CHCP Real Estate Transactions & Documentation 3 — Questions and Answers
Question 1: What is the purpose of a 'subordination agreement' in a real estate transaction?
- It releases a lien from the property record
- It causes a junior lien to take a lower priority position behind a new senior lien (Correct answer)
- It transfers servicing rights from one lender to another
- It grants the buyer an extension on the closing date
Correct answer: It causes a junior lien to take a lower priority position behind a new senior lien
A subordination agreement allows a lien with higher priority to yield that priority to a new lien, commonly used when refinancing with an existing HELOC.
Question 2: Which document in a real estate closing outlines a borrower's personal promise to repay the mortgage loan?
- Deed of trust
- Closing Disclosure
- Promissory note (Correct answer)
- Title insurance commitment
Correct answer: Promissory note
The promissory note is the borrower's written, legally binding promise to repay the loan under specified terms.
Question 3: An 'as-is' clause in a purchase contract most directly means:
- The seller will make all repairs identified in the inspection
- The buyer accepts the property in its current condition with no seller repairs (Correct answer)
- The property price will be reduced for known defects
- The seller must disclose all material defects before closing
Correct answer: The buyer accepts the property in its current condition with no seller repairs
An as-is clause means the buyer accepts the property in its existing condition, and the seller is not obligated to make repairs.
Question 4: What is the primary function of the Closing Disclosure (CD) in a residential mortgage transaction?
- To authorize the lender to pull a credit report
- To provide the final, itemized breakdown of all loan terms and closing costs (Correct answer)
- To commit the title company to issue a policy
- To record the deed with the county
Correct answer: To provide the final, itemized breakdown of all loan terms and closing costs
The Closing Disclosure provides the final loan terms, monthly payment, and all closing costs at least three business days before consummation.
Question 5: In a seller-financed transaction, what document serves as the security instrument giving the lender a lien on the property?
- Bill of sale
- Promissory note
- Mortgage or deed of trust (Correct answer)
- Purchase agreement
Correct answer: Mortgage or deed of trust
A mortgage or deed of trust is recorded against the property to create a lien that secures repayment of the promissory note.
Question 6: Which entity typically holds legal title to a property in a deed-of-trust state until the loan is paid off?
- The borrower (trustor)
- The lender (beneficiary)
- A neutral third-party trustee (Correct answer)
- The title insurance company
Correct answer: A neutral third-party trustee
In a deed-of-trust arrangement, a third-party trustee holds legal title on behalf of the lender until the borrower satisfies the loan.
Question 7: A 'lis pendens' recorded against a property indicates:
- The property has a pending code violation
- There is active litigation that may affect title to the property (Correct answer)
- The owner has filed for a homestead exemption
- The property is under a pending rezoning application
Correct answer: There is active litigation that may affect title to the property
Lis pendens is a recorded notice that a lawsuit has been filed that could affect ownership rights or title to the property.
CHCP Real Estate Transactions & Documentation 3
What is the purpose of a 'subordination agreement' in a real estate transaction?