Chapter 12

Question 1

What is a mortgage?

Answer 1

is obtained by pledging property as collateral and promising to repay the loan with payments and times agreed upon with the mortgagee. A mortgage is an encumbrance upon a property.

Question 2

There are two theories when pledging

Answer 2

Lien theory state - the borrower keeps legal title to the property during the period of the loan and the lender places a lien against the property. Florida is a lien theory state.

Title Theory or deed of trust - the borrower gives title through a deed of trust to the lender, who is referred to as the beneficiary during the time of the loan

Question 3

What is a deed of reconveyance?

Answer 3

is issued upon full payment of the loan to return title to the trustor

Question 4

What is a promissory note?

Answer 4

is a promise to repay the debt

Question 5

How many instruments are there to secure real estate?

Answer 5

Mortgage and a promissory note.

Question 6

What is Hypothecation?

Answer 6

is an alternate term used when one pledges to secure a loan with something of value

Question 7

What are the essential elements of a promissory note?

Answer 7

The promissory note should have several essential elements, including the amount of the loan, the date by which it is to be paid back, the interest rate, and a record of any collateral that is being used to secure the loan

Question 8

Who are the parties to a mortgage?

Answer 8

The mortgagor (borrower) who gives a mortgage to the mortgagee (the lender).

Question 9

What is known as mortgage satisfaction?

Answer 9

is paid in full, it is said to be “satisfied.”

Question 10

What is lien priority in foreclosure?

Answer 10

It indicates who gets paid first.

Property taxes (These do not have to be recorded.)
Ad Valorem Taxes
Special Assessment Taxes
All other liens are based on the time of recording:

Question 11

What is a subordination agreement?

Answer 11

a lender may be willing to take a secondary position in the line of foreclosure.

Question 12

What is known as junior mortgage?

Answer 12

When a mortgage achieves secondary position

Question 13

Duties of a borrower in a mortgage deed trust situation

Answer 13

Promise to pay
Taxes and insurance
Covenant of a good repair

Question 14

Clauses in a mortgage deed trust

Answer 14

Acceleration clause - loan can be called due immediately if borrower misses payment

Alienation clause - mortgagee calls the entire balance of loan due

Prepayment penalty - allows early payment of mortgage

Defeasance clause - clause that provides satisfaction when the loan is paid in full

Question 15

Other clause that may exist in the loan instrument includes:

Answer 15

Borrower’s right to reinstate after acceleration

Due on sale clause

Hazardous Substances

Question 16

What are the mortgage features?

Answer 16

Down Payment
Earnest Money Deposit
Loan to Value Ratio
Equity
Interest
Loan Servicing
Escrow

Question 17

Other mortgage features include?

Answer 17

PITI Payment - stands for principal, interest, tax and insurance

Principal

Discount Points

Loan origination fee

Yield - rate of return

Take out commitment - 2nd phase of lending on commercial development

Estoppel Certificate - payoff letter from one lender to another. This letter that shows the current balance of the loan and is used by lenders when selling the note from one lender to another

Question 18

Alienation Clause is

Answer 18

preventing the transfer of an interest from one party to another without the lender’s consent.

Question 19

What is Novation?

Answer 19

Is a new contract substituting the first mortgage contract

Question 20

What is a wrap around mortgage?

Answer 20

Requires additional financing from a second lender and the approach is to make one payment for two loans. The original loan must be not assumable and with no alienation clause.

The advantage is that the buyer has a lower total interest rate. The disadvantage is that if the second lender does not make the payment to the first on the time schedule set by the first, late fees can be charged.

Question 21

Judicial Foreclosures

Answer 21

requires the court to foreclose the property

Question 22

Foreclosure payment priorities

Answer 22

1. Cost of the sale (paid to the county for advertising, legal fees etc.) This is normally paid with the price of the purchase.
2. Property taxes (These do not have to be recorded.) Ad Valorem Taxes, Special Assessment Taxes, and any Community Development District Taxes
3. First mortgage or Deed of Trust or the first lienor
4. All other mortgages and other types of liens recorded by date of recording including mechanic and materialman’s liens.

Question 23

What is a short sale?

Answer 23

is an agreement with the lender to accept an amount that may be less than is owed on the loan - based on current market conditions.