a.     default ratio
      b.     overall cap rate


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            c.     debt service coverage ratio
            d.     loan-to-value ratio

20.         In a permanent loan situation:
             a.     a lender agrees to pay off the construction loan once the building is complete.
             b.     a lender may not insist on a retainage from the amount of funds paid to the
                    borrower.
             c.     the lender approves the loan after the construction loan.
             d.     takeout will occur until the building is free of potential liens.

                                             SOLUTIONS
      1.    c
      2.    b
      3.    a
      4.    d
      5.    a
      6.    d
      7.    d
      8.    c
      9.    d
      10.   a
      11.   d
      12.   d
      13.   d
      14.   a
      15.   b
      16.   c
      17.   c
      18.   d
      19.   a




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