Chapter 14 Real Estatte Flashcards
The borrower
Mortgagor
Lender
Mortgagee
Title Theory
In Title theory states:
- the borrower gives legal title to lender
- borrower retains equitable title
Lien theory
In lien theory states:
- borrower retains both legal and equitable title.
- Lender has lien.
- if borrower defaults, lender must go through a formal foreclosure process to obtain title.
Hypothecation
The pledge of property as security for loan without giving up possession.
Promissory note
A financing instrument that states the term of the loan.
It is negotiable (able to be transferred to a third party.
Interest
The charge for borrowing money
- Payments at the beginning of the month are called “payments in advance”.
- Payments at the end are called “Payments in arrears”. This is the general practice.
Usury
Charging a higher interest rate then allowed by law.
Loan origination fee
The charge for starting the loan process.
Deed of trust
Instead of a bank holding the title or lien, the interest of the property is put in a trust.
Borrower- Trustor
Lender- beneficiary
3rd party- Trustee
Usually foreclosure are simpler and quicker with a deed of trust
Duties of mortgager or trustor
- mortgage payment
- real estate taxes
- maintain insurance
- get authorization from lender before any major altercations
Acceleration clause
If borrower defaults, lender has the right to require entire amount of debt.
Without this clause, lender would have to sue for each individual payment.
Assignment of the mortgage
Mortgages may be sold to 3rd party as long as contract provisions are not changed.
Defeasance clause
The lender is required to execute a “satisfaction, release, or discharge” when loan has been paid I full.
This can be recorded.
Release Deed
deed of conveyance
The document given to owner after paying off loan for a deed of trust.
Flood insurance reserves
If a lender discovers you are in a flood zone, they require you obtain flood insurance within 45 days. If owner doesn’t get insurance, mortgagee will get it and charge owner.
(Buying)
Subject to mortgage or deed of trust
Buyer takes title to property but doesn’t take on liability for the mortgage.
Novation
An agreement in writing between buyer, seller and mortgagee, that transfers liability of the mortgage to the buyer.
Assuming a mortgage or deed of trust
When buyer legally transfers mortgage using a notation agreement
Recording a mortgage or deed of trust
- Must be recorded in city or county of property
- Gives constructive notice
- establishes priority
Land contract
Contract for deed
Installment contract
Owner financing
- Buyer (vendee) agrees to purchase property with seller (vendor) holding note
- Buyer gets equitable title and possession
- At the end of term buyer gets title
- if buyer defaults, payments are considered rent.
Foreclosure
The legal process of property being sold to satisfy debt
Methods of foreclosure
- judicial
- nonjudicial
- strict foreclosure
Judicial foreclosure
Wen the mortgagee files suit in court to have property sold
Nonjudicial foreclosure
Some states allow a power of sale clause. This give lenders the right to foreclose without going to court
Strict foreclosure
When courts give a date for the debt to be paid and if not, lender can sell property.
- only in some states.
- not the norm
Deed of lien in lieu of foreclosure
( friendly foreclosure)
- Disadvantage to lender
- doesn’t satisfy liens as in foreclosure
- lender looses rights to FHA or VA guarantees
- on borrowers credit report
Redemption
- Equitable right of redemption: to reclaim property before property is sold.
- Statutory right of redemption: to receive property upon payment after property is sold.
Deficiency Judgment
If a sale doesn’t cover expenses and balance, mortgagee my get a judgment.
Alienation clause
Prevents future purchasers from assuming the loan.
