Chapter 12

Question 1

What is a Lien Theory state?

Answer 1

A lien theory state, like Florida, is a state in which the borrower (mortgagor) retains the ownership of the home throughout the mortgage loan period.

Question 2

What is a Promissory note?

Answer 2

Evidence of a debt

Question 3

What does a Promissory note contain?

Answer 3

Names of the parties
Interest Rate
Amount borrowed
Repayment terms

Question 4

Who is the mortgagor in a mortgage?

Answer 4

The borrower (property owner)

Question 5

Who is the mortgagee in a mortgage?

Answer 5

The lender

Question 6

When a loan has been repaid, what does the bank have to do?

Answer 6

Send a letter of satisfaction to the mortgagor within 60 days of receiving the final payment

Question 7

What are the mortgage clauses present in a mortgage?

Answer 7

Defeasance Clause
Escalation Clause
Exculpatory Clause

Question 8

What is a defeasance clause?

Answer 8

it is a clause which protects the borrower (mortgagor) because it provides protection to the borrower as it prevents the lender from contacting the borrower as long as the borrower is performing as agreed in the mortgage (making payments on time)

Question 9

What is an escalation clause?

Answer 9

This is a clause that protects the mortgagee (lender) because it allows the lender to increase the interest rate if the borrower is using the home for a purpose different than what was said at the time of purchase, or if the borrower is consistently making late payments

Question 10

What is an Exculpatory Clause?

Answer 10

This clause protects the mortgagor. It prevents the lender from coming after the borrower for any deficiency from the sale of their foreclosed home.

Question 11

What are points in a mortgage loan?

Answer 11

They are loan origination fees
1 point = 1% of the loan in dollars
1 point = 1/8 of the interest rate%

Question 12

What are discount points?

Answer 12

Upfront payment to the lender made in exchange for a lower interest rate. Also known as a buydown.

Question 13

What is an effective yield?

Answer 13

it is the final interest rate the borrower gets after factoring in the points paid at closing

Question 14

How would you calculate an effective yield?

Answer 14

multiply the number of points by 1/8
add the resulting percentage to the original interest rate

Question 15

How do you calculate the Loan to Value ratio?

Answer 15

Divide the amount borrowed by the purchase price of the home
multiply by 100%

Question 16

What is equity of redemption?

Answer 16

When the borrower has the chance to redeem himself after having defaulted by paying the amount remaining in the loan before the foreclosure takes place. This can be done up until the moment of foreclosure (during the auction)

The foreclosure would not go in your credit history since the loan was paid before the foreclosure officially happened.

Question 17

What happens if a the lien is paid off entirely from a foreclosure sale and there is extra money?

Answer 17

surplus funds are paid to the mortgagor (original borrower)