9 Financial Instruments

Question 0

Deed of Trust

Answer 0

Similar to mortgage, with 3 parties instead of 2. Faster foreclosure proceedings.

Question 1

Mortgage

Answer 1

Voluntary and specific lien that creates the security for a debt.

Question 2

Promissory Note

Answer 2

The debt instrument which creates the unconditional guarantee to pay back the loan. Can be assigned to 3rd party. The mortgage (deed of trust) and promissory note make up your docs.

Question 3

Discount Point

Answer 3

Upfront fee charged by lender to increase their yield. Equals one percent. Lowers your rate by 1/8 percent.

Question 4

Hypothecation

Answer 4

Pledging property as collateral without giving up possession.

Question 5

Interest

Answer 5

A charge for using money.

Question 6

Loan Origination

Answer 6

Fees charged by lender to pay for cost of originating the loan.

Question 7

Prepayment Penalty

Answer 7

A penalty to the borrower for paying off the loan early.

Question 8

Usury

Answer 8

An illegal amount of interest charged.

Question 9

Subordination

Answer 9

The changing of the lien order. A junior lien holder agreeing to stay in a lower position.

Question 10

Yield

Answer 10

The rate of return the lender makes on lending money.

Question 11

Acceleration Clause

Answer 11

Due on default. Upon default of the loan, the entire note is due.

Question 12

Alienation Clause

Answer 12

Due on sale. Once the property is sold, the entire note is due.

Question 13

Defeasance Clause

Answer 13

Once the loan is paid in full, the mortgage or deed of trust becomes invalid. Lender must release all collateral and other security. Satisfaction certificate (mortgage) and deed of reconveyance (deed of trust) allow this.

Question 14

Assignments of Rents

Answer 14

Protects lender. Lender would be allowed to collect rent directly from tenants in lieu of the borrower making payments.

Question 15

Assumption of a Mortgage

Answer 15

Acquiring property that has an existing mortgage and agreeing to be personally liable for the terms and conditions. Both the purchaser and original party may be liable in default.

Question 16

Foreclosure

Answer 16

Property pledged as collateral is sold to satisfy a debt.

Question 17

Judicial Foreclosure

Answer 17

Court orders property to be sold to satisfy debt.

Question 18

Non-Judicial Foreclosure

Answer 18

Used when Power of Sale clause is contained in loan docs.

Question 19

Deed in Lieu of Foreclosure

Answer 19

Borrower is in default and can’t pay back mortgage, then asks lender to accept the deed back in lieu of. Lender may not agree as all liens transfer with the property.

Question 20

Redemption

Answer 20

Provides opportunity for person in default to redeem the property.

Question 21

Strict Foreclosure

Answer 21

Court decides how long borrower has to repay. Takes auction out of foreclosure process.

Question 22

Equitable Right of Redmeption

Answer 22

The defaulting party has the right to redeem the property BEFORE the foreclosure sale.

Question 23

Statutory Right of Redemption

Answer 23

The defaulting party has the right to redeem the property AFTER the foreclosure date. 6 months period for Mortgage,

Question 24

Non-Recourse Loan

Answer 24

You’re in default, and the only thing the lender can do is take the house back. They can’t take anything else.

Question 25

Deficiency Judgement

Answer 25

Occurs when the foreclosure sale of a property produces less than the balance owed on the loan. A judgement can be placed on the debtors balance for the remaining amount. Home must be:

1. SFR or Duplex
2. Less than 2.5 acres
3. Must be a purchase money mortgage.

Question 26

Arizona Specific - Mortgage

Answer 26

1. Mortgage allowed in AZ.
2. Successful bidder at auction receives certificate of purchase.
3. 6 month statutory redemption period.
4. Certificate holder at end of 6 month receives sheriffs deed.

Question 27

Arizona Specific - Deed of Trust

Answer 27

1. Most common
2. No redemption, 90 day reinstatement period.
3. Must reinstate by 5pm previous day before sale.
4. Successful bidder receives a trustees deed.