Residential Mortgages Flashcards
mortgage loan or mortgage agreement hangs on two important documents:
the promissory note (sometimes called just a note)
and the security instrument
Promissory Notes are negotiable instruments meaning
They Are transferrable and assignable and can be sold in the secondary mortgage market
When mortgage is transferred to a new owner, what is given to the new owner to verify the interest rate, remaining balance, and interest paid to date?
Estoppel certificate
hypothecation
the use of a property as collateral to secure the loan created to purchase the property — which is common to secured loan agreements,
title theory states
Borrower never has title until satisfaction of the loan it is held by third party trustee
Lien theory
Allows the borrower to to hold on to the title yet he holds a lien on the title until loan is paid off
The defeasance clause.
is used in title theory states and stipulates that the title held by the lender or trustee is “defeated” once the loan is paid in full, and that the title will be conveyed to the borrower with full ownership rights
satisfaction of mortgage clause
in lien theory states it declares that once the note has been paid in full, the lien on the title will be removed.
accomplishes the same thing as a defeasance clause for title theory states
acceleration clause
makes the entire loan amount due immediately upon default — which might explain why it’s also known as a
due-on-default clause
right to reinstate clause
provides the borrower a way to get back on track by bringing current any delinquent payments so that they can proceed forward in a pre-acceleration environment
Exculpatory Clause
protects the borrower in the event of default and foreclosure, stipulating that the property serving as collateral for the loan is, in fact, the only security on the note.
subordination clause
when a lender would be willing to subordinate their lien’s debt priority to another existing or anticipated lien
certain liens priority over others (home mortgage has priority over car
alienation clause or due-on-sale clause
refers to a provision in the mortgage contract that triggers the right of the lender to demand payment in full of the loan upon the sale or conveyance of the property.
The primary purpose for this clause is to prohibit a new buyer from being able to assume the terms of the original loan without the lender’s approval and involvement.
3 math formulas
Total x Percentage = Part
Part ÷ Percentage = Total
Part ÷ Total = Percentage
What is Loan to value ratio of a loan?
What is The Formula?
Is the ratio of debt to value of property
Formula:
Loan amount ÷ Purchase price = LTV
Hint LTV ratio “Loan” comes first divided by purchase price therefore L / PP = LTV
If a mortgage on a $100,000 property purchase has a 40% loan-to-value ratio, the loan is $40,000 and the buyer pays for the remaining amount ($60,000) themselves.
Sami’s interest rate was 4%, and she paid two points. What is the total percentage yield of the loan?
Remember that each point is worth 1/8 of 1%, or 0.125%. 0.125 x 2 = 0.25. 4% + 0.25% = 4.25%
A novation agreement
is a mutual agreement of the parties to replace an existing contract with a new one. This often happens when there’s an agreement to substitute one party for another in the new contract, without necessarily changing the other terms and conditions of the original agreement.
Buyer Is “Subject to” the Existing Loan
Seller continues making payments under his existing loan for buyer who pays the monthly payments.
The seller transfers the title to the buyer, but retains responsibility for the loan. The bank does not sign off on this agreement — it is done under the table between the buyer and seller.
Contract for Deed
It’s a sales contract in which the buyer pays the seller for the property in multiple installments for a predetermined length of time, and the seller holds the title until the property has been fully paid for. It’s also known as:
Installment sales contract
or
Land contract
equitable title
The interest held by one party (buyer) to purchase property before closing - its a contract to eventuallly obtian the deed.
A buyer’s ownership while they are still making payments to the seller is conveyed through possession but not full ownership to the buyer as they finish paying their contract for deed.
A property sold subject to the existing loan
Retains its original loan. The seller is responsible for making the payments to the bank, and the buyer makes the payments to the seller. The seller transfers the title to the buyer, but retains responsibility for the loan. The bank does not sign off on this agreement — it is done under the table between the buyer and seller.
novation
or the substitution of a new contract for an old one.
estoppel certificate
certifies that certain facts are true.
Assumption
is when a buyer takes over a loan from a seller with the lender’s permission. The loan is officially transferred to the buyer with the title of the property, and the buyer makes the remainder of the loan payments.
a due on sale clause.
When the property sells, the entire loan comes due,
What type of loan is most likely to be assumable and do not have due on sale clause
FHA loan
takeout commitment
is a pledge (in writing) from a financial institution promising to be the permanent lender for a construction project.
blanket mortgage
is a loan that puts up several lots in a development as collateral. As the lots are sold, the proceeds are used to pay off the loan.
buydown
is a financing technique that sellers, but especially builders and developers, use to make homes more attractive to buyers. It’s similar to the way points can “buy down the rate” of a loan.
3-2-1 buydowns,
2-1 buydowns
where the interest rate is 3% lower the first year, 2% lower the second year, 1% lower the third year, then the true rate the fourth year.
are similar, but only last two years: 2% lower in year one, 1% lower in year two.
seller retains legal title and buyer gets equitable title until loan is paid off
contract for deed
also called an installment sales contract
contract for deed
prevented by a due on sale clause
loan assumption
lis pendens
is a written notice of a pending legal action.
deficiency judgment
is the right that a foreclosing party has to pursue a personal judgment against a borrower for the amount of the deficiency.
EX Owed on Loan =100 Forclosure nets = 75 Deficiency = 25
then Lender is the right to pursue a personal judgment against a borrower for the amount of the deficiency. Except a homestead property.
equitable redemption
refers to a borrower’s right to redeem a loan in default by paying the debt in full, including interest, fees, and expenses.
equitable redemption requires that the accelerated loan be paid in full
Right to reinstate
grants the borrower the opportunity to bring current the delinquent loan — including interest, fees, and expenses — in one payment in order to resume paying on the loan going forward
Statutory redemption
refers to the right that some states give borrowers to redeem a property within a certain timeframe after a foreclosure sale has taken place. could be 30 days
Nonjudicial Foreclosure (Power of Sale)
Also referred to as sale by advertisement, this popular form of nonjudicial foreclosure requires the presence of a power of sale clause in the security instrument at the time of signing. The clause pre-authorizes the lender to foreclose and sell the property without court oversight or having to file a lawsuit.
Entry and Possession
nonjudicial form of foreclosure depends on the borrower’s willingness to grant the lender access and occupancy of the property subject to foreclosure
Strict foreclosure
not used in Florida, Lender does not have to put up property up for sale only two states allow. Lender just takes back the property
Judicial Foreclosure
requires you to go to court
What 3 things must lender to be able to pursue a deficiency judgment against the borrower:
- State law has to allow for deficiency judgements (Florida does).
- The mortgage agreement cannot contain an exculpatory clause that forbids it.
- A judge has to review, approve, and award it.
Lien theory states tend to favor?
Title theory states tend to favor?
mortgages.
trust deeds (deed of trust).
deed of reconveyance or deed of release
When a Deed of Trust Is Paid in Full
List some of the borrower’s covenants, because they have to do with the responsibility a mortgagor has to protect the interests of the lender by caring for the collateralized property.
Covenant to Pay Indebtedness
Covenant to Pay Taxes
Covenant to Pay Insurance
Covenant of Good Repair
Covenant Against Removal
clause demands payment in full of the loan upon the sale or conveyance of the property.
Due on Sale/Alienation Clause
Formula Loan principal based number points given for given amount
Cost per point x 100 = Loan principal
Equation to find the loan principal if you are given the number points
since each point represents 1% of the Loan principal you just need to multiply the number of point by 100
First find out what ea point is worth then plug into formula
Formula
Cost per point x 100 = Loan principal
5 discount points = $7,500.
ea point is worth 7,500/5 = 1,500
1,500 x 100 = 150,000
Yield
refers to the profit the lender is making on the loan.
one discount point translates roughly to a 1⁄8th increase or .125
PITI
components of a loan
Principal
Interest
Tax
Insurance
Laura bought 5 discount points for $7,500. What is her loan principal?
Cost per point x 100 = Loan principal
First find out what each point is worth
7500/5=1500
1500x100=150,000 is the loan principal
