Chapter 2 Real Estate Financing: Notes and Mortgages Flashcards
What is a Promissory Note?
A legal document outlining loan terms between borrower and lender.
What are the key components of a Promissory Note?
- Amount Borrowed: Includes penalties for late/missed payments.
- Rate of Interest: Fixed or variable, with provisions for changes.
- Loan Terms: Notifications required for agreement changes.
- Maturity Date: Specifies loan repayment deadline.
- Loan Security: Indicates collateral securing the loan.
- Application of Payments: Order of payment allocation (interest, principal, fees).
- Future Advances: Allows borrowing additional funds under the same loan.
- Default: Defines default conditions and consequences (e.g., foreclosure).
- Release of Lien: Lender removes lien once the loan is fully repaid.
What is a Mortgage?
A loan allowing a borrower to purchase/maintain a property using the property as collateral.
What are the key components of a Mortgage?
- Covenants: Borrower obligations (e.g., property maintenance, tax payments, insurance).
- Clauses:
- Charges Clause: Borrower must pay all agreed amounts.
- Hazard Insurance Clause: Requires property insurance (e.g., fire, flood).
- Property Details: Includes land, buildings, easements, natural resources, and fixtures.
What is Seller Financing?
Seller acts as lender, often to avoid bank costs or offer lower rates.
What is a Land Contract?
Seller promises to transfer land ownership upon full payment (not a mortgage). -through seller financing
What is Default in the context of loans?
Failure to meet loan/financial obligations (e.g., non-payment of property taxes).
What are alternatives to Default?
- Workout Plan: Custom solutions to avoid foreclosure.
- Loan Restructuring: Adjusting interest rates or extending mortgage terms.
- Transfer: Selling the property or assigning the loan to another party.
What is Foreclosure?
Court-ordered property sale to cover debts.
What is Judicial Foreclosure?
Lender sues for unpaid debt.
What is Redemption?
Borrower repays debt to reclaim the property.
What is Bankruptcy?
Borrower may sell assets to settle debts.
What is Default?
Failure to meet loan/financial obligations from the borrowers perspective.
What are covenants?
Promises made to the seller from the borrower. Ex: Make payments, maintain good credit score, maintain insurance
What is a charges clause?
Borrowers must pay all agreed amounts.
What is a hazard insurance clause?
Requires property insurance (covers natural disasters).
What’s a workout?
Custom solutions to avoid foreclosure.
What is loan restructing?
Adjusting the interest rate or extending mortgage terms.
What is transfer?
Selling the property or assigning the loan to another party. Takes same responsiblity of covering loan terms.
