Finance Valuation- Section 4- Chapter 1

Question 1

The pledge of property as security of a loan in which the borrower maintains possession of the property while it is pledged as security

Answer 1

Hypothecation

Question 2

What are the 2 parts of every mortgage loan that involves real property?

Answer 2

1. Promissory Note

2. Mortgage Contract (Deed of Trust)

Question 3

What is unconditional, a written promise to repay, an evidence of debt, and can be sold?

Evidence of Debt

Answer 3

Promissory Note

Question 4

This establishes a piece of real property as security for debt. It accompanies a promissory note but is usually contained in a separate document

Answer 4

Mortgage Contract

Question 5

Borrower does not give up possession of property

Answer 5

Pledging OF collateral

Question 6

Borrower gives up possession of an item

Answer 6

Pledging AS collateral

Question 7

TRUE OR FALSE: With a promissory note, the original lender may sell the note to another person, and that person becomes bearer of note with legal right to demand repayment

Answer 7

TRUE

Question 8

What is stated on a promissory note?

Answer 8

TILO

1. Loam amount
2. Interest rate
3. Time/Method of repayment
4. Obligation to repay

Question 9

Two party instrument whereby an owner pledges real property as security and will therefore establish a lien

Answer 9

Mortgage contract

Question 10

Debtor/Owner of property is the what?

Answer 10

Mortgagor

Question 11

Lender is the what?

Answer 11

Mortgagee

Question 12

3 way party instrument whereby an owner pledges real property as security for payment of debt, and owner surrenders bare title to a neutral 3rd party trustee, and the LENDER holds interest in the property

Answer 12

Deed of Trust/Trust Deed

Question 13

Lender holds this title because it does not include possession and use

Answer 13

Bare Title

Question 14

Trustor =

Answer 14

Borrower

Question 15

Beneficiary =

Answer 15

Lender

Question 16

Trustee =

Answer 16

3rd party who holds bare title

Question 17

Covenant that borrowers promise to repay loan according to terms of note

Answer 17

Covenant to Pay Indebtness

Question 18

Covenant that borrows promise to maintain insurance coverage against damage/destruction of mortgaged property in amount specified by mortgagee with mortgagee named beneficiary

Answer 18

Covenant to pay insurance

Question 19

Covenant that borrower promises not to remove or demolish any buildings or improvements without 1st obtaining lender consent

Answer 19

Covenant of Removal

Question 20

Clause that specifies that if the borrower fails to keep the covenants of mortgage and deed trust, the entire loan balance is DUE and PAYABLE upon demand, only if clause is included

(Entire loan balance due in case of default)

Answer 20

Acceleration Clause

Question 21

Clause that prevents a borrower from selling a property or allowing an assumption of the existing mortgage without lender approval. If an attempt is made to do so without prior approval, the entire remaining mortgage balance becomes due before the property can be transferred.

“Due on Sale”

Answer 21

Alienation Clause

Question 22

Clause that provides for the cancellation of the mortgage or trust deed when borrower has repaid debt

Answer 22

Defeasance Clause

Question 23

Clause provides that is an existing 1st mortgage is paid off or renegotiated, the junior mortgage will remain subordinate and not become 1st mortgage

Answer 23

Subordination Clause

Question 24

This clause gives a trustee in states that use deeds of trust the right to sell property in event of default

Answer 24

Power of Sale Clause

Question 25

This clause may be included in mortgages or deed of trust, which states lender waives his right to defiency judgement

Answer 25

Exculpatory Clause

Question 26

A clause that provides for loan payments to be adjusted up or down, and used to cover many situations

Answer 26

Escalator Clause

Question 27

This clause is used by developers for release of lots as principal amount of loan is paid back. Allows mortgagor/developer to sell a lot to a buyer who has arranged his own financing

Answer 27

Partial release Clause