MBE Sample – Question 8 - Actual
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MBE Sample - Question 8

A woman borrowed $800,000 from a bank and gave the bank a note for that amount secured by a mortgage on her farm. Several years later, at a time when the woman still owed the bank $750,000 on the mortgage loan, she sold the farm to a man for $900,000. The man paid the woman $150,000 in cash and specifically assumed the mortgage note. The bank received notice of this transaction and elected not to exercise the optional due-on-sale clause in the mortgage.

Without informing the man, the bank later released the woman from any further personal liability on the note.

After he had owned the farm for a number of years, the man defaulted on the loan. The bank properly accelerated the loan, and the farm was eventually sold at a foreclosure sale for $500,000. Because there was still $600,000 owing on the note, the bank sued the man for the $100,000 deficiency.

Is the man liable to the bank for the deficiency?

A
No, because the woman would have still been primarily liable for payment, but the bank had released her from personal liability.
B
No, because the bank’s release of the woman from personal liability also released the man.
C
Yes, because the bank’s release of the woman constituted a clogging of the equity of redemption.
D
Yes, because the man’s personal liability on the note was not affected by the bank’s release of the woman.
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