chapter 11

Question 1

promissory note

Answer 1

a document that describes the amount of money borrowed, the terms under which it will be repaid, and any conditions that relate to either the borrowing of the money or the consequences in event of default

Question 2

Covenant of seisin

Answer 2

This clause states that the mortgagors actually have title to the property and therefore have the authority to pledge it as collateral.

Question 3

deed of trust

Answer 3

a legal document which transfers title to a property to a third-party trustee as security for an obligation owed by the trustor

Question 4

subordination clause

Answer 4

allows the loan from the first seller to be subordinated to the construction mortgage.

Question 5

release clause

Answer 5

As the developer sells off each lot, a portion of the money from the sale is used to pay part of the mortgage

Question 6

What is California’s position regarding late payments on a loan?

Answer 6

California Civil Code states late fees cannot exceed 6% of the payment due, and a 10-day grace period is required before late fees can be charged.

Question 7

foreclosure

Answer 7

a legal procedure in which the property that is used as security for a debt is sold to satisfy the debt in the event of a default.

Question 8

judicial foreclosure

Answer 8

allows a property to be sold by court order after sufficient public notice

Question 9

right of redemption

Answer 9

he right to reclaim a property that has been foreclosed by paying off amounts owed to creditors, including interest and costs within a certain period

Question 10

payment cap

Answer 10

A set monthly payment that remains the same although the actual interest rate may fluctuate throughout the year

Question 11

reverse annuity mortgage

Answer 11

the lender is making payments to the borrower. This system allows older property owners to receive regular monthly payments from the equity in their paid-off property without having to sell.

Question 12

refinancing

Answer 12

replacing one mortgage with another for a lower interest rate

Question 13

RESPA

Answer 13

created to ensure that the buyer and seller in a residential real estate transaction involving a new first mortgage loan have knowledge of all settlement costs.

Question 14

Truth in lending act

Answer 14

requires lenders to disclose to buyers the true cost of obtaining credit, so that borrowers can compare the costs of various lenders.

Question 15

equal credit opportunity act

Answer 15

prohibits lenders from discriminating against applicants on the basis of race ,color , sex , etc.

Question 16

subprime lending

Answer 16

mortgages made to borrowers with lower credit ratings who wouldn’t typically qualify for a conventional mortgage. Due to the increased risk , lending institutions charge rates above prime or impose conditions that almost surely ensure the borrower won’t be able to afford the loan in a few years.

Question 17

redlining

Answer 17

discriminatory act in real estate financing

Question 18

straight note

Answer 18

whereby the borrower agrees to pay the interest periodically and to pay the entire principal when the note comes due.

Question 19

Installment note

Answer 19

requires the periodic payment of both interest and principal and is the most common note.

Question 20

lock in clause

Answer 20

drastic form of a prepayment clause as it actually prohibits the borrower from paying the mortgage loan in full before a specific date.