Finance 6 - Instruments of Real Estate Finance

Question 1

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.

Answer 1

acceleration clause

Question 2

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.

Answer 2

assumed

Question 3

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.

Answer 3

beneficiary

Question 4

The seller holds a portion of the sales price as a junior encumbrance.

Answer 4

carryback loan

Question 5

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.

Answer 5

contract for deed

Question 6

A provision in a mortgage that triggers a default on a second mortgage if there is a default on the first mortgage.

Answer 6

cross-defaulting clause

Question 7

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.

Answer 7

deed of trust

Question 8

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.

Answer 8

defeasance clause

Question 9

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.

Answer 9

due-on-sale clause

Question 10

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.

Answer 10

encumbrance

Question 11

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.

Answer 11

equitable right of redemption

Question 12

Money borrowed on accumulated equity.

Answer 12

equity loan

Question 13

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.

Answer 13

exculpatory clause

Question 14

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.

Answer 14

granting clause

Question 15

A lien place on a property without the consent of the property owner.

Answer 15

involuntary lien

Question 16

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.

Answer 16

lien theory

Question 17

A clause in a junior mortgage allowing a borrower to replace an existing first mortgage without distrubing the status of the junior mortgage.

Answer 17

lifting clause

Question 18

A lender in a mortgage loan transaction.

Answer 18

mortagee

Question 19

A borrower in a mortgage loan transaction.

Answer 19

morgagor

Question 20

Relieves the seller from liability if the borrower defaults.

Answer 20

nonrecourse clause

Question 21

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.

Answer 21

note

Question 22

A note can stand allow, but a mortgage must be accompanied by a note in order to be legally enforceable.

Answer 22

note and mortgage

Question 23

Substituting a new obligation for an old one or substituting new parties to an existing obligation.

Answer 23

novation

Question 24

I a deed of trust, authorizes the trustee to proceed with the sale of the property.

Answer 24

power of sale

Question 25

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.

Answer 25

prepayment clause

Question 26

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.

Answer 26

release clause

Question 27

A lien junior to the first mortgage or deed of trust.

Answer 27

second mortgage or deed of trust

Question 28

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.

Answer 28

subject to

Question 29

Relegation to a lesser position, usually in respect to a right or security.

Answer 29

subordination

Question 30

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.

Answer 30

title theory

Question 31

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.

Answer 31

trust deed

Question 32

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.

Answer 32

trustee

Question 33

A borrower in a deed of trust loan transactions; one who places property in a trust. Also a grantor or settler.

Answer 33

trustor

Question 34

Changing interest at a higher rate than the maximum rate established by state law.

Answer 34

usury

Question 35

A buyer, usually under the terms of a land contract.

Answer 35

vendee

Question 36

A seller, usually under the terms of a land contract.

Answer 36

vendor

Question 37

A lien placed on property with the knowledge and consent of the property owner. (i.e. mortgage)

Answer 37

voluntary lien