A real estate instructor in Kentucky is teaching students about the differences between mortgage states and deed-of-trust states. Which of the following statements correctly identifies a key difference that applies specifically to Kentucky?
Correct Answer
B) In Kentucky, the lender uses a mortgage and must foreclose through the court system, while deed-of-trust states may allow non-judicial foreclosure
Kentucky is a mortgage state where the security instrument is a mortgage (a two-party instrument between mortgagor and mortgagee). Because Kentucky uses mortgages rather than deeds of trust, foreclosure must proceed judicially through the court system under KRS Chapter 426. By contrast, many deed-of-trust states (like California, Virginia, and Texas) allow non-judicial foreclosure through a power-of-sale clause, which is faster and does not require court proceedings. This is a fundamental distinction tested on the Kentucky state exam.
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Related Topics & Key Terms
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Related Concepts
RESPA is a federal law that requires lenders to provide borrowers with information about settlement costs, prohibits kickbacks and referral fees, and limits escrow account deposits. It applies to federally related mortgage loans.
The secondary mortgage market is where existing mortgage loans are bought and sold between lenders, investors, and government-sponsored enterprises (GSEs) like Fannie Mae, Freddie Mac, and Ginnie Mae.
TILA is a federal law that requires lenders to disclose the true cost of credit to borrowers, including the annual percentage rate (APR), total finance charges, and loan terms. It is implemented by Regulation Z.
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