Financing Flashcards
Acceleration Clause
Enable lender to declare entire balance due if borrower defaults
Repayment Clause
Enable lender to charge a penalty for paying off early OR enable borrower to payoff in full without any financial penalty
Defeasance Clause
Remove lien on property once entire mortgage is paid off in full
Default Provision
Gives Lender right to foreclose in the event the borrower fails to make payments/fulfill obligations of mortgage
Redemption Clause
Enables borrower to fix deficiencies in payments prior to foreclosure proceedings
Alienation clause
Enables lender to declare entire balance due at the sale of the property; mortgage is not assumable by the purchaser.
Mortgage acknowledgement
Makes document eligible for recording on the public record for the protection of the lender
Rights of a lender
DFS
- Take possession of property when borrower defaults
- Right to foreclose
- Right to assign (sell) mortgage to other lender
Rights of a borrower
PLR
- Right to possession of property so long as not in default
- Defeasance clause - right to redeem title and have mortgage lien released upon full payment of debt
- Right to equity of redemption - After default ability to pay up all defaulted costs to bring account to good standing
Recordation
Order to the system of land ownership and transfer; recording documents in the public records at the Registry of Deeds
Recording Releases/Discharges
IMPORTANT. Failure to do so may cloud title to the property
Foreclosure
Liquidation of title to the realty property ledged in order to recover funds to pay off the mortgage debt.
Maine Statue for Methods of Foreclosing
- Judicial Sale
- By writ of possession
- By consent
- By peaceful entry
- By public notice
- By service of notice
Foreclosure by Judicial Sale
If borrower does not pay during 90-day redemption period, mortgagee places notice of a public sale of the property in newspaper for 3 consecutive weeks. Must sell to highest bidder at public sale. Requires 4 months to complete (FAVORED METHOD)
Foreclosure by Possession (Strict Foreclosure)
By Writ of Possession - Legal action by lender; if court agrees, borrower must pay in 2 months. Abstract of writ must be recorded within 30 days after possession
By consent - Lender obtains possession by consent of the borrower in writing. Consent with lender’s affidavit & time of entry must be recorded at Register of Deeds within 30days
By peaceful entry - Lender may enter openly and peaceably if not opposed. Two witnesses must be present at time of possession. Certification of this fact must be signed by witnesses and recorded within 30 days of entry
Foreclosure without Possession
By public notice - Lender gives notice of default/foreclosure by publishing info in newspaper 3 weeks successfully. Copy of printed notice recorded at ROD within 30 days after last publication
By service of notice - At lender’s request, sheriff will serve notice of foreclosure on the borrower. Notice and time of sheriff’s return/info of the interaction recorded at ROD within 3 days of service being made.
Equity of Redemption
Borrower may redeem mortgaged property at any time within 1 year time period by paying amount of debt/performing all conditions set in mortgage
Deficiency Judgement
If proceedings from foreclosure do not satisfy the balance due, lender can sue borrower for remaining costs of the debt
Secondary Mortgage market
Purchase and sale of mortgages that have been created in the primary mortgage market; provides liquidity to lending institutions
Maine Secondary Market
- Purchase and sale of mortgages between lending institutions
- Sale of mortgages by lending institutions to organizations that provide a market for this purpose.
Sales of Mortgages to Organizations (Maine Specific)
4 Organizations: Fannie Mae, Ginnie Mae, Freddie Mac, Maine State Housing Authority
Federal National Mortgage Association
- aka Fannie Mae
- 2nd oldest secondary mortgage institution.
- Originally government owned, went private in 1968
- May purchase FHA, VA and conventional loans
- Primary source of business: conventional loans
Government National Mortgage Association
- aka Ginnie Mae
- Established in 1968 when Fannie Mae converted to private institution
- Agency of HUD
- Limited to VA or FHA mortgages (because gov’t agency)
- Ginnie Mae Pass Through - mortgaged backed security; makes them secure investments for purchasers
Federal Home Loan Mortgage Corporation
- aka Freddie Mac
- Exists to increase availablity of mortgage credit and provide liquidity for savings associations
- Created to establish a reliable market for conv. sale
Federal Home Loan Mortgage Corporation
- aka Freddie Mac
- Exists to increase availablity of mortgage credit and provide liquidity for savings associations
- Created to establish a reliable market for conv. sale
- 1989 - became private institution and competes with Fannie Mae
Maine Housing Autiority
- Established in 1969 for providing housing to low and moderate income Maine families
- Borrows money at a lower than market interest rate and then loans money at a slightly higher rate to qualified Maine homebuyers as mortgages
- Income limitations
- Max purchase price limits by county
- Types: conv. VA, FHA, or RD
Conventional Loan
Mortgage loans where the is no participation by an agency of the federal government
PMI
- Down payment less than 20%
- Repayment of top 20-25% of loan is insured with PMI
- PMI cancelled when loan value reaches 78%
- Qualify: home payments do not exceed 33% of monthly gross income; long term debt payments do not exceed 38% of monthly income
FHA-Insured Loans
- Mission in 1930s: make homeownership available to more people
- Does not make mortgages, just insures them
- Creates low down payment options
- Down payment can be gifted by a relative
- Seller or 3rd party can participate in paying the buyer’s closing costs
- Loans are assumable (new purchaser needs to qualify as of 1986)
- PMI is required upfront
Types of FHA Programs
203(b) Regular Loan - 1-4 family dwellings; max loan amount; down payment = 3.5%
234(c) Condo Loan - individual condo units; complex must reach FHA requirements for construction/# of units/owner occupancy/ HOA structire
203(k) Rehab Program - 1-4 FD to acquire and fix up the property
FHA Mortgage Insurance Premium
Paid in cash at closing or added to mortgage balance. One time premium of 1.75%
VA Loan
Guaranteed loan program; eligible veteran can receive up to 100% no down payment mortgage
VA Loan Eligibility
- 90 consecutive days of active service during wartime
- 181 days of active duty during peacetime
- 6+ years of service in National Guard/Reserves
- Spouse of a service member who has died in the line of duty or as a result of a service-related disability
Certificate of Eligibility
When discharged from service, veteran certificate states the maximum guarantee in effect at the time veteran is discharged
Restoring VA Eligitbility
- Paying off previous VA loan in full when property is sold
2. VA purchaser assumes the VA loan from original veteran borrower
RD Loans
- Direct Loan through Rural Development Offices
- Guarantee Loan program through participating lenders
Due on sale clause
conventional; aka acceleration clause
Contract for Deed
aka bond for deed; contract of sale and a financing instrument where seller agrees to convey title when buyer completes the purchase price installment payments
redlining
refusal of lending institutions to make loans because the area of the dwelling is inhabited by minorities
mortgage note
a promissory note between lender (mortgagee) and the borrower (mortgagor) which establishes the amount of debt, in terms of repayment and interest rate.
financial instrument
Financial instruments can be real or virtual documents representing a legal agreement involving any kind of monetary value.
liability insurance
E&O insurance; protects against errors & omissions, or negligence, made by the covered broker.
lien theory state
Maine - theory that a mortgage creates a lien against the real property pledged in the mortgage to secure the payment of a debt
mortgage validity (8)
writing competent parties valid debt valid interest description defeasance clause execution by borrower delivery to/accepted by lender
2 types of foreclosure
judicial and non judicial
FHA Loan Amount
loan amount is a percentage of the aquisition cost established by the FHA
Certificate of Reasonable Value
issued by VA and states the % of guarantee veteran receives
