Chapter 17 Flashcards
A ________________ involves the transfer of an interest in land as security for a loan or other obligation.
Mortgage
Three theories exist regarding who has legal title to a mortgaged property.
1) title theory - title rests with the mortgagee
2) lien theory - title remains with the mortgagors unless there is a foreclosure
3) intermediate theory - applies the lien theory until there is a default on the mortgage whereupon the title theory applies.
A _________________ is an investor that lends money secured by a mortgage on real estate
Mortgage lender
__________________ is the revenue earned by mortgage lenders when they sell a mortgage on the secondary mortgage market.
Service Release Premium
True or false: So that a buyer cannot unwittingly buy property subject to a mortgage, mortgages are registered or recorded against the title with a government office, as a public record.
True
A _______________ is the borrower in a mortgage—he owes the obligation secured by the mortgage.
Mortgagors
True or false: The lender’s rights over the secured property take priority over the borrower’s other creditors which means that if the borrower becomes bankrupt or insolvent the other creditors will only be repaid the debts owed to them from a sale of the secured property if the mortgage lender is repaid in full first.
True
Failure to make payments results in the ____________ of the mortgage.
Foreclosure
An _______________ in the mortgage allows the mortgagee to declare that the entire mortgage debt is due and must be paid immediately.
Acceleration clause
If the promissory note was made with a recourse clause and the sale does not bring enough to pay the existing balance of principal and fees, the mortgagee can file a claim for a _____________________.
Deficiency judgment
Items included to calculate the amount of a deficiency judgment include:
1) the loan principal
2) accrued interest
3) attorney fees less the amount the lender bid at the foreclosure sale
A _________________, secured by the collateral of specified real estate property that the borrower is obliged to pay back with a predetermined set of payments, is another definition of a mortgage.
Debt instrument
With an ____________________, the interest rate is fixed for an initial term, but then it fluctuates with market interest rates.
Adjustable-rate mortgage (ARM)
Mortgages are also known as what?
Liens against property or claims on property
____________ is usually described as making use of other people’s money, such as, making a low down payment and borrowing the rest of the money for a home purchase.
Leverage
There are three basic legal documents that are used to finance real estate in Texas:
1) Note and mortgage
2) Note and deed of trust
3) Land contract
The document that describes the amount of money borrowed, the terms under which it will be repaid, and any conditions that relate to either the borrowing of the money, or the consequences in event of default is a _______________________.
Promissory note
A ___________________ is a type of promissory note that is an interest-only note, whereby the borrower agrees to pay the interest periodically and to pay the entire principal when the note comes due.
Straight note
An ______________________ is a type of promissory note that requires the periodic payment of both interest and principal and is the most common note.
Installment note
When a promissory note has no related collateral, it is said to be ______________.
Unsecured
Real estate loans always include a mortgage or a deed of trust with a note. Therefore real estate loans are referred to as ___________ loans.
Secured
Most notes contain at least the following items:
1) identity of borrower and lender
2) promise to pay
3) amount borrowed
4) interest rate
5) due dates of payments
6) amount of payments
7) maturity date
8) reference to the real estate as security
9) signatures
_____________________ clause states that the mortgagors actually have title to the property and therefore have the authority to pledge it as collateral.
Covenant of seisin
The _____________________ clause states that if the borrower repays the debt when due, the words of grant are void, the mortgage is canceled and the title is given back to the borrower.
Defeasance clause
Once the mortgagor has paid off the mortgage in full, the lender will execute and record a document called a ________________________, indicating that the loan terms have been met.
Mortgage release
Describe and define the two classifications of encumbrances.
1) An encumbrance that affects the physical condition of the property, such as restrictions, encroachments and easements.
2) An encumbrance that affects the title, such as judgments, mortgages, mechanics’ liens and other liens.
A ____________________ is a grace period specified by the lender during which a borrower can make a late payment without the lender asserting that the borrower is in default.
Forbearance period
A __________________is a legal document which transfers title to a property to a third-party trustee as security for an obligation owed by the trustor (the borrower) to the beneficiary (the lender)
Deed of trust
When the borrower repays the note secured by the deed of trust, the trustee will reconvey title back to the borrower using a ____________________, also called a release deed.
Deed of reconveyance
If the borrower should go into default on the loan, the lender contacts the trustee, who is then empowered to exercise the “________________” granted in the deed of trust. The property is sold and the proceeds given over to the lender without any necessity of going through the court system.
Power of sale
With power of sale, the ___________ has legal title and can sell the property at any time after default to pay off the debt.
Trustee
Lenders in many states prefer to make residential loans using the deed of trust for several reasons.
1) A trustee may be given the power to sell property after default without going through the time-consuming judicial foreclosure process
2) The statute of limitations might bar action on a note in a mortgage transaction. However, this is not the case with a deed of trust that contains a power of sale. With power of sale, the trustee has legal title and can sell the property at any time after default to pay off the debt.
3) A deed of trust can be used to secure more than one note.
4) If the lender wants to remain anonymous for some reason, he or she does not have to be named in the deed of trust.
4) Usually there is no statutory right of redemption after the sale under a power of sale.
___________________ is the right of a mortgagor who has defaulted on a note to redeem or get back the title to the property by paying off the entire mortgage note before the foreclosure sale.
Right of redemption
At any time at the beneficiary’s request, the ___________ may release and reconvey the property, consent to a map or plat of the property being made and recorded, join in granting an easement, and/or join in or consent to any extension agreement.
Trustee
The __________________ covenant of the deed of trust states that the trustee will accept the trust when the deed of trust is “duly executed and acknowledged” and is properly recorded.T
Trustee acceptance
________________ do not need to be recorded and in some states are not eligible for recording.
Deed of trust assignments
The deed of trust is discharged using a ____________________.
Reconveyance of title form
The ____________ may be discharged by a simple acknowledgement that the loan terms have been satisfied.
Mortgage
In the event of a default by the purchaser, the lender must bring legal action through the courts to force the sale of the property known as _______________________.
Judicial foreclosure
If the loan goes into default, the trustee can sell the property and give the proceeds to the lender without going through the courts known as ___________________
Non-judicial foreclosure
Define acceleration.
If the borrower violates any of the covenants of the contract, the beneficiary may call for payment of the loan in full and the trustee may sell the property after he or she has filed all the proper notices.
The three most common financing instruments are:
1) Note with mortgage
2) Note with deed of trust
3) Land contract
The __________________ requires the borrower to pay a penalty or late charge for any payments that are considered to be late.
Late payment penalty
In Texas, the customary fee for late payments is the Fannie Mae standard of __________________.
5% after 15 days
If there is not a _______________________, the borrower can repay the balance of the loan at any time without being assessed a penalty.
Prepayment clause
True or false: With a prepayment penalty, the penalty is a certain percentage of the original loan amount or a percentage of the current outstanding balance.
True
Texas Finance Code Section 302.102 prohibits prepayment penalties on residential mortgage loans secured by the homestead of the borrower if the interest rate on the loan is greater than ______ unless the charge or penalty is required by an agency created by federal law.
12%
A ___________ is a very drastic form of a prepayment clause as it actually prohibits the borrower from paying the mortgage loan in full before a specific date.
Lock-in clause
___________________ is a form of acceleration clause that requires the borrower to pay off the entire mortgage debt when the property is sold.
Due-on-sale clause
A _________________ is also known as an alienation clause, a nonassumption clause, a call clause or a right-to-sell clause.
Due-on-sale clause
In ______, Congress passed the __________, which made all due-on-sale clauses in mortgage loans made by deposit institutions enforceable.
1982, Garn Act
Whether a buyer assumes a loan or purchases “subject to” the existing loan, the __________ is still the person primarily responsible to the lender until the note is fully paid.
Seller
When a buyer assumes a loan or purchases “subject to” the existing loan, in order to release the seller from financial responsibility, the buyer must go through a process of full substitution, called _____________.
Novation
In _____________, the original borrower requests that the lender replace him or her on the loan instrument with the new buyer.
Novation
The _________________ is an agreement to reduce the priority of an existing loan to a new loan that will be recorded in the future
Subordination clause
Many transactions that involve land development use release clauses. As the developer sells off each lot, a portion of the money from the sale is used to pay part of the mortgage. In return, the lender executes and records a release of the lot that was sold, so that the buyer can get a clear title. This is also known as a _________________.
Partial release clause
An ____________________ is inserted in a financing document when the lender agrees to waive the right to a deficiency judgment.
Exculpatory clause
_______________ is usually described as making use of other people’s money, such as, making a low down payment and borrowing the rest of the money for a home purchase.
Leverage
What type of clause would limit the repayment of a mortgage ahead of schedule?
Lock-in clause
What do mortgages employ to prevent the transfer of mortgages?
Due-on-sale and due-on-encumbrance clauses
Under the title theory, regarding title to mortgaged property, the security interests rest with the ____________.
Mortgage
The ______________ is a statement that pledges the mortgagor’s rights. The use of the words “grant, bargain, sell and convey” transfers a form of ownership to the mortgagee, which creates a lien on the property.
Granting clause
