Lecture 5: Mortgage contract Flashcards
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 ?”
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”
Mortgage document:
- created when borrower pledges ?? to lender as a ? (?) for t’ loan.
Mortgage document:
- created when borrower pledges real property to lender as a security (collateral) for t’ loan.
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 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.
- 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.
- 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.
Loan provisions in Promissory Note:
- amount borrowed
- ?
- ?rate
- repayments
- ? for t’ loan (real property)
- payments: late fees, charges, interest & principal
Loan provisions in Promissory Note:
- amount borrowed
- maturity
- interest rate
- repayments
- security for t’ loan (real property)
- payments: late fees, charges, interest & principal
Loan provisions:
Default: when borrower fails to perform ??duties under terms of promissory note.
Loan provisions:
7. Default: when borrower fails to perform >=1 duties under terms of promissory note.
Loan provisions:
- ? for late payments and ? provisions (? period in which payments can be made up without declaring borrower is in ?)
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)
Loan provisions:
- provisions for unscheduled (?) payments
- lenders don’t like early repayments bec it means they’ll receive ??.
Loan provisions:
- provisions for unscheduled (early) payments
- lenders don’t like early repayments bec it means they’ll receive less interest.
Loan provisions:
- accelerate = demand ? in ?
- Notification of ? and ? clause: Lender may demand all remaining loan balance to be repaid ? if borrower defaults (??)
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)
Loan provisions:
- ? clause: exempts borrower from being ?? in t’ event of a default.
Loan provisions:
11. Nonrecourse clause: exempts borrower from being personally liable in t’ event of a default.
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
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
Loan provisions:
- Assignment clause:
Lender can sell t’ loan to another party without ?? from borrower.
Loan provisions:
13. Assignment clause:
Lender can sell t’ loan to another party without seeking consent from borrower.
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.
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.
Loan provisions:
- Release of lien:
Lender agrees to release/extinguish its lien (?) on property when loan is ? ?.
Loan provisions:
15. Release of lien:
Lender agrees to release/extinguish its lien (claim) on property when loan is fully repaid.
Default: failure to:
- meet an instalment payment of ? & ?
- pay ?
- pay ??
Default: failure to:
- meet an instalment payment of interest & principal
- pay taxes
- pay insurance premium
Foreclosure (US)
- ? of collateral property by ? to recover loan balance.
- if resale value > outstanding loan balance, ? receives surplus.
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
Alternatives to Foreclosure (US): - deed in lieu - short sale - friendly foreclosure - voluntary foreclosure - forbearance plan (restructure, workout) - loan modification ...
Alternatives to Foreclosure (US): - deed in lieu - short sale - friendly foreclosure - voluntary foreclosure - forbearance plan (restructure, workout) - loan modification ...
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.
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.
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.
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.
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 ?.
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.
Alternative to Foreclosure:
- Workouts:
- arrangements to deal with a borrower in ? ? trouble.
- lender agrees to refrain from ?
- borrower agrees to, e.g., supply financial information
Alternative to Foreclosure:
- 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
Alternative to Foreclosure:
- Workouts: examples:
- Restructure mortgage loan: ? interest rate or ? maturity date.
- transfer mortgage to ??
- ?? title to mortgage lender
Alternative to Foreclosure:
- Workouts:
- Restructure mortgage loan: lower interest rate or extend maturity date.
- transfer mortgage to new owner
- voluntary conveyancing title to mortgage lender
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.
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.
Alternative to Foreclosure:
3. Foreclosure(US)/Possession (UK): ? resort.
Alternative to Foreclosure:
3. Foreclosure(US)/Possession (UK): last resort.
