Bernhardt
Final Examination
Real Estate Finance
May 2000

 

INSTRUCTIONS

 

· This exam is in two parts. Part I is labeled True-False Questions; instructions for that part are contained on the first page of those questions. Part II is labeled Essay Questions; instructions for that part are given on the page containing those questions. Each part constitutes approximately one half of the final grade.

· I have tried not to use words and phrases in a technical, narrow sense. Thus, "decd of trust" and "mortgage" are used interchangeably, except where the question itself shows that the distinction is intentional. The same is true for "foreclosure sale" and "trustee sale", etc. You may exercise the same latitude in your answers. You may also abbreviate wherever it is appropriate (e.g., TD or DT for deed of trust, first letters for characters' names).

 · The exam is open book. You may use any books or notes you have.

 · You have three hours.

· At the end of the exam, be sure to turn in the following

 

Your exam will not be scored unless all these materials are included.

 

MAKE SURE THAT YOUR EXAM NUMBER IS ENTERED ON THE BLUE BOOK,

THE TRUE/FALSE ANSWER PAGE, AND ALL TRUE/FALSE QUESTION PAGES.

 

 

PART II - ESSAY


· This part constitutes 25% - 33% of the exam. There is one essay question.

· Read the facts carefully. I treat answers based on incorrect facts as incorrect answers. If you think that important facts are missing or ambiguously stated, make reasonable and explicit assumptions about them. Read the call of the question carefully; don't answer questions I haven't asked. Organize your thinking beforehand, so that you put relevant points in the right places.

· You may abbreviate wherever appropriate. Write legibly. I do not read illegible answers.

 

Mary owns an apartment building which is subject to mortgages held by Roger Bank (RB) and Joe. RB's mortgage was executed 5 years ago when Mary refinanced the property to take advantage of lower interest rates and has an unpaid balance of $200,000. Joe's mortgage was executed two years ago, when Mary needed some additional cash to cover law school tuition, and has an unpaid balance of $50,000. Both deeds of trust are identical to the form in the casebook. Mary has been current on the payments for both loans, but she failed to make her most recent property tax payment.

1 . Mary has asked RB to advance her sufficient funds to enable her to make both the tax payment and also some repairs she believes that the property needs; she has also asked RB to restructure her loan so as to reduce her monthly payments to a more manageable size (at a higher interest rate). RB is considering whether to agree to this or whether instead to refuse her requests and to seek to foreclose because of her tax default. Advice RB as to the legal ramifications of these choices.

 2. Assume that instead of thinking about what to do, RB recorded a notice of default because of the tax default, and also filed an action to foreclose and to enforce its right to the rents and had a Mark appointed as a receiver, who has collected about $5,000 in rents for the past two months. Mark has stated his intention to leave the funds in his bank account until a foreclosure is completed, unless someone compels him to do something else with it.

 In Joe's opinion, Mary's property is worth about 230,000, although RB has stated that it intends to bid only $200,000 at any foreclosure sale it conducts; whether judicial or nonjudicial. Joe is trying to decide whether to cure RB's claimed default, or whether to appear at RB's foreclosure sale and bid himself, or whether just to let RB complete a foreclosure sale on its own and then go after Mary directly. Advise him about the consequences of these alternatives.