Unit 12: Real estate financiing

Question 1

The borrower grants legal title to a trustee

Answer 1

title theory

Question 2

the borrower holds both legal and equitable title. the lender has a specific lien on the property

Answer 2

lien theory

Question 3

a ____ _____ is a legal instrument that provides evidence of the debt. secured by te mortgage or deed of trust

Answer 3

promissory note

Question 4

a _____ ____ is held by lender until loan is fully repaid, not recorded

Answer 4

promissory note

Question 5

Key elements of a promissory note

Answer 5

personal promise of borrower to repay a fixed amount, terms of repayment, signature of borrower, lender does not sign

Question 6

___ ____ states that if a borrower defaults, lender can demand immediate payment of entire balance

Answer 6

acceleration clause

Question 7

___ ____ alone does not create a lien on the property.

Answer 7

promissory note

Question 8

___ of ___ is a three party instrument. different than a mortgage because it has 3 parties

Answer 8

mortgage (or deed) of trust

Question 9

in a deed of trust, the borrower is the ___ or ___, they give the deed of trust to the _____, who gives benefit to the _____ or beneficiary, who give money to the borrower

Answer 9

trustor, grantor, trustee, lender

Question 10

6 reasons for loan acceleration or foreclosure

Answer 10

nonpayment of principal and interest, nonpayment of taxes, removal of improvement without lenders permission, insurance coverage lapse, waste (would include deferred maintenance that lowers value below what is owed), alienation without consent (if there is a due-on-sale clause

Question 11

Also called a mortgage ratio. determines the amount that can be borrowed and if private mortgage insurance will be needed. Maximum percentage of value of the lender wil loan to the borrows. ___ - ___ -___ ratio (LTV)

Answer 11

loan to value

Question 12

___-_-____ ratio is determined by the sales price or appraised value, whichever is lower

Answer 12

loan-to-value

Question 13

market value today - total debt today = _____

Answer 13

equity

Question 14

____ is used when you borrow money to finance a purchase. The higher the TV (the mor money borrowed) the higher this is

Answer 14

leverage

Question 15

disadvantage of high leverage is the greater risk of ____

Answer 15

default

Question 16

lower equity = ____ risk

Answer 16

higher

Question 17

higher the down payment, lower the loan, and lower the ____

Answer 17

risk

Question 18

one ___ point = 1% of the loan amount

Answer 18

discount

Question 19

lender charges points to increase yield on a loan. May be used to (lower/raise) the loan interest rate

Answer 19

lower

Question 20

You can purchase points to lower the interest rate of the loan. this will save the borrower money

Answer 20

note

Question 21

discount points are paid by the buyer or seller at closing

Answer 21

note

Question 22

____ ____ fee: a charge by the lender to process and issue a loan

Answer 22

loan origination

Question 23

____: charging an interest rate in excess of what is permitted by law.

Answer 23

usery

Question 24

_____ a clause in a subordinate mortgage/deed of trust that allows a subsequent mortgage to take priority

Answer 24

subordination

Question 25

If a previous first mortgage of trust is refinanced, the second mortgage of trust continues in its second position.

Answer 25

note

Question 26

Foreclosure is governed by (state/federal) laws

Answer 26

state