CH 16 Mortgage Obligations Flashcards
Payment of the Debt: What is Usury?
A statutory limit on the amount of interest you can charge on a transaction.
Payment of the Debt: When is Usury determined?
Determined at the time you made the loan.
Payment of the Debt: In Arkansas, what 3 classes of loans are there, and what are interest caps on them?
(1) Government bonds and loans
- Bonds and notes issued by governmental units
- No interest rate cap
(2) Arkansas Banks
- 12 U.S.C. s 1831: whatever an out of state bank can charge
(3) Everyone else
- Maximum of 17%
Payment of Debt: What happens in Arkansas if a interest rate is over 17% and it falls under “everyone else”
the contract is void as to principal and interest.
Payment of Debt: How to protect a lender from Usury punishment?
Insert a Usury Savings Clause
(It is the intention of the lender and the borrower to comply with all relevant usury laws, and any excess will be held in trust and given back to borrower)
Payment of Debt: Rule on Usury after maturity?
The provision in an agreement to pay, after maturity, interest at a higher rate than permitted by the usury laws does not render a contract usurious if made in good faith and without intent to evade usury laws.
Payment of Debt: What is the concern with late payments and it maybe being interest?
Concern is that you do not want the late payment to be construed as additional interest (that may violate usury)
Payment of Debt: what are three considerations when determine if late payments are construed as additional interest or as late payments/
- Is the fee fixed in amount (e.g., 5% of the installment) or recurring?
- How often is interest compounded? ….Daily or weekly looks sus
- Is it a one-time charge? Or is it $X every day it is late?
Payment of Debt: Can a lender force a borrower to prepay a debt?
Yes, so long as there is an acceleration clause and with a due-on-sale clause.
Payment of Debt: Why would one want an acceleration clause?
So that you don’t have to keep going back to court every time someone defaults. One default means pay the rest.
Payment of Debt: Why prepay as a borrower?
If you have a high interest rate on a loan, you could get a new rate which is lower.
Payment of Debt: How do lenders counteract a buyer paying off a loan early and losing money?
They insert a prepayment premium
Payment of Debt: What is a prepayment premium charged to the buyer by a lender
It is the imposition of a charge paid by the borrower in the case that the borrower prepays.
Payment of Debt: Are there any Arkansas protections around prepayment premiums.
no, in AR there is no law regarding prepayment premiums in commercial or residential loans.
Assumptions and Taking Subj. to Mortgage Obligations: Can a buyer assume an existing mortgage?
Yes
Assumptions and Taking Subj. to Mortgage Obligations: Why would a buyer assume an existing mortgage?
- Interest savings
- Buyer’s inability to obtain financing
- Seller in trouble
Assumptions and Taking Subj. to Mortgage Obligations: Who is liable for the documents is the buyer assumes an existing mortgage?
Seller will still be liable.
Assumptions and Taking Subj. to Mortgage Obligations: What is a good way to protect the parties when a mortgage is assumed?
An assumption agreement helps—says who is primarily and secondarily liable; or an agreement between the buyer, seller, and the bank where the bank consents to the assumptions and provides the seller with a written release.
Assumptions and Taking Subj. to Mortgage Obligations: What is non-recourse financing?
You take out a loan and the bank says we will only look to the property to satisfy the debt.
Assumptions and Taking Subj. to Mortgage Obligations: What will Non-Recourse financing agreements contain?
They will contain non-release guarantee provisions (“Bad Boy Carveout”) which essentially provide that, if the borrower does something bad like commits waster, fails to pay taxes, etc, then the lender has the right to go after guarantors/personal property.
Assumptions and Taking Subj. to Mortgage Obligations: What is recourse financing?
Lender can go after the property, the borrower, the guarantors, the additional security, etc.
Restrictions on Transfer by Mortgagor: General rule?
Mortgagor’s interest in the property is freely alienable.
Restrictions on Transfer by Mortgagor: Are any restraints on a mortgagor legally enforceable?
Yes
Restrictions on Transfer by Mortgagor: Due on sale clause?
If the borrower sells the property without the lender’s approval, the entire principal balance of the loan immediately becomes due and payable.
