Illinois Real Estate Practice Exam

What is used to secure a loan with real property as collateral?

1. Promissory Note

2. Mortgage

3. Deed of Trust

4. Assignment Agreement

The correct answer is: Mortgage

A mortgage serves as a legal instrument used to secure a loan by establishing a claim against real property as collateral. When a borrower takes out a mortgage loan, they agree that the lender holds a lien on the property being financed. This means that if the borrower defaults on the loan, the lender has the right to foreclose on the property to recover the amount owed. The mortgage outlines the terms of the loan and the obligations of the borrower, ensuring that the lender's financial interests are protected. The documentation created during this process establishes the lender's rights in relation to the property, effectively tying the loan to the asset. While promissory notes, deeds of trust, and assignment agreements are related concepts in real estate finance, they serve different purposes. A promissory note is a written promise to repay the loan but does not secure the loan with a specific property. A deed of trust involves a third party (the trustee) and can act similarly to a mortgage, but in Illinois, the traditional mortgage is commonly used. An assignment agreement relates to transferring rights to another party and is not directly tied to securing a loan with property. Thus, the mortgage is the correct choice for securing a loan using real property as collateral.