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RE Principles > Chapter 12 - Financing Contingencies > Flashcards

Chapter 12 - Financing Contingencies Flashcards

1
Q

Hypothecation

A

Places a home as collateral for a loan.

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2
Q

Mortgage

A

Places the house as security for the loan. Not normally used in California.

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3
Q

Deed of Trust

A

An instrument placing the real property being purchased or refinanced as collateral for the loan.

Secures a promissory note.

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4
Q

Foreclosure

A

Procedure whereby property pledged as security for a debt is sold to pay the debt in the event of default in payments or terms.

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5
Q

Nominal Interest Rate

A

Rate named in the promissory note.

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6
Q

Effective Interest Rate

A

Actual rate of interest the borrower pays including loan fees, discount points and other loan costs. Also represents the annual percentage rate (APR).

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7
Q

Discount Points

A

Allows a borrower to pay a certain amount of money upfront to reduce the loan interest rate.

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8
Q

Fixed Rate Loan

A

The monthly principal and interest payment is the amount the borrower will pay throughout the life of the loan.

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9
Q

Adjustable Rate Loan

A

A loan that adjusts to some predetermined index that measures the cost of money and changes over the life of the loan.

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10
Q

Equity

A

Fair market value of a property minus the loans against it.

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11
Q

Debt

A

That which is due from one person or another.

Obligation, liability (e.g., money that is owed by a borrower to a lender.)

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12
Q

Loan-to-Value Ratio (RTV)

A

The loan amount divided by a property’s purchase price or appraised value - whichever is lower.

Loan Amount ÷ Price of Property = Loan-to-Value Ratio

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13
Q

Private Mortgage Insurance (PTI)

A

Used to insure a lender for the loan amount made above the 80% loan-to-value ratio.

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14
Q

80-10-10 Loan

A

80% first deed of trust
10% owner-carry second deed of trust
10% down payment

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15
Q

Impounds

A

Reserve account for property taxes and insurance that a lender usually collects from a borrower.

The lender then on behalf of the borrower, pays the property taxes and property insurance as they become due each year.

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16
Q

Interest Only/ Straight Note

A

Only interest is paid during the term of the loan.

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17
Q

Types of Real Estate Loans

A
  1. Interest Only Loan/ Straight Note
  2. Amortization and Fully-Amortized Loan
  3. Partially-Amortized Loan
  4. Negative Amortization
  5. Shared appreciation loan
  6. Reverse mortgages
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18
Q

Partial Amortization Loan

A

Loan that is paid off like a fully amortized loan, except the loan becomes due and payable sometime before the end of the amortization period. Usually 5-7 years from the loan origination date.

Lump sum payment is called balloon payment

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19
Q

Balloon Payment

A

Lump sum that is due at the end of a partially amortized loan.

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20
Q

Negative Amortization

A

Loan requires monthly payments that are not sufficient to cover the monthly interest that is due on the loan.

It does not reduce the principal balance of the loan.

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21
Q

Shared Appreciation Loan

A

Allows the lender to participate in the increase in value of a borrower’s property.

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22
Q

Reverse Mortgage

A

Allows a senior citizen to stay in their home while taking the equity out of the home each month through a reverse mortgage.

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23
Q

Promissory Note & Types of Promissory Notes

A

Evidence of a debt obligating that is an unconditional promise to pay the loan back with interest.

An “IOU” that specifies the amount and terms of the loan, but there is no collateral securing a note that is by itself.

Promissory Note (evidence of debt & is an IOU) + Deed of Trust (collateral for the loan & security for the promissory note)= Home Loan

  1. Seasoned note
  2. Holder in due course
  3. Note endorsements
  4. Joint and several note
  5. Negotiable Instrument
  6. Promotional Note
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24
Q

Seasoned Note

A

A promissory note with a previous history of prompt loan payments.

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25
Q

Holder in Due Course

A

A lender or person who PURCHASES a loan (promissory note / deed of trust) FROM THE ORIGINAL lender or someone the original lender sold the loan to (subsequent holder).

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26
Q

Note Endorsements

A

A promissory note can be endorsed (signed) as a blank endorsement, restricted endorsement, or a qualified endorsement.

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27
Q

Joint and Several Note

A

Makes each borrower responsible jointly and severally for the promissory note.

Each borrower is responsible together with the other borrowers on the note, along with each borrower severally (separately).

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28
Q

Negotiable Instrument

A

A document that can be used as an item of exchange and negotiated.

Examples – checks drafts, installment notes

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29
Q

Promotional Note

A

Provides borrowers with attractive financing to stimulate sales in a subdivision.

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30
Q

Who are the 3 parties in a trust deed.

Trustor vs Trustee vs Beneficiary

A

Trustor - borrower, signs the note and deed of trust

Trustee - 3rd party who holds a basic legal title to the property, has power of sale in the event of foreclosure.

Beneficiary - Lender

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31
Q

Deeds of Trust / Trust Deeds

A

An instrument placing the real property being purchased or refinanced as collateral for the loan.

Secures the PROMISSORY NOTE and COLLATERALIZES the LOAN.

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32
Q

Trust Deed vs Grant Deed

A

Grant deed - convey a property’s title to someone else

Quitclaim deeds - remove someone from title

Trust deed - used to place the house as collateral for a real estate loan being made to the borrower who owns the property. 3 parties include the trustor, trustee, and beneficiary

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33
Q

Alienation Clause/ Due-on-Sale Clause

A

Provides that the principal amount of the loan plus accrued interest is due in the event of the sale of the property.

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34
Q

Prepayment Penalty

A

Provides for a certain sum to be paid by the trustor (borrower) if the loan is paid off before it matures.

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35
Q

Formal Loan Assumption

A

Assigns all loan rights, obligations, and responsibilities of the seller to the buyer.

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36
Q

Subject To

A

Lender does not approve the assumption and the seller continues to remain primarily liable for repayment of the loan for 5 years.

37
Q

Open-End Mortgage

A

A loan that allows additional borrowing at a later date

38
Q

Seller Financing

A

A loan made by the seller to the buyer.

39
Q

All-Inclusive Trust Deed (AITD) / Wraparound Mortgage

A

Used when prevailing interest rates are higher than the interest rate a property owner is presently paying on a property loan.

40
Q

Subordination

A

Allows a loan or lien to take priority over another loan or lien that was recorded prior to it.

Used for both construction loans and refinancing a first deed of trust when there is an existing second deed of trust already on the property.

41
Q

Discounting

A

Selling a promissory note for less than the face value of the note.

The buyer of the note waits until the note is due and then collects the face value.

42
Q

After-Acquired Title

A

Buildings that are built on a property that is already encumbered by a loan will be acquired by the lender if the property is foreclosed in the future.

43
Q

Deed of Reconveyance

A

Transfers the basic legal title held by the trustee back to the trustor.

44
Q

Blanket Trust Deed / Blanket Encumbrance

A

Several parcels of land under one trust deed.

45
Q

Release Clause / Partial Release Clause

A

Clause that allows the subdivider to sell lots within a subdivision and remove them from under an existing blanket encumbrance.

46
Q

Foreclosure procedures for a deed of trust

A
  1. Power of sale
  2. Acceleration clause
    notice of default
47
Q

Power of Sale

A

The trustor gives the power of sale in a deed of trust to the trustee.

48
Q

Acceleration Clause

A

Makes the loan due and payable upon the default of the borrower.

49
Q

Notice of Default

A

Recorded by the trustee when the trustor defaults on the loan payments made to the beneficiary. Occurs when the trustee moves forward with foreclosure proceedings.

50
Q

Request for Notice of Default

A

Alerts a holder (beneficiary/lender) of the second trust deed when the trustor has defaulted on the first trust deed.

51
Q

Reinstatement

A

Trustor has up to 5 days before the trustee’s sale to pay up the back interest due on the loan and other lender fees and costs.

52
Q

Deficiency Judgement

A

A judicial foreclosure allows a lender to pursue a deficiency judgment against the borrower.

53
Q

Redemption Period

A

When a lender forecloses using a deficiency judgment, the borrower has a one-year redemption period to redeem the property.

54
Q

Deed in Lieu of Foreclosure

A

A trustor informs the beneficiary (lender) that he/she does not want to go through with the foreclosure process, so the trustor deeds the property directly to the beneficiary/lender.

55
Q

Trustee’s Sale

A

Nonjudicial foreclosure of a deed of trust.

56
Q

Short Sale

A

When the loan balance is greater than the value of the home, the borrower may ask the lender to voluntarily take a loss before the trustee’s sale.

57
Q

Real Estate Owned (REO)

A

Occurs when a lender receives a property through a trustee’s sale.

58
Q

Good Title

A

Accomplished with a grant deed and title insurance.

59
Q

Trustee’s Deed Upon Sale

A

Deed used to convey title from the trustee to the buyer.

60
Q

Mortgagor vs Mortgagee

A

Mortgagor - Borrower for a mortgage

Mortgagee - Lender for a mortgage

61
Q

Real Property Sales Contract / Land Contract / Installment Contract

A

The seller sells the property to a buyer and extends credit to the buyer using a real property sales contract.

62
Q

Vendor vs Vendee

A

Vendor - Seller for a real property sales contract. holds legal title to the property.
Vendee - Buyer/borrower for a real property sales contract. Holds equitable title (possession) to the property.

63
Q

5 Loan Types

A 
"HPCGC"
Hard Money
Purchase Money
Conventional
Government
Construction
64
Q

Hard Money Loan

A

Usually secured by real estate and given to a 3rd party to obtain a cash loan.

65
Q

Usury

A

When a lender charges an interest rate that is higher than allowed by law.

66
Q

Purchase Money Loan

A

A loan used to purchase real property

67
Q

Conventional Loan

A

Loans made by institutional lenders such as commercial banks and savings banks that do not have government insurance or guarantees.

68
Q

Federal Housing Administration (FHA) Loan

A

High loan-to-value government-insured loan

69
Q

Department of Veteran’s Affairs (VA) Loan

A

High loan-to-value government guaranteed loans for veterans.

70
Q

California Veterans Farm and Home Purchase Program (CalVet) Loan

A

Provides low-cost, low-interest financing for eligible veterans who purchase a home, farm or mobile home as a primary residence in CA.

71
Q

California Housing Finance Agency (CalHFA) Loan

A

Supports the needs of renters and homebuyers by providing financing and programs so that low to moderate income Californians can buy a home.

72
Q

US Dept. of Agriculture (USDA) Loan

A

Providing financial assistance to farmers and others living in rural areas where finacing is not available on reasonable terms from private sources.

73
Q

Construction Loan

A

aka Interim loan / Loan for obligatory advances

A loan used during the construction of a property. Usually short term and is usually replaced after completion of the project with a permanent, long-term take-out loan.

74
Q

Take-Out Loans

A

Long term financing used after a home has been built on a property.

75
Q

Standby Loan

A

A commitment from a lender to provide funds if needed by the borrower.

76
Q

Primary Mortgage Market

A

Lenders that make loans to borrowers.

77
Q

Mortgage Bankers vs Mortgage Brokers

A

Bankers - lenders that loan their own funds and sell them on the secondary mortgage market

Broker - lenders that do not loan their own funds but sell originated loans to lenders that operate on the secondary mortgage market.

78
Q

Secondary Mortgage Market

A

Primary market lenders sell their loans to lenders that operate on the secondary mortgage market.

79
Q

Fannie Mae

A

Lender that operates on the secondary mortgage market

80
Q

Secondary Mortgage Market

A

These lenders purchase pools of mortgages from primary mortgage market lenders (who make loans directly to borrowers)

securitize them through the issuance of mortgage-backed securities (securities that are collateralized by home loans and traded on the stock exchange)

then sells them to investors all over the world.

81
Q

Loan Correspondent

A

A lender that makes loans and sells them to lenders that operate on the secondary mortgage market.

82
Q

Loan Portfolio

A

The loans a lender keeps and continues to collect interest.

83
Q

Mortgage Yield

A

The return an investor will receive from a loan.

84
Q

Debt-Income Ratio

A

A loan qualifying tool:

Monthly Principal + Interest divided by the borrower’s gross monthly income

or

Monthly principal + interest + taxes + insurance + HOA fees + PMI + other recurring costs divided by gross monthly income.

85
Q

Liquidity

A

The ability of a borrower to convert assets into cash.

86
Q

Loan Commitment

A

A lender makes a formal commitment to make a loan to a borrower.

87
Q

Loan Estimate

A

Designed to provide disclosures that will help consumers to understand the key features, costs and risks of the mortgage for which they are applying.

88
Q

Closing Disclosure

A

Designed to provide disclosures that will be helpful to consumers in understanding all the costs of the loan.

89
Q

USA Patriot Act

A

A loan applicant is to be identified to determine if there exists an association with terrorism, narcotics trafficking and/or money laundering.

RE Principles (14 decks)

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