Principles - Chapter 10 RE Finance

Question 1

Promissory Notes

Answer 1

Note to evidence the debt

Negotiable instrument

Question 2

Negotiable Instrument

Answer 2

capable of being negotiated, assigned or transferred = can circulate as money does
Ex: check
can be transferred by assignment by bill of sale

Question 3

Negotiation

Answer 3

when original older effects a transfer to a 3rd party under certain conditions “holder in due course”

Question 4

Bank Endorsment

Answer 4

holder signs name on back of instrument

Question 5

Special Endorsment

Answer 5

pay to order of and signs

Question 6

Restricted Endorsement

Answer 6

For deposit only

Question 7

Qualified Endorsement

Answer 7

without recourse

Question 8

Negotiability of Promissory Note

Answer 8

not affected by the fact it is secured by a deed of trust or mortgage

Question 9

Types of Promissory Notes

Answer 9

Straight: interest only with principal sum due at given date

Installment +Interest: periodic payments on principal, separate from interest

Installment or amortized payments: payments of fixed amount includes both interest and principal

Adjustable rate: rate go up or down

Demand: due upon demand

Question 10

Deed of Trust/Mortgage

Answer 10

Deed of trust used primarily (mortgage is rare)
Deed of trust offers a speedy path for Foreclosure
written instrument: title is pledges for loan
borrower=trustor
lender=beneficiary
impartial party=trustee (holds legal title to property)

Trustee has power to sell if debt not paid and to reconvey property to trustor when debt is paid

Question 11

Request for Reconveyance

Answer 11

when load is paid -promissary note is marked paid

Executes request for reconveyance on back of deed of trust and sends to county recorder

Question 12

Trustee Sale

Answer 12

default: trustee can sell without court action
Notice of Default and Election to Sell is recorded and given to borrower within 10 days and anyone else who has recorded a Request for Notice of Default

Borrower/Trustor: has 3 months and up to 5 days prior to sale to cure the default

Notice of Sale is recorded after the 3 months. Date of sale is more than 20 days away and published weekly in newspaper/general circulation and posted on property and in one public place

Question 13

Types of Trust Deeds

Answer 13

Purchase Money Trust Deed: secures payment of purchase price for real property, priority against other leins

Non Purchase Money Trust Deed: used for other than Real Property

All inclusive Trust Deed/Wrap around loan: secures all debts against property in one loan

Question 14

Junior Deed of Trust

Answer 14

any lien not the 1st deed of trust

secondary funding

Question 15

Assuming Deed of Trust

Answer 15

new owner assumes assumes trust deed and is liable as if were the original maker

orignial person is sendondarily liable unless a novation or amendment is filed naming new owner as soley liable.

Question 16

Blanket Loan

Answer 16

uses 1 or more parcel of property as security for repayment

ex: builder of new development

Question 17

Package Mortgage

Answer 17

uses both real and personal property as security for repayment

Question 18

Open End Loan

Answer 18

allows borrower to re-borrow amount that has already been paid

Question 19

Wrap around Loan

Answer 19

lender assumes payment obligations on existing loan and loans more to borrower

Question 20

Construction Loan

Answer 20

Building and repairing residential and commercial property

once construction completed - payment in voucher, warrant or fixed distribution

Question 21

Adjustable Rate Mortgage

Answer 21

aka variable rate
interest rate goes up and down
interest rate linked to index
Truth in Lending laws must disclose: circumstance why rate would increase, limit/ceiling on increase, effect of increase, and ex of payment terms if increased rate

Question 22

Holder in Due Course

Answer 22

3rd party takes negotiable instrument in good faith and for valuable consideration before it is overdue and without notice of previous dishonor or defense against or claim to it on the part of any person.

Question 23

Deficiency Judgement

Answer 23

buyer has redemption rights
Certificate of Sale is issued
1 year wait

Question 24

Graduated Payment Mortgage (GPM)

Answer 24

Salary increase loan (designed to help initally qualify)
Fixed interest rate through life of loan
negative amoritization
lower start payment and increases in future
early sale of prop could result in higher payoff to lender

Question 25

Graduated Payment Adjustable Mortgage (GPAM)

Answer 25

Salary increase loan (designed to help initally qualify)
FLUCUATING interest rate through life of loan
negative amoritization
lower start payment and increases in future
early sale of prop could result in higher payoff to lender

Question 26

Renegotiable Rate Mortgage (RRM)

Answer 26

series of short term notes
interest rate and payment fixed for each term
any length, but not longer than 30 years
loans auto renew at 3, 4 or five year periods (with new rate and payment)
if borrow declines renewal, must pay off remaining balance

Question 27

Shared Appreciation Mortgage (SAM)

Answer 27

Below market interest rate
Lender shares in appreciation/market value which is security for loan
agreed percentage of appreciation at time of sale
can be 1st or 2nd mortgage
fixed or variable interest rate
level or graduated payment

Question 28

Reverse Annuity Mortgage (RAM)

Answer 28

allows elderly to draw equity out of their home
increasing balance without cash payment of interest
lender pays borrower fixed monthly amount based on % value of property
payback when sale or death

Question 29

Rollover Mortgage (ROM)

Answer 29

Canada

Interest rate renegotiated every 5 years

Question 30

Interest

Answer 30

(payment x # of payments to be made) - principal amount of loan = interest paid over life of loan

Question 31

Usury

Answer 31

charging interest rate > permitted by law
Max for CA is: 10% or 5% above Fed Res Bank, whichever is higher, unless lender exempt
Excempt: banks, savings and loan assoc, credit unions and any transaction handled by licensed broker from usuary laws. Also, a seller may be exempt by taking back promisery note by a deed of trust

In case of interest implied only = 7% interest rate

Question 32

Points

Answer 32

Points increase yield to lender
1 point = 1%
Points are prepaid interest
usually paid by borrower

VA loans only 1 point allowed to be paid by borrower

Question 33

Truth in Lending Act (Regulation Z)

Answer 33

1969 TILA - Enforced by Federal Reserve Board
information on lenders
requires disclosures of: loan costs/APR, right of rescission and fair advertising practices

Question 34

Annual Percentage Rate (APR)

Answer 34

combines interest rate on loan with other costs of loan
like points, loan orig fee, finders fees, premiums for health, accident, loss of income or credit life insurance and insurance against default.

Question 35

Loan Discolusures

Answer 35

18 specific loan disclosures required by TILA

the 2 most conspicuous charges are finance charge and APR

Question 36

Advertising (Credit Advertising)

Answer 36

Regulated by TILA, Reg Z - “Triggering” disclose all credit terms
use of one credit term “triggers” disclosure of all other credit terms
APR, Cash Price of property, # of payments, amount of payments, due date of payments, required down payment, total amount of all payments (unless for 1st mortgage or trust deed)

Question 37

Resission

Answer 37

Reg Z- 2nd and home improvement loans right to cancel within 3 days of signing contract (ends midnght of third day) May be waived for emergency

Question 38

Impounds

Answer 38

account to pay hazard insurance and