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Real Estate > Mortgage Law 2 > Flashcards

Mortgage Law 2 Flashcards

1
Q

______is a loan document provision that allows a borrower to repay a debt before it is due date
A: Repayment Types
B: Pre-Payment Clause
C: Fully Amortized Clause
D: None Of The Above

A

B: Pre-Payment Clause

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2
Q

An _______ outlines the reasons that the lender can require loan repayment and the repayment that is required.
A: Repayment Types
B: Acceleration Clause
C: Fully Amortized Clause
D: None Of The Above

A

B: Acceleration Clause

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3
Q

5 key clauses

A
  • Acceleration Clause
  • Reconveyance Clause
  • Assumption Clause
  • Pre-Payment Clause
  • Subordination Clause
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4
Q

acceleration clause

A

The borrower has to pay off the entire remainder of the mortgage immediately if the terms of the loan are not met or the borrower defaults on the payments. This clause is fairly standard in mortgages and referred in the real estate purchase contract

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5
Q

reconveyance clause

A

As a loan is paid off and the property transitions from one party to another, the lender would then sign a reconveyance so the property is free of encumbrance and can be transferred over to the new owner. The new loan is then put in place as the primary encumbrance on the property.

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6
Q

assumption clause

A

A third party comes in and takes over the interest. Loans are typically non-assumable. Qualified assumptions are the most common type of assumptions. The Lender would have to approve this assumption clause. These are seen commonly in FHA and VA loans.

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7
Q

pre-payment clause

A

As a Borrower, you would like the right to pay off your loan at any time if you had the ability to do so. Typically seller financing will not allow a pre-payment until a certain point in the loan - this is because the seller is wanting to make a certain amount of money from financing.

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8
Q

facts about the Pre- Payment Clause

A
  • Prepayment clause is a loan-document provision that permits a borrower to satisfy a debt before it is due date.
  • It is a clause in a bond or mortgage that gives the borrower the privilege of paying the mortgage indebtedness before it becomes due.
  • Debt is satisfied without paying a penalty.
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9
Q

prepayment penalties

A

Prepayment penalties were very common in the early 2000s. Fees were imposed it a loan was paid oft early. Prepayment penalties are not very common in today’s real estate, but could come back.

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10
Q

subordination clause

A

Putting the primary interest into a
secondary position.

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11
Q

Facts about the Subordination Clause

A
  • A subordination clause is a clause in an agreement which indicates that the current claim on any debts will take first place over any other claims/issues formed in other
    agreements that will take place in the future
  • Subordination is the act of yielding priority.
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12
Q

recorded dates are important

A

Example: Borrower has a first and second mortgage and they want to retinance the first because interest rates have dropped. It the Borrower pays that oft, the junior lien is now in first position. As a Lender, we would send out a Subordination Agreement to the second mortgage lienholder making sure they are tine with staying in the second position so the new first mortgage can take the place as the first lien. The lender will not issue the mortgage without the subordination

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13
Q

Recorded Dates are IMPORTANT

A
  • Closing, which is often referred to as the “completion” is the final step in executing a real estate transaction.
  • The closing date is pre-set during the negotiation phase, and is usually several weeks after the offer is formally accepted.
  • On the closing date, the ownership of the property is transferred to the buyer
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14
Q

A due-on-sale clause is a type of:
A: Acceleration Clause
B: Subordination Clause
C: Defeasance Clause
D: Alienation Clause

A

A: Acceleration Clause

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15
Q

When a loan is paid in full, the borrower is given a(n):
A: Deed Of Trust
B: All-Inclusive Deed Of Trust
C: Deed Of Reconveyance
D: Quit Claim Deed

A

C: Deed Of Reconveyance

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16
Q

The clause that changes the priority of lien position is called:
A: Acceleration
B: Subordination
C: Defeasance
D: Alienation

A

B: Subordination

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17
Q

In the event that a future buyer comes along and would like to take over the existing underlying mortgage, the mortgage must contain a(n):
A: Acceleration Clause
B: Assumption Clause
C: Defeasance Clause
D: Alienation Clause

A

B: Assumption Clause

18
Q

The clause in a mortgage that allows for the assessment of a penalty if the mortgage is fully payed off in full at an earlier than agreed upon date is called a(n):
A: Prepayment
B: Acceleration
C: Subordination
D: Defeasance

A

A: Prepayment

19
Q

repayment types

A
  • Term or Straight
  • Amortized
  • Fully Amortized
  • Partially Amortized
  • Negatively Amortized
20
Q

term or straight loan

A

Loan for a given period of time. Set payment, set interest rate. Pretty predicable. Also known
as RNT (Rate and Term).

21
Q

amortization

A

Taking the loan amount that is borrowed and spreading those payments out over the term of the loan.

22
Q

fully amortized loan

A

The amortized payments do pay off the
loan over that set amount of time.
(Commonly 30 years for a mortgage).

23
Q

partially amortized loan

A

Pay off a portion through payments, but come to a given point in time where the payments end and there is still a balance due (meaning there is a balloon or a payoff balance at the end).

24
Q

negatively amortized loan

A

The monthly payment is not reducing the principal amount borrowed. It is paying the interest only. Therefore interest accrues upon interest and the principal is still there. Instead of paying the amount down, the balance grows because of compound interest. It is important to know exactly what this type of loan is and how to get out of it.

ex. A small business owner whose business thrived in summer, spring, and fall, but not in winter needed a loan. They chose the negatively amortized loan (also called payment option ARM). This type of loan can be convenient to some because it gives tour ditterent payment options- perfect for someone whose income fluctuates. The problem was very few chose the option to pay the fully amortized amount and rather chose the minimum payments of interest only.

25
Q

adjustable rate mortgage (ARM)

A

A borrower who knows what they are doing can make use of this type of loan. This is where the rate adjusts on some indicator(an Index) that it is tied to. When the index fluctuates, then the rate can change. There is an amount it can change per year and a maximum amount it can change. There is an amount it can change per year and a maximum amount it can
change for the life of the loan. This helps those qualify for a lower interest rate and lower payments to begin with, knowing that there are risks and it is likely that the payments will go up. This type of loan might allow someone to get a mortgage that would not be qualified for a straight mortgage. Have a plan to get out in case the interest rates rise substantially.

26
Q

Deed of Trust Theory

A

Utah is considered as a deed of trust theory state, which is more similar to a lien theory. Lien and deed of trust theory mean that the borrower holds title to the property for the duration of a loan. In a title theory state, the lender actually holds title to the property until
the loan is paid.

27
Q

A “Term Loan” often defined as:
A: Another Name For A “Straight Loan”
B: An Open-Ended Time Period
C: Loan For A Definite Time Period
D: None Of The Above

A

C: Loan For A Definite Time Period

28
Q

The most commonly used mortgage payment option today is called:
A: Fully Amortized
B: Partially Amortized
C: Straight Loan
D: Adjustable Rate Mortgage

A

A: Fully Amortized

29
Q

The type of mortgage that begins at a set interest rate and can fluctuate up or down over time is called a(n):
A: Fully Amortized
B: Partially Amortized
C: Straight Loan
D: Adjustable Rate Mortgage

A

D: Adjustable Rate Mortgage

30
Q

The type of mortgage where the principal balance can actually increase over time is called a(n):
A: Fully Amortized
B: Partially Amortized
C: Negative Amortization
D: Adjustable Rate Mortgage

A

C: Negative Amortization

31
Q

The interest rate for an Adjustable Rate Mortgage is usually based on:
A: An Index
B: A Margin
C: An Index Plus A Margin
D: Rate Cap

A

C: An Index Plus A Margin

32
Q

Jackson and Jeannene want to refinance their first mortgage because interest rates are now at 2.5%. When they pay off their first mortgage and refinance it, their second mortgage lien holder will need to sign a:
A: Release Of Lien
B: Subordination Agreement
C: Junior Lien Agreement
D: Buydown Agreement

A

B: Subordination Agreement

33
Q

A mortgage with no prior mortgage liens is a:
A: First Lien
B: Second Lien
C: Junior Lien
D: Subordinate Lien

A

A: First Lien

34
Q

The clause that changes the priority of lien position is called:
A: Acceleration
B: Subordination
C: Defeasance
D: Alienation

A

B: Subordination

35
Q

A due-on-sale clause is a type of:
A: Acceleration Clause
B: Subordination Clause
C: Defeasance Clause
D: Alienation Clause

A

A: Acceleration Clause

36
Q

Sam and Sally have the type of mortgage that begins at a set interest rate and can fluctuate up or down over time. This type of mortgage is called a(n):
A: Fully Amortized
B: Partially Amortized
C: Straight Loan
D: Adjustable Rate Mortgage

A

D: Adjustable Rate Mortgage

37
Q

Jack and Sally have a clause in a mortgage that says they have to pay $10,000 if they pay their mortgage off early. This is called a(n):
A: Prepayment Penalty
B: Acceleration Penalty
C: Subordination Penalty
D: Defeasance Penalty

A

A: Prepayment Penalty

38
Q

The type of mortgage that has set payments for a period of time and then requires that balance of the loan to be paid at one time is called a(n):
A: Fully Amortized
B: Balloon Payment Loan
C: Straight Loan
D: Adjustable Rate Mortgage

A

B: Balloon Payment Loan

39
Q

The interest rate for an adjustable rate mortgage is usually based on
A: An Index Plus A Margin
B: The Index
C: The Margin
D: None Of The Above

A

A: An Index Plus A Margin

40
Q

The clause in a mortgage that allows for the assessment of a penalty if the mortgage is fully payed off in full at an earlier than agreed upon date is called a(n)
A: Non-Prepayment Clause
B: Prepayment
C: Lien Theory
D: All Of The Above

A

B: Prepayment

41
Q

Straight Loan is
A: An Loan Where The Interest Rate Is Adjustable
B: Loan That Is Given By The Lender
C: Loan For A Given Period Of Time, Set Payments, Set Interest Rate
D: Loan For A Only 15 Years, With No Rates

A

C: Loan For A Given Period Of Time, Set Payments, Set Interest Rate

42
Q

The state of Utah is considered a _____ state
A: Title Theory
B: Lien Theory
C: Advance Mortgage State
D: All Of The Above

A

B: Lien Theory

Real Estate (52 decks)

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