9 Financial Instruments Flashcards
Deed of Trust
Similar to mortgage, with 3 parties instead of 2. Faster foreclosure proceedings.
Mortgage
Voluntary and specific lien that creates the security for a debt.
Promissory Note
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.
Discount Point
Upfront fee charged by lender to increase their yield. Equals one percent. Lowers your rate by 1/8 percent.
Hypothecation
Pledging property as collateral without giving up possession.
Interest
A charge for using money.
Loan Origination
Fees charged by lender to pay for cost of originating the loan.
Prepayment Penalty
A penalty to the borrower for paying off the loan early.
Usury
An illegal amount of interest charged.
Subordination
The changing of the lien order. A junior lien holder agreeing to stay in a lower position.
Yield
The rate of return the lender makes on lending money.
Acceleration Clause
Due on default. Upon default of the loan, the entire note is due.
Alienation Clause
Due on sale. Once the property is sold, the entire note is due.
Defeasance Clause
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.
Assignments of Rents
Protects lender. Lender would be allowed to collect rent directly from tenants in lieu of the borrower making payments.
Assumption of a Mortgage
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.
Foreclosure
Property pledged as collateral is sold to satisfy a debt.
Judicial Foreclosure
Court orders property to be sold to satisfy debt.
Non-Judicial Foreclosure
Used when Power of Sale clause is contained in loan docs.
Deed in Lieu of Foreclosure
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.
Redemption
Provides opportunity for person in default to redeem the property.
Strict Foreclosure
Court decides how long borrower has to repay. Takes auction out of foreclosure process.
Equitable Right of Redmeption
The defaulting party has the right to redeem the property BEFORE the foreclosure sale.
Statutory Right of Redemption
The defaulting party has the right to redeem the property AFTER the foreclosure date. 6 months period for Mortgage,
Non-Recourse Loan
You’re in default, and the only thing the lender can do is take the house back. They can’t take anything else.
Deficiency Judgement
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:
- SFR or Duplex
- Less than 2.5 acres
- Must be a purchase money mortgage.
Arizona Specific - Mortgage
- Mortgage allowed in AZ.
- Successful bidder at auction receives certificate of purchase.
- 6 month statutory redemption period.
- Certificate holder at end of 6 month receives sheriffs deed.
Arizona Specific - Deed of Trust
- Most common
- No redemption, 90 day reinstatement period.
- Must reinstate by 5pm previous day before sale.
- Successful bidder receives a trustees deed.
