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Chapter 6-1: Real Estate Finance Documents
Terms in this set (116)
What is the goal of a real estate transaction
To transfer title from the seller to the buyer
What is the secondary mortgage market?
They purchase loans from primary lenders
What are the 3 basic loan security interests?
2. Trust Deed
3. Land Sale Contract
What is a security instrument
A written document used to collateralize the debt the borrower owes to the lender
What is a promisorry note?
Written evidence of the debt, and that the borrower will pay off the loan
Who gets the excess money after a foreclosure?
What is Hypothecation
Pledging property as collateral
What is a negotiable instrument
Documents that promise to pay back a sum of money
What are the 4 elements that a negotiable instrument must have?
1. Promise to pay a specific amount
2. Promise to pay a specific person
3. Promise to pay by a specific date
Can the owner of a note transfer their interest to another entity?
Yes, unless the note says otherwise
How does one give up the rights to collect a note or check
Is a promissory note a security instrument?
What does Payee mean
What does Maker mean
What is a negotiable instrument
A properly prepared promissory note
What are the 4 types of endorsements
What is a blank endorsement
does not specify the person to whom the instrument is payable (a mere signature), makes it bearer paper
What is bearer paper
It can be taken to a bank and exchanged for cash by anyone
What is a special endorsement
When the payee specifies a certain person to receive the funds
What is restrictive endorsement
When the payee wants the check to be deposited into a specific bank account
What's another term for qualified endorsement
Endorsement without recourse
What is a qualified endorsement
A qualified endorsement includes the words "without recourse." This releases the endorser from contract liability (no guarantee of payment), but the endorser may still be liable if the endorser breaches any warranties.
What is a straight note
A note with interest paid at periodic intervals, or interest can be due at maturity. One payment, at the end
Short term debt
What is an Amortized Note
Debt is ptsd off in installments
Most common in real estate
What is a balloon payment note
Requires a lump sum payment after installment payments are made
What is a note with call feature
Borrower makes regular payments, but the lender can demand payment in full at any time after an agreed upon date.
What is an acceleration clause
A clause in a mortgage that makes the entire debt due immediately in the case of borrower default
What is a late charge
Penalty for non payments
What is the highest amount percentage of the loan amount that can be charged for a late charge in Oregon
How long is the grace period for a late payment in Oregon
The clause in a mortgage or note stating the penalty, if any, for payment before it actually becomes due.
What is a Demand Clause
The right to demand payment in full, not predicated on the buyer's default
What is an assumable encumbrance
Someone else can pay off the loan
What is a lien-theory state?
A state in which a mortgage is considered to be a lien against a secured property
What is a title theory state?
The lender has legal title and holds title until the loan is paid in full
Who is the mortgagor?
Who is the Mortgagee?
What is the right of redemption period in Oregon
180 days from foreclosure
What is a deed
legal instrument that transfers ownership of real property
A third party who accepts a promissory note without having knowledge of any defects is
A holder in due course
What is a deed of trust?
A security instrument similar to a mortgage
How is foreclosure defeated
The borrower pays the lender the full amount before the sheriff's sale
What does the highest bidder at a foreclosure sale get
Sheriff's Certificate or Certificate of Sale
Is a Sheriff's certificate a deed
When does the highest bidder at a foreclosure auction get the deed
When the borrower's redemption period has expired
What is the right of redemption period for a property purchased before July 14th 1985?
How can a defaulting borrower redeem their property during the redemption period?
Mortgagor must pay the party who bought their property the full amount owed, plus the cost of sale, plus 10% interest
What is a deficiency judgement
When a property is sold at the sheriff's sale for not enough to cover the foreclosure judgement, the mortgagee may sue the mortgagor for the difference
What will clear a mortgage from the public record?
A properly recorded Satisfaction of Mortgage.
In the event of default, the ability of the mortgagor to pay the judgment between the time of notification and the time of sale is known as:
Mortgagor's equity of redemption
Does a trust deed transfer title?
Who is the trustor in a deed of trust?
The buyer or borrower who will own the property
Who is the beneficiary in a Trust Deed
Holder of promissory note
Who is the trustee in a Trust Deed
Disinterested third party, title or escrow company, attorney, bank or savings, loan association
Can a beneficiary and a trustee be the same entity?
Who has legal title to a property in a trust deed?
Who has a security interest in a property in a trust deed by way of lien?
What title does the trustee hold in a trust deed
Naked Legal Title
What does naked legal title mean
The right to sell the property for the benefit of the beneficiary if the trustor defaults
What is a reconveyance deed
The trustee gives up naked legal title, borrower owns property free and clear of the lender's lien
What happens if the loan is not paid in full as agreed
Trustee will be instructed by beneficiary to sell the property
What two methods of foreclosure can a beneficiary choose
1. Judicial Foreclosure
2. Foreclosure by trustee sale
What is the only way a beneficiary can get a deficiency judgement through foreclosure on a trust deed
If it's a commercial trust deed for an investment property
Can a deficiency judgement be granted against the grantor's residence
No, not if they or a family member lives there
What are the 4 procedures the trustee must follow for foreclosure by trustee sale
1. Notification of trustee (beneficiary tells trustee to sell the property)
2. Notice of Default and Election to Sell
3. Grantor right of reinstatement
4. Sale of property
In a foreclosure by trustee sale, how many days must the Notice of Default and Election to Sell before the sale is to occur?
In a foreclosure by trustee sale in a trust deed, where must the notice be published and how often?
In the Local General Circulation newspaper, once a week for four weeks before the sale date
In a trust deed foreclosure by trustee sale, in Oregon, how many days does the trustor/grantor have to reinstate the loan before the sale takes place?
Up to 5 days
In Washington, how many days before the sale of the property does the trustor/grantor have to reinstate the loan
Up to 11 days
How does the trustor/grantor in default reinstate the loan so it doesn't get put up for sale
Pay the loan delinquency amount plus trustee's fees
Who can NOT bid on the property at the trustee's sale
Who is the high bidder in the event no other party bids high enough to cover the loan balance, trustee's fees, and cost of sale?
The Lender (beneficiary)
What will the highest bidder at a trust deed foreclosure receive?
A Trustee's Deed
How many days after the sale may the defaulting trustor retain possession of the property?
What is the main advantage of the trustee foreclosure
Easy process and relatively short time, right to redemption ends 5 days before sale, 120 day foreclosure period
Why may a lender/mortgagee/beneficiary choose to go ahead with a Judicial Foreclosure to foreclose on a Trust Deed?
If it's a commercial property so they can get a deficiency judgement
Which party to a trust deed holds the promissory note until the loan is paid in full?
What are the 3 main security instruments used for Seller FInancing?
1. Purchase money mortgage
2. Purchase money trust deed
3. Land sale contract
What is a purchase money mortgage
The buyer (mortgagee) pays the seller (mortgagor) on an installment basis
What is the major difference between a purchase money mortgage and a mortgage given to a third party lender?
No deficiency judgement can be made on a purchase money mortgage
What is a purchase money trust deed
Buyer signs promissory note, must pay the seller in installments. No deficiency judgement, seller gives up right to reclaim property
In a land sale contract, who holds legal title until the loan is paid off
In a land sale contract, what kind of title does the buyer hold until the property is paid off
What are the two parties to a land sale contract
The seller (vendor)
The buyer (vendee)
Is there a lien against the property in a land sale contract
No because the vendor holds legal title
A land sale contract for at least 12 months must be recorded in the county the property is located within how many days from the date the contract first becomes effective
Although required to be recorded, if the contract isn't recorded, are the vendor's rights to enforce the terms voided?
Who must pay taxes on the property and make sure it's insured during a land sale contract
What happens in forfeiture of interest in a land sale contract
The vendor declares the contract void, takes the property back, and keeps all the money paid by the vendee
If a vendee's unpaid balance is greater than 75% of the original purchase price, what's the least amount of days the vendee can force foreclosure
If a vendee's unpaid balance is greater than 50% but less than 75% of the original purchase price, what's the least amount of days the vendee can force foreclosure
If a vendee's unpaid balance is 50% or less of the original purchase price, what's the least amount of days the vendee can force foreclosure
Can a vendor sue the vendee in default for payments?
What would the outcome be from a vendor suing a vendee for installments of the land sale contract
A general and unsecured lien
What is a loan acceleration clause
Allows the lender to require payment in full if the vendee defaults
What is strict foreclosure?
Court determines an amount of time for vendee to pau the balance
What happens if a vendee doesn't pay the balance in a strict foreclosure?
Vendor will take back the property and retain all money paid by the vendee
Can a judicial foreclosure happen in a Land Sale contract
Could the vendee be liable for a deficiency judgement in a judicial foreclosure in a land sale?
Special performance in land sale contract
Vendor gets money and doesn't take back property
What determines lien property
What is a senior lien
A lien that's recorded before a subsequent lien
What is a junior lien
A lien recorded after a previous lien
How is a lien recorded
Filing the lien document in the recorder's office that the property is located in
What type of lien takes priority over all other liens
Property tax liens
When a lien is not recorded, where does it fall priority wise
How is lien payment made after foreclosure
In order of priority
What's the order the four basic liens will be paid in
1. Foreclosure sale costs & fees
2. Property Taxes & Special Assignments
3. Trust Deeds or Mortgages
4. Defaulting borrower
How can lien priority be altered?
When is a subordination agreement common
Purchasing unimproved land
When does a construction lien begin
When the labor was first provided
Can any lien holder, regardless of their priority, file an action to foreclose if the borrower is in default?
What happens when a junior lienholder files for foreclosure?
Junior lien holder will take title, subject to all senior liens
What happens after the successful foreclosure of a senior lien?
All junior liens are extinguished
What's another term for Adjustable Rate Mortgage
Variable interest rate mortgage
What is an Adjustable Interest Mortgage
Periodic interest rate changes, possible payment adjustments at specified dates
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