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Unit 15: Real Estate Financing Principles > Key Terms > Flashcards

Key Terms Flashcards

1
Q

A mortgage is a(n) ___ on real estate.

A

Voluntary lien

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2
Q

A conditional transfer or pledge of real estate as security for the payment of debt.

A

Mortgage

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3
Q

The borrower in a mortgage loan

A

Mortgagor

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4
Q

The lender in a mortgage loan

A

Mortgagee

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5
Q

In a mortgage, the ___ pledges ___ to the ___ as a security for the debt.

A

Mortgagor pledges land to the mortgagee

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6
Q

To pledge property as security for an obligation or loan without giving up possession of it

A

Hypothecation

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7
Q

The borrower’s personal promise to repay a debt according to agreed terms.

A

Promissory note

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8
Q

The ___ is also called a note or financing instrument

A

Promissory note

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9
Q

The ___ exposes all the borrower’s assets to claims by secured creditors

A

Promissory note

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10
Q

A financing instrument that states the terms of the underlying obligation is signed by its maker and is negotiable (transferable to a third party)

A

Promissory note

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11
Q

A(n) ___ generally states the amount of the debt, the time and method of payment, and the rate of interest.

A

Promissory note

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12
Q

A promissory note generally states what 4 things?

A

1) amount of the debt
2) time of payment
3) method of payment
4) interest rate

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13
Q

A note used as a debt instrument without any related collateral

A

Unsecured note

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14
Q

___ are used by banks and other lenders to extend short term personal loans

A

Unsecured notes

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15
Q

A written promise or order to pay a specific sum of money that may be transferred by endorsement or delivery. The transferee then has the original payee’s right to payment.

A

Negotiable instrument

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16
Q

A note is a(n) ___ like a check or bank draft

A

Negotiable instrument

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17
Q

The lender who holds the note

A

Payee

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18
Q

The ___ may transfer the right to receive payment to a third party by signing over or delivering the instrument to the third party.

A

Payee

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19
Q

The payee may transfer the right to receive payment to a third party by ___ or ___ the ___ to the third party.

A

signing over or delivering the instrument

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20
Q

A charge made by a lender for the use of money

A

Interest

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21
Q

Payment made at the beginning of each period

A

Payment in advance

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22
Q

Payment made at the end of a period

A

Payment in arrears

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23
Q

Charging interest in excess of the maximum rate allowed by law

A

Usury

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24
Q

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

A

Usury

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25
Q

The processing of a mortgage application

A

Loan origination

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26
Q

When a mortgage loan is originated, a(n) ___ fee is charged by most lenders to cover the expenses involved in generating the loan.

A

Loan origination fee

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27
Q

A fee charged to the borrower by the lender for making a mortgage loan.

A

Loan origination fee

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28
Q

The loan origination fee is usually computed as a percentage of the __.

A

Loan amount

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29
Q

A unit of measurement used for various loan charges; one point = 1% of the amount of the loan.

A

Discount Point

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30
Q

One discount point = ___% of the amount of the loan

A

1

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31
Q

If the borrower repays the loan before the end of the term, the lender collects less than the anticipated interest. For this reason, some mortgage notes contain a(n) ___, which requires the borrower pays a prepayment penalty against the unearned portion of the interest for any payments made ahead of schedule.

A

Prepayment clause

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32
Q

If the borrower repays the loan before the end of the term, the lender collects less than the anticipated interest. For this reason, some mortgage notes contain a prepayment clause, which requires the borrower pays a(n) ___ against the unearned portion of the interest for any payments made ahead of schedule.

A

Prepayment penalty

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33
Q

A charge imposed on a borrower who pays off the loan principal early.

A

Prepayment penalty

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34
Q

Penalty that compensates the lender for interest and other charges that would otherwise be lost due to a borrower paying off a loan’s principal early

A

Prepayment penalty

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35
Q

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 (lender)

A

Deed of trust

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36
Q

A deed of trust is also called a(n) ___.

A

Trust deed

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37
Q

In a deed of trust, who is the note holder that benefits?

A

The lender

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38
Q

A(n) ___ conveys naked title or bare legal title without the right of possession.

A

Deed of trust

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39
Q

A deed of trust conveys naked title or bare legal title without the right of ___.

A

Possession

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40
Q

In a deed of trust, the trustee holds title on behalf of the lender who is called the ___.

A

Beneficiary

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41
Q

A lender in a deed of trust loan transaction

A

Beneficiary

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42
Q

A beneficiary is also called a(n) ___.

A

Legatee

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43
Q

In a deed of trust, the borrower is called the ___.

A

Trustor

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44
Q

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 plan or other covenant

A

Acceleration Clause

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45
Q

Clause typically included in a mortgage or deed of trust that assists the lender in foreclosure

A

Acceleration clause

46
Q

By the provisions of the ___ in most mortgage documents, the lender is required to execute a satisfaction of mortgage when the note has been fully paid.

A

Defeasance clause

47
Q

By the provisions of the defeasance clause in most mortgage documents, the lender is required to execute a(n) ___ when the note has been fully paid.

A

satisfaction of mortgage

48
Q

Is also called a release of mortgage

A

satisfaction of mortgage

49
Q

Is also called a mortgage discharge

A

satisfaction of mortgage

50
Q

A document acknowledging the payment of a mortgage debt

A

satisfaction of mortgage

51
Q

The satisfaction of mortgage document returns all interest in real estate to the ___.

A

Borrower

52
Q

A document that transfers all rights given to a trustee under a deed of trust loan back to the grantor after the loan has been fully repaid

A

Release deed

53
Q

Also called a deed of reconveyance

A

Release deed

54
Q

The release deed conveys the same ___ and ___ that the trustee was given under the deed of trust

A

Rights and powers

55
Q

Some lenders include a(n) ___ to prevent a future purchaser of property from being able to assume a loan if the original interest rate is low.

A

Alienation clause

56
Q

Also called a resale clause

A

Alienation clause

57
Q

Also called a due-on-sale clause

A

Alienation clause

58
Q

Also called a call clause

A

Alienation clause

59
Q

The clause in a mortgage or deed of trust that states that the balance of the secured debt becomes immediately due and payable at the lender’s option if the property is sold by the borrower.

A

Alienation clause

60
Q

Clause that prevents the borrower from assigning debt without the lender’s approval

A

Alienation clause

61
Q

A(n) ___ provides that when property is sold, the lender may either declare the entire debt due immediately or permit the buyer to assume the loan at the current market interest rate.

A

Alienation clause

62
Q

Also called an impound account

A

Escrow account

63
Q

Also called a trust account

A

Escrow account

64
Q

Trust account established by a sponsoring broker under the provisions of the license law for the purpose of holding funds on behalf of the sponsoring broker’s principal or some other person until the consummation or termination of a transaction

A

Escrow account

65
Q

If a seller wants to be completely free of the original mortgage loan, the sellers, buyers, and lender must execute a(n) ___ in writing.

A

Novation agreement

66
Q

Substituting a new obligation for an old one

A

Novation

67
Q

Substituting new parties to an existing obligation

A

Novation

68
Q

The ___ makes the buyer solely responsible for any default on a loan, and frees the seller of any liability for the loan.

A

Novation

69
Q

___ gives constructive notice to the world of the borrower’s obligations.

A

Recording

70
Q

___ establishes the lien’s priority

A

Recording

71
Q

A mortgage on land that has no prior mortgage lien is a(n) ___.

A

First mortgage

72
Q

If an owner executes another loan for additional funds on a land or property that already has an existing mortgage, the new loan becomes a(n) ___ when recorded

A

Second mortgage

73
Q

Also called a junior lien

A

Second mortgage

74
Q

The priority of mortgage or trust deed liens may be changed by a(n) ___.

A

Subordination agreement

75
Q

Agreement in which the first lender subordinates its lien to that of the second lender.

A

Subordination agreement

76
Q

Also called a contract for deed

A

Land contract

77
Q

Also called an installment contract

A

Land contract

78
Q

A contract for the sale of real estate whereby the purchase price is paid in periodic installments by the purchaser, who is in possession of the property even though title is retained by the seller until all payments are received in full.

A

Land contract

79
Q

In a land contract, the ___ is also called the vendor.

A

Seller

80
Q

In a land contract, the ___ retains legal title to the property during the term of the contract.

A

Seller

81
Q

In a land contract, the buyer is granted ___ and ___.

A

Equitable title
Possession

82
Q

At the end of the loan term for a land contract, in the event where the seller fails to deliver clear title, the buyer would file a(n) ___.

A

Vendee’s lien

83
Q

In a land contract, the ___ is the vendee.

A

Buyer

84
Q

A land contract usually permits the seller to evict the buyer in the event of ___.

A

Default

85
Q

Any lending practice that imposes unfair or abusive loan terms on a borrower

A

Predatory lending

86
Q

Any lending practice that through deception, coercion, exploitation, or unscrupulous actions convinces a borrower to accept unfair terms on a loan amount that a borrower doesn’t need, doesn’t want, or can’t afford

A

Predatory lending

87
Q

___ loans are often made to individuals with bad credit history

A

Subprime

88
Q

The interest held by a vendee under contract for a deed or an installment contract

A

Equitable title

89
Q

The equitable right to obtain absolute ownership to property when legal title is held in another’s name

A

Equitable title

90
Q

Some states interpret a mortgage to mean that the lender is the owner of mortgaged land. On full payment of the mortgage debt, the borrower becomes the land owner

A

Title theory

91
Q

Some states interpret a mortgage as being purely a lien on real property. The mortgagee has no right of possession but must foreclose the lien and sell the property if the mortgagor defaults

A

Lien theory

92
Q

Theory based on the principals of title theory states but still requiring the mortgagee to formally foreclose to obtain legal title

A

Intermediate mortgage theory

93
Q

Clause that stipulates that such title must be fully conveyed, or released back, to the mortgagor at the time the debt is repaid in full

A

Defeasance clause

94
Q

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 on repayment of the mortgage loan

A

Defeasance Clause

95
Q

A legal procedure in which property pledged as security for a loan is sold to satisfy the debt

A

Foreclosure

96
Q

Type of foreclosure that allows the property to be sold by court order after the lender has given sufficient public notice to the defaulting borrower

A

Judicial Foreclosure

97
Q

A way for a lender to acquire mortgaged property as an alternative to judicial foreclosure

A

Strict Foreclosure

98
Q

In ___ foreclosure, the court establishes a deadline by which the balance must be paid in full. If the borrower does not pay by that date, the court awards full legal title to the lender.

A

Strict

99
Q

A deed given by the mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. This is a way for the mortgagor to avoid foreclosure

A

Deed in Lieu of Foreclosure

100
Q

___ is sometimes called friendly foreclosure

A

Deed in Lieu of Foreclosure

101
Q

The right of a defaulted property owner to recover the property before its sale by paying the appropriate fees and charges

A

Equitable Right of Redemption

102
Q

Allows the borrower to pay the lender the amount in default plus costs and thereby extinguish the debt

A

Equitable right of redemption

103
Q

In IL, a specialized quitclaim deed issued to the purchaser of a foreclosed home

A

Sheriff’s deed

104
Q

In IL, the ___ deed exercises the new owner’s equitable right of redemption after purchasing a foreclosed home

A

Sheriff’s deed

105
Q

In IL, an option available when the defaulting mortgagor wishes to cure the default and reinstate the loan as if no acceleration had occured

A

Statutory Right of Reinstatement

106
Q

Occurs when a default is not cured by redemption or reinstatement and a decree of foreclosure is entered

A

Sheriff’s sale

107
Q

The document generally given to the purchaser of delinquent property taxes at a foreclosure sale

A

Certificate of sale

108
Q

A personal judgement levied against the borrower when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full

A

Deficiency judgment

109
Q

The process by which a lender accepts less than the amount owed on the property

A

Short sale

110
Q

A deed in lieu of foreclosure is sometimes known as a(n) ___ because it is carried out by mutual agreement, rather than by lawsuit.

A

friendly foreclosure

111
Q
A

Unit 15: Real Estate Financing Principles (3 decks)

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