Morgan's (IV - E, F, G; V - A) Flashcards
Secured instruments for real estate property loans
Mortgages
A mortgage typically as a ___ which is the financing instrument that serves as evidence of the debt and details the terms of repayment; the mortgage is the security instrument that creates a lien on the property as security for the loan.
Note (aka promissory note)
To pledge property as security for a debt while retaining possession and use of the property
Hypothecate
To provide something as security for a debt, generally by surrendering possession but not full title
Pledge
What are the 3 most common ways of structuring mortgages?
- Ordinary mortgage - two-party instrument between a borrower and an institutional lender
- Deed of trust (aka trust deed) - three-party instrument under which a borrower (trustor) and an institutional lender (beneficiary) have a third aprty (trustee) who holds the property’s legal title “in trust” until the debt is repaid
- Contract for deed (aka contract for deed, land contract, installment contract) - two-party instrument between buyer and seller under which the seller agrees to accept payments until the purchase price + interest is satisfied
What is a key difference between mortgage and deed of trust?
Deed of trust - non-judicial; handled by the financing contract provisions
Mortgage - requires court enforcement of lien rights
Clause that allows the lender to call the entire balance of the loan due-and-payable upon the transfer of the property
Alienation (due-on-sale) clause
Clause that allows the lender to call the entire remaining debt due on default
Accerlation clause
Clause that allows the lender to attach only the collateral in the event of default, leaving all other borrower assets judgment-proof
Non-recourse clause
Clause that requires the lender to provide a release of mortgage, or satisfaction of mortgage, document when the loan has been repaid
Defeasance clause
Clause that either prohibits or allows a borrower to pass along the loan obligation to a subsequent buyer
Assumption clause
The process of substituting one party to a contract for another, thus releasing the first party from further obligation while shifting that obligation to the new party alone
Novation
Clause which helps lenders increase their return when a borrower pays off a loan ahead of schedule by charging a fee for early payoffs
Prepayment clause (or prepayment penalty clause)
Clause which serves to clarify that a loan will accept a subordinate, or junior, position and remain behind another loan in the priority order of loans
Subordination clause
This federal law is a part of the Consumer Credit Protection Act and has a detailed set of loan disclosure and advertising requirements for lenders who originate residential loans
Truth in Lending ACt (TILA)
The regulation that implements TILA and explains how lenders are to comply with those parts of TILA that bear on consumer credit
Regulation Z
Federal law that governs lender practices; applies to most loans on one-to-four family residential properties when they involve a federally related residential mortgage loan in any lien position
Real Estate Settlement Procedures Act (RESPA)
Who enforces RESPA?
HUD
What are the #2 keypurposes of RESPA?
- Help consumers become better shoppers for settlement services
- Eliminate kickbacks and referral fees
___ is a standard form that clearly shows all charges imposed on borrowers and sellers in connection with a settlement. It is used nationwide for loan transactions covered by RESPA to make loan information uniform for ease in the secondary market.
HUD-1
List the 3 disclosures required by RESPA.
- Costs associated with settlement
- Lender practices in loan servicing and impound/escrow accounts
- Business relationships between settlement service providers
List the documents that must be provided to purchase a RESPA-covered residential property.
- Good Faith Estimate (GFE) of settlement costs
- Mortgage Servicing Disclosure Statement
- Special Information Booklet
Which federal law requires lender to ignore specific facts about an applicant when reviewing a credit applicant?
Equal Credit Opportunity Act (ECOA)
List the categories protected by ECOA.
- Race
- Color
- Religion
- National origin
- Sex
- Marital status*
- Age*
- Receipt of income from public assistance programs such as food stamps*
*Unique to ECOA
This law is designed to protect consumers from inaccurate credit reporting by ensuring the right of consumers to inspect their credit reports and make corrections or attach explanations where necessary; also requires lenders to notify an applicant which reporting agency’s report is used
Fair Credit Reporting Act (1970)
Which federal law applies to high LTV loans and requires PMI coverage and payments to terminate automatically once the mortgage has amortized to 78% of the original value of the property (if current on all mortgage payments and does not have a high-risk loan) AND the lender must tell the borrower at closing when the mortgage will hit that mark?
Homeowner’s Protection Act of 1998 (aka Private Mortgage Insurance Act)
A lender’s charging an illegally high rate of interest
Usury
A term that refers to a wide array of practices by which borrowers are taken unfair advantage of, such as extremely severe penalty fees and interest rate hikes after a late payment
Predatory lending
Body of “general” laws that are based on custom, conventions, and case law rather than statutory or civil law
Common law
The category of common law that applies to relationships and responsibilities created when one person acts as a representative for another
Common law of agency
A person who is authorized to act on behalf of another and bind them their decisions and actions
Agent (aka fiduciary, person in a position of trust)
Person who grants the authority for another to act on their behalf
Principa
Agent of an agent
Subagent
Person who is not in an agency relationship with a licensee
Custerom
Person who is an agency relationship with a licensee, generally as a principal
Client
Any person who has been granted a POA to act on behalf of someone else
Attorney-in-fact
Stand-in for another and has limited, generally very temporary authority
Proxy
List 5 basic fiduciary duties.
Loyalty, obedience, accounting disclosure, confidence
Licensees acting as agents have specific fiduciary duties; however, they always owe what 2 obligations to all parties, including customers?
Honesty
Fair dealing
List the 3 broad categories of agent authority within agency relationships.
- Universal - represent the principal in all matters
- General - broad authority to act continuously on behalf of the principal in all authorized business matters
- Special - typically limited to a particular transaction
Type of agency in which the agent is representing only one party, buyer, or seller in a transaction
Single agency
Type of agency in which the agent represents both parties
Dual agency
