Finance 6 - Instruments of Real Estate Finance Flashcards
The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrower defaults on an installment payment or other obligation.
acceleration clause
A loan that may be taken over (assumed) by a buyer when purchasing a parcel of real estate. Often requires the lender to approve the new buyer.
assumed
1) The person for who a trust operates or in whose behalf the income from a trust estate is drawn. 2) A lender in a deed of trust loan transaction.
beneficiary
The seller holds a portion of the sales price as a junior encumbrance.
carryback loan
A contract under which the purchase price is paid in installments over period of time during which the purchaser has possession of the property but the seller retains title until the contract terms are completed; usually drawn between individuals. Also called a land contract, installment contract, or agreement of sale.
contract for deed
A provision in a mortgage that triggers a default on a second mortgage if there is a default on the first mortgage.
cross-defaulting clause
An instrument used to create a mortgage lien by which the borrower conveys title to a trustee, who holds it as security for the benefit of the note holder (the lender); also called a trust deed.
deed of trust
A clause used in leases and mortgages that cancels a specified right upon the occurrence of a certain condition, such as cancellation of a mortgage upon repayment of the mortgage loan.
defeasance clause
A provision in the mortgage stating that the entire balance of t he note is immediately due and payable if the mortgagor transfers (sells) the property.
due-on-sale clause
Anything-such as mortgage, tax, or judgement lien; an easement; a restriction on the use of the land; or an outstanding dower right- that may diminish the value or use and enjoyment of a property.
encumbrance
Legal process that allows a defaulted borrower, before a foreclosure sale, to redeem the property by paying off the entire loan balance, including any interest, costs, and fees.
equitable right of redemption
Money borrowed on accumulated equity.
equity loan
A hold-harmless clause in a contract typically stating that one party is not responsible for the results of either the party’s commissions or it omissions.
exculpatory clause
Words in a deed of conveyance that state the grantor’s intention to convey the property at the present time. This clause is generally worded as “convey and warrant”; “grant”; “grant, bargain, and sell”; or the like.
granting clause
A lien place on a property without the consent of the property owner.
involuntary lien
Some states interpret a mortgage as being purely a lien on real property. The mortgagee thus has no right of possession, but must foreclose the lien and sell the property if the mortgagor defaults.
lien theory
A clause in a junior mortgage allowing a borrower to replace an existing first mortgage without distrubing the status of the junior mortgage.
lifting clause
A lender in a mortgage loan transaction.
mortagee
A borrower in a mortgage loan transaction.
morgagor
Relieves the seller from liability if the borrower defaults.
nonrecourse clause
A financing instrument that states the terms of the underlying obligation, is signed by its maker, and is negotiable (transferable to a third party). Also called a promissory note.
note
A note can stand allow, but a mortgage must be accompanied by a note in order to be legally enforceable.
note and mortgage
Substituting a new obligation for an old one or substituting new parties to an existing obligation.
novation
I a deed of trust, authorizes the trustee to proceed with the sale of the property.
power of sale
A clause in a mortgage or trust deed that provides for a penalty to be levied against a borrower who repays a loan before the specified due date.
prepayment clause
A clause included in a blanket mortgage that provides that on payment ofa specific sum of money, the lien on a particular parcel or portion of the collateral will be released.
release clause
A lien junior to the first mortgage or deed of trust.
second mortgage or deed of trust
Buyer takes title of property and makes payments on the existing loan but is not personally obligated to pay the debt in full. Original seller might continue to be liable for debt.
subject to
Relegation to a lesser position, usually in respect to a right or security.
subordination
Principle n which the mortgagor conveys legal title to the mortgagee (or some other designated individual) and retains equitable title and the right of possession. In effect, because the lender holds legal title, the lender has the right to immediate possession of the real estate and rents from the mortgages property if the mortgagor defaults.
title theory
A financing instrument in which the borrower/trustor conveys title into the hands of a third-party trustee to be held for the beneficiary/lender. When the loan is repaid, title is reconveyed to the trustor. If default occurs, the trustee exercises the power of a sale on behalf of the lender/beneficiary. Also called a deed of trust.
trust deed
One to whom something is entrusted and who holds legal title to property and administers the property for the benefit of a beneficiary. Can also be a member of a board entrusted with the administration of an institution or organization, such as a cooperative.
trustee
A borrower in a deed of trust loan transactions; one who places property in a trust. Also a grantor or settler.
trustor
Changing interest at a higher rate than the maximum rate established by state law.
usury
A buyer, usually under the terms of a land contract.
vendee
A seller, usually under the terms of a land contract.
vendor
A lien placed on property with the knowledge and consent of the property owner. (i.e. mortgage)
voluntary lien
