Ch. 14 Financing

Question 1

Promissory Note

Answer 1

‘note’, or ‘financing instrument’, is a borrower’s personal promise to repay the debt according to the agreed terms.

Question 2

Interest

Answer 2

charge for the use of money, expressed as a percentage of the remaining balance of the loan

Question 3

Usury

Answer 3

Charging interest in excess of the maximum rate allowed by law

Question 4

Loan Origination Fee

Answer 4

‘transfer fee’, The processing of a mortgage application

Question 5

Discount Points

Answer 5

used to increase the lender’s yield (rate of return) on its investments (1 discount point = 1%)

Question 6

Hypothecation

Answer 6

the debtor retains the right of possession and control of the secured property, while creditors receive an equitable right in the property (the process of securing the loan to buy property)

Question 7

lien theory state

Answer 7

the mortgagor retains both legal and equitable title to the property that serves as security for a debt

Question 8

deed of trust

Answer 8

a deed of trust or trust deed is a deed wherein legal title in real property is transferred to a trustee, which holds it as security for a loan (debt) between a borrower and lender. The equitable title remains with the borrower.

Question 9

title theory state

Answer 9

In a deed pf trust, or title theory state, the mortgagor actually conveys legal title to the mortgagee and retains equitable title and the right of possession

Question 10

Acceleration Clause

Answer 10

-assists the lender in foreclosure, if a borrower defaults, the lender has the right to accelerate the maturity of the debt. (Lender may declare the entire principal balance due immediately)

Question 11

Defeasance Clause

Answer 11

A mortgage provision indicating that the borrower will be given the title to the property once all mortgage terms are met.

Question 12

Satisfaction of Mortgage

Answer 12

A document generated and signed by a mortgage lender, acknowledging that the borrower has paid off the mortgage loan in full and that the mortgage is not a lien on the property. (Lender is required to execute when the note is fully paid)

Question 13

“Subject To”

Answer 13

Buying “Subject To”- The buyer is not personally obligated to pay the debt in full. Buyer takes title to real estate knowing must make payments on existing loan

Question 14

Assuming

Answer 14

A buyer who purchases a property and ‘assumes’ the seller’s debt becomes personally obligatd for the payment of the entire debt.

Question 15

Novation

Answer 15

The substitution of a new contract for an old one

Question 16

Alienation Clause

Answer 16

(also known as a resale clause, due-on-sale clause, or call clause) in the note, provides that when the property i sold the lender may either declare the entire debt due immediately, or permit the buyer to ‘assume’ the loan at a higher interest rate

Question 17

Amortized Loan

Answer 17

each payment partially pays off both principal and interest

Question 18

Straight Loan

Answer 18

(also known as a term loan or interest-only loan) essentially divides the loan into two amounts to be paid off separately, periodic payments of interest only, followed by the payment of the principal in full at the end of the term

Question 19

Negative Amorization

Answer 19

amount of loan increases (instead of decreasing) -owing more than what the property is worth

Question 20

Index

Answer 20

economic indicator that is used to adjust the interest rates in an ARM loan

Question 21

Growing-Equity Mortgage

Answer 21

also called rapid-payoff mortgage, uses a fixed interest rate, but payments of principle are increased according to an index or schedule