Chapter 5- Foreclosure- Carryback documents and Financing Flashcards
Foreclosure
In a foreclosure, the property used as security.
Alternatives to foreclosure
1) Deed in Lieu of Foreclosure
2) Forbearance (Moratorium)
3) Soldiers and Sailors Relief Act
Deed in Lieu of Foreclosure
Give Deed. Seller delivers and grantee accepts. Liens will remain debt. 1 lender works best.
Forbearance (Moratorium)
Lender voluntarily waves right to foreclose
(Restraint) Go to lender… Please work with me.
Soldiers and Sailors Relief Act
A lender cant foreclose on an active, deployed military person.
How does a lender foreclose with a mortgage?
Judicially- law says mortgagor violates terms of the loan document.
Steps in a foreclosure
1) Default
2) Notice of acceleration
3) Court foreclosure action
4) Equitable period of redemption
5) Sheriffs foreclosure sale
6) Statutory period of redemption
7) Sheriffs Deed passing
What is the equitable period of redemption in foreclosure?
No time frame. Will get notice and time frame from judge. Will get time frame when loan can be paid in full plus fees.
What is a sheriffs sale in a foreclosure?
Lender get rid of execution and sale will take place.
Who may bid in a foreclosure sale?
Only one that cannot bid is mortegor (Home owner)
Highest bidder has 5 days to pay
What is the statutory period of redemption in foreclosure sale?
Mortagor has 6 months to come up with money and buyer will get 8% interest.
Can be shortened if property is abandoned to 30 days.
Successful bidder in a foreclosure sale gets a
Sheriffs Deed- passing of the title
Excess money from a foreclosure
Excess pays off loan, then junior lienholders, then additional left goes back to the borrower.
What if there is a shortfall (deficiency) with a foreclosure sale?
Az is anti deficiency state. If residential, 2 1/2 acre or less, 2 or less units- lender cannot go after deficiency.
Anti deficiency protection
When a deficiency judgment is not allowed
Deed of Trust foreclosure
Borrower, Lender, Trustor
Violating terms
Faster than Mortgage- Because there were no courts.
AZ- Is usually a Deed Of Trust.
Steps to Deed of Trust Foreclosure
1) Default
2) Power of Sale
3) Beneficiary’s notice to Trustee
4) Notice of Trustee’s sale
5) 90 day reinstatement period
6) Trustee sale
7) Excess monies from sale
8) Shortfall (deficiency)
Who can hold a Deed of Trust
Benneficiary, Bank, Lender, Trustor, one holding…. Not a CPA.
What happens at the Power of sale in a DOT foreclosure.
Transferred Bare Naked Title to Trustee
Who gives the title in DOT foreclosure?
Trustor can only give power to foreclosure - Not judicially.
Who authorizes in DOT?
Trustor
Who carries it out
Trustee
Beneficiary’s notice to Trustee in DOT
Trustee will send out. Need to release or foreclosure.
Types of Notice of Trustee sale
1) Constructive notice-Recorded in public notice. Notice has to come.
2) Actual Notice-Physical delivery
90 days reinstatement period with DOT
has 90 days trustor can reinstate.
Trustee sale
On 91st day. Need cashiers check, bidder has 24 hours to pay and will get deed immediately. Lender will wait to accelerate the loan until right at end of auction.
Where does leftover money go with trustee sale?
1st goes to junior lienholder
2nd goes to the borrower
If shortfall they cannot go after the borrower.
Anti deficiency protection.
Benefit of Deed of Trust
Does not have to go through the judicial process and is faster. Lender can choose to go through process judicially and go through the mortgage process.
Types of collateral documents for Carrybacks
1) Mortgage (Purchase Money Mortgage- PMM)
2) Deed of Trust
3) Agreement for Sale
4) Forfeiture of buyers interest
Mortgage (PMM)
Buyer is Mortgagor
Seller is mortgagee
***Title, foreclosure and deficiency is the same as previous.
Deed of Trust
Buyer is trustor
Seller is beneficiary
***Title, foreclosure and deficiency- All seller can recover is property… No carry over.
Agreement for Sale
Land contract set up account with title company.
Buyer- vendee
Seller - Vendor
Carryback document only
One document- no separate note
Legal title-seller
Equitable title- Buyer
Forfeiture based on buyers equity
Seller gets property back- No excess, no deficiancy
Alienation
due on sale-Loan balance due at sale.
Default in prior mortgage
Allows jr. lien holder on senior lien, add to balance and then foreclose.
Can make payments and add to balance
Concurrent payment clause (collection)
Agreement that both payments will be made.
Subordination
Loan with Sr. lien position moves to Jr.
Wrap around
If seller has a loan, seller financing around exsisting loan
- Method of financing
- Always junior
- seller is obligated to prior loans
- Benefits to seller- arbitrage
- collection agent - escrow/title company
- lenders rights to call prior loans due and payable
Construction loans
Short term, due when construction is finished.
Have draws
Performance Bond- Contractor pays for bond to make sure lender is protected.
Interest only
Bridge Loans
Short term loans between construction completion and permanent financing.
Permanent Loans
(Take out loans) Long term financing- Principal/Interest
Amortizing
Alternatives to loans
1) Outright sale
2) Sale and leaseback (Safeway example)
Federal Reserve System
Controls supply and cost of money
Discount rate
Federal Reserve charges commercial banks for money.
Reserve controls
control money released to stimulate the economy
Open market operations
1) Movement of cash in and out of banks
2) Buying or selling government bonds.
Primary Mortgage Market
Where borrowers borrow money
Lenders in the primary mortgage market
1) Savings and loan
2) Commercial Banks
3) Life insurance Companies
4) Mortgage Bankers
5) Mortgage Broker
Savings and Loan
Promotes thrift and home ownership
prefers long term loans 35-30 year amortized
Regulated by Consumer Financial Protection Bureau
who regulates the Savings and loans
Consumer Financial Protection Bureau (CFPB)
Commercial Banks
Prefers short term loans
Regulated by Federal Reserve Banking System
Deposits insured by Federal Deposit Insurance Corp (FDIC)
More expensive, higher rates, better fees
Who regulates commercial banks
Federal Reserve Banking Systems (FRBS)
Deposits in a bank are insured by?
Federal Deposit Insurance Corp (FDIC)
Life insurance companies loans
Large long term loans
Regulated by laws of the state in which they are incorporated. and state they do business.
Will buy block loans
Mortgage Banker
Can service loans
License from Arizona Department of Financial Institutions
Originate mortgage loan
Warehouse concept- sell on secondary market
Get money from line of credit from commercial banks.
Mortgage Broker
Do not service loans
People with low credit can get money
License from AZ Department of Financial Institutions.
A loan Correspondent “Intermediary” Put borrower and lender together and charge a fee.
Secondary Mortgage market
Sell to you and then loans are resold (Paper)
“Paper”
Is personal property- Note
Estoppel certificate
Bank buying note wants certificate
Seasoned loans
12 month payment history before buying.
Discounting
Lender can get deficiency judgement (Personal guarantee)
Endorsement Note
Have to endorse bank A to bank B on secondary sale
Recourse with secondary mortgage
lender cannot get deficiency judgement or no personal guarantee.
Agencies that buy paper
1) Federal National Mortgage Association (FNMA)
2) Government National Mortgage Association (GNMA)
3) Federal Home Loan Mortgage Corp (FHLMC)
Federal National Mortgage Association
(FNMA)
Fannie Mae
Created in 1938
Now purchase conventional, VA, FHA paper
When FHA loans created banks were scared to low rates.
Government National Mortgage Association
(GNMA)
Ginnie Mae
Created in 1968 as a division of HUD
Purchase low yield mortgages -don’t yield lots of money
Federal Home Loan Mortgage Corp
(FHLMC)
Freddie Mac
Created by a subsidiary of FHLB
Purchases conventional loans.
Types of interest rates
1) Simple
2) Compound
Simple interest rates
Interest on principal only
compound
Interest on principal and accrued Interest
Statutory rates “legal”
Usury
Legal rate of interest
Usury
exceeds that which cant exceed- None in AZ
Legal rate of interest
Interest given in absence of agreed/ written interest rate
10% or 1% above prime
Prime rate
Rate banks charge most credit worthy client.
Set by each bank, usually above what banks set.
Consumer Financial Protection Bureau
Wall Street Reform and Consumer Protection Act (Dodd-Frank Act)
Watchdog for the financial industry- not limited to real estate
Benefit to the consumer of Consumer Financial Protection Bureau.
Know before you owe
TRID rule
1) T- Truth in lending Act (TILA) - Reg Z
2) R- Real Estate Settlement Procedures Act (RESPA)
3) ID Integrated Disclosure
Monthly payments to homeownership
1) Principal and interest- usually ammoritized
2) Property Taxes
3) Homeowners Insurance
4) Homeowners association fees
5) Mortgage insurance
Monthly payments to homeownership
1) Principal and interest- usually ammoritized
2) Property Taxes
3) Homeowners Insurance
4) Homeowners association fees
5) Mortgage insurance
***Add items 1-5 above for estimated total monthly payment.
Borrowers total monthly income less taxes
1) Monthly payments related to homeownership
2) Monthly car payment
3) Monthly other debt
4) Monthly budgetary costs of living
6 document required for residential loan application
1) Borrowers name
2) Borrowers income
3) Borrowers social security number
4) Property address
5) Amount of the loan
6) Estimated property value (purchase price)
