Chapter 15: Real Estate Finance

Question 1

Acceleration Clause

Answer 1

A condition in a loan contract that permits the lender to require immediate repayment of the entire loan balance of the loan if the contract is breached or conditions for repayment occur, such as sale or demolition

Question 2

Assumption

Answer 2

The taking over of an existing mortgage by a buyer

Question 3

Contract for Deed

Answer 3

An instrument by which a prospective buyer pays for a property in installments. Legal title is conveyed in the future after payment of the full price or an otherwise specified amount

Question 4

Deed in Lieu of Foreclosure

Answer 4

A deed from an owner to a mortgage lender to avoid the necessity of a foreclosure lawsuit

Question 5

Defeasance Clause

Answer 5

Provides the borrower with a satisfaction of mortgage once the note has been repaid (a mortgage is “defeated” and the real property is no longer pledged as collateral)

Question 6

Discount Point

Answer 6

Pre-paid interest charged by the lender at the time of closing; a discount point is equal to 1% of the loan amount

Question 7

Due-On-Sale Clause

Answer 7

A mortgage clause that causes the entire loan balance to become due upon the sale of the property

Question 8

Equity

Answer 8

The market value of a property less any mortgages attached

Question 9

Equity of Redemption

Answer 9

The right of a mortgagor, before a foreclosure sale, to reclaim forfeited property by paying the entire indebtedness

Question 10

Escrow

Answer 10

A depository account in a bank, trust company, title company or attorney having trust powers, credit union, or savings and loan association within the state of Florida where funds are placed and held in trust until disposition is authorized

Question 11

Estoppel Certificate

Answer 11

A written statement by a mortgagee verifying the balance due on the mortgage

Question 12

Exculpatory Clause

Answer 12

The borrower is not personally responsible for the debt (a non-recourse loan): The lender will not seek a deficiency judgment

Question 13

Interest

Answer 13

The price paid for the use of borrowed money

Question 14

Lien Theory

Answer 14

Legal concept that regards a mortgage as a just claim (lien) on specific property pledged as security for a mortgage debt

Question 15

Lis Pendens

Answer 15

Constructive notice of a pending legal action

Question 16

Loan Origination Fee

Answer 16

A separate fee charged by a mortgage lender added to the closing costs of the buyer

Question 17

Loan Servicing

Answer 17

Collecting and processing payments on behalf of the mortgage

Question 18

Loan-to-value ratio

Answer 18

The relationship between the loan amount to the value of a property

Question 19

Mortgage

Answer 19

A document providing written evidence of a creditor’s right to have a debtor’s real property sold upon default and foreclosure

Question 20

Mortgagee

Answer 20

The lender; the one to whom the property is pledged

Question 21

Mortgagor

Answer 21

The borrower; the one pledging the collateral as security for a debt

Question 22

Note

Answer 22

Legal evidence of a debt that must accompany a mortgage in Florida; a legally executed pledge to pay a stipulated sum of money

Question 23

Novation

Answer 23

Substitution of a new contract for an existing contract between the same or different parties

Question 24

PITI

Answer 24

A mortgage payment that includes principal, interest, taxes, and insurance

Question 25

Prepayment clause

Answer 25

Mortgage provisions permitting the borrower to make loan payments in advance of their due dates

Question 26

Prepayment penalty

Answer 26

Mortgage provision that allows a monetary penalty to be imposed if the loan is paid off ahead of schedule

Question 27

Right to reinstate

Answer 27

The ability to recover from default by bringing current all payments due

Question 28

Satisfaction of mortgage

Answer 28

Document signed by mortgagee indicating the entire loan is satisfied and the mortgage is discharged

Question 29

Subject to mortgage

Answer 29

A grantee taking title to real estate “subject to the mortgage,” is not assuming personal liability to the mortgagee for the payment of the mortgage note. In the event of a default on payment of the note, the grantee could lose the property and any equity he has in the property in a foreclosure sale

Question 30

Subordination agreement

Answer 30

An agreement whereby the holder (mortgagee) of a higher priority mortgage agrees to subordinate or relinquish its priority position to an existing or subsequent mortgage

Question 31

Title theory

Answer 31

A concept in lending whereby title temporarily transfers to the mortgagee until the debt is repaid

Question 32

Wraparound mortgage

Answer 32

In general, a second mortgage with a face amount equal to the balances due under the first and second mortgage. The wrap around mortgagee collects all the money and makes the monthly payment due on the first mortgage

Question 33

Which of the following is not an essential element of a mortgage?

    A     The promise to pay taxes and insurance
B	The promise to live on the premises as the 
            mortgagor's primary residence
C	The promise to maintain the property in good 
            condition
D	The promise not to remove real property from 
            the premises

Answer 33

B The promise to live on the premises as the

mortgagor’s primary residence

Question 34

A non-judicial proceeding that voluntarily transfers title to the mortgagee without the need for a foreclosure is known as:

Answer 34

Deed in lieu of foreclosure

Question 35

After a mortgage is paid in full, a mortgagor should request that the mortgagee sign and record a:

Answer 35

Satisfaction

Question 36

Enrique finances the purchase of a condominium with a $300,000 mortgage at 8% interest and a charge of 4 points. How much money will the points cost Enrique?

Answer 36

$300,000 X 4 points (.04) = $12,000

Question 37

The market value of a property, less the value of existing mortgages, is known as:

Answer 37

Equity

Question 38

The due on sale clause:

    A     Accelerates the mortgage debt balance upon 
            conveyance to a third party
B	Is contained on most mortgages
C	Prevents mortgage assumption
D	All of the above

Answer 38

D All of the above

Question 39

A form of constructive notice concerning the existence of a pending litigation, such as a foreclosure, is known as:

Answer 39

Lis pendens

Question 40

What theory of mortgages does Florida subscribe to

Answer 40

Lien theory

Question 41

A mortgage clause that permits the lender to require immediate repayment of the entire balance of the loan in the event of default is known as the:

Answer 41

Acceleration Clause

Question 42

Which of the following transactions will require a buyer to be liable for an existing mortgage?

Answer 42

Assumption

Question 43

A superior mortgagee voluntarily allows a subsequent mortgagee to assume a priority position under the principle of:

Answer 43

Subordination

Question 44

Karen owns a house worth $250,000 with a mortgage debt of $200,000. What is her loan to value ratio?

Answer 44

$200,000 / $250,000 = 80%

Question 45

Enrique finances the purchase of a condominium with a $300,000 mortgage at 8% interest and a charge of 4 points. What will be the lender’s effective yield?

Answer 45

each point is worth 1/8th of a %, so 8½%

Question 46

A mortgagor has the right to retain ownership of the real propery pledged as collateral in a mortgage provided all of money owed is paid before to the issuance of a foreclosure Certificate of Title under the principal of:

Answer 46

Equity of redemption