RE Finance Unit 9: Instruments of RE Finance

Question 1

Acceleration Clause

Answer 1

The clause in a mortgage or trust deed that stipulates the entire debt is due immediately if the mortgagor defaults under the terms of the contract.

Question 2

Assumed

Answer 2

Buying a property and taking over or assuming the responsibility for the existing mortgage.

Question 3

Beneficiary

Answer 3

The lender in a trust deed financing arrangement.

Question 4

Blended Rate

Answer 4

Adjusted rate of interest on loan assumption.

Question 5

Coinsured

Answer 5

All parties with an interest in properties named as insureds (e.g., the owner and the lender).

Question 6

Contract for Deed

Answer 6

Real property sales contract.

Question 7

Cosigners

Answer 7

Additional signers to a financial agreement adding their guarantees to that of the borrowers.

Question 8

Covenants that Run with the Land

Answer 8

Conditions that are recorded against property that remain in effect through changes in ownership.

Question 9

Deed of Trust

Answer 9

A financing instrument in which the borrower/trustor conveys title of the collateral to a trustee to be held in trust for the beneficiary/lender. When the loan is repaid, title is reconveyed to the trustor. If a default occurs, the trustee exercises the power of sale on behalf of the beneficiary.

Question 10

Defeasance Clause

Answer 10

Clause included in a loan instrument that provides for the cancellation of the mortgagee’s interest when the debt has been paid in full.

Question 11

Due-On-Sale Clause

Answer 11

A clause that stipulates a borrower cannot sell or transfer the property without prior written consent of the lender.

Question 12

Encumbrance

Answer 12

Any lien against a property or any restriction in its use, such as an easement; a right or interest in a property held by one who is not the legal owner.

Question 13

Equitable Redemption Rights

Answer 13

A period of time established by custom, usually six months, that allows a defaulting borrower to redeem property by bringing all payments current before foreclosure.

Question 14

Equitable Rights

Answer 14

The rights of a less-than-fee-simple owner to occupy, lease, or sell the subject property.

Question 15

Exculpatory Clause

Answer 15

Limits the liability of the borrower to the collateral property described in the loan agreement.

Question 16

Fictitious Deeds of Trust

Answer 16

Comprehensive master deeds of trust established by lenders to cover all areas of trust deed finance; referred to in shorter versions of trust deeds.

Question 17

Judicial Foreclosure

Answer 17

A court procedure utilized by lenders to secure clear title to a property under a defaulted real estate loan.

Question 18

Land Contract

Answer 18

Real property sales contract.

Question 19

Legal Description

Answer 19

Official definition of the boundaries of a parcel of real estate that is on file at the county recorder’s office.

Question 20

Lien: Voluntary, Involuntary, General, Specific

Answer 20

A legal claim against property as security for a debt.

Question 21

Master Trusts

Answer 21

Established by lenders to cover all areas of trust deed finance; referred to in shorter versions of trust deeds.

Question 22

Mortgage

Answer 22

A conditional transfer or pledge of real property as security for the payment of a debt; the document used to create a mortgage lien.

Question 23

Mortgagee

Answer 23

The lender in a mortgage loan transaction.

Question 24

Mortgagor

Answer 24

The borrower in a mortgage loan transaction; owner of collateral pledged as security for the mortgage.

Question 25

Naked Title

Answer 25

Synonym for fee simple title.

Question 26

Nonjudicial Foreclosure

Answer 26

Under a land contract, enables a lender to foreclose in as little as 30 days when the defaulting borrower has less than 20% equity.

Question 27

Non-Recourse Clause

Answer 27

A lender cannot sue the borrower on a defaulted loan.

Question 28

Note

Answer 28

A signed instrument acknowledging a debt and promising repayment.

Question 29

Novation

Answer 29

Full substitution of the original borrower by a new, qualified borrower; releases the original maker of the loan from all liability.

Question 30

Power-of-Sale Clause

Answer 30

In a deed of trust, it authorizes a lender’s attorney to confess a judgment without process to speed a foreclosure.

Question 31

Prepayment Penalty Clause

Answer 31

Clause that provides for a penalty to be levied against a borrower who repays a loan before the specified due date.

Question 32

Real Property Sales Contract

Answer 32

Also known as a land contract; usually drawn between individuals. It is a contract by which the purchase price is paid in installments over a period of time during which the purchaser has possession of the property, but the seller retains title until the contract terms are completed.

Question 33

Reconveys

Answer 33

In satisfying a deed of trust, the trustee reconveys full title to the borrower.

Question 34

Release Clause

Answer 34

Provision that, upon payment of a specific sum of money, the lien on a particular parcel or portion of the collateral will be removed.

Question 35

Second Mortgage

Answer 35

A lien subordinate to a first mortgage.

Question 36

Security

Answer 36

Something given, deposited, or pledged to make secure the fulfillment of an obligation, usually the repayment of a debt; mortgages, trust deeds, and other financing instruments backed by collateral pledges are termed securities for investment purposes.

Question 37

Specific Performance

Answer 37

The legal obligation for the parties in a contract to fulfill their promises or be in default and subject to a lawsuit.

Question 38

Statutory Redemption Period

Answer 38

Legislated redemption period allowing borrower time to redeem defaulted property.

Question 39

“Subject To”

Answer 39

The recognition by a buyer that a prior loan exists and not the legal obligation to fulfill its requirements.

Question 40

Subordinate

Answer 40

The act on the part of a lender or a landowner in the case of a leasehold mortgage, acknowledging by written recorded instrument that an existing loan or interest can be placed in an inferior position to a new loan secured by the same collateral.

Question 41

Title Theory

Answer 41

Lender holds legal title to the collateral; the borrower retains equitable rights in the property.

Question 42

Trustee

Answer 42

A party who administers property for the benefit of the beneficiary, such as the intermediary between a borrower and a bond owner, a bank or title company under a trust agreement, or the third-party holder of the deed under a deed of trust.

Question 43

Trustor

Answer 43

The grantor in a trust deed.

Question 44

Vendee

Answer 44

Purchaser-borrower under a real property sales contract.

Question 45

Vendor

Answer 45

Seller-lender under a real property sales contract.