Study Guide Chapter 12 Flashcards
Deed of Reconveyance
A document issued by the holder of a mortgage indicating that the borrower is released from the mortgage debt. The deed of reconveyance transfers the title of the property back to the borrower. It is most commonly issued when a mortgage has been paid in full.
Lien Theory
The borrower retains the title to the property. The lender is protected with a lien on the real property to secure the payment of the mortgage debt. If the borrower defaults on the mortgage debt, the lender will foreclose to recover the money owed.
Title Theory
Title to the mortgage property is conveyed to the lender through a mortgage deed, or to a trustee through a deed of trust. If the borrower defaults, the lender may take possession of the property. The borrower retains equitable title to the property. Once the debt is paid in full, the lender conveys legal title to the borrower (deed of reconveyance)
The term for pledging real property as security for a loan
Hypothecation refers to the pledging of property as security for payment of a loan without surrendering possession of the property. Mortgages identify the property being used to secure a loan and contain the borrower’s promise to fulfill certain other obligations to the lender. A mortgage instrument must be in writing to be enforceable. The mortgage is recorded to establish constructive notice of the lien and to establish priority ahead of subsequent liens.
What is the instrument used to transfer a mortgage from one company to another?
Assignment of mortgage. When ownership of a mortgage is transferred from one company or individual to another, it is called an assignment. This process is accomplished by executing an assignment of mortgage.
Assignment of Mortgage
It is a legal instrument that states the mortgagee assigns (transfers) the mortgage and promissory note to the purchaser. The assignment of mortgage is signed by the assignor (mortgagee) and delivered to the assignee (the investor). The assignee becomes the new owner of the debt and security instrument.
How long does Florida statute requires the mortgagee cancel the mortgage and send the recorded satisfaction to the mortgagor?
Within 60 days.
Acceleration clause.
This clause authorizes the mortgagee to accelerate or advance the due date of the entire unpaid balance if the mortgagor fails to fulfill any promises stated in the mortgage instrument. The acceleration clause gives the lender the power to declare the entire unpaid mortgage loan due and payable and to foreclose on the property if the mortgagor does not remedy the default. The foreclosure process cannot begin unless the entire debt is delinquent. Without the acceleration clause, the mortgagee could sue a delinquent mortgagor for only the monthly payments that are in arrears. The borrower is given 30 days from the date of the notice of acceleration to pay all sums secured by the mortgage instrument. If the borrower fails to pay the debt within the specified time period, the borrower is considered to be in default. The Fannie Mae- Freddie Mac Uniform Single Family Mortgage Instrument includes in the acceleration clause the remedies for securing defaults.
Section 203 (b) Loan Program Mortgage Insurance Premium
The FHA insures mortgage loans to protect lenders in the event that borrowers default. The FHA is the largest governmental insurer of mortgage in the world. The cost of the mortgage insurance is passed on to the borrower. Up-Front Mortgage Insurance Premium & Mortgage Insurance Premium
Up-front Mortgage Insurance Premium (UFMIP)
The base of UFMIP is based on the type (new or refinance) and term (15-year or 30-year) of the mortgage. On a new 30-year mortgage, the UFMIP is 1.75% of the LOAN AMOUNT. The insurance is paid at closing and can be financed into the mortgage amount. Loans to finance condominium units do not require UFMIP
Mortgage Insurance Premium (MIP)
Borrower is charged an annual mortgage insurance premium. MIP is 1.25% of the BASE LOAN AMOUNT on a 30-year residential loan with the required minimum down payment. The annual MIP is divided by 12 and paid monthly as part of the monthly mortgage payment. MIP must be included in the proposed monthly expense when calculating the buyer’s qualifying rations.
When is the MIP canceled?
The MIP is automatically canceled after 5 years or when the loan-to-value amount reaches 78%, whichever is longer. The monthly MIP is paid for the life of the FHA condo loan.
FHA down payments
FHA-insured loans down payments is much smaller than required for conventional mortgage loans. Borrowers are required to make a down pmt of at least 3.5% of the sale price or the appraised value, whichever is less. Closing costs may not be used to meet the minimum 3.5% down ptm requirement. Borrowers must have a good credit history (min credit score of 580) to qualify for max financing. FHA down pmt can be a gift, a loan from a family member, or from a governmental agency.Gift donors are restricted primarily to a relative of the borrower but can also be certain organizations such as a labor union or charitable organization. The down pmt may not come from funds provided by the lender, the seller or builder, or any other person or entity that financially benefits from the transaction
FHA 203 (b) loan limits
FHA sets limits on the amount that can be borrowed based on area home values. Lenders make FHA-insured loans in even $50 increments.
VA Loan Amount
The VA does not set loan limits. Because the maximum VA guarantee is $104,250 or 25% of the loan, most lenders observe a maximum loan amount of $417,000 (104,250/0.25=417,00)
