General - Chapter 9 Lesson 1 Flashcards
Two main theories of financing
lien theory and title theory (intermediate theory)
Lien Theory
security instrument creates lien against prop must be repaid to debtor. prop=collateral (borrower still holds legal title)
How is lien theory enforced
court-supervised foreclosure
Title theory
lender holds actual legal title, borrower only holds equitable title
How is title theory enforced
holder may foreclose without court intervention after noticing the mortgagor
Intermediate theory
combo, lender places lien on title, have right to repossess the title through third party if borrower defaults
mortgage
type of security instrument involving 2 parties
mortgage creates…
voluntary lien
once lien repaid
promissory note canceled and lender issue satisfaction of mortgage
Mortgages are primary security in…
lien theory states
Borrower
mortgagor
lender
mortgagee
Trust deeds
three-party instruments placing into the hands of a disinterested third party a specific financial interest in title as security
borrower
trustor (equitable title)
third-party
trustee (legal title)
Get rid of trust deed
reconveyance deed
title theory states usually use
trust deeds
land contract
security instrument that can be used to finance the purchase of real estate (should be recorded to protect buyer’s interest)
land contracts provide
freedom from institutional loan qualifying standards, purchase home using seller financing
primary mortgage market
lenders make mortgage loans directly to borrowers. Process occurs in primary market where borrowers and lenders negotiate terms and carry out mortgage transactions
Secondary mortgage market
replenish funds so they can make additional mortgage loans, made up of private investors or gov-sponsored enterprises that buy and sell real estate mortgages
warehousing
gathering loans in the primary market for sale in the secondary market
Organization responsible for most secondary market activity
Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and Government National Mortgage Association
Equity
difference between value of a home and balance of any loans using home as collateral
home equity loan
mortgage on one’s principal residence, provides fixed amount of money that can be repaid with regular payments over fixed term
Home Equity Line of Credit
specific credit limit from which he can draw and pay back principal only as it is used (secured + open-ended)
Reverse Mortgage
62+ convert home’s equity to monthly cash stream or line of credit, mortgage repaid if home is sold or borrower does not occupy the home for 12 consecutive months, or the borrower dies
Chattel Mortgage
personal property used as security, bill of sale
Package Mortgage
real estate property and personal property
Blanket Mortgage
2+ parcels or lots, new development
unencumbered
free and clear of mortgages, prop tax liens, and other liens
loan assumption
occurs when a buyer agrees to take over payments of seller’s debt on an existing mortgage with the terms of the note remaining unchanged
“subject to” financing
buyer gets a loan to purchase property subject to the seller’s existing financing, buyer acknowledges the seller’s existing financing but accepts no personal liability, and seller remains liable for the existing financing
Clauses
specify the rights of the lender or borrower
acceleration clause
lender the right to declare balance due immediately for violation
alienation clause
prohibits assumption of the loan, must be paid off at sale
defeasance clause
defeat or cancel certain right upon the occurrence of specific event
occupancy clause
borrower to occupy prop within certain time
Partial release, satisfaction, or conveyance clause
creditor to release part of the property from the lien and convey title to that part back to the debtor once certain provisions of not have been satisfied
prepayment clause
allows lenders to charge borrowers a penalty for paying off the loan early or making substantial principal reduction, which can deprive the lender of interest income (lock-in clause)
