Ch 1 Section 4 Mortgages, Deeds of Trust and Foreclose

Question 1

A mortgage or deed of trust loan

Answer 1

Creates a voluntary lien on real property

Question 2

A property owner contracts to borrow money and voluntarily agrees to hand over his real property to the lender if he fails to repay the debt according to the terms of the loan agreement, this process is called

Answer 2

Hypothecation

Question 3

2 parts to every mortgage loan involving real property

Answer 3

• the mortgage note or promissory note
• the mortgage contract or deed of trust

Question 4

Promissory Note

Answer 4

The unconditional written purpose to repay the loan and is the evidence of the debt

Question 5

Mortgage contract or deed of trust

Answer 5

Establishes a piece of real property as security for the debt

Question 6

Hypothecation of collateral

Answer 6

Where the borrower doesn’t give up possession of the property w/ the pledge of collateral

Question 7

Deed of trust

Answer 7

Is a 3 party instrument whereby an owner pledges real property as security for the payment of debt and the owner surrenders bare tittle to a neutral 3rd party trustee

Question 8

Bare title

Answer 8

Does not include the rights of possession and use of the property

Question 9

Title theory

Answer 9

Written, bilateral, executory, usually non assignable contracts that run for a definite period of time

Question 10

3 Parties to a deed of trust

Answer 10

• trustor ( the borrower)
• the beneficiary ( the lender)
• trustee ( 3rd party who holds title to the property for the benefit of the beneficiary

Question 11

Covenants

Answer 11

Unconditional promises that are binding

Question 12

Most mortgages contain these certain covenants :

Answer 12

• covenant to pay indebtedness
• covenant to pay insurance
• covenant to pay property taxes
• covenant of good repair

Question 13

Covenant to pay indebtedness

Answer 13

Is the borrowers promise to repay the loan according to the terms of the note

Question 14

Covenant to pay insurance

Answer 14

The borrowers promise to main an insurance coverage against damage or destruction of the mortgaged property in the amount specified by the mortgage, with the mortgage named as beneficiary

Question 15

Covenant to pay taxes

Answer 15

The borrower promises to pay real estate taxes and other assessments levied against the property

Question 16

Covenant of good repair

Answer 16

Obligates the borrower to maintain the mortgaged property and keep it in good repair

Question 17

Covenant against removal

Answer 17

The borrower promises to remove or demolish any buildings or other improvements w/o first obtaining the lenders consent

Question 18

Acceleration clause

Answer 18

Specifies that if the borrower fails to keep the covenants of the mortgage or trust deed, the entire loan balance is due and payable upon demand

Question 19

Alienation clause

Answer 19

Also called a due on sale clause, provides that upon alienation of the property by the mortgagee may demand the balance of the debt be paid first

Question 20

Defeasance clause

Answer 20

Defeat or cancellation of the mortgage or trust deed when the borrower has repaid the entire debt

Question 21

Prepayment clause

Answer 21

The mortgagor pay a penalty if the loan is paid off prior to the original maturity date

Question 22

Subordination Clause

Answer 22

Usually found in Jr. Mortgage

Question 23

Subordination agreement

Answer 23

Agreement whereby a superior mortgage, such as a first mortgage, agrees to take a subordinate or junior position w/ respect to a new lien

Question 24

Power of sale clause

Answer 24

Gives a trustee in states that use deeds of trust the right to sell the property in the event of default

Question 25

Exculpatory clause

Answer 25

may be included in A mortgage or deed of trust, which states that lender waives his right to a deficiency judgment

Question 26

Escalator clause

Answer 26

Provides for loan payments to be adjusted either up or down

Question 27

Partial release clause

Answer 27

Used by developers to provide for the release of lots as the principal amount of the loan is paid back
- mortgagor/ developer to sell a lot to a buyer who has arranged his own financing

Question 28

Assumption of mortgage

Answer 28

If the property goes into default and a foreclosure sale does not satisfy the debt, the new buyer who assumed the loan will be liable for the amount of any deficiency judgment

Question 29

Subject to Mortgage

Answer 29

The new buyer is not personally liable for repayment of the debt.

Question 30

Mortgage contract

Answer 30

Is personal property and mortgagees have no title interest in the pledge property

Question 31

Lis pendens

Answer 31

Recorded on the county’s public record which serves as notice to the public of the pending legal action

Question 32

Equity of redemption

Answer 32

If the delinquent borrower can come up with the money he has the right to redeem his property up to the time the bidding starts

Question 33

Statutory redemption laws

Answer 33

Give the foreclosed borrower from one month to 1 year or more to pay his judgment in full and redeem his title

Question 34

Deficiency judgment

Answer 34

Once they close and balance is due they can come and take it

Question 35

Several advantages of a deed of trust over a mortgage

Answer 35

• if the owner off income producing property defaults on a loan, the lender is authorized to take possession of the property to protect it and to collect rents
• the time between default and foreclose is shorter in title theory states
• the foreclosure process under a deed of trust is less expensive and simpler than it is with a court ordered foreclosure process under a deed of trust is less expensive and simpler than it is with a court ordered foreclosures process
• title is already in the name of the trustee, permitting the trustee to grant title to the purchaser after the foreclosure sale
• after the foreclosure there is usually no statutory redemption period in title theory states