Chapter 12 - Real Estate Finance

Question 1

Acceleration clause

Answer 1

Authorizes the mortgagee to accelerate or advance the due date of the entire unpaid balance and call the entire debt due and payable if the mortgagor defaults.

Question 2

Adjustable-rate mortgage (ARM)

Answer 2

A financing technique in which the lender can raise or lower the interest rate according to a predetermined index.

Question 3

Amortized mortgage

Answer 3

A loan in which the debt is gradually and systematically killed or extinguished by equal regular period payments; the entire loan is paid off at the end of the loan term.

Question 4

Assignment of mortgage

Answer 4

A legal instrument that states that the mortgagee assigns (transfers) the mortgage and promissory note to the purchaser.

Question 5

Balloon payment

Answer 5

A single, large final payment, including accrued interest and all unpaid principal due at maturity of a partially amortized mortgage.

Question 6

Biweekly mortgage

Answer 6

A mortgage loan amortized the same way as other loans with monthly payments, except that the borrower makes a payment every two weeks.

Question 7

Blanket mortgage

Answer 7

One debt instrument covering two or more parcels.

Question 8

Contract for deed

Answer 8

A financing method in which the title to the real property remains with the seller until the loan is repaid.

Question 9

Conventional loan

Answer 9

A conventional loan is one that is not insured or guaranteed by a government agency.

Question 10

Deed in lieu of foreclosure

Answer 10

A friendly foreclosure (nonjudicial procedure) in which the mortgagor gives title to the mortgagee.

Question 11

Defeasance clause

Answer 11

In title theory states, requires the lender to convey legal title to the borrower once the debt is repaid; in lien theory states, the clause requires the lender to release the mortgage lien when the debt is repaid.

Question 12

Due-on-sale clause

Answer 12

A provision in a conventional mortgage that allows the mortgagee to call due the outstanding loan balance plus accrued interest, thereby preventing the loan assumption.

Question 13

Entitlement

Answer 13

The maximum amount for an individual veteran that the government will guarantee for a VA loan.

Question 14

Equity of redemption

Answer 14

Allows the mortgagor to prevent foreclosure from occurring by paying to the mortgagee the principal and interest due plus any expenses the lender has incurred in attempting to collect the debt.

Question 15

Estoppel certificate

Answer 15

A written statement signed by the borrower verifying the amount of the unpaid balance, the rate of interest, and the date to which the interest has been paid prior to assignment; also, often requested by a closing agent to verify the payoff amount for the seller prior to conveying a property.

Question 16

Home equity loan

Answer 16

A mortgage secured by a personal residence. It provides a line of credit available for draws when needed by the homeowner. It is sometimes used as a home improvement loan.

Question 17

Hypothecation

Answer 17

To pledge real or personal property as security for a debt or obligation without giving up possession of the property.

Question 18

Index

Answer 18

The rate to which an adjustable-rate loan is tied; at set adjustment periods, the borrower’s interest rate moves up or down as the index rate changes.

Question 19

Interest rate

Answer 19

The price (rent) individuals pay to borrow money.

Question 20

Loan-to-value (LTV) ratio

Answer 20

Relationship between amount borrowed and appraised value (or sale price) of a property.

Question 21

Margin

Answer 21

The percentage that is added to the index to calculate each interest rate change in an adjustable rate mortgage; it covers the lender’s expenses plus profit.

Question 22

Mortgage

Answer 22

A written agreement signed by the mortgagor to voluntarily pledge the property as collateral for the debt.

Question 23

Mortgagee

Answer 23

A lender who holds a mortgage on specific property as security for the money loaned to the borrower.

Question 24

Mortgage insurance premium (MIP)

Answer 24

A premium for mortgage insurance on FHA mortgages to protect the lender from loss in the event of a default.

Question 25

Mortgagor

Answer 25

A borrower who gives a mortgage on his or her property in order to obtain a loan from a lender.

Question 26

Note

Answer 26

The legal instrument that represents the evidence of a debt and a promise to repay the debt.

Question 27

Novation

Answer 27

The substitution of a new debtor (buyer) and release of a former debtor (seller) for an existing debt by mutual agreement and with approval of the mortgagee.

Question 28

Nonconventional loan

Answer 28

Nonconventional loans include FHA-insured and VA-guaranteed loans.

Question 29

Package mortgage

Answer 29

A loan including both real and personal property as security for the debt.

Question 30

Partial release clause

Answer 30

A clause in a blanket mortgage allowing for release from the mortgage of certain individual parcels upon payment of a specified amount.

Question 31

Prepayment clause

Answer 31

A provision in a mortgage that allows the mortgagor to pay off part or all of the mortgage debt, without penalty or other fees, prior to maturity.

Question 32

Prepayment penalty

Answer 32

Allows an extra charge if any amount of the loan is paid off early.

Question 33

Purchase-money mortgage (PMM)

Answer 33

Any new mortgage accepted by the seller as part of the purchase price.

Question 34

Receivership clause

Answer 34

Allows a receiver to be appointed to collect income from the property to ensure it is used to make mortgage payments in the event of default.

Question 35

Satisfaction of mortgage

Answer 35

A recordable instrument provided by the lender within 60 days of payoff as evidence the mortgage debt is paid in full.

Question 36

Subject to the mortgage

Answer 36

A buyer makes regular periodic payments on the mortgage but does not assume responsibility for the mortgage note.

Question 37

Subordination clause

Answer 37

A provision in a mortgage that provides that the lender voluntarily will allow a subsequent mortgage to take priority over the lender’s otherwise superior mortgage; the act of yielding priority.

Question 38

Statutory redemption period

Answer 38

A statutory redemption period allows the mortgagor to redeem a foreclosed property for a specified period of time after the foreclosure sale. There is no statutory redemption period available in Florida.

Question 39

Wraparound mortgage

Answer 39

A financing technique in which payment of the existing senior mortgage is continued by the original mortgagor (seller) who sells the property and then holds a higher rate junior mortgage for a new buyer. The seller receives payment from the junior mortgage and remits payment due on the prior senior mortgage.