Chapter 15- Real Estate Fiancing Principles

Question 1

What is a Mortgage?

Answer 1

Is a voluntary lien on real estate.

Question 2

What is a promissory note?

Answer 2

Promissory note is considered a “Personal promise to pay” and “evidence of debt”

Question 3

Mortgage Loans

Answer 3

A mortgage loan, like all loans, creates a relationship between a debtor and a creditor.

Question 4

What two parts are of a mortgage loan?

Answer 4

The debt itself and the security for the debt.

Question 5

Hypothecation:

Answer 5

In mortgage in lending practice, a borrower is required to pledge specific real property as security (collateral) for the loan. The debtor retains the right of possession and control, while the creditor receives and underlying equitable right in the pledged property.

Question 6

The promissory note:(also called a note or financing instrument)

Answer 6

Is the borrower’s personal promise to repay a debt according to agreed terms.

Question 7

Title Theory-

Mortgagor is the borrower
Mortgagee is the lender

Answer 7

Mortgagor gives title mortgagee (borrower) retains equitable title.

Question 8

Lien Theory-
In Illinois we are Intermediate Theory State

Answer 8

Mortgagor keeps both legal + equitable title, lender puts lien on property.

Question 9

What does Intermediate Theory State mean?

Remember we do Intermediate Theory State in Illinois

Answer 9

Mortgagor retains title
Mortgages convey qualified title to be used as security to debt.

Question 10

Interest:

Answer 10

Is the charge for the use of money

Question 11

What is Usury?

Answer 11

Charging interest in excess of the maximum rate allowed by law.

See exception laws

Question 12

Loan Origination Fee

Answer 12

A processing of a mortgage application is called loan origination, the fee is charged by most lenders to cover the expenses involved in generating the loan.

Question 13

Discount Points

Answer 13

The amount of points charged depends on the difference between the interest rate and the required investor yield and how long the lender expects it will take the borrowed to pay off the loan.

One discount point equals 1% of the loan amount and is charged as prepaid interest at the closing.

See page #290 of book for example

Question 14

Prepayment:

Answer 14

When a loan is paid before the time, therefore the lender does not make the money in interest that is was programmed to.

Question 15

Deed of Trust

Answer 15

Lenders may prefer to use a three- party instrument called a deed of trust, rather than a mortgage.
A deed of trust conveys naked title or bare legal title- that is title without the right of possession.

Question 16

Duties or the Mortgagor or Trustor-
The borrower is required to fulfill certain obligation created by the mortgage or deed of trust

Answer 16

Payment of the debt in accordance with the terms of the note;………not done look at page 292

Question 17

Acceleration Clause

Answer 17

The mortgage or deed of trust typically includes the acceleration clause to assist the lender in foreclosure .

Question 18

Alienation Clause

Answer 18

Provides that when the property is sold, the lender may either declare the entire debt due immediately or permit the buyer to assume the loan at the current market.

Question 19

Assignment of the Mortgage…….

Question 20

TAC AND INSURANCE RESERVES
Escrow account…..

Question 21

Flood Insurance Reverves…..

Question 22

Assignment of Rents-

Answer 22

If the property involved includes rental units, the borrower many provide for rents to be assigned to the lender in the event of the borrower’s default. the assignment may be included in the mortgage or deed of trust, or it many be a separate document.

Question 23

Recording a Mortgage or Deed of Trust

Answer 23

The mortgage document or deed of trust must be recorded in the recorder’s office of the county in which the real estate location.

Question 24

Land Contract….

Question 25

Predatory Lending and Mortgage Fraud….

Question 26

Mortgage Law…

Question 27

Title Theory

Answer 27

The mortgagor actually gives legal title to the mortgagee ( or some other designated individual) and retains equitable title.

Question 28

Equitable Title….

Question 29

Lien Theory

Answer 29

States, the mortgagor/borrower holds both legal and equitable title. The mortgagee/lender simply has a lien on the property as a security for the mortgage debt.

Question 30

Defeasance Clause…

Answer 30

…..

Question 31

FORECLOSURE

Methods of Foreclosure

Answer 31

There are three methods of foreclosure proceeding- non-judicial, judicial and strict foreclosure.

Question 32

What is Non-Judicial Foreclosure?

Answer 32

Allows the property to be sold by court order after the mortgage has given sufficient public notice. When a borrower defaults, the lender accelerate the due date of the remaining principal balance, along with all overdue interest, penalties, and administrative costs.

Question 33

What is a Foreclosure?

Answer 33

Is the legal procedure in which property is pledge as security for a loan is sold to satisfy the debt.

Question 34

What is Strict Foreclosure?

Answer 34

It is still possible in some states for a lender to acquire mortgaged property through a strict foreclosure process. In this process, appropriate notice I must first be given to the delinquent borrower….papers have been prepared and recorded, the court establishes a deadline by which the balance of the defaulted debt must be pain in full, if not paid, the court simply awards full legal title to the lender.

Question 35

Deed in Lie of Foreclosure

Answer 35

As an alternative to foreclosure, and enter may accept a dee in lieu of foreclosure for the borrower. Also called a friendly foreclosure because its carried out by mutual agreement.

Question 36

Redemption…