Class 11 - Liens, the loan process, and financial math Flashcards
A note makes a borrower…..
personally liable for a debt
Discounts when used in financing can be best described as…
an amount paid to increase a lender’s yield
A mortgage lien would be classified as a _________, _________ lien
specific, voluntary lien
Notice given to the public of a possible future litigation against a property is called…
lis pendens
A note that removes personal liability is known as…
non-recourse note
An acceleration clause in a note would allow a lender to…
demand full payment of the debt
An underwriter can be best described as a person who…
reviews loan applications and makes recommendations to a lender
An open note or mortgage is one that
allows the borrower to prepay the loan without penalty
A property owner who sold his land discovered that he had to pay a penalty of $4,000 for paying off the loan before the termination date of the note. The owner most likely had a….
97% conventional mortgage
A lender who charges a usurious rate of interest is most likely charging a rate of….
interest in violation of the law
The payment of principal on a mortgage debt increases the property owner’s:
equity
When an investor purchases a property for $95,000 after putting $5,000 down and then sells the property for $120,000 it can be said that the profit was made through the use of…
someone else’s money
The rate of interest on a loan can be found by:
dividing the interest by the loan amount.
A _________ secures your _________ and becomes effective upon recording
Mortgage
debt
A _____ is a claim against property made to secure a debt. This is also called an _____ against the property, which is something that burdens a title
Lien
encumbrance
General Lien vs Specific Lien
General lean covers both real and personal property. Examples: judgment lien, inheritance tax lien, etc.
Specific lien covers a specific property: Examples: mortgage, mechanic’s lien, real estate tax liens, special assessments, etc.
What is the priority of liens?
- Real estate taxes
- special assessments
- Liens in order of recording
Real estate tax liens are also called ________ (according to value), and are charged to help pay for state and local services. Who is exempt from paying this type of tax?
Ad Valorem tax - a tax on property according to its value
cities, schools, gov’t property, churches, hospitals,
If a buyer at a tax sale has paid the owners taxes, what does he get?
A tax certificate indicating paid
Special Assessment
a tax charged on properties that benefit from a public improvement like a sidewalk or sewer.
When you get a loan from a lender, what is used to secure the payment of a debt
voluntary mortgage lien
A _________ lien is a lien for the non-payment of work or materials. When recorded, what is the start date
Mechanic’s lien
A mechanic’s lien dates back to the day the work began or when material was delivered.
A lien placed on real or personal property by court order
jugdment lien
**Judgment liens are not effective against personal proeprty until the proeprty is seized
A _______ is used to legally seize property. It is to prevent a property owner from selling the property during a legal action against the property. This gives the court custody of the property.
Attachment
Where does an IRS tax lien fall into the order?
By date and does not supersede other recorded liens
_______ leverage occurs when the cost to borrow is below the return on an investment
Positive
____________ leverage occurs when the cost of borrowing exceeds the return on an investment
negative
Lenders base their loans on what?
Sale price or appraisal price, whichever is lower
What is equity?
The value of a property minus any liens
FHA _________ loans, does not directly provide them
INSURES
VA __________ loans, does not make loans
Guarantees
What type of information is given to a lender for a loan applications
debs assets credit history employment source of funds
Underwriters consider three areas of underwriting:
collateral
capacity
credit reputation
Who pays for the title examination once your loan has been approved?
Borrower
Whats the purpose of a title search?
To make sure there are no claims against the title
After the loan has been made, next step is to _____________. This is simply the process of collecting the payment and applying it to the debt
Servicing the loan
What is a note?
A promise made to repay a debt
What is the PRIMARY financial document
A note
What makes the borrower personally liable for a debt (and what can you do to remove the personal liability)
A note makes the borrower personally liable for a debt.
A non-recourse note removes the personal liability by including an exculpatory clause; the property must stand good for the debt.
What are the contents of a note?
terms for repayment
default clause
acceleration clause
A clause in a note or mortgage that allows the lender to demand full payment of the debt if the borrower defaults…
Acceleration clause
Charging more than the legal rate
Usury
A clause in a mortgage that allows the lender to demand fully payment of the debt if the mortgagor transfers title without the lender’s consent
Alienation Clause
A clause in a mortgage that defeats a lender’s interest when the debt is paid. Acts as a mortgage release
Defeasance Clause
A clause in a mortgage that allows the lender to demand full payment of the debt if the property is sold.
Due on Sale Clause
A clause in a note that allows the lender to increase the rate of interest
Escalation clause
A document given be a mortgagor to a mortgagee to verify a loan balance when a mortgage is sold or assigned. Also called an estoppel certificate
Certificate of no defense
A financial document that acts like a mortgage becuase it secures property for the payment of a debt by conveying title to a third party called the trustee
Deed of trust
A personal judgment against a borrower for the balance due on a debt when the security is insufficient to pay the debt
Deficiency judgment
A legal procedure where a property is sold to settle a debt
foreclosure
A lien against real and personal property
General lien
A claim against property
Lien
_______ is what the lender charges for the use of their money.
Interst
A ______ will specify the interest rate
note
__________ fees are charged to start or originate the loan process.
Origination
Discount points and origination fees are charged as a percentage of the…
loan amount
A mortgage note that can be paid off early with no prepayment penalties is called ________________
open note or open mortgage
Loans above ____% typically have pre-payment penalties
80%
What two types of loans do not contain prepayment penalties
FHA and VA
The word mortgage means “_______”
dead pledge
Mortgages become effective when they are…
recorded
What happens in a title theory state?
A mortgage conveys legal title to a lender and the borrower has equitable title
The lender holds the title until the deed is paid
Lender can also immediately possess the property if the borrower defaults, thereby avoiding judicial foreclosure
What happens in lien theory states
A mortgage conveys legal and equitable title to a BORROWER and the lender has only collateral. Lender has only a lien interest
In a lien theory state, the mortgagor ________ which means to pledge property without giving possession rights to a lender.
hypothecates, which means you offer it as safety collateral for a mortgage
Duties of a mortgagor (borrower) - A mortgage requires the mortgagor (borrower) to:
pay real estate taxes insure the property pay debt according to the note keep property in good repair get permission from the lender before removing any portion of the mortgaged property
As a general rule, the lender’s yield will increase by 1/8% for every discount point charged
