14. Real Estate Financing Principles Flashcards
ACCELERATION CLAUSE
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.
ALIENATION CLAUSE
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.
ASSUMPTION OF MORTGAGE
Acquiring title to property on which there is an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including payments.
BENEFICIARY
(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.
DEED OF TRUST
The means by which a trustor conveys real estate to a trustee for the benefit of a beneficiary. See trust deed.
DEFEASANCE CLAUSE
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.
DEFICIENCY JUDGMENT
A personal judgment levied against the borrower when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full.
DISCOUNT POINT
A unit of measurement used for various loan charges; one point equals 1 per cent of the amount of the loan.
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.
FORECLOSURE
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 fore closure sale, free of all encumbrances affecting the property subsequent to the mortgage.
HYPOTHECATE
To pledge property as security for an obligation or loan without giving up possession of it.
INTEREST
A charge made by a lender for the use of money.
INTERMEDIATE THEORY
Adopted by a number of states, a theory based on the principles of title theory but requires the mortgagee foreclose to obtain legal title.
LIEN THEORY
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.
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.
MORTGAGE
A conditional transfer or pledge of real estate as security for the payment of a debt. Also, the document creating a mortgage lien.
MORTGAGEE
A lender in a mortgage loan transaction.
MORTGAGOR
A borrower in a mortgage loan transaction.
NEGOTIABLE INSTRUMENT
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.
NOTE
The borrower’s personal promise to repay a debt according to agreed-upon terms. See also promissory note.
PREPAYMENT PENALTY
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.
PROMISSORY NOTE
A financing instrument that states the terms of the underlying obligation, is signed by its maker, and is negotiable (transfer able to a third party).
RELEASE DEED
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.
SATISFACTION OF MORTGAGE
A document acknowledging the payment of a mortgage debt.
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.
TITLE THEORY
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.
TRUSTOR
A borrower in a deed of trust loan transaction.
USURY
Charging interest at a higher rate than the maximum rate established by state law.
