Terms - Chapter 12 Real Estate Finance

Question 1

If a borrower defaults on the loan (misses payments or fails to comply with other requirements in the mortgage), the lender may call the entire balance due and payable immediately. 
A) Acceleration Clause
B) Prepayment Penalty Clause
C) Release Clause
D) Defeacance Clause

Answer 1

A) Acceleration Clause

Question 2

Assumption or Subject to Mortgage: The phrase “subject to” is included in most assumptions.
True
False

Answer 2

True

It means that the original borrower maintains the liability for paying off the loan even if he or she has sold the property to someone else.

The lender is saying to the borrower, “You may sell your property to anyone you choose, but you will retain the liability for the loan, even if you no longer own the property.”

Question 3

_______: Enable investors, builders, and developers to place multiple properties under a single loan, which is much more efficient than having multiple mortgages.

Answer 3

blanket mortgage

a blanket mortgage (normally obtained by a developer)

Question 4

buydown????

Discount Points - A discount point is actually pre-paid interest. A lender charges discount points to recoup interest payments upfront. Technically, paying discount points is a way to buy down your interest rate. (Pg. 12)

Buy-down financing – A builder or another party subsidizes a buy-down payment at the loan’s beginning for a 3 to 5-year period. Thereafter, the purchaser takes over and pays the regular payment amount. This is a financing technique used to reduce the monthly payment for the borrower during the initial years. Usually the cost to the builder is built into the home. Payments on the loan will increase after the buy-down subsidy ends. (Pg. 18)

Answer 4

buydown

Discount Points - A discount point is actually pre-paid interest. A lender charges discount points to recoup interest payments upfront. Technically, paying discount points is a way to buy down your interest rate. (Pg. 12)

Buy-down financing – A builder or another party subsidizes a buy-down payment at the loan’s beginning for a 3 to 5-year period. Thereafter, the purchaser takes over and pays the regular payment amount. This is a financing technique used to reduce the monthly payment for the borrower during the initial years. Usually the cost to the builder is built into the home. Payments on the loan will increase after the buy-down subsidy ends. (Pg. 18)

Question 5

\_\_\_\_\_\_\_: the seller does not give the buyer the Legal Title to the property, until the final payment is made.
A) Land Contract
B) Contract for Deed
C) Installment Contract
D) All of the Above

Answer 5

D) All of the Above

Question 6

\_\_\_\_\_\_\_\_ – This is the clause that provides for a satisfaction piece to be issued when the mortgage has been paid in full.
A) Release Clause
B) Defeasance Clause
C) Santa Clause
D) Acceleration Clause

Answer 6

B) Defeasance Clause

The defeasance clause, when met, will also trigger the release of the mortgage by the mortgagee and record the full payoff of the loan.

Question 7

If the borrower does not want to go through foreclosure, and cannot sell the property, he or she may choose to give the mortgagee a __________.

Answer 7

Deed in Lieu of Foreclosure

Question 8

_____: pre-paid interest.

Answer 8

discount points

Technically, paying discount points is a way to buy down your interest rate. (Pg. 12)

Question 9

\_\_\_\_\_\_\_\_ – states that the full balance of the loan may be called due (repaid in full) upon sale or transfer of ownership of the property used to secure the note.
A) Due on Sale Cause
B) Alienation Clause
C) Repaid in Full Clause
D) Both A and B

Answer 9

D) Both A and B

The Due on Sale clause (Alienation Clause) – states that the full balance of the loan may be called due (repaid in full) upon sale or transfer of ownership of the property used to secure the note. This prevents the seller from allowing a purchaser to assume the loan for a specific property. A VA mortgage will normally not have a Due on Sale Clause as it is allowed to be assumed under certain circumstances.

Question 10

\_\_\_\_\_\_: When a seller sells a property, after all the costs have been subtracted, this is what the remaining money is called.
A) Property value
B) Equity
C) Principle value
D) Capital gain.

Answer 10

B) Equity

Question 11

equity of redemption: This is the time period prior to the sale for the owner to recover the property by paying all required late charges, attorney costs, and fees.
A) Equality of Redemption
B) Equity of Redemption
C) Equitable Right of Redemption
D) Both B and C

Answer 11

D) Both B and C

A judicial foreclosure requires a court of law to foreclose the property. In every state, there is a legal timeframe of notice to the borrower regarding their Equitable Right of Redemption(equity of redemption). This is the time period prior to the sale for the owner to recover the property by paying all required late charges, attorney costs, and fees. (Pg. 20)

Question 12

Most lenders require the borrower to place money in a special account commonly called an Impound Account for the payment of taxes and insurance (and when applicable, private mortgage insurance, and HOA fees) when they are due.
True
False

hint: This is the type of question that has caused many class arguments back in school because of the borderline rightness of both answers. It could be True or False but which is the BEST answer.

Answer 12

False

Escrow (Impound) Account - Most lenders require the borrower to place money in a special account for the payment of taxes and insurance (and when applicable, private mortgage insurance, and HOA fees) when they are due. This assures the lender that the taxes, maintenance fees, and insurance will be paid on time as the borrower pays a portion to the escrow each month.

Question 13

\_\_\_\_\_\_\_: This is a letter that shows the current balance of the loan and is used by lenders when selling the note from one lender to another.
A) The Take-Out Commitment
B) The Investment Statement
C) The Income Verification Certificate
D) The Estoppel Certificate

Answer 13

D) The Estoppel Certificate

The Estoppel certificate - This is a letter that shows the current balance of the loan and is used by lenders when selling the note from one lender to another. The Estoppel Certificate states the amount that is currently due and it “stops” the new lender from charging any more than that amount shown in the certificate provided. In essence, it is a “pay-off letter” from one lender to another. (Pg. 12)

Question 14

\_\_\_\_\_\_\_ is an alternate term used when one pledges to secure a loan with something of value.
A) Contract for Deed
B) Lis Pendens
C) Estoppel Certificate
D) Hypothecation

Answer 14

D) Hypothecation

Question 15

_____: is the fee or amount the borrower pays to borrow someone else’s money.

Answer 15

Tnterest

Question 16

\_\_\_\_\_\_\_ states, the borrower keeps legal title to the property during the period of the loan and the lender places a lien against the property.
A) Title Theory
B) Lien Theory
C) Deed of Trust
D) Deed of Reconveyance

Answer 16

B) Lien Theory

Florida is a lien theory state.

Question 17

In Lieu is latin for “suit pending”. If a Notice Of Lis Pendens is recorded at the local county recorder on property it means there is a law suit pending on that property.
True
False

Answer 17

Lis pendens

Those who lend money determine when the loan is in default and follow that with proper notice recorded in the courts as a Lis pendens. (Pg. 20)

***Had to look up online

Question 18

land development loans???

Answer 18

land development loans

Question 19

_______ - Lenders charge a fee to originate (to prepare the mortgage paperwork) necessary for the loan Fees are normally charged as a percentage of the loan value.

Answer 19

loan origination fee

Question 20

______ - The collection of mortgage payments by the lender or by another company of their choice.

Answer 20

Loan Servicing

Question 21

______ -This ratio represents the amount of the loan compared to the sales price or appraised value.

Answer 21

The Loan-To Value Ratio (LTV)

Question 22

A "\_\_\_\_\_\_ " is a contract between a borrower and lender that creates a lien on the property.
A) Promissory Note
B) Deed of Trust
C) mortgage
D) Both B and C

Answer 22

C) mortgage

While mortgages and deeds of trust are similar because they’re both agreements in which a borrower puts up the title to real estate as security (collateral) for a loan

Question 23

_____: who agrees to lend funds based on the mortgage’s promise. (The lender).

Answer 23

mortgagee

Question 24

_____: (the borrower) who gives a mortgage

Answer 24

mortgagor

Question 25

The _____ is the lender’s Personal Property and it is a readily negotiable item and makes the borrower personally liable for the loan. In other words, it is the promise to repay the debt on the loan.

A) Note
B) Promissory Note
C) I.O.U.
D) Both A and B
E) Both B and C

Answer 25

D) Both A and B

The promissory note or note is the promise to repay the debt.
The Note is the lender’s Personal Property and it is a readily negotiable item.

Question 26

The \_\_\_\_\_ is a new contract substituted for a first contract.
A) Assumption of Mortgage
B) Substitution of Mortgage
C) Assumption
D) Novation

Answer 26

D) Novation

The transfer of the loan and with it the liability to the second buyer through an action called Novation. (Pg. 17)

Question 27

partial release clause???

Answer 27

partial release clause

Question 28

The PITI Payment – is an acronym for Principal, Interest, Taxes and Insurance.
A) Principal, Investment, Taxes and Issuance
B) Principal, Interest, Taxes and Insurance
C) Principle, Insurance, Taxes and Issuance
D) Principle, Investment, Taxes and Insurance

Answer 28

B) Principal, Interest, Taxes and Insurance

The PITI Payment – is an acronym for Principal, Interest, Taxes and Insurance. The borrower pays a certain amount each month consisting of these elements. This is also called a budget mortgage payment. The payment due may also include HOA payments.

Question 29

\_\_\_\_\_\_\_: allows pre-payment of a mortgage
A) Acceleration Clause
B) Defeasance Clause
C) Prepayment Penalty Clause
D) Prepayment Clause

Answer 29

D) Prepayment Clause

The prepayment clause is different than the prepayment Penalty Clause in that the prepayment clause allows pre-payment of a mortgage and the Prepayment penalty clause forbids an early payoff of the mortgage.

Question 30

\_\_\_\_\_\_\_\_: forbids an early payoff of the mortgage. 
A) Acceleration Clause
B) Defeasance Clause
C) Prepayment Penalty Clause
D) Prepayment Clause

Answer 30

C) Prepayment Penalty Clause

Question 31

receivership clause???

Answer 31

receivership clause

Question 32

right to reinstate???

Answer 32

right to reinstate

Question 33

Satisfaction of Mortgage: When the loan - backed by a mortgage and note is paid in full, it is said to be “Satisfied.”

All mortgage satisfactions are filed with the clerk of court for the county where the property is located and subsequently provided to the mortgagor within \_\_\_\_\_ of the final payment.
A) 15 Days
B) 30 Days
C) 60 Days
D) 90 Days

Answer 33

C) 60 Days

Question 34

______: an agreement from the bank to accept a price for a property, less than the mortgage, at current market value.

Answer 34

Short Sale

Question 35

The phrase “_______” is included in most assumptions. It means that the original borrower maintains the liability for paying off the loan even if he or she has sold the property to someone else.

Answer 35

subject to

Question 36

______________: When a lender takes a secondary payment position for a property in foreclosure.

A) Junior Mortgage
B) Subordination Clause
C) Subordination Agreement
D) Junior Agreement

Answer 36

C) Subordination Agreement

Subordination Agreements: Occasionally, a lender may be willing to take a secondary payment position for a property in foreclosure.

For example, if the first mortgage has a balance of $20,000 and a new second mortgage has a balance of $50,000, the second mortgage may wish to become the first and the first become the second in the line of priority. If both lenders are agreeable, they have the option to agree to this, between them alone, that changes the priority of liens for foreclosure.

Question 37

The _______ - is the second phase of lending on commercial development. An interim lender will want the permanent lender to give a letter of commitment before beginning a commercial development.

Answer 37

Take-Out Commitment

The Take-Out Commitment is never used for residential lending.

Question 38

In a \_\_\_\_\_\_ state, the borrower gives title through a deed of trust to the lender, who is referred to as the beneficiary during the time of the loan.
A) Title Theory
B) Lean Theory
C) Deed of Trust
D) Both A and C

Answer 38

D) Both A and C

A Title Theory state is also known as a Deed of Trust state.

Question 39

The _____ (the borrower) who gives a mortgage whereas, the _____ is the one who agrees to lend funds based on the mortgage’s promise. (The lender).

Answer 39

The MORTGAGER (the borrower) who gives a mortgage whereas, the MORTGAGEE is the one who agrees to lend funds based on the mortgage’s promise. (The lender).

Question 40

A _____ is an encumbrance upon a property.

Answer 40

mortgage