Real Estate Financing

Question 1

Acceleration clause

Answer 1

Provides the lender with the option of calling the entire loan due and payable if the buyer defaults or beaches contract

Question 2

Alienation clause

Answer 2

Same as due-on-sale clause

Question 3

Amortization

Answer 3

Gradual reduction of a mortgage through periodic payments

Question 4

Arrears

Answer 4

Interest charged on the first of the month per the last months payment

Question 5

Defaults

Answer 5

When a borrower fails to make payments or fails to comply with other obligations

Question 6

Due-on-sale clause

Answer 6

Prevents a future buyer from assuming the loan without the lenders permission

Question 7

Equity

Answer 7

The difference between the market value of the property and what is owed on it

Question 8

Hypothecation

Answer 8

When a borrower pledges property as security for the loan without surrendering possession

Question 9

Lien theory

Answer 9

The loan constitutes a lien against the real property

Question 10

Mortgage

Answer 10

An agreement between a borrower and a lender with a loan involved

Question 11

Mortgagor

Answer 11

The borrower who pays the mortgage

Question 12

Mortgagee

Answer 12

The recipient of the mortgage payment (lender)

Question 13

Negotiable note

Answer 13

A written promise to pay a specific amount on specific terms to the owner of the note

Question 14

Prepayment penalty

Answer 14

A penalty placed when the mortgage is payed off faster than originally agreed upon

Question 15

Principal

Answer 15

The amount of money on which interest is either payed or received

Question 16

Title theory

Answer 16

A disinterested 3rd party who actually holds legal title to the property in security for the loan they provided

Question 17

Usury

Answer 17

Interest charged in excess of legal limit that is set by law. (Must be stated in contract)

Question 18

Promissory note

Answer 18

Note that insures the borrower will pay the outstanding amount given for the loan (mortgage)

Question 19

Deed of trust

Answer 19

Pledges a property as security for a loan

Question 20

Trustee

Answer 20

In a loan agreement, (usually an attorney) this person holds the rights conveyed by a borrower or buyer in trust for the beneficiary

Question 21

Beneficiary

Answer 21

The lender in a title theory based loan agreement

Question 22

Defeasance clause

Answer 22

When a buyer/borrower settles a loan agreement in full, the rights conveyed are returned to the buyer.

Question 23

Power of sale clause

Answer 23

Gives the trustee the right to sell the property if the buyer defaults without court

Question 24

Equity of redemption

Answer 24

The borrower’s right to pay off the loan and receive his title back at any time before the final foreclosure sale

Question 25

Statutory redemption period

Answer 25

10 days after foreclosure

The highest bid on the house must be 5% more than the highest bid (for the borrower) with a minimum of $750

Question 26

Right of assignment

Answer 26

Lenders right to sell a loan at anytime and obtain the money invested instead of waiting for payments long term

Question 27

Foreclosure

Answer 27

Liquidation of title to real property pledged to recover funds to pay off debt

Question 28

Judicial foreclosure

Answer 28

Requires the lender to bring a lawsuit against the borrower and obtain a judgement for the amount of debt the borrower owes

Question 29

Strict foreclosure

Answer 29

The lender files a foreclosure petition with the court after the mortgage is in default

Question 30

Deed of lieu

Answer 30

A borrower in default simply conveys the title to the lender to avoid record of foreclosure