Chapter 12 Flashcards
What is a mortgage?
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.
There are two theories when pledging
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
What is a deed of reconveyance?
is issued upon full payment of the loan to return title to the trustor
What is a promissory note?
is a promise to repay the debt
How many instruments are there to secure real estate?
Mortgage and a promissory note.
What is Hypothecation?
is an alternate term used when one pledges to secure a loan with something of value
What are the essential elements of a promissory note?
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
Who are the parties to a mortgage?
The mortgagor (borrower) who gives a mortgage to the mortgagee (the lender).
What is known as mortgage satisfaction?
is paid in full, it is said to be “satisfied.”
What is lien priority in foreclosure?
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:
What is a subordination agreement?
a lender may be willing to take a secondary position in the line of foreclosure.
What is known as junior mortgage?
When a mortgage achieves secondary position
Duties of a borrower in a mortgage deed trust situation
Promise to pay
Taxes and insurance
Covenant of a good repair
Clauses in a mortgage deed trust
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
Other clause that may exist in the loan instrument includes:
Borrower’s right to reinstate after acceleration
Due on sale clause
Hazardous Substances
What are the mortgage features?
Down Payment Earnest Money Deposit Loan to Value Ratio Equity Interest Loan Servicing Escrow
Other mortgage features include?
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
Alienation Clause is
preventing the transfer of an interest from one party to another without the lender’s consent.
What is Novation?
Is a new contract substituting the first mortgage contract
What is a wrap around mortgage?
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.
Judicial Foreclosures
requires the court to foreclose the property
Foreclosure payment priorities
- Cost of the sale (paid to the county for advertising, legal fees etc.) This is normally paid with the price of the purchase.
- Property taxes (These do not have to be recorded.) Ad Valorem Taxes, Special Assessment Taxes, and any Community Development District Taxes
- First mortgage or Deed of Trust or the first lienor
- All other mortgages and other types of liens recorded by date of recording including mechanic and materialman’s liens.
What is a short sale?
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.
