Chapter 14: Real Estate Financing: Principles Flashcards
acceleration clause
The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrower defaults on an installment payment or another covenant
adjustable-rate mortgages (ARMs)
A loan characterized by a fluctuating interest rate, usually one tied to a published index. Caps for adjustments on periodic interest, lifetime interest, and payment amounts are normal
alienation clause
This clause prevents the borrower from letting someone else assume the debt without the lender’s approval
amortized loan
A loan in which principal as well as interest is payable in periodic installments over the term of the loan
balloon payment
A final payment of a mortgage loan that is larger than the required periodic payments because the loan amount was not fully amortized
beneficiary (financing)
A lender in a deed of trust loan transaction
debt service
The principal and interest payment on a loan
deed in lieu of foreclosure
A deed given by the mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. This avoids foreclosure but does not remove liens from the property; “friendly foreclosure”
deed of trust
An instrument used to create a mortgage lien by which the borrower conveys title to a trustee, who holds it as security for the benefit of the note holder (the lender); also called a trust deed
default
The nonperformance of a duty, whether arising under a contract or otherwise; failure to meet an obligation when due
deficiency judgment
A personal judgment levied against the borrower when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full; a general lien
direct reduction loans
A mortgage loan that requires a fixed amount of principal payment in each period; the total debt service payment starts higher than with a level payment loan since interest portion will reduce with each payment
discount points
Interest paid in advance; one point equals 1% of the loan amount for the borrower and increases the yield for the investor approximately ⅛%
due-on-sale clause
A provision in a mortgage that states that the entire balance of the note is immediately due and payable if the mortgagor transfers (sells) the property
equitable title
(1) The interest held by the grantor in a deed of trust that allows possession and use of the pledged property
(2) The interest held by a vendee under a contract for deed or an installment contract; the equitable right to obtain absolute ownership to property when legal title is held in another’s name.
equity
The interest or value that an owner has in property over and above any indebtedness
equity of redemption
The right of a borrower in default on a mortgage loan to reclaim the forfeited property prior to the foreclosure sale through payment in full of all debt and associated costs.
foreclosure
A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. The foreclosure procedure brings the rights of all parties to a conclusion and passes the title in the mortgaged property to either the holder of the mortgage or a third party who may purchase the realty at the foreclosed sale, free of all liens affecting the property subsequent to the mortgage.
