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.
