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Real Estate Finance > Lecture 5: Mortgage contract > Flashcards

Lecture 5: Mortgage contract Flashcards

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1
Q

Promissory Note:

  • a legal document - ? that debt exists between borrower and lender.
  • contains ??, rights & responsibilities of both parties
  • the borrower is personally ? for the debt, i.e. the loan is made “with ?”
A

Promissory Note:

  • a legal document - evidence that debt exists between borrower and lender.
  • contains t’ terms (loan provisions), rights & responsibilities of both parties
  • the borrower is personally liable for the debt, i.e. the loan is made “with recourse”
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2
Q

Mortgage document:

- created when borrower pledges ?? to lender as a ? (?) for t’ loan.

A

Mortgage document:

- created when borrower pledges real property to lender as a security (collateral) for t’ loan.

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3
Q

A ?-? mortgage (aka seller/owner financing) is a mortgage issued to the borrower by the ? of a home as part of the purchase transaction.
This is usually done in situations where the buyer cannot qualify for a mortgage through ? lending channels.

A

A purchase-money mortgage (aka seller/owner financing) is a mortgage issued to the borrower by the seller of a home as part of the purchase transaction.
This is usually done in situations where the buyer cannot qualify for a mortgage through traditional lending channels.

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4
Q
  • borrower is personally ? for payments (i.e. loan is made ‘with ? ‘ to borrower)
  • In case of default, mortgagee (?) may disregard t’ ?? and sue on the ??.
  • Lender may sue so that borrower’s other assets (?, ?, other ??) can be sold to satisfy t’ terms of note.
  • Lender obtains ‘? judgement’ through court.
A
  • Unless stated otherwise, promissory note is ‘with recourse’: borrower is personally liable to payments
  • In case of default, mortgagee (lender) may disregard t’ mortgage contract and sue on the promissory note.
  • Lender may sue so that borrower’s other assets (stock, bonds, other real estate) can be sold to satisfy t’ terms of note.
  • Lender obtains ‘deficiency judgement’ through court.
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5
Q

Loan provisions in Promissory Note:

  • amount borrowed
  • ?
  • ?rate
  • repayments
  • ? for t’ loan (real property)
  • payments: late fees, charges, interest & principal
A

Loan provisions in Promissory Note:

  1. amount borrowed
  2. maturity
  3. interest rate
  4. repayments
  5. security for t’ loan (real property)
  6. payments: late fees, charges, interest & principal
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6
Q

Loan provisions:

Default: when borrower fails to perform ??duties under terms of promissory note.

A

Loan provisions:

7. Default: when borrower fails to perform >=1 duties under terms of promissory note.

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7
Q

Loan provisions:

- ? for late payments and ? provisions (? period in which payments can be made up without declaring borrower is in ?)

A

Loan provisions:
8. penalties for late payments and forbearance provisions (grace period in which payments can be made up without declaring borrower is in default)

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8
Q

Loan provisions:
- provisions for unscheduled (?) payments

  • lenders don’t like early repayments bec it means they’ll receive ??.
A

Loan provisions:

  1. provisions for unscheduled (early) payments
    - lenders don’t like early repayments bec it means they’ll receive less interest.
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9
Q

Loan provisions:

  • accelerate = demand ? in ?
  • Notification of ? and ? clause: Lender may demand all remaining loan balance to be repaid ? if borrower defaults (??)
A

Loan provisions:

  • accelerate = demand payment in full
    10. Notification of default and acceleration clause: Lender may demand all remaining loan balance to be repaid immediately if borrower defaults (foreclosure action)
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10
Q

Loan provisions:

- ? clause: exempts borrower from being ?? in t’ event of a default.

A

Loan provisions:

11. Nonrecourse clause: exempts borrower from being personally liable in t’ event of a default.

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11
Q

Loan provisions:
- Loan ? clause: allows borrower to substitute sb else in their place for ??.
- esp. when borrower ? property to sb else who retains favourable financing terms.
Alternative: ‘???’ clause

A

Loan provisions:
12. Loan assumability clause: allows borrower to substitute sb else in their place for remaining payments.
- esp. when borrower sells property to sb else who retains favourable financing terms.
Alternative: ‘due on sale’ clause

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12
Q

Loan provisions:
- Assignment clause:
Lender can sell t’ loan to another party without ?? from borrower.

A

Loan provisions:
13. Assignment clause:
Lender can sell t’ loan to another party without seeking consent from borrower.

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13
Q

Loan provisions:
- Future advances ( typical for ? loans):
Borrower may request additional funds up to a certain limit under ? terms as original loans or at a different ? rate.

A

Loan provisions:
14. Future advances ( typical for construction loans):
Borrower may request additional funds up to a certain limit under same terms as original loans or at a different interest rate.

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14
Q

Loan provisions:
- Release of lien:
Lender agrees to release/extinguish its lien (?) on property when loan is ? ?.

A

Loan provisions:
15. Release of lien:
Lender agrees to release/extinguish its lien (claim) on property when loan is fully repaid.

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15
Q

Default: failure to:

  • meet an instalment payment of ? & ?
  • pay ?
  • pay ??
A

Default: failure to:

  • meet an instalment payment of interest & principal
  • pay taxes
  • pay insurance premium
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16
Q

Foreclosure (US)

  • ? of collateral property by ? to recover loan balance.
  • if resale value > outstanding loan balance, ? receives surplus.
A

Foreclosure (US)

  • sale of property by court to recover loan balance.
  • if resale value > outstanding loan balance, borrower receives surplus.
  • Lenders usually work with borrowers to avoid foreclosure
17
Q 
Alternatives to Foreclosure (US):
- deed in lieu
- short sale
- friendly foreclosure
- voluntary foreclosure
- forbearance plan (restructure, workout)
- loan modification 
...
A 
Alternatives to Foreclosure (US):
- deed in lieu
- short sale
- friendly foreclosure
- voluntary foreclosure
- forbearance plan (restructure, workout)
- loan modification 
...
18
Q

Possession (UK):
Lender can take possession of a home due ?.
- typically involve court order & eviction warrant.
- borrower receives ? from sale & liable for any ?.
- Possession (UK) # Foreclosure (US)
- Foreclosure (UK): borrower has ? right to any surplus from sale.

A

Possession (UK):
Lender can take possession of a home due default.
- typically involve court order & eviction warrant.
- borrower receives surplus from sale & liable for any deficit.
- Possession (UK) # Foreclosure (US)
- Foreclosure (UK): borrower has no right to any surplus from sale.

19
Q

Foreclosure (US):

  • : lacks ? clause => state court order required
  • Non-judicial: ? has been pre-authorised by borrower to sell property in default. no court order required.
A

Foreclosure (US):

  • Judicial: lacks sale clause => state court order required
  • Non-judicial: lender has been pre-authorised by borrower to sell property in default. no court order required.
20
Q

Failure to keep the security in ? is least likely to be detected by the lender and has the least severe implications for the lender => least likely to lead to ?.

A

Failure to keep the security in repair is least likely to be detected by the lender and has the least severe implications for the lender => least likely to lead to foreclosure.

21
Q

Alternative to Foreclosure:

  1. Workouts:
    - arrangements to deal with a borrower in ? ? trouble.
    - lender agrees to refrain from ?
    - borrower agrees to, e.g., supply financial information
A

Alternative to Foreclosure:

  1. Workouts:
    - arrangements to deal with a borrower in temporary financial trouble.
    e. g. adjustments of payments & other terms
    - lender agrees to refrain from foreclosing
    - borrower agrees to, e.g., supply financial information
22
Q

Alternative to Foreclosure:

  1. Workouts: examples:
    - Restructure mortgage loan: ? interest rate or ? maturity date.
    - transfer mortgage to ??
    - ?? title to mortgage lender
A

Alternative to Foreclosure:

  1. Workouts:
    - Restructure mortgage loan: lower interest rate or extend maturity date.
    - transfer mortgage to new owner
    - voluntary conveyancing title to mortgage lender
23
Q

Alternative to Foreclosure:
2. Short sale:
Lender agrees to ? loan balance (esp. when house price’s ?)
Borrower then sells property and turns over ? to lender.

A

Alternative to Foreclosure:
2. Short sale:
Lender agrees to discount loan balance (esp. when house price’s falling)
Borrower then sells property and turns over proceeds to lender.

24
Q

Alternative to Foreclosure:

3. Foreclosure(US)/Possession (UK): ? resort.

A

Alternative to Foreclosure:

3. Foreclosure(US)/Possession (UK): last resort.

25
Q

Alternative to Foreclosure:

  1. ?:
    - home owner is able to reclaim ? of t’ property lost in foreclosure by paying principal, interest & expenses.
    - Equity of redemption can sometimes be exercised even ? resale of house
A

Alternative to Foreclosure:

  1. Redemption:
    - home owner is able to reclaim ownership of t’ property lost in foreclosure by paying principal, interest & expenses.
    - Equity of redemption can sometimes be exercised even after resale of house
26
Q

‘Redeem ?, Foreclose ?’

A

‘Redeem Up, Foreclose Down’

Real Estate Finance (16 decks)

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