Mortgages

Question 1

What contracts you sign for mortgage obligation?

Answer 1

-Mortgage
-Promissory note

Question 2

What does the mortgage do?

Answer 2

Pledges the property up as collateral for the loan. It is the security instrument.

Question 3

What does promissory note do?

Answer 3

It makes the buyer personally liable to pay the entire amount loan. It is the financing instrument.

Question 4

What makes the buyer personally liable to pay the entire amount loan?

Answer 4

Promissory note

Question 5

Mortgagor

Answer 5

Borrower

Question 6

Morgagee

Answer 6

Lender

Question 7

What is the term used to describe the pledging of property as security for payment of a loan without surrendering possession of the property?

Answer 7

Hypothecation

Question 8

What is a trustee?

Answer 8

An impartial third party who holds ownership of a property until it is paid off.

Question 9

What is noted in the promissory note?

Answer 9

-Amount of the debt
-Time and method of payment
-Rate of interest, if any

Question 10

What is noted in the mortgage document?

Answer 10

-Lender and borrower
-Accurate legal description of the property
-Obligations of the borrower
-Rights of the lender

Question 11

What is the mortgagor?

Answer 11

Borrower

Question 12

What is the mortgagee?

Answer 12

Lender

Question 13

What are the duties of the mortgagor?

Answer 13

-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.

Question 14

Failure of the mortgagor to meet any of their obligations.

Answer 14

Default

Question 15

Default

Answer 15

Failure of the mortgagor to meet any of their obligations.

Question 16

What does the acceleration clause do?

Answer 16

It allows the lender to accelerate the maturity of the debt, making the entire debt due immediately.

Question 17

What action triggers the acceleration clause?

Answer 17

Mortgagor falling into default.

Question 18

What ensures that when the debt is repaid, the mortgagee has no further claim on the property?

Answer 18

Defeasance clause

Question 19

What does the defeanse clause do?

Answer 19

Ensures that when the debt is repaid, the mortgagee has no further claim on the property.

Question 20

What does estoppel certificate do?

Answer 20

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”.

Question 21

What is urury?

Answer 21

Charging an unreasonably high rate of interest.

Question 22

What is it called when a lender charges an unreasonably high rate of interest?

Answer 22

Usury

Question 23

In what scenarios do usury rates apply?

Answer 23

-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.

Question 24

What does it mean to “take back the financing”?

Answer 24

When the seller lends the buyer the money instead of getting a separate lender.

Question 25

What is the maximum interest a seller can charge a buyer if they take back financing?

Answer 25

16% unless it is their primary residence, and then it is 30%.

Question 26

What does it mean when the seller lends the buyer the money instead of getting a separate lender?

Answer 26

Take back financing

Question 27

What is imputed interest?

Answer 27

When a seller finances at an artificially low interest rate, the IRS will tax them at a higher rate.

Question 28

Equity calculation

Answer 28

Equity = Value - Liens

Question 29

In NJ, when do prepayment fees apply

Answer 29

-Private lenders -Non-residential properties

Question 30

Subordination agreement

Answer 30

When a lender agrees to drop their loan from first position to second.

Question 31

What is it called when a lender agrees to drop their loan from first position to second?

Answer 31

Subordination agreement

Question 32

What is a reduction certificate?

Answer 32

When a buyer "assumes" the remainder of a seller's mortgage, a reduction certificate verifies the conditions of the current mortgage. "Assumption"

Question 33

Alienation clause

Answer 33

"Due-on-sale" clause Mortgage loan must be paid in full upon closing. Buyer cannot assume the existing loan.

Question 34

What kind of deed do you get with a Sheriff deed?

Answer 34

Plain Bargain and Sale Deed (no contingencies)

Question 35

What is it called when a lender agrees to accept whatever the house brings ion the open market and removed the mortgage lien?

Answer 35

Short sale

Question 36

What is a short sale?

Answer 36

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.

Question 37

What is a deed in lieu?

Answer 37

Friendly foreclosure. Lender takes back the property and releases the owner from any liens.

Question 38

What is it called when the lender takes back the property and releases the owner from any liens?

Answer 38

Deed in lieu

Question 39

What is an REO?

Answer 39

Real Estate Owned property

Question 40

What happens in an REO?

Answer 40

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.

Question 41

What are the alternatives to foreclosure?

Answer 41

-Deed in lieu -Short Sale