Before you read
Test yourself first: 5 questions
Question 1 of 5
A buyer takes title and keeps making payments on the seller's existing mortgage, but the lender does NOT release the seller from liability. The buyer took title:
Answer: B. Taking title 'subject to' means the buyer pays the loan but the original borrower stays liable. An assumption WITH novation releases the seller.
Question 2 of 5
A lender forecloses a $300,000 first mortgage. The auction brings $280,000. Property taxes of $8,000 are owed, foreclosure costs are $12,000, and a $40,000 second mortgage exists. After costs and taxes, the first lender receives:
Answer: B. Distribution order: costs ($12,000), then the superior tax lien ($8,000), then the first mortgage. $280,000 − 12,000 − 8,000 = $260,000 to the first lender (shortfall may support a deficiency claim); the second lender gets nothing from the sale.
Question 3 of 5
Private mortgage insurance (PMI) is typically required on a conventional loan when the down payment is:
Answer: C. Conventional lenders generally require PMI when the borrower puts down less than 20% (LTV above 80%).
Question 4 of 5
A deed of trust involves how many parties?
Answer: C. A deed of trust has three parties: the trustor (borrower), the trustee (holds title), and the beneficiary (lender). A mortgage has two.
Question 5 of 5
In an adjustable-rate mortgage (ARM), the interest rate:
Answer: B. An ARM's rate adjusts periodically based on a market index plus a margin, within caps. A fixed-rate loan stays constant.
Keep the streak going with more questions like these, each with a full rationale.
What you need to know
DUE-ON-SALE (alienation): the loan must be paid off when the property transfers, blocking assumptions. PREPAYMENT clauses may charge a penalty for early payoff (banned on most consumer loans today). DEFEASANCE/RELEASE: when paid in full, the lien is released — the borrower should see a satisfaction of mortgage or deed of reconveyance recorded. SUBORDINATION: an existing lender agrees to drop behind a new loan — common when construction financing follows a land loan.
Mortgage Clauses That Get Tested: FAQs
Is Mortgage Clauses That Get Tested on the real estate exam?
Yes. Financing & Lending is a scored domain on the real estate licensing exam, and this topic appears in the national portion.
Is this cheat sheet free?
Yes — every page on Cinna RE's resource library is free to read, print and share. The app adds practice questions, mock exams and a readiness score.
