New York Real Estate Broker Exam — All Questions

New York is a lien-theory state, which means that a New York mortgage:

• a.lets the lender take possession as soon as a payment is missed
• b.gives the lender a lien, so foreclosure must go through the courts✓
• c.passes title to the lender, so a trustee may sell without a suit
• d.creates a deed of trust held by a neutral third-party trustee

In a lien-theory state the borrower keeps legal title and the lender holds a security interest, so the lender cannot simply take the property back; it has to bring an action. New York accordingly forecloses judicially under article 13 of the Real Property Actions and Proceedings Law, with a referee's computation, a judgment of foreclosure and sale, and a public sale. Title theory and the deed of trust with a power of sale belong to other states, and neither is how a New York mortgage is written. Taking possession on a missed payment describes no New York remedy at all. The practical consequence for a broker is timing: a New York foreclosure is measured in many months, and RPAPL § 1304 adds a ninety-day notice before the action even begins on a home loan.

Before commencing a foreclosure action on a New York home loan, RPAPL § 1304 requires the lender to send the borrower a notice:

• a.at least one year beforehand, in at least sixteen-point type
• b.at least ninety days beforehand, in at least fourteen-point type✓
• c.at least sixty days beforehand, in at least twelve-point type
• d.at least thirty days beforehand, in at least ten-point type

Subdivision 1 requires that “at least ninety days before a lender, an assignee or a mortgage loan servicer commences legal action against the borrower … including mortgage foreclosure, such lender, assignee or mortgage loan servicer shall give notice to the borrower in at least fourteen-point type.” The section then prints the text that must appear, opening “YOU MAY BE AT RISK OF FORECLOSURE,” and requires a list of government-approved housing counseling agencies in the borrower's area to be attached. The type size is part of the requirement, not decoration, and courts have treated compliance with § 1304 as a condition precedent to the action. This notice is separate from RPAPL § 1303, which requires a colored notice to tenants and to the homeowner served with the foreclosure papers themselves.

Tax Law § 253 imposes New York's basic mortgage recording tax at a rate of:

• a.fifty cents for each $100 of principal debt secured by the mortgage✓
• b.two dollars for each $500 of principal debt secured by the mortgage
• c.one percent of the principal debt secured by the mortgage over $1M
• d.ten cents for each $1,000 of principal debt secured by the mortgage

Subdivision 1 imposes “a tax of fifty cents for each one hundred dollars and each remaining major fraction thereof of principal debt or obligation which is, or under any contingency may be secured … by a mortgage on real property situated within the state.” That is the basic rate; subdivision 1-a adds a special additional tax of twenty-five cents per $100, from which mortgages held by a natural person or a credit union on premises of six residential dwelling units or fewer are excepted, and localities layer further amounts on top. Do not confuse the rate with the real estate transfer tax, which Tax Law § 1402 sets at two dollars for each $500 of consideration and which is charged on the conveyance rather than on the loan. The one percent figure belongs to the additional tax on residential conveyances of $1,000,000 or more.

A New York buyer purchases at $480,000 and borrows $384,000. The loan-to-value ratio is:

• a.75 percent, so the buyer's down payment is $120,000
• b.80 percent, so the buyer's down payment is $96,000✓
• c.85 percent, so the buyer's down payment is $72,000
• d.90 percent, so the buyer's down payment is $48,000

Loan-to-value is the loan divided by the lesser of price or appraised value, so $384,000 divided by $480,000 is 0.80, or 80 percent, and the balance of $96,000 is the buyer's own money. The ratio matters to a broker for a practical reason rather than an arithmetical one: conventional loans above 80 percent generally carry private mortgage insurance, so the difference between 80 and 85 percent changes the buyer's monthly payment and therefore the price the buyer can reach. Each wrong option is the arithmetic of a different loan amount — 75 percent would be $360,000, 85 percent $408,000 and 90 percent $432,000 — and none of them matches the $384,000 in the question.

In the secondary mortgage market, the Federal National Mortgage Association created in 1938:

• a.sets the interest rate that primary lenders may charge on home loans
• b.originates loans directly to borrowers through its own branch network
• c.buys loans from primary lenders, moving money to where it is needed✓
• d.insures loans against borrower default in place of private mortgage insurers

The Department's broker syllabus asks brokers to explain how the secondary market “is the conduit to bring investor monies from locations of excess to areas of need in the Primary Market,” and it dates the creation of the Federal National Mortgage Association to 1938, out of the financial and political climate of the 1930s. Buying closed loans replenishes a lender's capital so the lender can lend again, which is the whole mechanism. It does not lend to consumers itself, so it has no retail branch network. Insuring loans against default is the Federal Housing Administration's role, and guaranteeing them is the Department of Veterans Affairs' role. No secondary market institution fixes the rate a primary lender charges; the syllabus instead asks brokers to explain how deficit spending, foreign demand for Treasuries, employment and Federal Reserve action move the cost of money.

A New York borrower's mortgage balance is $250,000 at 6 percent annual interest. The interest portion of the next monthly payment is:

• a.$1,500, and any excess payment reduces principal
• b.$1,000, and any excess payment reduces principal
• c.$2,500, and any excess payment reduces principal
• d.$1,250, and any excess payment reduces principal✓

Interest on a fully amortizing loan accrues on the outstanding balance, so one month's interest is $250,000 times 6 percent divided by twelve, which is $1,250. Everything the borrower pays above that figure retires principal, which is why the interest share of each payment falls a little every month while the payment itself stays level. The common errors are visible in the wrong options: $1,500 uses a 7.2 percent rate, $1,000 uses 4.8 percent, and $2,500 is a full year's interest at 12 percent or two months at 6. Working the first month by hand is the fastest way to check a lender's quoted payment for plausibility.