California Real Estate Practice Exam

Mr. Traveler requires $4,000 for a trip and possesses a $10,000 note and T.D. on the Mayor's farm. Mr. Banks agrees to loan the $4,000 in exchange for holding the $10,000 note and T.D. as security. This is an example of a:

1. Negotiated pledge agreement

2. Purchase money trust deed agreement

3. Real chattel agreement

4. Subordination agreement

The correct answer is: Negotiated pledge agreement

The situation described is an example of a negotiated pledge agreement. In this scenario, Mr. Banks is agreeing to loan Mr. Traveler $4,000 while securing that loan with the $10,000 note and trust deed on the Mayor's farm. A negotiated pledge agreement refers to a transaction in which an asset (like a note and trust deed) is used as collateral for a loan. The lender holds this collateral to mitigate the risk associated with the loan, ensuring that if Mr. Traveler fails to repay, Mr. Banks has rights to the secured asset. The other options don't accurately describe this kind of arrangement. A purchase money trust deed agreement specifically applies to financing arrangements for purchasing real estate rather than securing a separate loan. A real chattel agreement typically pertains to personal property, not real estate or notes. A subordination agreement is used when one lien holder agrees to subordinate their interest to another, which is not the case in the situation described. Thus, the negotiated pledge agreement is the correct choice as it captures the essence of Mr. Traveler using his ownership in the note and trust deed to secure the loan from Mr. Banks.