Real Estate Test Unit 12 Flashcards
acceleration clause
the clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrower defaults on an installment payment or other obligation
adjustable-rate mortgage (ARM)
a loan characterized by a fluctuating interest rate, usually one tie to a bank or savings and loan association cost-of-funds index
alienation clause
the clause in a mortgage or deed of trust stating that the balance of the secured debt becomes immediately due and payable at the lender’s option if the property is sold by the borrower. in effect, this clause prevents the borrower from assigning the debt without the lender’s approval
amortized loan
a loan in which the principal, as well as the interest, is payable in monthly or other periodic installments over the term of the loan
assumption of mortgage
acquiring title to property on which there is an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including payments
balloon payment
a final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized
beneficiary
1) the person for whom a trust operates or in whose behalf the income from a trust estate is drawn 2) a lender in a deed of trust loan transaction
coinsurance clause
a clause in insurance policies covering real property that requires the policyholder to maintain fire insurance coverage generally equal to at least 80% of the property’s actual replacement cost
Comprehensive Loss Underwriting Exchange (CLUE)
a database of consumer claims history that allows insurance companies to access prior claims information in the underwriting and rating process
debt to income (DTI)
information about an applicant’s gross income and total debt that lenders generally look at as a percentage to determine qualification for a loan
deed in lieu of foreclosure
a deed given by the mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. if accepted by the mortgagee, this is a way for the mortgagor to avoid foreclosure
deed of reconveyance
a document that a trustee uses to transfer the title back to the trustor (borrower) when the note is repaid
defeasance clause
a clause used in leases and mortgages that cancels a specified right upon the occurrence of a certain condition, such as cancellation of a mortgage upon repayment of the mortgage loan
deficiency judgement
a personal judgement levied against the borrower when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full. In some states, a deficiency judgement cannot be sought when the mortgage debt was used to purchase, and is secured by, the borrower’s principal residence
discount point
a unit of measurement used for various loan charges; one point equals 1% of the amount of the loan
due-on-sale clause
a provision in the mortgage stating that the entire balance of the note is immediately due and payable if the mortgagor transfers (sells) the property
equity
the interest or value that an owner has in property over and above any indebtedness
escrow contract
an agreement between a buyer, seller, and an escrow holder setting forth rights and responsibilities of each
Federal Emergency Management Agency (FEMA)
a federal agency that is responsible for assisting the nation in preparing for, protecting against, responding to, and recovering from hazards
first mortgage
a mortgage that has priority over all other mortgages
foreclosure
a legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. the foreclosure procedure brings the rights of the parties to a conclusion and passes the title in the mortgaged property to either the holder of the mortgage or a third party who may purchase the realty at the foreclosure sale. depending on the priority of the foreclosed mortgage, the property may be sold free of all other encumbrances incurred prior to the sale
fully amortized loan
a loan consisting of equal, regular payments satisfying the total payment of principal and interest by the due date
growing-equity mortgage
a loan in which the monthly payments increase annually, with the increased amount being used to directly reduce the principal balance outstanding and thus shorten the overall term of the loan
homeowners insurance
insurance that covers a residential real estate owner against financial loss from fire, theft, public liability, and other common risks
hypothecation
to pledge property as security for an obligation or loan without giving up possession of it
index
an objective economic indicator to which the interest rate for an adjustable-rate mortgage is tied
interest-only loan
a loan that only requires the payment of interest for a stated period of time with the principal due at the end off the term
liability coverage
feature of homeowners insurance that covers injuries or losses sustained within the home
lien theory
principle in which the mortgagor retains both legal and equitable title to property that serves as security for a debt. the mortgagee has a lien on the property, but the mortgage is nothing more than collateral for the loan
loan origination fee
a fee charged to the borrower by the lender for making a mortgage loan. the fee is usually computed as a percentage of the loan amount
margin
a premium added to the index rate representing the lender’s cost of doing business
mortgagee
a lender in a mortgage loan transaction
mortgagor
a borrower in a mortgage loan transaction
negative amortization
process by which the amount of the loan increases. the mortgagor sets a payment cap, or maximum amount of payments, but the difference between the payment made and the full payment amount is added to the remaining mortgage balance
negotiable instrument
a written promise or order to pay a specific sum of money that may be transferred by endorsement or delivery. the transferee then has the original payee’s right to payment
P&I
principal and interest
payment cap
the limit on the amount the monthly payment can be increased on an adjustable-rate mortgage when the interest rate is adjusted
PITI
the basic costs of owning a home- mortgage principal and interest, real estate taxes, and hazard insurance
point
a term used for a percentage of the principal loan amount charged by the lender. each point is equal to 1% of the loan amount
prepayment penalty
a charge imposed on a borrower who pays off the loan principal early. this penalty compensates the lender for interest and other charges that would otherwise be lost
promissory note
a financing instrument that states the terms of the underlying obligation, is signed by its maker, and is negotiable (transferable to a third party)
rate cap
the limit on the amount the interest rate can be increased at each adjustment period in an adjustable rate loan. the cap may also set the maximum interest rate that can be charged during the life of the loan
redemption period
a period of time established by state law during which property owners have the right to redeem their real estate from a foreclosure or tax sale by paying the sales price, interest, and costs. many states do not have mortgage redemption laws
release deed
a document that transfers all rights given a trustee under a deed of trust loan back to the grantor after the loan has fully been repaid
replacement cost
the construction cost at current prices of a property that is not necessarily an exact duplicate of the subject property but serves the same purpose or function as the original
reverse mortgage
a loan by which a homeowner receives a lump sum, monthly payments, or a line of credit based on the homeowner’s equity in the property secured by the mortgage. the loan must be repaid at a prearranged date, upon the death of the owner, or upon the sale of the property
satisfaction of mortgage
a document acknowledging the payment of a mortgage debt
subject to
buyer takes title of property and makes payments on the existing loan but is not personally obligated to pay the debt in full. original seller might continue to be liable for debt
straight loan
a loan in which only interest is paid during the term of the loan, with the entire principal amount due with the final interest payment
title theory
principle in which the mortgagor conveys legal title to the mortgagee (or some other designated individual) and retains equitable title and the right of possession. in effect, because the lender holds legal title, the lender has the right to immediate possession of the real estate and rents from the mortgaged property if the mortgagor defaults
usury
charging interest at a higher rate than the maximum rate established by state law
