Module 3: Finance Instruments Flashcards
Define Promissory Notes
Financing instrument that evidence a promise to pay a specific amount, to specific individual, in specific time frame.
Define note rate
Amount of debt including interest rate used to amortize the debt.
What are negotiable instruments
Promissory notes used in real estate that are freely transferable from one party to another.
List the 4 types of Notes in real estate
- Straight Note or Interest-Only Note
- Installment Note
- Partially Amortizing Installment or Installment Note with Balloon
- Fully Amortizing Installment Note
Define Security Instrument
Personal or real property
What is meant by Hypothecate
Pledges personal or real property as security for debt without giving up possession of it.
What are the two main types of security instruments used in real estate transactions
- Trust Deeds
2. Mortgages
Define Trust Deeds
Instruments placing a specific financial interest in the title to real property into the hands of a 3rd party
*Non-judicial foreclosure action
Define Mortgage
A security instrument where the borrower conveys interest in property to the lender and creating a voluntary lien on the property.
*Judicial foreclosure action
Define Overages
Any remaining money after all debts, liens, expenses, and costs related to property are paid to the debtor.
Define Deficiency Judgement
Court order stating that the debtor owes money to the creditor because the collateral property does no bring enough at foreclosure.
Define Lien Position
Establishes order liens are paid off from foreclosure proceeds.
Difference between Senior mortgage and junior mortgage
Whichever is higher position 1>2, 2>3
Define Subordination Agreement
Filed in public record that permits second lien holder to be in the first lien position
Define Acceleration Clause
lender right to declare entire loan balance due immediately if borrower defaults or violates contract provisions.
Define Alienation Clause
Gives lender certain rights when there is a transfer of ownership in property. aka Due on Sale Clause
Define Defeasance Clause
When conditions are fulfilled/ debt paid the document (mortgage) becomes null/void.
Define Partial Release, Satisfaction, or Reconveyance Clause
Obligates the creditor to release part of the property from the lien and convey title back to the debtor.
Define Prepayment Clause
Gives lender the right to charge the borrower a penalty for paying off the loan early. ie refinancing a loan. Prohibited in Government (FHA, VA, USDA/RHS) loans.
Define Covenants
Promises made in keeping property clean, no trash, good condition, insured, etc.
Define Demand Clause
If a borrower is in default for violating covenant the lender may demand the default be cured.
