Owner Financing, Foreclosures, Short Sales, and Liens

Question 1

What is a land contract?

Answer 1

complete financing contract executed between a seller and a buyer, in which the seller pledges to convey the title to the property at the time when the buyer completes whatever obligations the contract stipulates. Under the terms of the land contract, the buyer gets possession of the property and equitable title, while the seller holds legal title to the property and continues to be primarily liable for payment of any existing mortgage.

Question 2

What are the disadvantages of a land contract for the buyer

Answer 2

The buyer has the risk of making payments before the Seller delivers title.
The buyer may have some trouble getting the seller to deed the property at the end of the term.
During the life of the contract, liens could have arisen against the seller that would cloud the title.
The seller may not be paying the existing mortgage with the buyer’s monthly payments.

Question 3

What are the disadvantages of a land contract for the seller

Answer 3

If the buyer defaults, the process of clearing the title could be time consuming and expensive
Since the land contract is indeed a contract, it is subject to differing interpretations, which allows for the prospect of disputes and lawsuits.

Question 4

What basically happens in a foreclosure?

Answer 4

Lienors force a property owner to give up title through court action. This may involve either the lienors’ forcing the owner to sell and pay off the creditors, or taking title directly.

Question 5

What three types of foreclosure processes enforce mortgage liens?

Answer 5

judicial foreclosure
non-judicial foreclosure
strict foreclosure

Question 6

What is a deficiency judgment?

Answer 6

Any outstanding debt remaining after foreclosure and sale of a property.

Question 7

With a judicial foreclosure, when is the Deed of Conveyance issued and who issues it?

Answer 7

The sheriff will issue a Deed of Conveyance if the debtor does not redeem the property within the redemption period.

Question 8

What does the FHA expect a lender to do at the foreclosure sale for an FHA-insured property if the bids are less than the loan balance?

Answer 8

FHA expects the lender to bid on the debt, take the title, and present it to the FHA along with a claim for insurance.

Question 9

In a non-judicial foreclosure sale, the new purchaser will receive a trustee’s deed to the property. But what potential problem exists?

Answer 9

There is no guarantee that the title is clear. There may be some outstanding liens still in effect, such as a federal tax lien, real property taxes or assessments, or a valid mechanic’s lien.

Question 10

What is a short sale?

Answer 10

A short sale is the sale of a secured real property that produces less money than what is owed to the lender. The lender releases the mortgage or trust deed so that the property can be sold free and clear to a new purchaser by agreeing to a negotiated sale.

Question 11

What is the difference between a short sale and a foreclosure?

Answer 11

A foreclosure occurs when the lender takes back a house because the homeowner has not made mortgage payments.
A short sale happens before a foreclosure takes place. Thus, the lender agrees to accept the short sale price (less than what is actually owed) to avoid the foreclosure process.

Question 12

How can a short sale be a win-win-win-win for all parties involved?

Answer 12

The lender wins because they are getting back as much of the non-performing loan as they can without the additional time and expense of the foreclosure process.
The borrower wins because a portion of the money owed is going to be forgiven and their credit is less affected.
The buyer wins because they have purchased a house that is priced right.
The licensee wins because the short sale is an opportunity for more listings, to earn more commission dollars and add more value to our services.

Question 13

Who is a good short-sale candidate?

Answer 13

A homeowner who is late, or will soon be late, on their mortgage payments, and can document their inability to make payments.

Question 14

What is a lien?

Answer 14

A lien is a creditor’s claim against personal or real property as security for a debt of the property owner.

Question 15

What are the four legal features of a lien?

Answer 15

A lien does not convey ownership, with one exception.
A lien attaches to the property.
A property may be subject to multiple liens.
A lien terminates on payment of the debt and recording of documents.

Question 16

What two factors primarily determine lien priority?

Answer 16

the lien’s categorization as superior or junior

the date of recordation of the lien

Question 17

What is a judgment lien?

Answer 17

A judgment lien attaches to real and personal property as a result of a money judgment issued by a court in favor of a creditor.

Question 18

A land contract is a complete financing contract executed between a seller and a buyer

Answer 18

Under the terms of the land contract, the buyer gets possession of the property and equitable title, while the seller holds legal title to the property and continues to be primarily liable for payment of any existing mortgage. However, a land contract is NOT a mortgage.

Question 19

Disadvantages to Sellers include

Answer 19

If the buyer defaults, the process of clearing the title could be time consuming and expensive
Since the land contract is a contract, it is subject to differing interpretations, allowing for disputes and lawsuits.

Question 20

Disadvantages to Buyers include

Answer 20

The buyer has the risk of making payments before the Seller delivers title.
The buyer may have some trouble getting the seller to deed the property at the end of the term.
During the life of the contract, liens could have arisen against the seller that would cloud the title.
The seller may not be paying the existing mortgage with the buyer’s monthly payments.

Question 21

All liens can be enforced by the sale, or other transfer of title of the secured property

Answer 21

whether by court action, operation of law, or through powers granted in the original loan agreement. The enforcement proceedings are referred to as foreclosure.

Question 22

By definition, a foreclosure is

Answer 22

a legal procedure in which the property that is used as security for a debt is sold to satisfy the debt in the event of a default.

Question 23

There are three types of foreclosure processes that enforce mortgage liens:

Answer 23

Judicial foreclosure
Non-judicial foreclosure
Strict foreclosure

Question 24

Judicial Foreclosure

Answer 24

allows a property to be sold by court order after sufficient public notice. Most lenders will seek a judicial foreclosure when they want to get a deficiency judgment, which is any outstanding debt remaining after the foreclosure and sale of a property.

Question 25

Judicial foreclosures include:

Answer 25

Conventional mortgages
Conventional insured mortgages
FHA-insured mortgages
VA-guaranteed mortgages
Junior mortgages

Question 26

Non Judicial Foreclosure (primary method of foreclosure int he Texas)

Answer 26

also known as a power of sale. With this type of foreclosure, a lender or a trustee has the right to sell the property without spending the time, effort and money involved in a court foreclosure. This form of foreclosure eliminates the statutory redemption period that is allowed in the judicial foreclosure process.

Question 27

Strict foreclosure method

Answer 27

a lender could get ownership to a property that has a value above the loan balance.

Question 28

Short Sale

Answer 28

occurs when a lender allows a borrower in default on mortgage loan payments to sell the mortgaged property for less money than necessary to satisfy the loan in order to avoid the delay and expense of a foreclosure sale. The lender usually forgives the mortgage balance owed after the sale.

Question 29

A short sale candidate is a homeowner who is

Answer 29

Late, or will soon be late, on their mortgage payments.

Able to document their inability to make payments.

Question 30

A short sale can be a win-win-win-win for all parties:

Answer 30

The lender wins because they are getting back as much of the non-performing loan as they can without the additional time and expense of the foreclosure process.
The borrower wins because a portion of the money owed is going to be forgiven and their credit is less affected.
The buyer wins because they have purchased a house that is priced right.
The licensee wins because the short sale is an opportunity for more listings, to earn more commission dollars and add more value to our services.

Question 31

A lien is

Answer 31

a creditor’s claim against personal or real property as security for a debt of the property owner. If the owner defaults, the lien gives the creditor the right to force the sale of the property to satisfy the debt.

Question 32

Liens have the following legal features

Answer 32

A lien does not convey ownership, with one exception.
A lien attaches to the property.
A property may be subject to multiple liens.
A lien terminates on payment of the debt and recording of documents.

Question 33

Liens may be

Answer 33

voluntary or involuntary, general or specific, and superior or inferior.

Question 34

Two factors primarily determine lien priority:

Answer 34

The lien’s categorization as superior or junior

The date of recordation of the lien