Chapter 11 - Finance

Question 1

Promissory Note

Answer 1

– Piece of mortgage that says you’ll pay –
Creates the debt (is evidence of the loan
Gives terms (loan amount; interest rate; time and method of payment; obligation to repay)
A note can be FREELY BOUGHT OR SOLD - it is negotiable

Question 2

Mortgage or a deed of trust IS A ______

Answer 2

contract.

Question 3

Mortgage specifics

Answer 3

Legal document to secure the performance of an obligation.
Purpose of mortgage is to create a lien on mortgaged property as security for debt
Two parties:
1) Borrower (mortgagor)
2) Lender (mortgagee)

Question 4

Deed of trust specifics

Answer 4

similar to a mortgage
Main difference is it involves 3 parties:
1) Borrower (trustor, giver of promise)
2) Lender (beneficiary of the trust deed)
3) Trustee (neutral 3rd party who files the deed of trust)
—– ex. if there is a foreclosure

Question 5

Does a defaulting borrower ever have a chance to redeem themselves once foreclosures start?

Called buybacks

Answer 5

Yes - 2 ways (called buybacks)

1) Equiptable Redemption: paying off the loan plus expenses and penalties before the actual sale
2) Statutory Redemption: pay off the loan plus expenses and penalties after the foreclosure sale
- —-Time period before new buyer takes possession. During statutory time period - they can pay off loan.

Question 6

What is a short sale?

Answer 6

Mortgagor is behind on payments
- Bank allows home to be sold for less than total amount owed

Short sale deficiency (or shortage)

1) Bank may release borrower from the responsibility of the deficiency
2) Bank may allow them to pay for it over time.

Question 7

3 Types of Notes - Mortgages - Payment Plans

Answer 7

Straight Note
Fully Amortized Note
Partial Amortized Note

Question 8

Straight Note

Answer 8

INTEREST ONLY LOAN
Buyer only pays interest each month, total principal is due at end of term.
*end of life cycle, they owe all prinicpal

Question 9

Fully Amortized Note

Answer 9

PART INTEREST / PART PRINCIPAL

• Lender wants their money up front, so beginning period of loan is mainly interest payments
• Over time the interest payments go down and then prinicipal payments increase
• end of life cycle it’s fully paid off

Question 10

Partially Amortized Note

Answer 10

BALLOON PAYMENT

• Part of each monthly payment toward principal and interest.
• At a certain point a balloon payment is due on remaining balance and payable at once
• end of life cycle they owe large, lump sum payment

Question 11

Debt Service

Answer 11

Is the principal and interest part of the payment each month

Question 12

Leverage

Answer 12

Using borrowed money to make money

Question 13

Equity

Answer 13

Difference between loan balance and market value of your property

Question 14

Amortization

Answer 14

Loan where balance is reduced each month through regular payments that go toward principal and interest

Question 15

Points
1 point = ?

What’s another name for it?

_____ + ____ = Yield

Answer 15

Pre-paid interest charged by a lender that is paid at time of loan origination
1 Point = 1% of the loan amount

AKA DISCOUNT POINT
Points increase the lenders yield

Rate + Points = Yield

Question 16

Loan-to-Value Ratio

Answer 16

amount of a loan expressed as a percentage to the value of the property

Question 17

Escrow

Answer 17

Process by which money and/or documents held by a disinterested third party until satisfaction of T’s & C’s

Question 18

Loan Origination Fee

Answer 18

fee to generate the loan

Question 19

Foreclosure Sale - where do proceed go?

Answer 19

1st - property taxes are paid
2nd - other liens (including mortgage)
3) defaulting borrower (or in order of filing)

Question 20

Deficiency Judgment

Answer 20

If proceeds from foreclosure sale are not enough to cover debt.
It’s a judgment against the mortgagor for lien against all debtor’s assets

Question 21

Deed in Lieu of Forclosure

Answer 21

Borrower deeds the property back to lender to avoid foreclosure

Question 22

Hypothecate

Answer 22

using specific real or personal property as security for an obligation without surrendering possession of it
–example, your home (that is being mortgaged) is security for the debt

Question 23

Pledging

Answer 23

Transfer or delivery of property to a lender as security

Question 24

Interest

Another name?

Answer 24

‘Simple Interest’

The amount you pay to borrow money