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Real Estate State Test > Chapter 12 > Flashcards

Chapter 12 Flashcards

1
Q

What are the 2 documents a lender will require a borrower to sign to receive a loan.

A

Mortgage, promissory note

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2
Q

Explain a mortgage

A

An instrument (contract) that pledges the property as security (collateral) for the debt. It’s this legal document that creates a lien on the real estate that secures the debt. The mortgage also describes the procedure that will be followed if the narrower doesn’t repay the loan. For the lender, the property becomes security to insure recovery of the loan.

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3
Q

With a mortgage, the property becomes _________ for the lender to secure the repayment of the loan

A

Security

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4
Q

Explain hypothecation

A

Refers to the pledging of property as security for repayment of the loan without surrendering possession of the property.

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5
Q

True or false? A mortgage instrument must either be orally spoken or in writing to be enforceable.

A

False, it must be in writing to be enforceable

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6
Q

The mortgage is recorded to establish __________ notice of the Lien and to establish __________ ahead of subsequent liens

A

Constructive, priority

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7
Q

What are the 2 parties to a mortgage and what are their obligations

A

Mortgagor (borrower)
Mortgagee (lender)

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8
Q

A mortgage is regarded as an investment or _________ (personal property) by the mortgagee and may be sold to another investor if desired

A

Chattel

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9
Q

Explain a promissory note

A

Legal instrument serving as evidence of debt. Its a promise to repay debt, and makes the borrower personally liable to repay the debt. If the collateral pledged in the mortgage is sold and does not cover all the debt, the lender can sue the borrower for the unpaid amount.

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10
Q

True or false? A promissory note is usually witnessed and recorded

A

False, it is not usually witnessed or recorded

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11
Q

True or false? A promissory must accompany all mortgages in Florida.

A

True

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12
Q

What details are provided in a promissory note

A

Amount of debt
Interest rate
Repayment method
Term or time period to repay
Barrowers failure to pay as required

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13
Q

If a borrower defaults, (violates term of mortgage, for example fails to pay monthly payments in full) the lender can ____ the loan (demand repayment of entire loan before the end of the term)

A

Call

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14
Q

When a mortgage loan is recorded in the public records, it becomes a ____ on the real property

A

Lien

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15
Q

Explain a lien

A

A right to sell property to satisfy a debt.

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16
Q

The mortgage lien is a ___________ lien created by the property owner in exchange for financing.

A

Voluntary

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17
Q

Generally with a few exceptions, the priority of a lien is determined by its _________ _____.

A

Recording date

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18
Q

The first mortgage to be recorded is the ____ ________

A

First mortgage

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19
Q

True or false? A mortgage lien, Weather it’s a 1st, 2nd, or 3rd mortgage, it has priority over all subsequently recorded mortgages (mortgages recorded at a later date)

A

True

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20
Q

A separate ___________ _________ (or __________ ________ in a mortgage) is used when a mortgage that has been recorded earlier takes a lower lien priority to a mortgage that is recorded later.

A

Subordination agreement, subordination clause

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21
Q

When a mortgagor pays the debt in full, the mortgagee executed a ___________ ___ ___________

A

Satisfaction of mortgage

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22
Q

When a mortgage is satisfied, Florida statute requires that the mortgagee cancel the mortgage cancel the mortgage and send the recorded satisfaction to the mortgagor in ___ days

A

60

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23
Q

Explain Lien theory and what happens if borrower defaults.

A

In most states, including Florida, are Lien theory states. Narrower retains title to the property. The lender is protected with a lien on the real property to secure the payment of the debt. If the borrower defaults, the the lender will foreclose to recover the money owed.

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24
Q

Explain title theory and what happens if the borrower defaults.

A

Title Toto the mortgaged property is conveyed to the lender through a mortgage deed or to a trustee through a deed of trust. Once the debt is paid the lender conveys legal title to the borrower. If the borrower defaults, the lender may take possession of the property, and the borrower retains equitable title to the property.

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25
Q

True or false? A mortgage instrument is a contract and must contain the essential elements of a contract.

A

True

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26
Q

Conventional mortgage lenders in Florida commonly use the _____________ _______ ________ ______ _______ ________ ________ ________ __________

A

Fannie Mae-Freddie Mac Single-Family Uniform Mortgage Instrument.

27
Q

The first section of the Fannie Mae-Freddie Mac Single-Family Uniform Mortgage Instrument defines mortgage-related terms and indicates what?

A

Date, name of mortgagor/mortgagee, mortgagees address, and the property address.

28
Q

List what are the most important uniform covenants in the 2nd section of the Fannie-Mae Freddie-max mortgage instrument and explain them.

A

Promise to repay- mortgagor promises to repay the principle plus interest
Taxes and liens - mortgagor promises to pay all taxes, assessments, and fines that could create a lien with superior priority over the mortgage as well as pay community association dues, if applicable.
Property insurance- mortgagor promises to keep the property insured against loss by fire and hazards included in an EXTEDED COVERAGE plan
Occupancy- the borrowers agree to use property as principle residence within 60 days after executing mortgage instrument and shall occupy it for property as the borrowers principal residence for at least one year after the date of occupancy, unless the lender otherwise agrees in writing
Maintenance and covenant of Good repair- mortgagor promises to keep the property in good condition, maintain the property, and prevent waste.

29
Q

Important mortgage provisions are

A

Acceleration clause- upon default, accelerates entire debt due and payable
Defeasance- in title theory states, requires lender to convey legal title to borrower once debt is repaid- in lean theory states, requires lender to release mortgage lien when debt is repaid.
Due on sale- upon sale (alienation) loan is due and payable
Prepayment clause- condition to repay debt in advance of due date
Prepayment penalty clause- allows extra charge if any amount of the loan is paid off early
Right to reinstate- mortgagors right to reinstate the original repayment terms in the note after lender initiated acceleration clause.

30
Q

List the 6 important mortgage provisions

A

Acceleration, defeasance, due-on-sale, prepayment, prepayment penalty’s,
Right to reinstate

31
Q

Explain the mortgage features

A

Down payment- amount of cash a purchaser will pay at closing.
Loan to value ratio (LTV)- relationship between the amount borrowed and the appraisal value (or purchase price) of a property.
Equity- current market value- mortgage debt= equity
Interest- cost for the use of borrowed funded.
Loan servicing- handling the loan payment collection and record keeping for the mortgages they originate for a fee, typically ranging from 3/8 or 3/4 of 1% of the unpaid balance of loans serviced.
Escrow (impound) Account. Most Lenders require borrowers to pay in advance, monthly installments for property taxes and hazard insurance. They are held in escrow account for the borrower. When taxes and insurance premiums become due, the lender pays the expenses out of the escrow account
PITI- monthly mortgage principal, interest, monthly reserve for taxes, and hazard insurance.
Discount points- added loan fee often charged by lenders to increase the yield on a lower-than-the-market-interest loans.
Loan origination fee- processing of a mortgage application fee charged by lender. Approximately 1-2 percent of a loan amount.

32
Q

Any earnest money pledged when the original offer to purchase was made is applied toward the _______ ________ due at closing

A

Down payment

33
Q

Lenders use LTV to measure the amount of ________ ________ associated with lending and borrowing money. The higher the LTV the higher the ____ to the lender

A

Financial risk, risk

34
Q

How is Loan to value ratio is calculated?

A

Loan amount/sale price(or value)= LTV

35
Q

Discount points are based on the ______ _______, not on he selling price.

A

Loan amount

36
Q

When calculating the borrowers cost in dollars added by the discount points, each point is equal to _ % of the loan amount.

A

1 (1 point equals 1%)

37
Q

Discount points are charged as _____ ________ at the closing m

A

Prepaid interest

38
Q

The mortgage and promissory note in a real estate transaction are the property of the __________.

A

Mortgagee (lender)

39
Q

What is it called when the owner of a mortgage (the lender) transfers the mortgage from one company to another?

A

Assignment of mortgage

40
Q

Explain an estoppel certificate

A

Stops a claim that the amount owed or the interest rate on a mortgage are different from the actual unpaid balance or interest rate.

41
Q

When are estoppel certificates used

A

When the sale of property involves a condominium association or a homeowners association, A mortgage lien on property, or a tenant occupied property.

42
Q

Explain Assumption of an existing mortgage and subject to the mortgage.

A

Assumption- buyer agrees to assume sellers debt. Obligates buyer to execute a promissory note and become primarily liable for the debt. Without a novation agreement, the lender can sue the buyer and the seller for any deficiencies from a foreclosure.
Sold Subject to a mortgage- buyer is not personally liable to the lender for payment of the mortgage debt. Seller is still legally liable for debt, even tho buyer takers title to property. If buyer defaults, lender forecloses and property is sold by courts. If the proceeds don’t. Over the entire debt the seller, not the purchaser, is liable for what remains.

43
Q

What is a novation agreement? Who must it get signed by? What clause can prevent this?

A

Completely frees the seller from any obligations in the original mortgage loan. Signed by buyer, seller, and lender. The due on sale clause prevents one party from assuming a mortgage.

44
Q

Main difference between assumption of an existing mortgage and subject to the mortgage

A

Assumption of a mortgage- without a novation agreement, the buyer and seller can be responsible for debt after foreclosure.
Subject to the mortgage, only the seller (not the buy) is liable for debt.

45
Q

What is the difference between a land contract and a contract for deed

A

Nothing, they are the same thing

46
Q

Explaina contract for deed (land contract)

A

Used to finance the sale of property when buyer doesn’t have sufficient cash to make a down payment long enough to secure traditional financing. Buyer is responsible for the expenses associated with ownership (property taxes, insurance, and upkeep). Seller retains lega title until debt is repaid.

47
Q

Equitable title entitled the buyer to ________ protection.

A

Homestead

48
Q

Developers purchase raw land and use ____ __________ ______ to finance the installation of the on-site and offsite improvements including sewers, streets, and utilities.

A

Land development loans

49
Q

Developers secure _________ _________ to finance the construction of homes, apartments, office buildings and so forth.

A

Construction loans

50
Q

Construction loans are ______-term financing paid by the lenders in payments called ____ as the construction progresses.

A

Short, draws

51
Q

A _______ ________ loan pledges several parceled, usually building lots, as security for the loan. The developer uses proceeds from the sale of individual lots to pay of the loan.

A

Blanket mortgage

52
Q

A _________ ________ clause, commonly found in blanket mortgages, provided for the release of individual parcels from the blanket mortgage lien upon payment of a specified amount

A

Partial Release clause

53
Q

The developer or contractor typically obtains a written commitment from financial institutions certifying that permanent financing will be provided once construction is complete. The written commitment for permanent financing is called a ________ __________ and makes it easier to secure a construction loan

A

Takeout commitment

54
Q

Explain a buydown

A

A financing technique used when interest rates are high and homebuyers are reluctant. Temporarily lowers the interest rate on a mortgage loan. In exchange for an upfront fee paid by the seller or a developer to the lender, the mortgagors interest rate and monthly mortgage payment is reduced for 1-3 years.

55
Q

A borrowers obligation such as repayment of debt, payment of property taxes, maintenance and upkeep and keeping the property insured can be found in the __________ _______. Failure to meet these obligations can result in the borrowers _______.

A

Promissory note, default.

56
Q

Foreclosure is the enforcement of the __________ _____

A

Mortgage lien

57
Q

What are the 2 remedies for a default on a mortgage

A

Initiate a suit on promissory note- once a judgement on the suit is made, it can be levied against any of the mortgagors property except property specifically exempt.
Initiate a foreclosure proceeding- process begins with accelerating all remaining payments and than filing the lawsuit. Property is sold to cover losses.

58
Q

What is equity of redemption

A

Allows a mortgagor to prevent foreclosure by paying the mortgagee the principal and interest due as well as any expenses the mortgagee has incurred attempting to collect the debt and initiate foreclosure.

59
Q

In Florida, equity of redemption ends when?

A

Once the property has been sold at foreclosure sale

60
Q

If the proceeds from a foreclosure do not cover the outstanding debt, the mortgagee (lender) may request that the court issue, against the person who signed promissory note, a ______ _______, which can extend to include all real and personal property.

A

Deficiency judgement

61
Q

A ______ ______ involves a real estate transaction where the net proceeds at closing will not satisfy the payoff amount of mortgages and other liens on the property.

A

Short sale

62
Q

What does a deed in lieu of foreclosure accomplish

A

Settles a default without going to court. Sometimes called a “friendly foreclosure”

63
Q

A ________ ______ allows a receiver to be appointed to collect income from an income-producing property and use the income to make mortgage payments in the event of a default.

A

Receivership clause.

64
Q

Explain lis pendens. What does it state?

A

A publicly recorded notice of a pending legal action that involves real estate. States the name of the parties, the object of the action, and a legal description of the property.

Real Estate State Test (18 decks)

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