New York Real Estate Salesperson — All Questions

Under the TRID rule, the lender must provide the borrower a Loan Estimate within:

• a.One business day after the property appraisal is completed
• b.Thirty calendar days before the scheduled closing date arrives
• c.Three business days of receiving a loan application✓
• d.Ten business days following the borrower's first mortgage payment

The TILA-RESPA Integrated Disclosure (TRID) rule requires the lender to deliver a Loan Estimate within three business days after receiving a completed application. It shows estimated rates, payments, and closing costs so borrowers can compare offers. A Closing Disclosure follows later.

The TRID rule requires the borrower to receive the Closing Disclosure at least:

• a.Three business days before consummation of the loan✓
• b.Ten business days after the borrower moves into the property
• c.Thirty days before the borrower submits the loan application
• d.One full year after the closing has already been completed

Borrowers must receive the Closing Disclosure at least three business days before consummation (closing), giving them time to review final terms against the Loan Estimate. Certain significant changes restart the three-day period. This waiting rule protects borrowers from last-minute surprises.

The TILA right of rescission gives a borrower three business days to cancel:

• a.The sale contract itself before the deed has been delivered
• b.The purchase-money mortgage used to buy their new primary home
• c.A refinance or home equity loan on their principal residence✓
• d.Any commercial real estate loan on an investment property

Under the Truth in Lending Act, borrowers have a three-business-day right to rescind certain loans secured by their principal residence, such as refinances and home equity loans. This right does not apply to a purchase-money mortgage used to buy the home. It protects homeowners from hasty equity borrowing.

The annual percentage rate (APR) differs from the note's interest rate because the APR:

• a.Measures only the monthly payment amount without any interest
• b.Reflects the total yearly cost of credit, including certain fees and points✓
• c.Is always lower than the stated note rate on every mortgage loan
• d.Represents the return the lender earns after paying its own expenses

The APR expresses the true annual cost of credit by including the interest rate plus certain finance charges, such as points and some fees, spread over the loan term. It is usually slightly higher than the note rate. Regulation Z requires its disclosure so borrowers can compare loans.

Under Regulation Z, if a real estate ad states a specific 'trigger term' such as the down payment amount, the advertiser must also disclose:

• a.Additional credit terms like the APR and repayment terms✓
• b.The seller's original purchase price and current mortgage balance
• c.The property's assessed value and the annual property tax bill
• d.The listing broker's commission and the salesperson's split

Regulation Z's advertising rules provide that using a trigger term, such as a specific down payment, monthly payment, or number of payments, requires disclosing additional terms including the APR and repayment schedule. This prevents misleading partial credit advertising. General statements without trigger terms are exempt.

At closing on the 10th day of a month, the buyer owes 10 days of prepaid interest on a $200,000 loan at 6% (using a 360-day year). What is the per-diem interest?

• a.$33.33 per day✓
• b.$100.00 per day
• c.$16.67 per day
• d.$54.79 per day

Annual interest is $200,000 x 0.06 = $12,000. Using a 360-day banker's year, the per-diem is $12,000 / 360 = $33.33 per day. For 10 days the prepaid interest would be about $333.33. Lenders collect interim interest from closing to the first payment.

Annual property taxes of $3,600 are unpaid at a closing that occurs exactly four months into the tax year. Using monthly proration, the seller's share owed to the buyer is:

• a.$300
• b.$2,400
• c.$3,600, the full annual amount, ignoring the proration entirely
• d.$1,200✓

The seller owes taxes for the portion of the year they owned the property: $3,600 x 4/12 = $1,200. Because the taxes are unpaid, the seller credits this amount to the buyer, who will pay the full bill. Proration allocates ongoing costs fairly at closing.

A tenant's monthly rent is $1,500, and the closing occurs on the 16th using a 30-day month. The seller has collected the full month, so the buyer is credited for:

• a.$1,500
• b.$50
• c.$750✓
• d.$500

The buyer owns the property for the last 15 days of a 30-day month, so the buyer's share of rent already collected by the seller is $1,500 x 15/30 = $750, credited to the buyer at closing. Collected rent for the buyer's period of ownership belongs to the buyer.

New York's state transfer tax is $2 for each $500 of consideration. On a $400,000 sale, the transfer tax is:

• a.$1,600✓
• b.$4,000
• c.$2,000
• d.$800

Divide the price by $500: $400,000 / $500 = 800 units. Multiply by $2: 800 x $2 = $1,600 (equivalent to 0.4%). The seller customarily pays this New York State transfer tax, reported on form TP-584 at closing.

New York's 'mansion tax' adds 1% on residential sales of $1 million or more, paid by the buyer. On a $1,200,000 home, the base mansion tax is:

• a.$1,200
• b.$12,000✓
• c.$6,000
• d.$120,000

The statewide mansion tax is 1% of the full price for residential sales of $1 million or more: $1,200,000 x 0.01 = $12,000, paid by the buyer. New York City imposes an additional graduated mansion tax on top of the state rate. The threshold is a hard cliff at $1 million.

A property sells for $450,000 with a 5% commission split equally between the listing and selling brokerages. Each brokerage receives:

• a.$4,500
• b.$11,250✓
• c.$5,625
• d.$22,500

Total commission is $450,000 x 0.05 = $22,500. Split evenly, each brokerage receives $22,500 / 2 = $11,250. The brokerage then divides its share with its salesperson per their agreement. Commission rates are negotiable and not set by law.

A seller's home sells for $300,000. After a 6% commission and a $180,000 loan payoff, and $2,000 in other costs, the seller's net proceeds are:

• a.$118,000
• b.$120,000
• c.$100,000✓
• d.$82,000

Commission is $300,000 x 0.06 = $18,000. Net proceeds equal price minus all costs: $300,000 - $18,000 - $180,000 - $2,000 = $100,000. A seller's net sheet subtracts commission, loan payoffs, and other closing costs from the sale price.

A borrower has a $10,000 second mortgage at 8% simple interest for 6 months. The total interest owed is:

• a.$4,800
• b.$200
• c.$400✓
• d.$800

Simple interest is principal x rate x time: $10,000 x 0.08 x 0.5 year = $400. A six-month term is half of the annual interest of $800. Simple interest is charged only on the principal, not on accumulated interest.

A borrower pays 2.5 discount points on a $300,000 loan. The dollar cost of these points is:

• a.$750
• b.$7,500✓
• c.$3,000
• d.$75,000

Each point is 1% of the loan, so 2.5 points is 2.5% of $300,000 = $7,500. Points are prepaid interest paid at closing to lower the note rate. Buyers weigh the upfront cost against the monthly savings.

A mortgage balance is $150,000 at 6% annual interest. Using a 360-day year, the per-diem interest for a mid-month payoff is:

• a.$41.10 per day
• b.$25 per day✓
• c.$50 per day
• d.$12.50 per day

Annual interest is $150,000 x 0.06 = $9,000. Dividing by 360 gives $25 per day. At payoff, the borrower owes the remaining principal plus interest accrued to the payoff date. Lenders often provide a payoff figure good through a specific date.

Predatory lending refers to:

• a.A lender's routine practice of requiring an escrow account for taxes
• b.Any mortgage loan that carries a fixed rather than an adjustable rate
• c.Unfair or abusive loan terms imposed on vulnerable borrowers✓
• d.Lending only to borrowers with the highest possible credit scores

Predatory lending involves deceptive, unfair, or abusive practices, such as excessive fees, hidden terms, or loans the borrower cannot repay, often targeting the elderly or financially vulnerable. Laws like HOEPA and state statutes combat it. Not every high-cost loan is predatory, but abusive terms are the hallmark.

The Home Ownership and Equity Protection Act (HOEPA) provides extra protections for borrowers taking out:

• a.Commercial loans secured by office and retail buildings
• b.Standard conforming loans sold to Fannie Mae and Freddie Mac
• c.VA and FHA government-backed loans of any interest rate
• d.High-cost mortgages that exceed certain rate or fee thresholds✓

HOEPA, part of the Truth in Lending Act, imposes additional disclosures and restrictions on 'high-cost' home loans that exceed set rate or points-and-fees thresholds. It targets abusive terms in the subprime market. Lenders must give special warnings and avoid certain features on covered loans.

The Equal Credit Opportunity Act (ECOA) prohibits lenders from discriminating based on all of the following EXCEPT:

• a.Sex, marital status, and age of the person applying for credit
• b.The borrower's credit history and ability to repay✓
• c.The applicant's receipt of income from a public assistance program
• d.Race, color, religion, and national origin of the applicant

ECOA bars credit discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance. Lenders may, however, consider legitimate creditworthiness factors like credit history, income, and ability to repay. Those factors are the proper basis for a lending decision.

New York's civil usury law generally caps the interest rate on most ordinary loans at:

• a.No limit at all
• b.6% per year
• c.25% per year
• d.16% per year✓

New York's general civil usury limit is 16% per year for most ordinary loans, above which the loan may be unenforceable; criminal usury is set higher, at 25%. Certain loans and lenders are exempt, and the figures can change, so licensees should verify current limits. Charging above the cap is illegal usury.

'Equity stripping' as a predatory practice involves:

• a.Splitting the commission fairly between two cooperating brokers
• b.Reducing the borrower's interest rate so that they will build up equity more quickly over time
• c.Making a loan based on home equity that the borrower cannot repay, aiming at foreclosure✓
• d.Requiring a very large down payment so that the borrower starts out with much more equity

Equity stripping is a predatory tactic where a lender extends a loan the borrower cannot afford, secured by substantial home equity, expecting default and foreclosure to capture that equity. It targets asset-rich but cash-poor owners. Consumer protection laws and disclosures aim to curb it.

'Loan flipping,' an abusive lending practice, refers to:

• a.Converting an adjustable-rate loan to a fixed rate to reduce risk
• b.Transferring a mortgage from one lender to another at the same terms
• c.Quickly reselling a purchased property for a legitimate market profit
• d.Repeatedly refinancing a borrower's loan to generate fees with little benefit✓

Loan flipping is the predatory practice of repeatedly refinancing a borrower's mortgage, each time charging points and fees that strip equity while providing little or no real benefit to the borrower. It is distinct from legitimate property 'flipping' or beneficial refinancing. Regulators treat it as abusive.

A lender collects reserves in an escrow (impound) account primarily to ensure that:

• a.The borrower's monthly principal-and-interest payment keeps decreasing
• b.The real estate broker's commission is fully funded before closing
• c.Property taxes and hazard insurance are paid when they come due✓
• d.The lender earns extra profit on the borrower's mortgage over time

An escrow or impound account collects a portion of taxes and insurance with each monthly payment so the lender can pay those bills when due, protecting the collateral. The account is reviewed periodically and adjusted for changes in taxes or premiums. It is separate from principal and interest.

Prepaid items collected from the buyer at closing typically include:

• a.Prorated interest, homeowner's insurance, and property tax reserves✓
• b.The full purchase price of the property paid entirely in cash
• c.The listing broker's total commission for marketing the home
• d.The seller's outstanding mortgage payoff and unpaid liens

Prepaid items are amounts the buyer pays up front at closing to fund future obligations, such as interim mortgage interest, the first year of hazard insurance, and initial escrow reserves for taxes and insurance. They differ from recurring monthly payments. Lenders require them to start the escrow account.

A loan origination fee charged by a lender is:

• a.A government tax imposed on every recorded mortgage instrument
• b.A refundable deposit returned to the borrower after the first payment
• c.A fee for processing and originating the loan, often about 1% of the amount✓
• d.The interest the borrower prepays to permanently lower the note rate

The origination fee compensates the lender for evaluating, preparing, and funding the loan, and it is commonly around 1% of the loan amount. It differs from discount points, which specifically buy down the interest rate. Both appear among a borrower's closing costs.

New York imposes a mortgage recording tax that is:

• a.A flat fee identical for every mortgage regardless of its size
• b.Charged solely on cash purchases where no mortgage exists
• c.Paid only by the seller as part of the state transfer tax
• d.A tax based on the amount of the mortgage being recorded✓

New York's mortgage recording tax is levied on the principal amount of a mortgage when it is recorded, with rates that vary by locality (higher in New York City). It is separate from the real estate transfer tax on the sale itself. Buyers financing a purchase typically bear this cost.

A subordination agreement changes the priority of liens so that:

• a.The mortgage is converted from adjustable to fixed-rate terms
• b.One lienholder agrees to move to a lower priority behind another✓
• c.The borrower's interest rate is automatically reduced by the lender
• d.All existing liens are permanently and completely removed from title

A subordination agreement is a recorded agreement in which a lienholder consents to have its lien take a lower priority than a lien that would otherwise rank behind it. It is common when refinancing a first mortgage while keeping a second. Priority normally follows recording order unless altered this way.

When a buyer 'assumes' an existing mortgage, the buyer:

• a.Takes title free of the existing loan, which is automatically paid off
• b.Obtains an entirely new loan at current market interest rates
• c.Takes over personal liability for the existing loan's payments✓
• d.Avoids all responsibility for the debt secured by the property

In an assumption, the buyer takes on personal liability for the seller's existing mortgage and continues its terms, usually with lender approval. This differs from taking title 'subject to' the mortgage, where the buyer makes payments but is not personally liable. A due-on-sale clause may block assumption.

A due-on-sale (alienation) clause in a mortgage gives the lender the right to:

• a.Raise the interest rate whenever market rates happen to increase
• b.Demand full repayment when the property is sold or transferred✓
• c.Forbid the borrower from ever making extra principal payments
• d.Extend the loan term automatically at the borrower's request

A due-on-sale (alienation) clause lets the lender call the entire balance due if the borrower sells or transfers the property, which prevents a new buyer from simply assuming the old loan without approval. It protects the lender's ability to reprice risk. Some transfers are exempt by law.

The purpose of a subordination clause is most clearly seen when a landowner:

• a.Lets a construction lender's new loan take priority over the seller's earlier lien✓
• b.Sells the property for cash with no financing involved at all
• c.Assigns the purchase contract to a completely different buyer
• d.Pays off the entire mortgage balance and records a satisfaction piece releasing the lien

A subordination clause is valuable when, for example, a seller who financed the land agrees that a later construction lender's mortgage will have first priority, enabling the borrower to obtain building financing. The earlier lien voluntarily steps back. This makes the development loan feasible.

Fannie Mae and Freddie Mac set 'conforming' loan limits, which are the maximum loan amounts they will:

• a.Purchase from primary lenders in the secondary market✓
• b.Lend directly to individual homebuyers at their local branches
• c.Allow a borrower to withdraw from a home equity credit line
• d.Charge as an interest rate on any residential mortgage loan

Conforming loans meet the size and underwriting standards that let Fannie Mae and Freddie Mac buy them in the secondary market, providing lenders liquidity. Loans above the conforming limit are 'jumbo' loans. These entities purchase loans rather than lending directly to consumers.

A borrower takes title 'subject to' an existing mortgage rather than assuming it. This means the borrower:

• a.Becomes fully and personally liable for the entire mortgage balance
• b.Extinguishes the existing mortgage lien on the property immediately
• c.Obtains a brand-new loan replacing the seller's original financing
• d.Makes the payments but is not personally liable for the debt✓

Taking title 'subject to' a mortgage means the buyer agrees to make the payments but does not become personally liable on the note; if there is a default, the buyer risks losing the property but is not personally sued for a deficiency. In an assumption, by contrast, the buyer accepts personal liability.

An open-end mortgage benefits a borrower by allowing them to:

• a.Transfer the loan to another borrower free of lender approval
• b.Repay the loan only when the property is eventually sold
• c.Borrow additional funds up to a limit without a new mortgage✓
• d.Avoid paying any interest during the first years of the loan

An open-end mortgage lets the borrower re-borrow funds already repaid, up to a set limit, without executing a new mortgage, similar to a line of credit secured by the property. It is convenient for ongoing needs like home improvements. Each advance is secured by the same mortgage.

The Federal Reserve influences mortgage interest rates primarily by:

• a.Adjusting monetary policy that affects the cost and supply of money✓
• b.Directly approving or denying individual borrowers' loan applications
• c.Setting the exact interest rate every lender must charge on loans
• d.Buying homes at foreclosure auctions to support property values

The Federal Reserve affects interest rates indirectly through monetary policy tools that change the cost and availability of money in the economy, which ripples into mortgage rates. It does not set mortgage rates directly or approve individual loans. Rates ultimately respond to market conditions.

A graduated payment mortgage (GPM) is structured so that the borrower's payments:

• a.Remain exactly level for the entire fixed term of the loan
• b.Start low and rise on a set schedule in the loan's early years✓
• c.Adjust up or down each year based on a published market index
• d.Are interest-only until a single balloon payment comes due

A GPM begins with low payments that increase step-by-step over the first years before leveling off, easing early affordability for borrowers who expect rising income. Early payments may not cover all interest, causing temporary negative amortization. It differs from an ARM, whose changes track an index.

A wraparound mortgage is a financing technique in which the new, larger loan:

• a.Covers several separate parcels of land under one blanket lien
• b.Adds personal property such as appliances to the real estate loan
• c.Includes and 'wraps around' the existing first mortgage, which stays in place✓
• d.Immediately pays off and discharges the seller's original mortgage

In a wraparound, the seller extends a new loan that encompasses the balance of the existing first mortgage, which remains in place. The buyer pays the seller, who continues paying the underlying loan. It works only if the first mortgage lacks an enforceable due-on-sale clause.

A construction loan is typically disbursed to the borrower:

• a.In periodic advances (draws) as building progresses✓
• b.As a permanent 30-year loan requiring no further refinancing
• c.Only after the completed home has been sold to a final buyer
• d.In a single lump sum paid entirely before construction begins

A construction loan is paid out in stages ('draws') tied to completed phases of the work, and it is usually short-term with interest on the amount advanced. On completion, it is often replaced by permanent 'take-out' financing. Lenders inspect progress before releasing each draw.

A conventional 'conforming' loan is one that:

• a.Meets Fannie Mae and Freddie Mac standards and size limits✓
• b.Is guaranteed by the Department of Veterans Affairs for veterans
• c.Exceeds the maximum size limit and is therefore a jumbo loan
• d.Is insured by the FHA against the risk of borrower default

A conforming loan meets the underwriting standards and loan-size limits set by Fannie Mae and Freddie Mac, allowing it to be sold to them in the secondary market. Loans above the limit are 'jumbo.' Conforming status generally means more favorable, standardized terms.

A borrower's gross annual income is $84,000. Using a 28% front-end ratio, the maximum monthly housing (PITI) payment is:

• a.$2,352
• b.$1,960✓
• c.$23,520
• d.$840

First convert income to monthly: $84,000 / 12 = $7,000. Then apply the 28% housing ratio: $7,000 x 0.28 = $1,960 maximum PITI. Lenders use this front-end ratio to gauge how much house payment a borrower can afford.

A property's net operating income is $36,000 and an investor requires a 9% capitalization rate. The indicated value is:

• a.$3,240,000
• b.$400,000✓
• c.$324,000
• d.$450,000

Value equals net operating income divided by the cap rate: $36,000 / 0.09 = $400,000. A lower required cap rate would produce a higher value, and a higher rate a lower value. Investors use this income-approach formula to price income property.

A satisfaction of mortgage that a lender fails to record after payoff can result in:

• a.A cloud on the title, because the released lien still appears of record✓
• b.The borrower losing all ownership rights in the property immediately
• c.The lender being able to foreclose again on the same paid-off loan
• d.An automatic increase in the property's assessed value for taxes

If the lender does not record a satisfaction after the loan is paid, the old mortgage still appears in the public record, creating a cloud on title that can delay a future sale or refinance. The defeasance clause obligates the lender to release the lien. Owners should confirm the satisfaction is recorded.

The primary function of the secondary mortgage market is to:

• a.Set the property tax rates that fund local school districts
• b.Buy existing loans from lenders, giving them funds to make new loans✓
• c.License and regulate the conduct of mortgage loan originators
• d.Originate first mortgages directly to consumers at retail branches

The secondary market, including Fannie Mae and Freddie Mac, purchases loans from primary lenders, replenishing their capital so they can lend again and keeping mortgage credit flowing. The primary market is where borrowers obtain their original loans. This buying activity increases liquidity.