Chapter 8 - Real Estate Finance Flashcards
Leverage is the practice of purchasing real estate using a small amount of _____ money and a larger proportion of _____ funds.
your money; borrowed funds.
To utilize the “_______ of leverage” an investor would use the maximum amount of borrowed money.
principle of leverage
To __________ is to provide title to a property as security for a loan without giving up possession. You do it through the trust deed in California (and even less likely, the common mortgage). Each of these instruments uses the PROMISSORY NOTE as the primary evidence of debt, which creates a lien on the property.
hypothecate
An installment note with a balloon payment is also known as what?
A partially amortized note
What is the most common way real estate is financed in California and can be either fixed or adjustable?
Full amortized installment note; you’re paying the same amount each month, but as you get closer to the end the payment towards interest decreases and the payment towards your principal increases.
A _________ note is a short-term note and includes a term of 36 months. A ______ note is longer than 36 months.
promotional note; seasoned note
A _________ ________ is any financial document (promissory note, check or other) that can be passed easily from one present o another, if it meets certain legal requirements.
negotiable instrument
An acceleration clause is always found within a _____ deed.
trust deed
A late payment is a payment that is, unless otherwise stated, more than ___ days past due.
ten days
An alienation clause = due on sale clause; It is in both trust deed as well as promissory note and is enforceable and benefits the _______.
lender
A Substitution of Liability form is when the _____ has now assumed secondary responsibility and has given the loan to the ______.
seller; buyer
A Subject To loan takeover is different from the Substitution of Liability in that the seller still remains liable, but the buyer (new owner) is the one paying.
A __________ Clause is part of a trust deed or mortgage that allows for a future change in the priority of financial liens.
Subordination; Future Lien > Current Lien
According to the Business and Professions Code, a prepayment penalty is only enforceable during the first _____ years of a one-to-four unit home loan.
five years
Impound Accounts is also known as what?
reserves
Assignment of rents clause allows the lender to do what?
Take Possession; upon default of the borrower, to take possession of the property, collect rents, and pay expenses. It benefits lender.
The ________ interest rate is the rate stated in the note.
Nominal interest rate
The ______ interest rate is the rate the borrower is actually paying (including interest, points, and loan fees).
Effective interest rate
Formula for calculating interest is:
I = P x R x T Interest = Principal x Rate x Time
The _____ interest rate loan is a loan for which the payments are the same each month for the life of the loan.
Fixed interest rate loan. A biweekly mortgage (26 payments) is under a fixed interest rate.
____________ is the repaying of a loan (principal and interest), in regular payments, over the term of the loan.
Amortization
___________ ____________ means the interest rat charges are higher than the monthly payment. This means that the loan payment does not cover the interest charges, and the amount of unpaid interest is added to the unpaid loan balance.
Negative amortization
An ARM (or trust deed) is a loan in which the interest rate fluctuates periodically, based on a specific index, which makes the payment amount also change.
Adjustable Rate Mortgage
In an ARM, the ______ is the spread between the index rate and the initial contract rate from which the lender will make a profit and cover its costs.It is the agreed to amount of profit for the lender.
margin
A GPM/GPAM (trust deed) is a type of fixed interest rate loan for which the monthly payments start out lower and then gradually increase (for example, after five years the payments will be higher for the remainder of the loan payment).
Graduated Payment mortgage
A ___________ mortgage, also known as a reverse annuity mortgage (RAM), enables older homeowners (62+) to confer their home equity into tax-free income without having to sell their home, give up title, or take on a mortgage.
Reverse mortgage. The loan is not repaid until the last owner dies or the property is sold, at which time it is paid back through probate.
The FHA charges a ___ percent loan fee, which is usually paid by the _____.
1% loan fee, paid by seller
______ is charging more than the legally allowed percentage of interest. In CA the maximum interest rate charged for various loans is set by law.
Usury
True/False
Nearly every conventional source of real estate financing has been exempted from the usury limit. This includes any transaction made through a licensed broker.
True; Usury usually applies to private individual loans.
The three financial instruments (security devices to collateralize real property) used in California are:
Mortgages (rare), trust deeds (1st and 2nd), and land contract (not common).
Mortgagee and trustee are the LENDERS who have the Power of _______ Clause.
Power of Sale
Trust deeds are ________ property.
Personal
A deed of __________ provides proof that a promissory note and the accompany trust deed have been paid in full.
Deed of reconveyance. It must be recorded by the county to remove the lien of a trust deed from the public record.
Under California Civil Code Section _____, the beneficiary must forward a deed of reconveyance, within 90 days of receiving the “Request for Full Reconveyance,” to the trustee.
California Civil Code Section 2941.
The _______ is the one who files the notice of default by the trustor.
Trustee.
The trustor can reinstate a loan up to ___ day prior to foreclosure (after a 3 month minimum; the trustee’s sale). If reinstated, it is again in good standing.
5 days prior to foreclosure sale.
After the Notice of Default, a trustee has to wait 3 months to post a Notice of _____, which lasts for 3 weeks and has to be in the newspaper.
Notice of Sale
A Deed in _______ ___ ___________ is a deed given by an owner (borrower) to a lender to prevent the lender from bringing foreclosure proceedings.
Deed in Lieu of Foreclosure
A ____ _______ is when a lender will accept less than the amount owed on a debt if the property is sold.
Short Sale
Most junior liens are eliminated by a foreclosure, some liens not eliminated are:
- federal tax liens
- state, county, and city taxes or assessments
- mechanic’s liens for work begun before the trust deed was recorded.
An AITD (_______ ___________ ______ ________; Wraparound) is a second trust deed with a face value of both the new amount it secures and the balance due under the first trust deed.
All Inclusive Trust Deed; you have the seller (who had the original trust deed) selling to the buyer at a slightly higher interest rate, and so the seller gets a margin of profit.
An owner selling under a land contract is known as a _______. A ______ is a buyer using a land contract.
Vendor
Vendee
APR stands for ?
When you include APR in an advertisement, nothing else needs to be disclosed.
Annual Percentage Rate
