Real Estate Financing and Settlement Practice Test

25 practice questions

Choose an answer, then check it under Show answer.

1. Question 1 of 25Medium

   A seller has already paid the annual property tax of $2,400 for the current calendar year in full. Closing occurs on July 15, and the seller is responsible for taxes on the day of closing. Using a year of 360 days with twelve months of 30 days each, how much will the buyer owe the seller in prorated taxes?

   1. AA. $1,200
   2. BB. $1,100
   3. CC. $1,000
   4. DD. $1,300
   Show answer to question 1

   Answer: B. $1,100

   Because the seller is responsible for the day of closing, the buyer owes for the remaining 15 days in July plus 5 full months (August through December), totaling 165 days. The reimbursement is $2,400 × 165 ÷ 360 = $1,100.

   Why the other options are wrong

   • AThis would be the amount for exactly half a year (180 days).
   • CThis would be for 150 days, ignoring the partial month.
   • DThis represents the seller's share for 195 days, January 1 through July 15, rather than the buyer's share for 165 days.

2. Question 2 of 25Easy

   Sam signs a promissory note promising to repay Oak Street Bank. Identify their respective roles on the note.

   1. AA. Oak Street Bank is the mortgagor; Sam is the mortgagee
   2. BB. Sam is the payee; Oak Street Bank is the maker
   3. CC. Sam is the maker; Oak Street Bank is the payee
   4. DD. Oak Street Bank is the grantor; Sam is the grantee
   Show answer to question 2

   Answer: C. Sam is the maker; Oak Street Bank is the payee

   The borrower who signs a promissory note and promises repayment is the maker. The lender to whom payment is promised is the payee.

   Why the other options are wrong

   • AA borrower is the mortgagor and the lender is the mortgagee; this option reverses those security-instrument roles.
   • BThis reverses the maker and payee roles.
   • DGrantor and grantee are parties to a deed, not the promise-to-pay roles on a note.

3. Question 3 of 25Medium

   A homebuyer purchases a $250,000 property with a 10% down payment. The lender requires private mortgage insurance (PMI) because the loan-to-value ratio exceeds 80%. The PMI premium is 0.5% of the loan amount per year. What is the annual PMI premium?

   1. AA. $1,125
   2. BB. $1,000
   3. CC. $1,250
   4. DD. $1,500
   Show answer to question 3

   Answer: A. $1,125

   PMI is calculated on the loan amount, not the purchase price. With a 10% down payment, the loan is $225,000, so the annual premium is $1,125.

   Why the other options are wrong

   • BThis mistakenly uses 80% of the purchase price ($200,000) as the loan amount, yielding $1,000.
   • CThis uses the purchase price ($250,000) instead of the loan amount, resulting in $1,250.
   • DThis would result from applying the stated 0.5% rate to an incorrect loan amount of $300,000 rather than the actual $225,000 loan.

4. Question 4 of 25Hard

   A $250,000 amortizing mortgage has a 6% annual interest rate and a fixed monthly payment of $1,498.88. Interest is computed monthly on the outstanding balance. What is the principal portion of the second monthly payment?

   1. AA. $250.12
   2. BB. $1,250.00
   3. CC. $1,248.76
   4. DD. $248.88
   Show answer to question 4

   Answer: A. $250.12

   The first month's interest is $250,000 × 0.06 ÷ 12 = $1,250.00, leaving $248.88 of principal. The resulting balance is $249,751.12, and the second month's interest rounds to $1,248.76. Therefore, the second month's principal portion is $1,498.88 − $1,248.76 = $250.12.

   Why the other options are wrong

   • B$1,250.00 is the interest portion of the first payment, not the principal portion of the second payment.
   • C$1,248.76 is the interest portion of the second payment, not its principal portion.
   • D$248.88 is the principal portion of the first payment, before the balance was reduced.

5. Question 5 of 25Medium

   A veteran uses a VA purchase loan to buy a home for $300,000 with no down payment. For first use, the VA funding fee is 2.15% of the base loan amount. This is the veteran’s first use, and the veteran is not exempt from the fee and chooses to finance it. What total amount will the veteran finance, including the funding fee?

   1. AA. $300,000
   2. BB. $304,500
   3. CC. $306,000
   4. DD. $306,450
   Show answer to question 5

   Answer: D. $306,450

   The VA funding fee can be paid upfront or financed. This veteran is not exempt and chooses to finance the fee. The fee is $300,000 × 0.0215 = $6,450, so the total financed is $300,000 + $6,450 = $306,450.

   Why the other options are wrong

   • AThis ignores the funding fee entirely.
   • BThis uses a 1.5% fee ($4,500) instead of 2.15%.
   • CThis uses a 2% fee ($6,000) instead of 2.15%.

6. Question 6 of 25Easy

   Under the Real Estate Settlement Procedures Act (RESPA), what is the maximum cushion a loan servicer is permitted to hold in a borrower's escrow impound account?

   1. AA. One-fourth of the total estimated annual disbursements
   2. BB. One-twelfth of the total estimated annual disbursements
   3. CC. One-third of the total estimated annual disbursements
   4. DD. One-sixth of the total estimated annual disbursements
   Show answer to question 6

   Answer: D. One-sixth of the total estimated annual disbursements

   RESPA limits the reserve cushion in an escrow impound account to no more than one-sixth of the total estimated annual disbursements, which is equivalent to two months of escrow payments. One-twelfth of annual disbursements represents one monthly payment rather than the maximum permitted cushion.

7. Question 7 of 25Hard

   Riley's $240,000 mortgage carries a 6% annual interest rate and a $1,438.92 monthly principal-and-interest payment. After making two scheduled monthly payments, Riley defaults. The property brings $232,000 at a foreclosure sale, and sale costs are $8,000. For this calculation, disregard interest accruing after the second payment and any charges other than the stated sale costs. Before considering any legal limits on deficiency judgments, what is the remaining shortfall?

   1. AA. $16,000.00 deficiency
   2. BB. $15,520.97 deficiency
   3. CC. $7,520.97 deficiency
   4. DD. $13,122.16 deficiency
   Show answer to question 7

   Answer: B. $15,520.97 deficiency

   After month 1, interest is $1,200 and principal reduction is $238.92, leaving $239,761.08. In month 2, rounded interest is $1,198.81, so principal reduction is $240.11 and the balance is $239,520.97. Net proceeds are $232,000 − $8,000 = $224,000, leaving a shortfall of $239,520.97 − $224,000 = $15,520.97.

   Why the other options are wrong

   • A$16,000 treats the original $240,000 balance as unchanged and ignores both principal reductions.
   • C$7,520.97 subtracts the gross sale price but fails to deduct the $8,000 sale costs from proceeds.
   • D$13,122.16 subtracts the full payments from principal instead of allocating each payment between interest and principal.

8. Question 8 of 25Medium

   A real estate agent offers to credit $1,500 of the agent's earned commission toward the buyer's allowable closing costs at settlement. How does RESPA treat this financial concession to the principal in the transaction?

   1. AA. It is a prohibited kickback because commission funds cannot be transferred to unlicensed individuals.
   2. BB. It is allowed only if the seller contributes an equal dollar amount toward the buyer's settlement fees.
   3. CC. It is permissible under RESPA as a genuine commission rebate, not compensation for referring settlement business.
   4. DD. It violates Section 8 unearned fee provisions unless the buyer performs documented administrative work.
   Show answer to question 8

   Answer: C. It is permissible under RESPA as a genuine commission rebate, not compensation for referring settlement business.

   RESPA does not prohibit an agent from rebating part of an earned commission to a buyer or seller in that party’s own transaction. A genuine rebate reduces the recipient’s transaction costs and is not compensation for referrals or a prohibited split of unearned settlement charges. Section 8’s unearned fee prohibition is not limited to payments between service providers. Disclosure does not make an otherwise prohibited payment lawful. The credit must also comply with applicable state law, lender and loan program requirements, and settlement disclosure requirements.

   Why the other options are wrong

   • AThis confuses a rebate to a transaction principal with a referral kickback. RESPA does not prohibit a commission credit merely because the buyer is unlicensed.
   • BThis invents a matching contribution requirement. RESPA does not require the seller to contribute any amount for the agent to credit earned commission toward the buyer’s closing costs.
   • DThis misapplies Section 8’s unearned fee prohibition to a price reduction. The buyer need not perform administrative work to receive a rebate of the agent’s earned commission.

9. Question 9 of 25Easy

   For a mortgage loan subject to TRID, the consumer's receipt of which disclosure begins the standard waiting period of three business days before consummation?

   1. AA. Closing Disclosure
   2. BB. Truth-in-Lending Statement
   3. CC. Good Faith Estimate
   4. DD. Loan Estimate
   Show answer to question 9

   Answer: A. Closing Disclosure

   For loans covered by TRID, the consumer generally must receive the Closing Disclosure at least three business days before consummation. Consummation occurs when the consumer becomes contractually obligated on the credit transaction and need not coincide with settlement. The Loan Estimate is provided earlier in the loan process.

   Why the other options are wrong

   • BFor loans covered by TRID, the former initial and final Truth-in-Lending disclosures are integrated into the Loan Estimate and Closing Disclosure, respectively.
   • CFor loans covered by TRID, the Good Faith Estimate has been replaced by the Loan Estimate.
   • DThe creditor generally must deliver or mail the initial Loan Estimate within three business days after receiving an application and at least seven business days before consummation.

10. Question 10 of 25Medium

    A lender approves a high-cost mortgage refinance for a retiree whose sole income is modest Social Security benefits, fully aware the borrower cannot sustain the monthly payments. The loan is granted solely because the home has substantial accumulated market value. Which predatory practice does this exemplify?

    1. AA. Loan packing
    2. BB. Equity stripping
    3. CC. Affinity fraud
    4. DD. Reverse redlining
    Show answer to question 10

    Answer: B. Equity stripping

    Equity stripping involves lending primarily against a homeowner's equity while disregarding the borrower's ability to repay. Here, the lender knows the borrower cannot sustain the payments but lends because the home has substantial equity. Payments, fees, and possible foreclosure can erode or eliminate that equity; foreclosure does not automatically entitle the lender to surplus sale proceeds.

    Why the other options are wrong

    • ALoan packing involves adding unnecessary fees or unwanted ancillary products, such as credit insurance, to a loan. Borrower ignorance is not required. No such additions are described.
    • CAffinity fraud exploits trust within a shared group or community, such as a religious or ethnic group. No such relationship is described.
    • DReverse redlining involves targeting particular groups or neighborhoods for discriminatory, exploitative lending. The scenario establishes lending based on equity despite inability to repay, not discriminatory targeting.

11. Question 11 of 25Hard

    An adjustable-rate mortgage (ARM) has a 5/1 structure with a 2/2/6 cap structure. The start rate is 4%. After the initial five-year fixed period, the index is at 5% and the margin is 2%. Assuming the first adjustment occurs at the end of year five, what is the new interest rate and the maximum possible rate at the first adjustment?

    1. AA. New rate = 6%; maximum rate allowed = 6%.
    2. BB. New rate = 6%; maximum rate allowed = 7%.
    3. CC. New rate = 7%; maximum rate allowed = 7%.
    4. DD. New rate = 7%; maximum rate allowed = 10%.
    Show answer to question 11

    Answer: A. New rate = 6%; maximum rate allowed = 6%.

    For a 2/2/6 cap structure, the first number limits the initial increase to 2 percentage points, the second limits subsequent periodic increases to 2 percentage points, and the third limits the lifetime increase to 6 percentage points above the start rate. The fully indexed rate is 5% + 2% = 7%. However, the initial adjustment cap limits the first adjustment to 4% + 2 percentage points = 6%. Because the fully indexed rate exceeds this cap, both the new rate and the maximum rate allowed at the first adjustment are 6%.

    Why the other options are wrong

    • BIncorrect because the maximum allowed at the first adjustment is 6%, not 7%.
    • CIncorrect because 7% is the uncapped fully indexed rate. The initial adjustment cap limits both the new rate and the maximum allowed at the first adjustment to 6%.
    • DIncorrect because 10% is the lifetime ceiling, not the first adjustment ceiling. The initial adjustment cap limits both the new rate and the maximum allowed at the first adjustment to 6%.

12. Question 12 of 25Medium

    A borrower purchases a residential property for $450,000 with a 20% down payment. The lender offers to reduce the note rate from 6.75% to 6.25% if the borrower pays 2.5 discount points. How much will the borrower pay for the discount points at closing?

    1. AA. $11,250
    2. BB. $7,200
    3. CC. $9,000
    4. DD. $2,250
    Show answer to question 12

    Answer: C. $9,000

    The borrower's down payment is $90,000 ($450,000 multiplied by 0.20), leaving a loan amount of $360,000 ($450,000 minus $90,000). The discount points cost 2.5% of the loan amount, which equals $9,000 ($360,000 multiplied by 0.025). The amount of $11,250 is incorrect because it calculates the points on the total purchase price rather than the mortgage balance.

    Why the other options are wrong

    • AApplying 2.5% to the $450,000 purchase price gives $11,250. Discount points are calculated on the loan amount, not the purchase price.
    • BUsing 2% instead of 2.5% gives $360,000 × 0.02 = $7,200. This leaves out the additional half point required by the lender.
    • DApplying 2.5% to the $90,000 down payment gives $2,250. Discount points are calculated on the $360,000 loan amount, not the down payment.

13. Question 13 of 25Medium

    Nora agrees to buy a home for $425,000, and it appraises for $410,000. She makes an $82,000 down payment, and the lender uses the lower of the purchase price or appraised value. What is the loan-to-value ratio, rounded to one decimal place?

    1. AA. 83.7%
    2. BB. 19.3%
    3. CC. 80.7%
    4. DD. 20.0%
    Show answer to question 13

    Answer: A. 83.7%

    The loan amount is $343,000, and the stated underwriting rule makes the $410,000 appraisal the value base. Dividing $343,000 by $410,000 yields 83.7%, while the down-payment percentages and the purchase-price denominator measure something else.

    Why the other options are wrong

    • B19.3% is the down payment divided by the $425,000 purchase price, not the loan-to-value ratio.
    • C80.7% incorrectly uses the higher $425,000 purchase price instead of the required $410,000 value base.
    • D20.0% is the down payment divided by the $410,000 appraised value.

14. Question 14 of 25Easy

    Tessa applies for a mortgage in her name alone and independently meets the lender’s credit standards. No signature from her spouse is needed to create an enforceable lien. Under the Equal Credit Opportunity Act, which statement is correct?

    1. AA. The lender may require her spouse to cosign because mortgage lending is secured lending.
    2. BB. The lender may treat the application as joint because Tessa is married.
    3. CC. The lender must evaluate her spouse’s credit before approving her individual application.
    4. DD. The lender may not require the spouse's signature solely because the applicant is married.
    Show answer to question 14

    Answer: D. The lender may not require the spouse's signature solely because the applicant is married.

    ECOA prohibits discrimination based on marital status, among other protected characteristics. A lender may require another signature when it is legally necessary for the credit or lien, but not solely because the applicant is married.

    Why the other options are wrong

    • ASecured lending does not by itself justify requiring a spouse to cosign. A signature needed to make collateral available is distinct from a signature imposing personal liability for repayment.
    • BMarriage does not establish an intent to apply jointly. A lender may not treat an individual application as joint merely because the applicant is married.
    • CMarriage alone does not require evaluation of a spouse’s credit. Tessa independently meets the lender’s credit standards for the individual mortgage requested.

15. Question 15 of 25Hard

    For a mortgage covered by the federal Homeowners Protection Act, borrower paid private mortgage insurance (PMI) has not previously been canceled or terminated. On which date must final termination occur, provided the borrower is current on payments?

    1. AA. When the borrower pays off fifty percent of the total interest due on the promissory note
    2. BB. The first day of the month immediately following the midpoint of the loan's amortization schedule
    3. CC. Exactly seven years after the loan origination date regardless of term
    4. DD. Ten years from the date of the first monthly mortgage payment
    Show answer to question 15

    Answer: B. The first day of the month immediately following the midpoint of the loan's amortization schedule

    For borrower paid PMI on a mortgage covered by the federal Homeowners Protection Act, final termination must occur on the first day of the month immediately following the midpoint of the loan's amortization period, provided the borrower is current on payments. For a 30-year loan, this is the beginning of month 181. This requirement is distinct from the law's earlier cancellation and automatic termination provisions. Paying half of the total scheduled interest is not a termination trigger. Neither seven years after origination nor ten years after the first monthly payment is a universal termination date.

    Why the other options are wrong

    • AThis confuses interest paid with elapsed amortization time. Paying half the scheduled interest is not a federal PMI termination trigger.
    • CThis assumes a universal seven year deadline. The final termination deadline depends on the midpoint of the loan’s amortization period, not a fixed number of years after origination.
    • DThis incorrectly applies a ten year deadline to every loan. Federal law uses the first day of the month following the amortization midpoint, which varies with the loan term.

16. Question 16 of 25Medium

    Which of the following describes a key consequence for a borrower who executes a deed in lieu of foreclosure rather than allowing the property to go to a foreclosure sale?

    1. AA. The borrower forfeits any statutory right of redemption that might have followed an auction.
    2. BB. The lender must pay the borrower the equitable difference between market value and debt.
    3. CC. The conveyance automatically extinguishes junior encumbrances without lender consent.
    4. DD. The borrower is automatically released from personal liability on all secondary junior liens.
    Show answer to question 16

    Answer: A. The borrower forfeits any statutory right of redemption that might have followed an auction.

    Because a deed in lieu of foreclosure is a voluntary transfer of title that bypasses the foreclosure auction entirely, the borrower forfeits any statutory right of redemption that state law might otherwise provide post-sale. A common misconception is that a deed in lieu wipes out subordinate mortgages, but junior liens remain attached to the property unless junior lienholders agree to release them.

    Why the other options are wrong

    • BThis confuses a negotiated deed in lieu with distribution of surplus foreclosure-sale proceeds. A deed in lieu does not require the lender to compensate the borrower for equity.
    • CThis mistakes a voluntary conveyance for a foreclosure that can eliminate junior liens. A deed in lieu generally leaves junior liens attached unless their holders release them.
    • DThis confuses transferring title with satisfying separate debts. A deed in lieu does not automatically discharge the borrower's personal liability to junior lienholders.

17. Question 17 of 25Easy

    Which of the following statements is true regarding a straight term mortgage loan?

    1. AA. The monthly payment covers both principal reduction and accrued interest.
    2. BB. The principal balance is reduced steadily with each monthly installment.
    3. CC. The entire principal balance is due in full at the end of the loan term.
    4. DD. The interest rate adjusts automatically based on changes to an economic index.
    Show answer to question 17

    Answer: C. The entire principal balance is due in full at the end of the loan term.

    A straight term loan, also known as a term loan or interest-only loan, requires the borrower to pay only periodic interest during the loan life, leaving the original principal balance intact until the maturity date when it must be paid in full. The choice stating that payments cover both principal and interest describes an amortized loan rather than a straight loan. An adjustable-rate mortgage, not a straight term loan, fluctuates with an economic index.

18. Question 18 of 25Hard

    Jordan can borrow $240,000 at 7.20% or pay 2 discount points for 6.75%. Assuming the loan balance stays $240,000 and only interest savings count, how many full monthly payments are needed to recover the points?

    1. AA. 48 full monthly payments
    2. BB. 54 full monthly payments
    3. CC. 60 full monthly payments
    4. DD. 40 full monthly payments
    Show answer to question 18

    Answer: B. 54 full monthly payments

    Two points cost 2% of $240,000, or $4,800. The rate reduction saves $240,000 × 0.45% ÷ 12 = $90 each month, so $4,800 ÷ $90 = 53.33 months; 54 full payments are required to pass break-even.

    Why the other options are wrong

    • AForty-eight payments results from using a 0.50 percentage-point rate reduction, which would save $100 per month.
    • CSixty payments results from using a 0.40 percentage-point rate reduction, which would save $80 per month.
    • DForty payments results from using a 0.60 percentage-point rate reduction, which would save $120 per month.

19. Question 19 of 25Medium

    Why might a mortgage lender refuse to accept a deed in lieu of foreclosure from a borrower who is in default?

    1. AA. The lender is legally prohibited from reporting the borrower's nonpayment to credit reporting agencies.
    2. BB. The lender must wait for the statutory redemption period to expire before obtaining clear ownership.
    3. CC. The lender loses the right to resell the property through an open-market auction to a third party.
    4. DD. The lender takes title subject to any junior liens or encumbrances attached to the property.
    Show answer to question 19

    Answer: D. The lender takes title subject to any junior liens or encumbrances attached to the property.

    A major risk of accepting a deed in lieu of foreclosure is that the deed does not itself extinguish existing junior liens or other encumbrances. Unless those interests are released or otherwise resolved, the lender takes title subject to them. A properly conducted foreclosure generally extinguishes junior liens when applicable joinder and notice requirements are satisfied, but senior liens generally survive. Lien priority depends on applicable law; property tax liens commonly have priority over mortgages.

    Why the other options are wrong

    • AAccepting a deed in lieu does not prohibit accurate reporting of the borrower's delinquency to credit reporting agencies.
    • BA voluntary deed transfer does not require waiting for a post-foreclosure statutory redemption period to expire.
    • CAccepting a deed in lieu does not itself prevent the lender from later reselling the property, whether at auction or through another open-market sale.

20. Question 20 of 25Medium

    A homebuyer purchases a property with an FHA loan using the minimum 3.5% down payment. Under current HUD guidelines, how long must the borrower pay the annual mortgage insurance premium (MIP)?

    1. AA. For exactly 11 years, regardless of amortization progress
    2. BB. Until total accrued equity equals 20% of current fair market value
    3. CC. Until the principal balance drops to 78% of the original purchase price
    4. DD. For the entire remaining term of the mortgage loan
    Show answer to question 20

    Answer: D. For the entire remaining term of the mortgage loan

    For FHA loans with an initial loan-to-value (LTV) ratio greater than 90% (such as those originated with a 3.5% down payment), current HUD rules require the annual MIP to be paid for the entire life of the loan. The automatic cancellation at 78% LTV applies to private mortgage insurance (PMI) on conventional loans under the Homeowners Protection Act, not to FHA MIP.

    Why the other options are wrong

    • AThe 11-year MIP period applies to FHA loans with initial LTV of 90% or less; a 3.5% down payment produces 96.5% LTV, calculated as 100% minus 3.5%.
    • BThis confuses FHA MIP with conventional PMI cancellation and incorrectly treats equity based on current market value as an automatic cancellation trigger. Reaching 20% equity does not terminate this loan’s FHA MIP.
    • CThis confuses FHA MIP with conventional PMI, which generally terminates automatically when the scheduled balance reaches 78% of original value and payments are current. That rule does not apply to FHA MIP.

21. Question 21 of 25Easy

    When assessing whether a property meets the geographic criteria for USDA Rural Development financing, which standard applies?

    1. AA. The residence must be situated within an economically distressed county designated by the state governor
    2. BB. The home must be located in an officially designated rural area meeting statutory population thresholds
    3. CC. The parcel must encompass at least five contiguous acres devoted to personal food cultivation
    4. DD. The real estate must sit entirely outside the borders of any incorporated municipality or town
    Show answer to question 21

    Answer: B. The home must be located in an officially designated rural area meeting statutory population thresholds

    To qualify for USDA financing, properties must be located in an area defined as rural by USDA guidelines, which generally includes open country and towns with populations up to defined limits (typically 35,000 or fewer). The program does not mandate acreage minimums, agricultural use, or special state gubernatorial designations.

    Why the other options are wrong

    • AThis confuses economic development designations with USDA geographic eligibility, which depends on USDA rural-area criteria, not a governor’s designation of a distressed county.
    • CThis confuses rural housing financing with agricultural land requirements. USDA housing programs do not require a minimum of five acres or personal food cultivation.
    • DThis incorrectly treats municipal incorporation as disqualifying. Homes within incorporated towns can qualify if the area meets USDA rural eligibility criteria.

22. Question 22 of 25Hard

    A borrower has an annual gross income of $72,000. The proposed monthly housing expense (PITI) is $1,800 and monthly consumer debts total $400. The lender requires a maximum front-end ratio of 28% and a maximum back-end ratio of 36%. Which of the following adjustments would allow the borrower to meet both qualifying ratios?

    1. AA. Increase the monthly income by $200
    2. BB. Reduce the monthly consumer debts by $200
    3. CC. Reduce the monthly housing expense by $120
    4. DD. Reduce the monthly housing expense by $80
    Show answer to question 22

    Answer: C. Reduce the monthly housing expense by $120

    Current ratios are 30% front-end and 36.67% back-end. Reducing housing by $120 gives a front-end of 28% and back-end of 34.67%, both within limits. Other options fail to bring the front-end to 28% or below.

    Why the other options are wrong

    • AIncreasing income by $200 lowers the front-end to about 29.03%, still above 28%.
    • BReducing debts by $200 lowers the back-end to 33.33% but the front-end remains 30%, exceeding the 28% limit.
    • DReducing housing by $80 gives a front-end of about 28.67%, still above 28%.

23. Question 23 of 25Medium

    Which statement best describes the process known as table funding in residential lending?

    1. AA. A mortgage originator closes a loan in its own name with funds advanced contemporaneously by another lender and assigns the loan to that lender at settlement
    2. BB. A buyer and seller negotiate and exchange seller-financed promissory notes directly across the closing table
    3. CC. An escrow officer holds settlement funds in an interest-bearing impound account for three days after closing
    4. DD. A commercial bank funds a mortgage from its own deposits and holds the promissory note in portfolio
    Show answer to question 23

    Answer: A. A mortgage originator closes a loan in its own name with funds advanced contemporaneously by another lender and assigns the loan to that lender at settlement

    Table funding occurs when a loan originator or mortgage broker closes a mortgage in its own name with funds advanced contemporaneously by another lender and assigns the loan to that lender at settlement. Portfolio lending involves funding a loan and retaining it as an asset rather than assigning it to the funding lender at settlement.

    Why the other options are wrong

    • BDirect seller financing does not involve another lender advancing funds and receiving assignment of the loan at settlement.
    • CHolding settlement funds after closing does not describe the contemporaneous funding and assignment of a loan.
    • DFunding a mortgage and retaining the note describes portfolio lending, not table funding.

24. Question 24 of 25Easy

    In a judicial foreclosure, what must the lender obtain from the court before proceeding with the foreclosure sale?

    1. AA. A deed in lieu of foreclosure
    2. BB. A lis pendens
    3. CC. A judgment of foreclosure
    4. DD. A notice of default
    Show answer to question 24

    Answer: C. A judgment of foreclosure

    Judicial foreclosure requires the lender to file a lawsuit and obtain a court judgment (judgment of foreclosure) authorizing the sale. A notice of default notifies the borrower of a default and may precede either judicial or nonjudicial foreclosure, depending on applicable law and loan terms. A lis pendens is a notice of pending litigation affecting real property; a deed in lieu is a voluntary transfer to avoid foreclosure.

    Why the other options are wrong

    • AA deed in lieu of foreclosure is a voluntary conveyance from the borrower to the lender, not a court order.
    • BA lis pendens is a notice that a lawsuit is pending, but the court must still issue a judgment of foreclosure before the sale.
    • DA notice of default notifies the borrower of a default; it is not a court judgment authorizing a foreclosure sale. Default notices may precede either judicial or nonjudicial foreclosure.

25. Question 25 of 25Hard

    A buyer purchases real property subject to an existing mortgage loan on which the seller is personally liable. Payments are not made, and foreclosure leaves an unpaid balance. Assuming applicable law permits a deficiency judgment and the lender has not released the seller, who remains personally liable for the deficiency?

    1. AA. Neither party is liable because the foreclosure extinguishes the debt.
    2. BB. The buyer is solely liable because possession transferred.
    3. CC. The buyer and seller share joint and several personal liability.
    4. DD. The seller remains personally liable for the deficiency.
    Show answer to question 25

    Answer: D. The seller remains personally liable for the deficiency.

    Taking title subject to an existing mortgage does not itself obligate the buyer to make payments or create personal liability for the debt. The property remains subject to foreclosure, and the seller remains personally liable for a legally recoverable deficiency unless released by the lender. A formal assumption would create personal liability for the buyer but would not automatically release the seller.

    Why the other options are wrong

    • AForeclosure does not necessarily extinguish the entire debt. Under the stated conditions, the seller remains personally liable for the unpaid balance.
    • BAcquiring title or possession does not itself make the buyer personally liable for the existing mortgage debt.
    • CA subject-to purchase does not itself create personal liability for the buyer, so the buyer and seller do not share joint and several personal liability.

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