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Sales Associate Pre-Licensing > Chapter 12: Residential Mortgages > Flashcards

Chapter 12: Residential Mortgages Flashcards

1
Q

Title Theory of Mortgages

Title theory is the oldest form of mortgaging. What are the characteristics of title theory mortgage?

A

The borrower temporarily conveyed ownership of property to the lender for the duration of the loan period. If the borrower defaulted, the lender took possession of the property

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2
Q

Lien Theory of Mortgages

What are the characteristics of a lien theory mortgage?

A

The borrower retains ownership of the property during the loan period; the lender records the mortgage which creates a lien against the property; borrower h as right to cure default instead of simply forfeiting the property

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3
Q

Promissory Note

When is a promissory note required?

A

When money is borrowed to purchase real estate; borrower signs promissory note aka note or bond

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4
Q

Promissory Note

A promissory note is a ______ instrument that include borrower’s promise to repay a loan according to terms.

A

legal

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5
Q

Promissory Note

A note is evidence of a __________ _____, and contains the names of the parties, rates of interest, amount borrowed, and the loan terms

A

personal debt

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6
Q

Mortgage

A mortgage accompanies a note and is security for its repayment. What is a mortgage?

A

the borrower’s pledge of mortgaged property to secure repayment of the note

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7
Q

Mortgage

What gives a lender the ability to foreclose on property in the event of a default?

A

the mortgage

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8
Q

Mortgage

True or False

A borrower doesn’t get a mortgage at closing, he/she gives a mortgage to the lender (bank)

A

True

A mortgage is the borrower’s pledge/promise of mortgaged property to secure repayment of a note; the borrower gives a mortgage and gets a note

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9
Q

Mortgage Requirements

What are the requirements of a mortgage?

A

Be in writing

Signed by mortgagor (borrower)

Conform to requirements of a valid contract

Contain legal description of property

Witnessed by 2 people

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10
Q

Satisfaction of Mortgage

In a line theory state, when a loan is paid in full, the mortgagor (borrower) should receive a _________ __ ___________ form the mortgagee (lender) within ___ days of the loan payoff.

A

letter of satisfaction; 60

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11
Q

Essential Elements of a Mortgage

Acceleration Clause

This clause allows a lender to declare outstanding balance due and ______ __________ whenever default occurs.

A

payable immediately

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12
Q

Essential Elements of a Mortgage

Cognovit Clause

This clause gives a lender the right to foreclose by requiring a borrower to admit ________ default at the time a loan is obtained

A

future

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13
Q

Essential Elements of a Mortgage

Defeasance Clause

The clause provides protection for the __________ as it requires the _______ to acknowledge performance; it is the only legally necessary clause in a mortgage

A

borrower; lender

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14
Q

Essential Elements of a Mortgage

Due-on-sale Clause

This clause, present in a loan or promissory note stipulates that full balance may be called due-on-sale upon _________ __ _________ of the property used to secure the note; it prevent the borrower from transferring any interest in mortgaged property w/out permission of the lender

A

transfer of ownership

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15
Q

Essential Elements of a Mortgage

Escalation Clause

The clause allows a lender to ________ the interest rate based on the occurrence of an event such as change in use of property or consistently late payments

A

increase

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16
Q

Essential Elements of a Mortgage

Exculpatory Clause

The clause limits the ________ rights in a _________ to the amount received from the sale of the foreclosed property; the lender cannot obtain deficiency judgment for unsatisfied amount

A

lender’s; foreclosure

17
Q

Essential Elements of a Mortgage

Insurance Clause (Covenant of Insurance)

The insurance clause is the __________ promise to maintain adequate insurance coverage

A

borrower’s

18
Q

Essential Elements of a Mortgage

Maintenance Clause (Covenant if Good Repair)

This clause requires the ________ to maintain the property during term of the loan to protect the property’s value

A

borrower

19
Q

Essential Elements of a Mortgage

Open-end Clause

True or False

This clause allows a borrower to borrow additional money based on the same mortgage after the loan balance has been paid down

A

True

20
Q

Essential Elements of a Mortgage

Prepayment Clause

True or False

A prepayment clause allows a borrower to pay off a loan early and would include the amount due with interest to be paid at the time of the prepayment

A

False

A prepayment clause allows a borrower to pay off a loan early, thereby avoiding the interest that would otherwise have to be paid

21
Q

Essential Elements of a Mortgage

Receivership Clause

This clause is used in mortgages on ________-_______ real estate. If the investor defaults, the lender may ask court to appoint a trustee, referred to as a receiver, to manage the property during foreclosure process.

A

income-producing

22
Q

Essential Elements of a Mortgage

Release Clause

A release clause is found in mortgages that cover more than one parcel of land, usually those given by __________ and ___________.

A

builders, developers

23
Q

Essential Elements of a Mortgage

Right to Reinstate Clause

True or False

This clause gives a borrower the right to cure a loan in default by paying loan payments in arrears, along with accrued interest, late payment charges, and legal costs before foreclosure is final

A

True

24
Q

Essential Elements of a Mortgage

Subordination Clause

This clause allows a ______ recorded earlier to be placed in a secondary position to a new one; commonly used to finance vacant land when development is planned

A

lien

25
Q

Essential Elements of a Mortgage

Tax Clause (Covenant to Pay Taxes)

This clause consists of the borrower’s _______ to pay property taxes during the loan period

A

promise

26
Q

The Equal Credit Opportunity Act (ECOA)

The Equal Credit Opportunity Act requires lenders to judge every loam applicant on the basis of the applicant’s own _______ _______ and ______.

A

credit rating; income

27
Q

The Equal Credit Opportunity Act (ECOA)

True or False

Lenders are not required to consider a spouse’s income, part-time income, alimony, child support, or separate maintenance in the approval process

A

False

Lenders ARE required to consider a spouse’s income, part-time income, alimony, child support, or separate maintenance in the approval process

28
Q

The Equal Credit Opportunity Act (ECOA)

Lenders cannot discriminate against a borrower on the basis ______, _______, ________, ________ _______, sex, marital status, age, or receipt of income from public assistance programs

A

race, color, religion, national origin

29
Q

Income Ratios

What are the two income ratios used to determine whether a loan will be approved?

A

Housing expense ratio

Total obligations ratio

30
Q

Housing Expense Ratio

What is used to determine the housing expense ratio and how is it calculated?

A

Monthly principal payment, interest, taxes and insurance (PITI) and monthly gross income

Monthly PITI/Monthly gross income = housing expense ratio

31
Q

Total Obligations Ratio

What is used to determine the total obligations ratio and how is it calculated?

A

Monthly principal payment, interest, taxes and insurance (PITI), other monthly obligations, and monthly gross income

Monthly PITI + Other monthly obligations/Monthly gross income = Total Obligation Ratio

32
Q

Income Ratios

Lender impose different maximum ratios depending on the type of loan. What are the maximum allowed ratios for a conventional lender

A

Housing expense - Total obligations

28% - 36%

33
Q

Income Ratios

Lender impose different maximum ratios depending on the type of loan. What are the maximum allowed ratios for an FHA loan

A

31% - 43%

34
Q

Income Ratios

Lender impose different maximum ratios depending on the type of loan. What are the maximum allowed ratios for a VA loan

A

No housing expense ratio - 41%

35
Q

Default

Equity Redemption

Equity right of redemption is the right of the borrower to do what?

A

To cure default before foreclosure rather than lose the property

36
Q

Default

Statutory Right of Redemption

Statutory right of redemption is the right a borrower has to do what?

A

To redeem from foreclosure for a period-of-time after a foreclosure sale (not recognized in FL)

Sales Associate Pre-Licensing (17 decks)

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