Section 12 Vocabulary

Question 1

Acceleration Cause

Answer 1

Calls the entire balance of the loan becomes due if the borrower defaults on the loan; Borrower has 30 days from the date of notice of acceleration to pay all money due (the full loan).

Question 2

Assumption

Answer 2

Assumption of the mortgage makes the new buyer responsible for the remaining debt.

Question 3

Blanket Mortgage

Answer 3

A mortgage which creates a lien on two or more pieces of property is called a blanket mortgage. This type of mortgage is often used by individuals, builders, or develops that have more than one piece of real estate to finance and then sell. They take out a mortgage for the combined value of the properties. The mortgage will include a partial release clause which allows each property to be released as collateral from the mortgage as each property is sold.

Question 4

Buydown

Answer 4

A buydown can be charged by a lender to temporarily lower the interest rate charged to the buyer.

Question 5

Contract for Deed (Land Contract)

Answer 5

It is a form of seller financing. The buyer makes payments over time, often with an initial down payment. The owner transfers title after all the payments are received, but the buyer has possession of the property during the term of the land contract.

Question 6

Defeasance Clause

Answer 6

The defeasance clause defeats the prior action by the lender when the lien was placed upon the property. In a lien theory state where the borrower retained title and the lender placed a lien on the property (FLORIDA), the lien is defeated.

Question 7

Deed in Lieu of Foreclosure

Answer 7

Buyer agrees to a non-judicial process of a deed in lieu of foreclosure - also known as a friendly foreclosure.

Question 8

Discount Points

Answer 8

A discount point is an upfront fee that the lender charges the borrower that increases the lender’s yield. The yield is the amount the lender is making on the loan. Thus, by increasing the lender’s yield, the lender’s profit is increased.

Question 9

Due-on-Sale Clause

Answer 9

Lender calls the mortgage due in full upon the sale of the property. It prevents assumption of mortgage or sale of property through land contract.

Question 10

Equity

Answer 10

The amount the owner has invested in the property.

Question 11

Equity of Redemption

Answer 11

The right of a property owner to redeem his or her property from foreclosure (or tax sale) by paying off the full amount owed. This right ends upon the completion of foreclosure proceedings.

Question 12

Escrow

Answer 12

An escrow (impound) account is an account held by the lender into which a homeowner pays money for taxes and insurance every month so that the money is available when the bill is due. Money is collected from the borrower at closing to start the account to make sure that there will be enough there when the bill comes due.

Question 13

Estoppel Certificate

Answer 13

Estoppel certificate verifies the amount of the unpaid balance, interest rate, and date to which interest has been paid prior to the assignment.

Question 14

Hypthecation

Answer 14

Hypothecation is the pledging of securities or other assets as collateral to secure a loan while not giving up possession of the property.

Question 15

Interest

Answer 15

The extra you pay to borrow money.

Question 16

Lien Theory

Answer 16

In a lien theory state, (Florida is a lien theory state) the borrower owns the property. Title is conveyed to the borrower at the original closing. A lien is placed against the property by the lender. It makes it more difficult for a bank to foreclose on the property because the bank does not hold the title.

Question 17

Lis Pendens

Answer 17

When a lawsuit for foreclosure is proceeding, the lender will give constructive notice of the suit by filing the lis pendens notice in the county where the property is located; pending action.

Question 18

Land Development Loans

Answer 18

Used to finance improvements to land such as roads and sewers.

Question 19

Loan Originating Fee

Answer 19

Loan origination fees are one of the several add-on charges a lender may impose on a home loan. It is charged as a one-time flat fee at the time of the loan.

Question 20

Loan Servicing

Answer 20

Processing payments, sending statements, managing the escrow accounts, providing collection services on delinquent loans, ensuring that the insurance and property tax payments are made on the property, handling pay-offs and assumptions, etc.

Question 21

Loan-to-Value Ratio

Answer 21

The % covered by the loan compared to the entire value of the property.

Question 22

Mortgage

Answer 22

The mortgage is the instrument that pledges the real estate property as collateral for a loan. A mortgage agreement must be in writing and recorded to be valid.

Question 23

Mortgagee

Answer 23

Lender or Creditor

Question 24

Mortgagor

Answer 24

Borrower.

Question 25

Partial Release Clause

Answer 25

Partial release clause is where multiple properties are financed under one mortgage. It allows each property to be released as collateral from the mortgage as each property is sold.

Question 26

PITI

Answer 26

Principal, interest, taxes and insurance. Used to calculate how much a monthly home payment will be in total.

Question 27

Prepayment Clause

Answer 27

This allows borrowers to be able pay extra money toward the mortgage to pay the balance off quicker. Or at any point, the borrower can pay the mortgage off completely with one large payment covering the balance and all fees due.

Question 28

Prepayment Penalty

Answer 28

Allows a fee to be charged if the loan is paid off early.

Question 29

Receivership Clause

Answer 29

If a mortgagor stops making payments on the loan of an income-producing property, the mortgagee is allowed to be appointed to collect the income produced from the property to make the mortgage payments.

Question 30

Right to Reinstate

Answer 30

Lender reserves the right to forgive the fact that the borrower defaulted and move forward with the loan either with late payments paid or renegotiated.

Question 31

Satisfaction of Mortgage

Answer 31

Satisfaction of mortgage is a release of mortgage that proves that a property is paid for free and clear of the original lien. The satisfaction of mortgage must be filed with the county office where the lien was officially registered in order to update the deed and create a clear title to the property. The lender has 60 days to file the release of lien and this filing is considered constructive notice of the release.

Question 32

Short Sales

Answer 32

The sale of property for less than the outstanding mortgage debt is called a short sale. The bank that holds the mortgage must approve the sale and agree to release the lien despite the shortage in funds.

Question 33

Subject to

Answer 33

Subject to the mortgage means that the seller still holds the original mortgage on the property while the title to the property is transferred to the new buyer. Keep in mind that this does NOT make the buyer responsible for the original remaining debt. If the original creditor isn’t paid, it is only the original owner (the seller) that is responsible for defaulting. However, because the debt is tied to the real estate property, it still can be foreclosed upon. This creates a risk for both the seller and the buyer.

Question 34

Subordination Agreement

Answer 34

A subordination agreement is defined by a change in lien priority order. One lien holder gives up their place in line to another lien holder (Mortgagee).

Question 35

Take-Out Commitment

Answer 35

A take-out commitment, also called commitment fees, is a fee charged by a lender for holding credit available for a borrower. It is a written agreement obtained by developers or contractors certifying future financing on a project so they can get a temporary construction loan. Without the commitment from the lender to finance the home once it is actually built, it would be more difficult for the developer or builder to acquire a building loan.

Question 36

Title Theory

Answer 36

In a title theory state, the bank holds the title to the property until the mortgage is paid. At closing, the title is conveyed to lender. Once the debt is paid in full, the lender conveys the title to the borrower.