Mortgages Flashcards
Unit 13, Page 255
What contracts you sign for mortgage obligation?
-Mortgage
-Promissory note
What does the mortgage do?
Pledges the property up as collateral for the loan. It is the security instrument.
What does promissory note do?
It makes the buyer personally liable to pay the entire amount loan. It is the financing instrument.
What makes the buyer personally liable to pay the entire amount loan?
Promissory note
Mortgagor
Borrower
Morgagee
Lender
What is the term used to describe the pledging of property as security for payment of a loan without surrendering possession of the property?
Hypothecation
What is a trustee?
An impartial third party who holds ownership of a property until it is paid off.
What is noted in the promissory note?
-Amount of the debt
-Time and method of payment
-Rate of interest, if any
What is noted in the mortgage document?
-Lender and borrower
-Accurate legal description of the property
-Obligations of the borrower
-Rights of the lender
What is the mortgagor?
Borrower
What is the mortgagee?
Lender
What are the duties of the mortgagor?
-Pay the debt in accordance with the note
-Pay real estate taxes
-Maintain insurance
(First 3 are PITI payments)
-Obtain lender’s authorization before making major alterations on the property.
-Maintain the property in good repair
-Until the mortgage has been in place for 30 days, obtaining lender’s authorization before placing a second mortgage against the property.
Failure of the mortgagor to meet any of their obligations.
Default
Default
Failure of the mortgagor to meet any of their obligations.
What does the acceleration clause do?
It allows the lender to accelerate the maturity of the debt, making the entire debt due immediately.
What action triggers the acceleration clause?
Mortgagor falling into default.
What ensures that when the debt is repaid, the mortgagee has no further claim on the property?
Defeasance clause
What does the defeanse clause do?
Ensures that when the debt is repaid, the mortgagee has no further claim on the property.
What does estoppel certificate do?
It verifies the amount that remains to be repaid and the interest rate for the third party who purchased the loan (assignee). In an “assignment”.
What is urury?
Charging an unreasonably high rate of interest.
What is it called when a lender charges an unreasonably high rate of interest?
Usury
In what scenarios do usury rates apply?
-A seller who “takes back financing” or holds the mortgage.
-Third parties (real estate broker, grandfather, investor, etc) who lends the buyer money to purchase someone else’s property.
What does it mean to “take back the financing”?
When the seller lends the buyer the money instead of getting a separate lender.
What is the maximum interest a seller can charge a buyer if they take back financing?
16% unless it is their primary residence, and then it is 30%.
What does it mean when the seller lends the buyer the money instead of getting a separate lender?
Take back financing
What is imputed interest?
When a seller finances at an artificially low interest rate, the IRS will tax them at a higher rate.
Equity calculation
Equity = Value - Liens
In NJ, when do prepayment fees apply
-Private lenders
-Non-residential properties
Subordination agreement
When a lender agrees to drop their loan from first position to second.
What is it called when a lender agrees to drop their loan from first position to second?
Subordination agreement
What is a reduction certificate?
When a buyer “assumes” the remainder of a seller’s mortgage, a reduction certificate verifies the conditions of the current mortgage. “Assumption”
Alienation clause
“Due-on-sale” clause
Mortgage loan must be paid in full upon closing. Buyer cannot assume the existing loan.
What kind of deed do you get with a Sheriff deed?
Plain Bargain and Sale Deed (no contingencies)
What is it called when a lender agrees to accept whatever the house brings ion the open market and removed the mortgage lien?
Short sale
What is a short sale?
When a lender agrees to accept whatever the house brings on the open market and removes the mortgage lien. Seller still has to pay taxes on deficiency.
What is a deed in lieu?
Friendly foreclosure. Lender takes back the property and releases the owner from any liens.
What is it called when the lender takes back the property and releases the owner from any liens?
Deed in lieu
What is an REO?
Real Estate Owned property
What happens in an REO?
The lending bank takes ownership of the property back if no bids in the Sheriff’s sale cover what they are owed. All junior liens are wiped from the property due to going through the foreclosure process.
What are the alternatives to foreclosure?
-Deed in lieu
-Short Sale
