Alabama Real Estate Practice Exam

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What characterizes a wraparound mortgage?

  1. Replaces existing mortgages

  2. Is superior to existing mortgages

  3. Is equal to existing mortgages

  4. Encompasses existing mortgages and is junior to them

The correct answer is: Encompasses existing mortgages and is junior to them

A wraparound mortgage is a type of secondary mortgage that encompasses an existing mortgage and is junior to it, meaning that it is subordinate to the primary mortgage. This means that the primary mortgage must be paid off first before the wraparound mortgage can be paid off. Option A, replacing existing mortgages, would mean that the previous mortgages are completely replaced by the wraparound mortgage, which is not the case. Option B, being superior to existing mortgages, would imply that the wraparound mortgage takes priority over the existing mortgage, which is not true. Option C, being equal to existing mortgages, would mean that the wraparound mortgage is of equal standing to the existing mortgage, which is also not the case. Therefore, option D, which states that the wraparound mortgage encompasses existing mortgages and is junior to them, is the correct characterization of this type of mortgage.

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