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Unit 15: Real Estate Financing Principles > Notes > Flashcards

Notes Flashcards

1
Q

Most homes are bought with ___.

A

Borrowed money

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2
Q

Because of the ever-changing requirements of the secondary market, it is best for licensees to ___ before writing a sales contract.

A

Refer consumers to a lender to be pre-approved for a loan

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3
Q

The person who borrows money to buy a piece of property voluntarily gives the lender the right to ___ if the borrower fails to repay the loan.

A

Take the property

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4
Q

In a mortgage, debt is created through a(n) ___, which is a negotiable instrument.

A

Promissory note

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5
Q

___ are considered a “personal promise to pay” and “evidence of a debt.”

A

Promissory notes

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6
Q

The ___ is a contract that secures the repayment of the debt on a home loan by stating the terms under which the debt is to be repaid and what could happen if the debt is not repaid.

A

Mortgage

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7
Q

A basic principle of property law is that no one can convey more than ___.

A

they actually own

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8
Q

The owner of a fee simple estate can mortgage the ___.

A

fee simple interest

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9
Q

The owner of a leasehold or subleasehold can mortgage the ___.

A

Leasehold interest

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10
Q

The owner of a condominium unit can mortgage the ___.

A

Fee interest in the condominium

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11
Q

A mortgage loan creates a relationship between a(n) ___ and a(n) ___.

A

debtor
creditor

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12
Q

In a mortgage, the debtor agrees to pay or pledges to pay the ___ and ___ according to an agreed schedule

A

principal and interest

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13
Q

In a mortgage, the debtor agrees to offer ___ or ___ to the creditor if the loan is not repaid.

A

some property or collateral

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14
Q

Mortgage loans are ___ loans.

A

secured

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15
Q

What are the 2 parts of a mortgage?

A

1) The debt itself
2) Security for the debt

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16
Q

When a property is mortgaged, the owner must execute or sign what 2 separate instruments?

A

1) Promissory note stating the amount owed
2) Security document

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17
Q

In a mortgage, a borrower is required to pledge ___ as security (collateral) for the loan.

A

Specific real property

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18
Q

The right to ___ on the pledged property in the event a borrower defaults is contained in a security agreement such as a mortgage or deed of trust.

A

Foreclose

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19
Q

The right to foreclose on the pledged property in the event a borrower defaults is contained in a security agreement, such as a(n) ___ or a(n) ___.

A

Mortgage
Deed of trust

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20
Q

When the terms of the ___ is satisfied, the debt is discharged.

A

Promissory note

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21
Q

If the terms of the promissory note are not met, the lender may choose to ___ or ___.

A

Sue or foreclose

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22
Q

Most mortgages have interest in ___.

A

Arrears

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23
Q

Lenders can be ___ for making usurious loans

A

penalized

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24
Q

In IL, what is the legal limit imposed on the rate of interest that a lender may charge a borrower on a loan secured by real estate?

A

No legal limit specified

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25
Q

In IL, residential first mortgage loans made by federally chartered institutions, or loans made by lenders insured or guaranteed by federal agencies, are ___ from state interest regulations.

A

Exempt

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26
Q

In IL, residential first mortgage loans made by federally chartered institutions, or loans made by lenders insured or guaranteed by federal agencies, are subject to ___ in regards to interest regulations.

A

Federal limits

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27
Q

The federal government treats loan origination fees like ___ because they increase the lender’s yield.

A

Discount points

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28
Q

Loan origination fees are similar to discount points in the sense that they both increase the lender’s ___.

A

Yield

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29
Q

The IRS allows a buyer to deduct the loan origination fee. True or false?

A

True

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30
Q

The number of discount points depends on the difference between the ___ and the ___, and ___.

A

Interest rate and required investor yield
How long lender expects it will take borrower to pay off the loan

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31
Q

For borrowers, discount points are charged as ___ at the ___.

A

Prepaid interest
Closing

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32
Q

On a $100,000 loan, how much would 3 discount points be worth?

A

$3,000
Explanation:
$100,000 x 3% (or 0.03) = $3,000

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33
Q

If a house sells for $100,000, and the borrower seeks an $80,000 loan, how much would 3 discount points be worth?

A

$800
Explanation:
$80,000 x 3% (or 0.03) = $2,400
2,400 divided by 3 = 800

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34
Q

To determine how many points are charged on a loan, divide the ___ by the ___.

A

Total dollar amount of points by the amount of the loan

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35
Q

If a loan amount is $350,000 and the charge for points is $9,275, how many points are being charged?

A

2.65
Explanation:
$9,275 divided by $350,000 = 0.0265 or 2.65% or 2.65 points

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36
Q

Most mortgage loans are paid in ___ over a(n) ___.

A

Installment over a long period

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37
Q

Because most mortgage loans are paid in installments over a long period, the total ___ paid by the borrower may add up to more than the ___.

A

Interest paid
More than the principal amount of the loan

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38
Q

Because most mortgage loans are paid in installments over a long period, the total interest paid by the borrower may add up to ___ than the principal amount of the loan.

A

more

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39
Q

Lenders carefully calculate the total amount of ___ during the origination phase to determine the profitability of each loan.

A

Accrued interest

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40
Q

Lenders carefully calculate the total amount of accrued interest during the ___ to determine the profitability of each loan.

A

Origination phase

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41
Q

Lenders carefully calculate the total amount of accrued interest during the origination phase to determine the ___ of each loan.

A

profitability

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42
Q

Lenders may not charge prepayment penalties on mortgage loans that are insured or guaranteed by the ___ or on loans that have been sold to ___ or ___.

A

Federal government
Sold to Fannie mae or freddie mac

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43
Q

Lenders in IL are prohibited from charging a borrower a(n) ___ on a fixed-rate loan secured by real estate when the loan’s interest rate is greater than 8% per year.

A

Prepayment penalty

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44
Q

Lenders in IL are prohibited from charging a borrower a prepayment penalty on a fixed-rate loan secured by real estate when the loan’s interest rate is greater than ___% per year.

A

8%

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45
Q

Lenders in IL are prohibited from charging a borrower a prepayment penalty on a(n) ___ when the loan’s interest rate is greater than 8% per year.

A

fixed-rate loan secured by real estate

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46
Q

In IL, lenders can charge a prepayment penalty on a(n) ___.

A

Adjustable-rate loan

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47
Q

A note needs to be tied to either a(n) ___ or a(n) ___.

A

Mortgage or deed of trust

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48
Q

In IL, the note used to obtain money to purchase real property is usually secured by a(n) ___

A

Mortgage

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49
Q

The ___ or ___ clearly establishes that the property is security for a debt, identifies the lender and the borrower, and includes an accurate legal description of the property.

A

mortgage or deed of trust

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50
Q

The mortgage or deed of trust clearly establishes that the ___ is security for a debt, identifies the lender and the borrower, and includes an accurate legal description of the property.

A

property

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51
Q

The mortgage or deed of trust clearly establishes that the property is ___, identifies the lender and the borrower, and includes an accurate legal description of the property.

A

Security for debt

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52
Q

The mortgage or deed of trust clearly establishes that the property is security for a debt, identifies the ___ and the ___, and includes an accurate legal description of the property.

A

Lender and borrower

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53
Q

The mortgage or deed of trust clearly establishes that the property is security for a debt, identifies the lender and the borrower, and includes an accurate ___ of the property.

A

Legal descriotion

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54
Q

In states where ___ are generally preferred, foreclosure procedures are usually simpler and faster.

A

Deed of trust

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55
Q

In states where deed of trust is generally preferred, foreclosure procedures are usually ___ and ___ than mortgage loans.

A

simpler and faster

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56
Q

In IL, a deed of trust is treated like a(n) ___.

A

Mortgage

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57
Q

In IL, a deed of trust is subject to the same rules as a mortgage in regards to ___.

A

Forecosure

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58
Q

In IL, who holds the title to real estate in a deed of trust

A

The trustor (borrower)

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59
Q

Borrowers are required to pay ___ in accordance with the note’s terms, and payment of all ___ on the property.

A

Debt
Taxes

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60
Q

Borrowers are required to maintain adequate ___ to protect the lender if the property is destroyed or damaged.

A

Insurance

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61
Q

Borrowers are required to maintain adequate insurance to protect the ___ if the property is destroyed or damaged by fire, windstorm, or hazard

A

Lender

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62
Q

Borrowers are required to maintain adequate insurance to protect the lender if the property is destroyed or damaged by ___, ___, or ___.

A

Fire
Windstorm
Hazard

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63
Q

Borrowers are required to maintain the property in ___ at all times

A

good repair

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64
Q

If a borrower wishes to make any major alterations to their property, they must receive ___.

A

Lender authorization

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65
Q

Failure to pay debt on a mortgage can result in ___.

A

Borrower’s default

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66
Q

Failure to pay all real estate taxes on property can result in ___.

A

Borrower’s default

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67
Q

Failure to maintain adequate insurance to protect the lender if the property is destroyed can result in ___.

A

Borrower’s default

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68
Q

Failure to receive lender authorization before making any major alterations on the property can result in ___.

A

Borrower’s default

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69
Q

If a borrower ___, the lender has the right to foreclose.

A

Defaults

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70
Q

If a mortgage or deed of trust doesn’t have a(n) ___, the lender would have to sue the borrower every time a payment is overdue.

A

Acceleration clause

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71
Q

satisfaction of mortgage should be released in the ___ to show that the mortgage lien has been removed from the property.

A

public record

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72
Q

When real estate secured by a deed of trust has been repaid, the ___ must make a written request that the ___ convey the property back to the ___.

A

The beneficiary must make a written request that the trustee convey the property back to the grantor

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73
Q

In IL, any mortgagee, who fails to deliver a release to the mortgagor or grantor of a deed of trust within 1 month after full payment and satisfaction will be liable to pay the mortgagor or grantor a $___ penalty.

A

$200

74
Q

In IL, when must a mortgagee deliver a release to the the mortgagor or grantor of a deed of trust in order to avoid paying them a $200 penalty?

A

1 month

75
Q

In IL, any mortgagee, who fails to deliver a release to the mortgagor or grantor of a deed of trust within 1 month after full payment and satisfaction will be liable to pay the ___ a $200 penalty.

A

Mortgagee

76
Q

In IL, the ___ must state “For the protection of the owner, this release shall be filed with the recorder or registrar of titles in whose office the mortgage or deed of trust was filed” in ___.

A

Release
Bold letters

77
Q

It is the ___ responsibility to record the release of a mortgage or deed of trust.

A

Mortgagor

78
Q

Without changing the provisions of a contract, a note may be sold to a(n) ___, such as an investor or another mortgage company.

A

Third party

79
Q

When a mortgage is assigned, the ___ endorses the note to the third party and executes an assignment of mortgage.

A

Original mortgagee

80
Q

When a mortgage is assigned, the ___ becomes the new owner of the debt and security interest.

A

Assignee

81
Q

In the case of a mortgage being assigned, when the debt is satisfied, the ___ is required to execute the satisfaction (or release) of the security instrument.

A

Assignee

82
Q

When a mortgage or trust deed loan is made, the borrower starts the reserve by depositing funds to cover the amount of __.

A

Unpaid real estate taxes

83
Q

If a new insurance policy has just been purchased, the insurance premium reserve will be started with the deposit of ___ of the insurance premium liability.

A

1/12th

84
Q

The borrower’s monthly loan payments include which 4 things?

A

Principal
Interest
Tax
Insurance

85
Q

In IL, the ___ provides that except during the first year of a loan, a lender may not require an escrow accumulation of more than 150% of the previous year’s real estate taxes.

A

Mortgage Tax Escrow Act

86
Q

In IL, the Mortgage Tax Escrow Act provides that except during the first year of a loan, a lender may not require an escrow accumulation of more than ___ of the previous year’s real estate taxes.

A

150%

87
Q

In IL, lenders must give borrowers written notice of the ___ act’s provisions at closing.

A

Mortgage Tax Escrow Act

88
Q

In IL, the Mortgage Escrow Account Act states that when the principal loan balance has been reduced to ___% of its original amount, borrowers may terminate their escrow account.

A

65%

89
Q

In IL, the Mortgage Escrow Account Act states that when the principal loan balance has been reduced to 65% of its original amount, borrowers may…

A

terminate their escrow account

90
Q

In IL, the ___ states that when the principal loan balance has been reduced to 65% of its original amount, borrowers may terminate their escrow account.

A

Mortgage Escrow Account Act

91
Q

The IL Mortgage Escrow Account Act does not applie to loans that are insured, guaranteed, supplemented or assisted by the ___ or agencies of the ___.

A

State of IL
Federal government

92
Q

The IL Mortgage Escrow Account Act does not applie to loans that are insured, guaranteed, supplemented or assisted by federal government agencies such as the ___ or ___.

A

FHA
VA

93
Q

In IL, borrowers have the right to pledge an interest-bearing deposit in an amount sufficient to cover the entire amount of ___ and ___ instead of establishing an escrow account.

A

Anticipated future tax bills
Insurance premiums

94
Q

In IL, borrowers have the right to pledge an interest-bearing deposit in an amount sufficient to cover the entire amount of anticipated future tax bills and insurance premiums instead of establishing a(n) ___.

A

Escrow account

95
Q

The National Flood Insurance Reform Act imposes certain mandatory obligations on lenders and loan officers to set aside ___ for flood insurance on new loans.

A

Escrow funds

96
Q

The National Flood Insurance Reform Act imposes certain mandatory obligations on lenders and loan officers to set aside escrow funds for ___ on new loans.

A

Flood insurance

97
Q

The National Flood Insurance Reform Act imposes certain mandatory obligations on lenders and loan officers to set aside escrow funds for flood insurance on new loans. This means that if a lender or servicer discovers that a secured property is in a(n) ___, they must notify the borrower.

A

Flood hazard area

98
Q

The National Flood Insurance Reform Act imposes certain mandatory obligations on lenders and loan officers to set aside escrow funds for flood insurance on new loans. This means that if a lender or servicer discovers that a secured property is in a flood hazard area, they must notify the ___.

A

borrower

99
Q

If a borrower is notified that their property is in a flood hazard area, how long do they have to purchase flood insurance?

A

45 days

100
Q

If a borrower fails to obtain flood insurance, the lender must…

A

Purchase flood insurance on the borrower’s behalf, and the cost may be charged to the borrower

101
Q

If property involved includes rental units, the borrower may provide for rents to be assigned to the ___ in the event of the ___.

A

Assigned to the lender in the event of the borrower’s default

102
Q

In title-theory states, lenders are automatically entitled to any rents if the ___.

A

Borrower defaults

103
Q

When a person purchases real estate that is subject to an outstanding mortgage or deed of trust, the buyer may take the property in 1 of 2 ways. The property may be purchased ___ or the buyer may ___.

A

Subject to the mortgage
Assume the mortgage/ deed of trust and agree to pay the debt

104
Q

A man owns an investment rental property that is mortgaged. For health reasons, he wants to sell the property to the woman who has been managing the property and who also wants to use the rental property as an investment. The owner sells the property to the woman subject to the mortgage. In the sale, the buyer takes title and assumes responsibilities for the loan, but after 2 months she can no longer make payments on the loan. There is a foreclosure sale. Because the owner sold the property subject to the mortgage, who would be liable if proceeds from the foreclosure sale did not meet the obligations?

A

The man

105
Q

The existence of a(n) ___ does not prevent the transfer of property.

A

Lien

106
Q

When a secured loan is assumed, the ___ or ___ must approve the assumption and release any liability of the ___ or ___.

A

Mortgagee or beneficiary must approve
Release any liability of the original mortgagor or trustor

107
Q

Because a loan may not be assumed without ___, the lending institution would require the assumer to qualify financially.

A

Lender approval

108
Q

Because a loan may not be assumed without lender approval, any lending institution would charge a transfer fee to cover the costs of ___.

A

Changing the records

109
Q

Who can pay the transfer fee when a loan is assumed with lender approval?

A

Either the buyer or the seller

110
Q

The mortgage document or deed of trust must be recorded in the…

A

Recorder’s office of the county where the real estate is located

111
Q

Priority of mortgages and other liens normally is determined by…

A

The order in which they were recorded

112
Q

Because second loans represent greater risk to the lender, they are usually issued at…

A

higher interest rates

113
Q

If the buyer defaults in a land contract, and the buyer has 20% equity in the property and a contract in excess of 5 years, ___ is necessary in order for the seller to evict them.

A

Judicial foreclosure

114
Q

If the buyer defaults in a land contract, and the buyer has ___% equity in the property and a contract in excess of ___ years, judicial foreclosure is necessary in order for the seller to evict them.

A

20%
5 years

115
Q

Predatory loans often result in ___.

A

Foreclosure

116
Q

Equifax considers an individual with a credit score below ___ as a candidate for a subprime loan

A

650

117
Q

What are the 2 distinct areas for mortgage fraud?

A

1) Fraud for profit
2) Fraud for housing

118
Q

Area of mortgage fraud in which an individual or individuals use the lending process to steal cash and equity from homeowners and lenders.

A

Fraud for profit

119
Q

Area of mortgage fraud that involves the illegal actions of a borrower to take, acquire, or maintain ownership of a property.

A

Fraud for housing

120
Q

Falsifying employment records or pay stubs, buying into other people’s bank accounts or credit scores, or lying about occupancy to obtain a lower interest rate are examples of what area of mortgage fraud?

A

Fraud for housing

121
Q

A licensee who becomes aware that a client or customer is perpetrating fraud should contact the ___.

A

Lender

122
Q

Receipt of ___ from a transaction as a result of mortgage fraud could be construed as complicit behavior.

A

Commission

123
Q

Doctrines of property law, known as “___”, spell out basic interests that the mortgagor and mortgagee have in property.

A

Theories

124
Q

In ___ states, the mortgagor gives legal title to the mortgagee and retains equitable title.

A

Title theory

125
Q

In title theory states, the ___ gives legal title to the ___ and retains equitable title.

A

Mortgagor gives legal title to the mortgagee

126
Q

In title theory states, the mortgagor gives legal title to the mortgagee and retains ___.

A

Equitable title

127
Q

In title theory states, ___ is returned to the mortgagor when debt is paid in full.

A

Legal title

128
Q

In title theory states, legal title is returned to the ___ when debt is paid in full.

A

Mortgagor

129
Q

In title theory states, the ___ owns the property until the debt is paid.

A

lender

130
Q

In title theory states, the lender own s the property until…

A

The debt is paid

131
Q

In title theory states, the ___ has the right to immediate possession if the mortgagor defaults.

A

Lender

132
Q

In title theory states, the ___ has all the usual rights of ownership, even though they don’t hold legal title.

A

Borrower

133
Q

In title theory states, the lender has the right to __ of real estate and rents from the mortgaged property if the mortgagor defaults.

A

Immediate possession

134
Q

In title theory states, the lender has the right to immediate possession of real estate and rents from the mortgaged property if…

A

the mortgagor defaults

135
Q

In ___ states, the mortgagor holds both legal and equitable title.

A

Lien theory

136
Q

In lien theory states, the ___ holds both legal and equitable title.

A

Mortgagor

137
Q

In lien theory states, the mortgagor holds both ___ and ___.

A

Legal title
Equitable title

138
Q

In lien theory states, the ___ simply has a lien on the property as security for the mortgage debt, and the mortgage is nothing more than collateral for the loan.

A

Mortgagee

139
Q

In lien theory states, the mortgagee simply has a(n) ___ on the property as security for the mortgage debt, and the mortgage is nothing more than collateral for the loan.

A

lien

140
Q

In lien theory states, the mortgagee simply has a lien on the property as security for the mortgage debt, and the mortgage is nothing more than ___.

A

collateral for the loan

141
Q

In lien theory states, if the mortgagor defaults, the mortgagee must go through a(n) ___ to obtain legal title.

A

Formal foreclosure proceeding

142
Q

Illinois is a(n) ___ theory state.

A

Intermediate mortgage theory

143
Q

Mortgages and trust eeds in IL convey only ___ to the lender as security for the loan during the existence of debt.

A

Qualified title

144
Q

Because IL is an intermediate mortgage theory state, the ___ remains the owner of the mortgaged property for all beneficial purposes subject to the lien.

A

Mortgagor (borrower)

145
Q

What are the 3 general types of foreclosure proceedings?

A

1) Nonjudicial
2) Judicial
3) Strict foreclosure

146
Q

Some states allow ___ foreclosure procedures to be used when the security instrument contains a power-of-sale clause.

A

Nonjudicial

147
Q

In ___ foreclosure, no court action is required.

A

nonjudicial

148
Q

Some states allow nonjudicial foreclosure procedures to be used when the security instrument contains a(n) ___.

A

power-of-sale clause

149
Q

In IL, by statute, mortgage foreclosures may be brought about only through a(n) ___.

A

court proceeding

150
Q

Illinois is classified as a(n) ___ foreclosure state.

A

Judicial

151
Q

Under the IL Mortgage foreclosure law, the term ___ includes deeds of trust, installment contracts, certain colatteral assignments of beneficial interest in land trusts, and traditional mortgage instruments.

A

Mortgage

152
Q

In strict foreclosure, a(n) ___ does NOT take place.

A

Sale

153
Q

The major disadvantage of the ___ is that the mortgagee takes the real estate subject to all junior liens

A

Deed in Lieu of Foreclosure

154
Q

By accepting a(n) ___, the lender usually loses any rights pertaining to FHA or private mortgage insurance or VA guarantees.

A

Deed in Lieu of foreclosure

155
Q

Illinois has a(n) ___, which allows the borrower to pay the lender the amount in default plus costs and thereby extinguish the debt

A

equitable right of redemption

156
Q

The equitable right of redemption begins after the ___ but before the ___.

A

After the foreclosure notice
Before the foreclosure sale

157
Q

In IL, a mortgagor in default who wishes to exercise the equitable right of redemption may do so for a period of ___ after the date of service on the mortgagor or after the first ___ date, whichever is ___.

A

Seven months
Publication date
Later

158
Q

In IL, the mortgagor can still retain possession of the property after an entry of foreclosure judgement through the ___ day after confirmation of sale.

A

30th

159
Q

In IL, on the 31st days after judgment of foreclosure, they must have ___ or be subject to ___

A

vacated the property
eviction

160
Q

In IL, the purchaser of a foreclosed home receives a quitclaim deed called a(n) ___.

A

Sheriff’s deed

161
Q

In IL, the mortgagor has the right to exercise their statutory right of reinstatement for a period of ___ days after service of summons or publication date.

A

90

162
Q

In IL, the statutory right of reinstatement may be exercised once every ___ years.

A

5

163
Q

In IL, after statutory right of reinstatement occurs, the suit must be ___ by the lender, and the mortgage remains in ___.

A

dismissed
effect

164
Q

In IL, if a default is not cured by redemption or reinstatement, the entry of a decree of foreclosure will lead to a(n) ___ of the property usually called a(n) ___.

A

Judicial sale
sheriff’s sale

165
Q

The successful bidder at a sheriff’s sale receives a(n) ___ instead of a deed.

A

Certificate of sale

166
Q

When will a successful bidder at a sheriff’s sale receive a sheriff’s deed?

A

After the sale is confirmed by the court

167
Q

A(n) ___ most often occurs when the owner/borrower is unable to make the mortgage payments and cannot sell the house for what is owed on the property.

A

Short sale

168
Q

In a(n) ___, the lender agrees to accept less because the lender may lose more money by acquiring the property through a foreclosure process and then holding the property until another buyer is found

A

Short sale

169
Q

Any discussion a licensee has with a consumer over foreclosure and bankruptcy should involve advising the consumer to seek…

A

Legal advice

170
Q

In a chapter 7 bankruptcy, the sale will be ___.

A

postponed

171
Q

A chapter 13 bankruptcy allows the mortgagor to pay off the ___ over the length of the ___, however they will also need to meet ___.

A

pay off the late unpaid payments over the length of the repayment plan, will still need to meet current mortgage payments

172
Q

___ loans involve a borrower and lender

A

Mortgage

173
Q

___ loans involve a 3rd party manager (trustee), borrower (trustor), and lender (beneficiary)

A

Deed of trust

174
Q

Default by the borrower may result in ___, ___, and ___.

A

Acceleration of payments
Foreclosure sale
Loss of title

175
Q

A deed in lieu of foreclosure does not eliminate ___ and is still a(n) ___ in the borrower’s credit history

A

Junior liens
Adverse element

176
Q

Illinois is a(n) ___ mortgage theory state

A

Intermediate

177
Q

In IL, what is the usury limit on the rate that may be charged for a loan secured by real estate and made by private lenders?

A

no state imposted usury limit

178
Q

In IL, the ___ gives borrowers certain protections by limiting the size of escrow accounts and permitting alternatives to escrow

A

Mortgage Escrow Account Act

179
Q

IL does not have ___ right of redemption.

A

Statutory

180
Q

IL has ___ right of redemption.

A

Equitable

181
Q

IL has statutory right of ___.

A

Reinstatement

Unit 15: Real Estate Financing Principles (3 decks)

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