Mortgages Flashcards
Mortgage
A mortgage is a security interest in property created to secure the repayment of the purchase money loan
Title Theory
Common law theory that provides that the lender holds legal title to the property and the owner holds an equitable interest subject to repayment.
Upon full repayment, legal title passes to the owners who paid the mortgage.
Lien Theory
Lien theory holds that the borrower holds legal title to the property, and the lender holds a lien to the property that is exercisable upon default by borrower.
CA is lien theory state.
Foreclosure
The process by which a lender retakes the property held by a defaulted borrower and ejects the borrower.
Acceleration
Upon default, the mortgage documents (trust deed or promissory note) usually has an acceleration clause which states that upon default, the entire loan comes due immediately.
Equitable Right of Redemption
At common law the equitable right of redemption allows borrowers to reclaim their property by paying the full amount owed on their mortgage before the foreclosure is finalized, usually at the auction sale.
Statutory Right of Redemption
By statute, some states allow that the defaulting (and now foreclosed) borrower has a period of time, usually six months, to buy back the property at the auction bid price.
Judicial Foreclosure
Judicial foreclosure is the most common type of foreclosure in which a foreclosure process and sale is part of a civil process supervised by the Court.
Non-Judicial Foreclosure
A process that is allowed in some states where the foreclosure process can be completed outside of Court. This is sometimes called a “power of sale” foreclosure.
Deed in lieu of Foreclosure
A deed in lieu of foreclosure is a commonly-used tool where the borrower deeds the property back to the lender, which terminates the mortgage contract, and the lender retakes and sells the property
Adjustable Rate Mortgage
An adjustable rate mortgage (ARM) is a mortgage secured initially at a lower interest rate (often at or below prime).
Installment land sales contract
Similar to mortgage except that no legal title changes hands until the land contract is entirely paid
Contract for Deed
This is another term for land contract
Equitable Mortgage
Some states/courts have adopted an equitable mortgage theory in which any lending instrument attached to real property is subject to the protections of a mortgage. This has been a reaction to unscrupulous lenders taking advantage of unsophisticated borrowers.
Redlining
Denying financial services to neighborhoods with large racial or ethnic minority populations. Ie. the denial of mortgages to African Americans who want to buy homes in predominately white neighborhoods.
