Chapter 12 - Financing Real Estate Flashcards
What are the important clauses in a mortgage?
Acceleration clause
Due on Sale clause.
Exculpatory clause (lender looks only to the property if borrower defaults; common in commercial, not in residential. Lender is comfortable with the equity in the property.)
What is the effect of witnessing a note in a real estate transaction?
The witness becomes a cosigner
What is the difference between a Lien Theory and a Title Theory state?
Name implies what the lender gets.
Title: mortgagor transfers property to lender thru mortgage deed or deed of trust until it’s paid off. Foreclosure is usually non-judicial and quick
Lien: Florida. Morgagor / borrower owns the property, and mortgagee / lender has a lien on the property.
Priority of disbursements among lienholders upon foreclosure of a property
Court/Govt gets paid first
Then pay off the lien-holder who was foreclosing
Then pay off subsequent liens in order of priority of recording (all junior liens are NOT paid a proportionate share of the remaining funds. E.G. the money isn’t spread around. It all can go to the next in line.)
What is PMI coverage?
Insurance that covers lender if buyer defaults and doesn’t have the assets to cover the deficiency.
Pays up to 25% of the original mortgage loan amount
What is the foreclosure process?
Serve, answer, smj, sale 20-35 days later, notice of sale runs 1x/week for 2 consecutive weeks in the local newspaper, bids and buy. Certificate of Sale issues upon payment, 10 days for objections. If none, then certificate of title issues.
What is the purpose of the Homeowners Protection Act of 1998?
Terminates PMI automatically when the borrower has achieved 22% equity in the home based on the original property value OR
If the borrower reaches 20% equity based on the original property value and the borrower requests it.
Borrower must be current in payments.
Continues if
1 loan is high risk
2 borrower has missed or been late on a payment I the past year, or
3 if there are other liens on the property.
What FHA loan programs are available?
FHA insured mortgage: insures loans made by private lenders.
203(b) program for houses: down payment (initial investment) is 3.5% of purchase price or appraised value (whichever is less).
The loan amount is always rounded to the next lower $50 increment.
234(c) Program similar to above but for condos
245 Program is for graduated payments for buyers who expect their income to increase over time. (Negative amortization)
What is the maximum VA loan guarantee?
$104,250.00 or top 25% of the loan amount. There is no down payment at all. A vet, if he qualifies, can get a loan with no down payment up to $417,000. If over $417K needed, vet has to put down 25% of any amount over $417K.
For active duty, surviving spouses of vets, and eligible vets.
How is the rate determined in an adjustable rate mortgage?
Add the index to the margin to get the rate. Watch for caps (annual and lifetime) and adjust to stay in the caps.
What is a novation?
When a new borrower assumes a mortgage, and the prior borrower is released from liability, that is a novation
When must a reverse mortgage be paid off?
When the last Homeowner leaves the home (not dies).
What is a caveat about blanket mortgages?
If there is no partial release clause in the mortgage, it is illegal for a licensee to sell or list the property that is secured by the blanket mortgage.
What is a “package mortgage”?
A mortgage that secures the real estate AND the furnishings in the home (for furnished vacation villas).
What is the only law that protects against discrimination in lending?
Equal Credit Opportunity Act
Not allowed to discriminate based on race, color, religion, sex, national origin, marital status, age (so long as over 18), public assistance, or history of making complaints when making a loan.
