Chapter 4

Question 1

Adjustable Rate Mortgage (ARM)

Answer 1

a mortgage loan that has an interest rate on the note that periodically adjusts based on an index that reflects the cost to the lender. also called variable rate mortgage

Question 2

Acceleration clause

Answer 2

a clause in loan documents that allows the lender to call the note all due and payable if borrower breaches the terms

Question 3

Alienation clause

Answer 3

a clause used in a mortgage allowing the lender to demand the full and immediate payment of the mortgage because the owner transferred ownership of the property. Also called due on sale clause

Question 4

Amortization

Answer 4

payment of debt in regular, periodic installments of principal and interest (as opposed to interest-only payments)

Question 5

Appurtenances

Answer 5

something that belongs to property and pass with the property, but need not be attached to it (ie. outbuildings, easements). An Appurtenance “runs with the land”

Question 6

Balloon Payment

Answer 6

a lump sum payment that is due at the end of a note term, because the note used paid only part of the principal and/or interest. Also called partially amortized mortgage

Question 7

Blanket Mortgage

Answer 7

a single mortgage loan where two or more different parcels of property are offered as security for the loan

Question 8

Budget mortgage

Answer 8

a mortgage agreement where payments include principal and interest on the loan, plus 1/12 of the year’s property taxes and hazard insurance premiums

Question 9

CC&Rs

Answer 9

a declaration of covenants, conditions, and restrictions; usually recorded by a developer to create a general plan of private restrictions for a subdivision

Question 10

Collateral

Answer 10

property pledged as security for a debt

Question 11

Collateral Lien Document

Answer 11

the interest a creditor may acquire in the debtor’s property to ensure that the debt will be paid . Also called security instrument

Question 12

Deed of Trust

Answer 12

a three-party security instrument that conveys naked title to a trustee. The borrower, called the truster, has legal title. The trustee has bare legal title. The lender is the beneficiary. In Arizona, a deed of trust is more common than a mortgage because a deed of trust allows the trustee to sell the property if the truster defaults, thereby bypassing the judicial foreclosure procedure (using a power of sale clause). Once the note is repaid the trustee clears the lien agains the property. Also called a trust deed

Question 13

Defeasance clause

Answer 13

1. a clause used to defeat or cancel a certain right upon the occurrence of a specific event, for example, requiring a lender to give a borrower a release of the lien once the loan is repaid. 2. Clause used to give a borrower the right to redeem real estate after default on a note by paying the full amount due plus fees and court costs

Question 14

Dominant Tenant

Answer 14

a person with easement rights on another’s property; either the owner of a dominant tenement, or someone who has an easement in gross

Question 15

Dominant Tenement

Answer 15

a person with easement rights on another’s property; either the owner of a dominant tenement, or someone who has an easement in gross

Question 16

Easement

Answer 16

the non-ownership right acquired by a person to use the land of another for a specific purpose. An easement is irrevocable and creates an interest in the property

Question 17

Estoppel Certificate

Answer 17

s legal instrument used by a lender so that beyond a certain date, the borrower agrees that the loan balance is correct if no dispute is made; and thus there is no defense to challenge it. This is generally used when a note is sold and so is for the benefit of the investor who buys the note. These may also be used when commercial property is sold and the tenant verify the terms of the lease. Also called Certificate of Ne Defense or Certificate of No Set-Off

Question 18

Graduated Payment Mortgage

Answer 18

a payment structure that allows the borrower to make smaller payment sin early years of the mortgage, with payments increasing on a scheduled basis at a predetermined point until they are sufficient to fully amortize the loan over the remainder of its term

Question 19

Hypothecation

Answer 19

the pledging of the property to be the security for a loan without giving up possession of it (as with a mortgage or deed of trust)

Question 20

Inchoate

Answer 20

incomplete; as an interest in property (ie. a mechanic’s lien that has been filed but not enforced)

Question 21

Lien

Answer 21

a nonpossessory interest in property, giving a lien holder the right to foreclose if the owner does not pay a debt owed the lien holder

Question 22

Lienee

Answer 22

a person who has a lien against his or her property; a borrower

Question 23

Lienor

Answer 23

the person or entity that owns a lien (ie. the lender)

Question 24

Lis Pendens

Answer 24

a recorded document giving constructive notice of a pending legal action against a specific piece of property

Question 25

Mechanic’s Lien

Answer 25

a specific lien claimed by someone who performed work on the property (construction, repairs, or improvements) or supplied materials and has not bee paid. also called materialman’s lien

Question 26

Naked Title

Answer 26

an interest in real property that lacks the usual rights and privileges enjoyed by an owner, for example, that which is held by trustee in a deed of trust. Also called bare legal title

Question 27

Negative Amortization

Answer 27

an increase in the balance of a loan when payments are not enough to cover the interest

Question 28

Promissory Note

Answer 28

an instrument that evidences a promise to pay a specific amount of money to a specific person within a specific time frame. A written, legally binding promise to repay a debt.

Question 29

Servient Tenant

Answer 29

the owner of a servant tenement; that is someone whose property is burdened by an easement

Question 30

Servient Tenement

Answer 30

property burdened by an easement; the owner of the servient tenement (the servant tenant) is required to allow someone who has an easement (the dominant tenant) to use his property

Question 31

Writ of Attachment

Answer 31

a recorded legal writ giving the court custody of real property until a creditor’s suit is settled

Question 32

Writ of Execution

Answer 32

a court order directing the sheriff to seize and sell as much of the defendant’s property as necessary to satisfy the debt and the expense of the title