Tennessee Realtor State Practice Exam

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Prepare for the Tennessee Realtor State Exam with questions and explanations designed to help you succeed. Master the principles and regulations of real estate in Tennessee. Ace your exam with confidence!

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What term describes a situation where a borrower is automatically in default on multiple loans due to defaulting on one?

Cross-collateralization
Cross-default
Subordination
Joint liability

The correct answer is: Cross-default

The term that accurately describes a situation where a borrower is automatically in default on multiple loans due to defaulting on one is cross-default. This concept is important in lending agreements because it allows lenders to mitigate risk. By including a cross-default clause, lenders can ensure that if a borrower fails to meet the obligations of one loan, all other loans with that borrower can also be considered in default, allowing the lender to take action on all related debts. This approach protects the lender from the risk of a borrower prioritizing one loan over another, which could lead to significant financial losses. Understanding cross-default is crucial for both lenders and borrowers, as it highlights the interconnected nature of financial obligations and the importance of maintaining good standing across multiple loans.