Upgrade to remove ads
Real Estate Exam
Terms in this set (55)
The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrower defaults on an installment payment or other covenant. *Without an acceleration clause, the lender would have to sue the borrower every time a payment was overdue.
**Notes about provisions for default
lenders prefer a security interest in real property. The mortgage (or deed of trust) is known as the security instrument. The security instrument creates the lien on the property. The mortgage allows the lender to sue for foreclosure in the event the borrower defaults.
(aka a resale clause, due-on-sale clause, or call clause) in the note...The clause in a mortgage or deed of trust that states that the balance of the secured debt becomes immediately due and payable at the lender's option if the property is sold by the borrower. In effect, this clause prevents the borrower from assigning the debt without the lender's approval.
A buyer is personally obligated for the payment of the entire debt of a seller; that is, the buyer assumes the debt. The original seller is not liable for the debt if the property is foreclosed on.
1. The person for whom a trust operates or in whose behalf the income from a trust estate is drawn. 2. A lender in a deed of trust loan transaction.
deed in lieu of foreclosure
A deed given by the mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. This is a way for the mortgagor to avoid foreclosure.
This is sometimes known as a friendly foreclosure because it is carried out by mutual agreement rather than by lawsuit. The disadvantage of the deed in lieu of foreclosure is to the lender because it does not eliminate junior liens. In a foreclosure action, all junior liens are eliminated. Also, by accepting a deed in lieu of foreclosure, the lender usually loses any rights pertaining to FHA or private mortgage insurance or to VA guarantees. Finally, it should be pointed out that a deed in lieu of foreclosure is still considered an adverse element in the borrower's credit history.
deed of trust
An instrument that grants a trustee under a land trust full power to sell, mortgage, and subdivide a parcel of real estate. The beneficiary controls the trustee's use of these powers under the provisions of the trust agreement.
A clause used in leases and mortgages that cancels a specified right upon the occurrence of a certain condition, such as cancellation of a mortgage upon repayment of the mortgage loan.
A personal judgment levied against the borrower when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full.
A unit of measurement used for various loan charges; one point equals 1 percent of the amount of the loan.
Discount points are used to increase the lender's yield (rate of return) on its investment. For example, the interest rate that a lender charges for a loan might be less than the yield an investor demands. To make up the difference, the lender charges the borrower discount points. The number of points charged depends on two factors
The difference between the loan's stated interest rate and the yield required by the lender
How long the lender expects it will take the borrower to pay off the loan
To figure how many points are charged on a loan, divide the total dollar amount of the points by the amount of the loan. For example, if the loan amount is $350,000 and the charge for points is $9,275, how many points are being charged?
$9,275 ÷ $350,000 = 0.0265 or 2.65% or 2.65 points
equitable right of redemption
The right of a defaulted property owner to recover the property prior to its sale by paying the appropriate fees and charges.
A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. The foreclosure procedure brings the rights of all parties to a conclusion and passes the title in the mortgaged property to either the holder of the mortgage or a third party who may purchase the realty at the foreclosure sale, free of all encumbrances affecting the property subsequent to the mortgage.
It passes title to either the person holding the mortgage document or deed of trust or to a third party who purchases the property at a foreclosure sale. The purchaser could be the mortgagee. The property is sold free of the foreclosing mortgage and all junior liens.
There are three general types of foreclosure proceedings
Judicial foreclosure allows the property to be sold by court order after the mortgagee has given sufficient public notice. When a borrower defaults, the lender may accelerate the due date of the remaining principal balance, along with all overdue monthly payments and interest, penalties, and administrative costs. The lender's attorney can then file a suit to foreclose the lien. After presentation of the facts in court, the property is ordered sold. A public sale is advertised and held, and the real estate is sold to the highest bidder.
Some states allow nonjudicial foreclosure procedures to be used when the security instrument contains a power-of-sale clause. In nonjudicial foreclosure, no court action is required. In those states that recognize deed of trust loans, the trustee is generally given the power of sale. Some states allow a similar power of sale to be used with a mortgage loan.
To institute a nonjudicial foreclosure, the trustee or mortgagee may be required to record a notice of default at the county recorder's office. The default must be recorded within a designated period to give notice to the public of the intended auction. The notice is generally provided by newspaper advertisements that state the total amount due and the date of the public sale. After selling the property, the trustee or mortgagee may be required to file a copy of a notice of sale or an affidavit of foreclosure.
Although judicial foreclosure is the prevalent practice, it is still possible in some states for a lender to acquire mortgaged property through a strict foreclosure process. First, appropriate notice must be given to the delinquent borrower. Once the proper papers have been prepared and recorded, the court establishes a deadline for the balance of the defaulted debt to be paid in full. If the borrower does not pay off the loan by that date, the court simply awards full legal title to the lender. No sale takes place.
*The specific provisions and procedures depend on state law.
To pledge property as security for an obligation or loan without giving up possession of it.
A charge made by a lender for the use of money.
A lender charges a percent of interest on the principal over the time of loan. Interest may be due at either the end or the beginning of each payment period. Payments made at the end of a period are known as payments in arrears. This payment method is the general practice, and mortgages often call for end-of-period payments due on the first of the following month. Payments may also be made at the beginning of each period and are known as payments in advance. Whether interest is charged in arrears or in advance is specified in the note. This distinction is important if the property is sold before the debt is repaid in full.
Some states interpret a mortgage as being purely a lien on real property. The mortgagee thus has no right of possession but must foreclose the lien and sell the property if the mortgagor defaults. *The mortgage, or deed of trust, is nothing more than collateral for the loan. If the mortgagor defaults, the mortgagee must go through a formal foreclosure proceeding to obtain legal title. The property is offered for sale at public auction, and the funds from the sale are used to pay the balance of the remaining debt.
loan origination fee
A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount.
When a mortgage loan is originated, a loan origination fee, or transfer fee, is charged by most lenders to cover the expenses involved in generating the loan. These expenses include the loan officer's salary, paperwork, and the lender's other costs of doing business. The typical loan origination fee is 1 percent of the loan amount, although origination fees may range from one to three points (one point equals 1 percent of the loan amount).
A conditional transfer or pledge of real estate as security for the payment of a debt. Also, the document creating a mortgage lien.
A lender in a mortgage loan transaction.
A borrower in a mortgage loan transaction.
A written promise or order to pay a specific sum of money that may be transferred by endorsement or delivery. The transferee then has the original payee's right to payment.
A financing instrument that states the terms of the underlying obligation, is signed by its maker, and is negotiable (transferable to a third party).
Substituting a new obligation for an old one or substituting new parties to an existing obligation.
If a seller wants to be completely free of the original mortgage loan, the seller(s), buyer(s), and lender must execute a novation agreement in writing. The novation makes the buyer solely responsible for any default on the loan. The original borrower (seller) is freed of any liability for the loan.
The seller is the primary lender securing his or her interest with the use of a deed, note and mortgage, deed of trust, or contract for deed. The buyer takes possession of the property, but the seller retains legal title until paid in full.
While land contracts or owner financing can occur with residential or commercial properties, they are more common with unimproved acreage and farmland sales. Sometimes the seller is the primary lender, and at other times, the seller may be in a secondary position. In either case, the sellers would want to secure their interest either by the use of a deed, note and mortgage, deed of trust, or perhaps the use of a contract for deed instrument.
A charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost.
the total amount of accrued interest is carefully calculated during the origination phase to determine the profitability of each loan. If the borrower repays the loan before the end of the term, the lender collects less than the anticipated interest. For this reason, some mortgage notes contain a prepayment clause. This clause requires that the borrower pay a prepayment penalty against the unearned portion of the interest for any payments made ahead of schedule.
Lenders may not charge prepayment penalties on mortgage loans insured or guaranteed by the federal government or on those loans that have been sold to Fannie Mae or Freddie Mac.
"referred to as the note or financing instrument" - A financing instrument that states the terms of the underlying obligation, is signed by its maker, and is negotiable (transferable to a third party).
A document, also known as a deed of reconveyance, that transfers all rights given a trustee under a deed of trust loan back to the grantor after the loan has been fully repaid.
When a real estate loan secured by a deed of trust has been completely repaid, the beneficiary must make a written request that the trustee convey the title to the property back to the grantor. The trustee executes and delivers a release deed (sometimes called a deed of reconveyance) to the trustor. The release deed conveys the same rights and powers that the trustee was given under the deed of trust. The release deed should be acknowledged (notarized) and recorded in the public records of the county in which the property is located.
(Also known as "Release" or "discharge") of when a note has been fully paid. This document returns to the borrower all interest in the real estate originally conveyed to the lender. Entering this release in the public record shows that the debt has been removed from the property.
The release must be executed and recorded by the assignee or mortgagee when the mortgage or deed of trust has been assigned.
statutory right of redemption
The right of a defaulted property owner to recover the property after its sale by paying the appropriate fees and charges.
The mortgagor who can raise the necessary funds to redeem the property within the statutory period pays the redemption money to the court. Because the debt was paid from the proceeds of the sale, the borrower can take possession free and clear of the former defaulted loan. The court may appoint a receiver to take charge of the property, collect rents, and pay operating expenses during the redemption period.
A clause in a contract specifying exceptions or contingencies of a purchase.
When the property is sold subject to the mortgage, the buyers are not personally obligated to pay the debt in full. The buyers take title to the real estate knowing that they must make payments on the existing loan. Upon default, the lender forecloses and the property is sold by court order to pay the debt. If the sale does not pay off the entire debt, the purchaser is not liable for the difference. In some circumstances, however, the original seller might continue to be liable.
Some states interpret a mortgage to mean that the lender is the owner of mortgaged land. Upon full payment of the mortgage debt, the borrower becomes the landowner.
(UTAH is a title theory state).
In theory, the lender actually owns the property until the debt is paid. *In effect, because the lender actually holds legal title, the lender has the right to immediate possession of the real estate and rents from the mortgaged property if the mortgagor defaults.
A borrower in a deed of trust loan transaction; one who places property in a trust. Also called a grantor or settler.
Charging interest at a higher rate than the maximum rate established by state law.
THIS SET IS OFTEN IN FOLDERS WITH...
Real Estate Financing Practice
Real Estate Finance
Real Estate Chapter 14
YOU MIGHT ALSO LIKE...
real estate financing principles
Unit 14: Real estate financing principles
Modern Real Estate Practice 19th Edition Unit 14
OTHER QUIZLET SETS
APSM 2441 LECTURES FINAL EXAM (From Sydney's quizl…
surgical tech final