Credit, Secured Transactions, and Bankruptcy Notes

A series of flashcards summarizing key concepts from the Credit, Secured Transactions, and Bankruptcy lecture notes.

Define credit.

a situation in which one party makes a loan to another party, either unsecured or secured.

Who are the parties involved in a credit transaction?

The parties are the creditor (lender) and the debtor (borrower).

What is an example of a credit transaction?

Prima Company borrows $100,000 from Urban Bank; Prima is the debtor and Urban Bank is the creditor.

What is a mortgage?

An interest in real property given to a lender as security for the repayment of a loan.

What is a mortgagor?

the borrower or owner-debtor in a mortgage transaction.

What is a mortgagee?

the lender-creditor in a mortgage transaction.

Define unsecured credit.

credit that does not require any security (collateral) to protect the payment of the debt.

What is a judgment proof situation?

A situation where a defendant does not have money to pay a civil judgment.

Give an example of unsecured credit.

Hae-Won lends $15,000 to Arnold without taking collateral for the loan.

What is secured credit?

requires security (collateral) to secure payment of the loan.

What is collateral?

security against repayment of a debt required by lenders.

Who is a secured creditor?

a creditor who has a security interest in collateral.

What happens if the debtor defaults on a secured loan?

The lender can repossess the collateral.

Define surety arrangement.

when a third party promises to be primarily liable for the borrower's debt.

Who is an accommodation party?

someone who promises to be liable for the payment of another's debt.

Provide an example of a surety arrangement.

Ivy's mother co-signs a loan for Ivy, making her a surety.

Define a guaranty arrangement.

when a third party promises to be secondarily liable for another's debt.

What is the role of a guarantor?

A guarantor agrees to pay a debt if the primary debtor fails to do so.

Explain the major difference between surety and guaranty.

A surety is primarily liable, while a guarantor is secondarily liable.

What is a writ of execution?

a court order that permits the seizure of a debtor's property post-judgment.

What does attachment allow in a legal context?

Attachment allows seizure of a debtor's property pre-judgment.

What are recording statutes?

Recording statutes require a mortgage or deed of trust to be recorded in the county recorder's office.

What occurs if a mortgage is not recorded?

If not recorded, a later lender can prevail over the first lender.

What is a foreclosure sale?

a legal procedure by which a secured creditor sells secured real estate to pay a defaulted loan.

Define deficiency judgment.

A deficiency judgment permits a secured lender to recover remaining debt if collateral is insufficient.

What is the right of redemption?

The right of redemption allows a mortgagor to recover property after default by paying the debt.

What is a statutory period of redemption?

The specified time during which a state allows a mortgagor to redeem real property after foreclosure.

Explain execution in a legal context.

Execution allows the seizure of a debtor's property that is in their possession.

What does writ of garnishment do?

allows seizure of debtor’s property held by third parties.

What is the purpose of consumer financial protection laws?

To protect consumer-debtors in credit transactions.

What is the Consumer Financial Protection Bureau (CFPB)?

A federal agency that regulates consumer financial products and services.

What does the Truth-in-Lending Act require?

It requires creditors to disclose certain information to debtors.

What does the Fair Credit Billing Act (FCBA) regulate?

Regulates billing errors involving consumer credit.

What is the Fair Debt Collection Practices Act (FDCPA)?

A federal statute that protects debtors from abusive debt collection practices.

List one restriction on debt collectors under FDCPA.

They cannot contact debtors at inconvenient times, like after 9 PM.

What does the Equal Credit Opportunity Act (ECOA) prohibit?

It prohibits discrimination in the extension of credit.

Explain the role of a trustee in relation to a deed of trust.

The trustee holds legal title to real property until the debt is paid.

What happens in the case of default when a mortgage is involved?

The lender may foreclose on the property to recover the debt.

What is the significance of a satisfaction of a mortgage?

It's proof that the mortgage has been paid in full.

What is reconveyance?

It's the act of returning the title of property back to the borrower upon full payment of the mortgage.

Describe the role of a beneficiary in a deed of trust.

The beneficiary is the lender who receives the security interest in the property.

What is a three-party instrument in a deed of trust context?

It involves the trustor, trustee, and beneficiary.

What does collateral serve as in a secured credit transaction?

as protection for the lender against borrower default.

Define consumer leasing act.

It's an amendment to the Truth-in-Lending Act covering lease terms in consumer leases.

What is a secure transaction?

involves a loan secured by collateral from the borrower.

What is a judgment against a debtor after a court ruling?

It allows the creditor to seek recovery of the debt if it's unpaid.

What legal recourse does a secured creditor have if default occurs?

They can foreclose on the collateral property.

In the context of a credit transaction, what is a debtor?

A debtor is the party borrowing the money.

What does the term security interest refer to?

A legal claim on collateral that secures a loan.

What is an unsecured creditor?

A creditor who extends credit without requiring collateral.

Explain the concept of credit report.

A credit report contains a person's credit history from a credit bureau.

What is the purpose of consumer protection laws?

To ensure fair treatment of consumers in financial transactions.

What must a debtor provide to avoid wrongful creditor contact?

Provide written notice to the debt collector refusing payment or further contact.

Define deficiency in a secured loan context.

The shortfall remaining after the collateral sale does not cover the loan.

What is a pre-judgment court order?

An order allowing the seizure of a debtor's property before a final judgment.

Why is a co-debtor significant in secured transactions?

They share liability with the borrower under a surety arrangement.

What document evidences the borrower's debt to the lender?

A note is the instrument that evidences the borrower's debt.

What happens if a creditor needs to collect a debt from an employee?

They may seek garnishment of wages to recover the owed amount.