UNIT 12 REAL ESTATE FINANCING

Question 1

ACCELERATION CLAUSE

Answer 1

The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrower defaults on an installment payment or other obligation.

Question 2

ADJUSTABLE RATE MORTGAGE (ARM)

Answer 2

A loan characterized by a fluctuating interest rate, usually one tied to a bank or savings and loan association cost-off funds index.

Question 3

ALIENATION CLAUSE

Answer 3

The clause in a mortgage or deed of trust stating that the balance of the secured debt becomes immediately due and payable at the lender’s option if the property is sold by the borrower. In effect, this clause prevents the borrower from assigning the debt without the lender’s approval.

Question 4

AMORTIZED LOAN

Answer 4

A loan in which the principal, as well as the interest, is payable in monthly or other periodic installments over the term of the loan.

Question 5

ASSUMPTION OF MORTGAGE

Answer 5

Acquiring title to property on which there is an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including payments.

Question 6

BALLOON PAYMENT

Answer 6

A final payment of a mortgage loan that is considerably larger than the required periodic payments because the loan amount was not fully amortized.

Question 7

BENEFICIARY

Answer 7

(1) The person for whom a trust operates or in whose behalf the income from a trust estate is drawn. (2) A lender in a deed of trust loan transaction.

Question 8

COMPREHENSIVE LOSS UNDERWRITING EXCHANGE (CLUE)

Answer 8

A database of consumer claims history that allows the insurance companies to access prior claims information in underwriting and rating process.

Question 9

DEBT TO INCOME (DTI)

Answer 9

Information about an applicant’s gross income and total debt that lenders generally look at as a percentage to determine qualification for a loan.

Question 10

DEED IN LIEU OF FORECLOSURE

Answer 10

A deed given by the mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. If accepted by the mortgagee, this is a way for the mortgagor to avoid foreclosure.

Question 11

DEED OF RECONVEYANCE

Answer 11

A document that a trustee uses to transfer the title back to the trustor (borrower) when the note is repaid.

Question 12

DEFEASANCE CLAUSE

Answer 12

A clause used in leases and mortgages that cancels a specified right upon the occurrence of a certain condition, such as cancellation of a mortgage upon repayment of the mortgage loan.

Question 13

DEFICIENCY JUDGMENT

Answer 13

A personal judgement levied against the borrower when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full. IN some states, a deficiency judgement cannot be sought when the mortgage debt was used to purchase, and is secured by, the borrower’s principal residence.

Question 14

DISCOUNT POINTS

Answer 14

A unit of measurement used for various loan charges; one point equals 1% of the loan amount.

Question 15

EQUITY

Answer 15

The interest or value that an owner has in property over and above any indebtedness.

Question 16

FORECLOSURE

Answer 16

A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. The foreclosure procedure brings the rights of the parties to a conclusion and passes the title in the mortgaged property to either the holder of the mortgage or a third party who may purchase the realty at the foreclosure sale. Depending on priority of the foreclosed mortgage, the property may be sold free of all other encumbrance incurred prior to the sale.

Question 17

GROWING EQUITY MORTGAGE

Answer 17

A loan in which the monthly payments increase annually, with the increased amount being used to directly reduce the principal balance outstanding and thus shorten the overall term of the loan.

Question 18

HOMEOWNER’S INSURANCE

Answer 18

Insurance that covers a residential real estate owner against financial loss from fire, theft, public liability, and other common risks.

Question 19

HYPOTHECATION

Answer 19

To pledge property as security for an obligation or loan without giving up possession of it.

Question 20

INDEX

Answer 20

An objective economic indicator to which the interest rate for an adjustable-rate mortgage is tied.

Question 21

INTEREST

Answer 21

A charge made by a lender for the use of money.

Question 22

INTEREST ONLY LOAN

Answer 22

A loan that only requires the payment of interest for a stated period of time with the principal due at the end of the term.

Question 23

LOAN ORIGINATION FEE

Answer 23

A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount.

Question 24

LOAN TO VALUE RATION (LTV)

Answer 24

The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral.

Question 25

MARGIN

Answer 25

A premium added to the index rate representing the lender’s cost of doing business.

Question 26

MORTGAGE

Answer 26

A conditional transfer or pledge of real estate as security for the payment of a debt. Also, the document creating a mortgage lien.

Question 27

MORTGAGEE

Answer 27

A lender in a mortgage loan transaction.

Question 28

MORTGAGOR

Answer 28

A borrower in a mortgage loan transaction.

Question 29

NEGATIVE AMORTIZATION

Answer 29

Process by which the amount of the loan increases. The mortgagor sets a payment cap, or maximum amount for payments, but the difference between the payment made and the full payment amount is added to the remaining mortgage balance.

Question 30

NEGOTIABLE INSTRUMENT

Answer 30

A written promise or order to pay a specific sum of money that may be transferred by endorsement or delivery. The transferee then has the original payee’s right to payment.

Question 31

NOVATION

Answer 31

Substituting a new obligation for an old one or substituting new parties to an existing obligation.

Question 32

PITI

Answer 32

The basic costs of owning a home:
Principal
Interest
Title
Insurance

Question 33

PREPAYMENT PENALTY

Answer 33

A charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost.

Question 34

PROMISSORY NOTE

Answer 34

A financing instrument that states the terms of the underlying obligation, is signed by its maker, and is negotiable (transferable to a third party.)

Question 35

RELEASE DEED

Answer 35

A document, aka deed of reconveyance, that transfers all rights given a trustee under a deed of trust loan back to the grantor after the loan has been fully repaid.

Question 36

REVERSE MORTGAGE

Answer 36

A loan by which a homeowner receives a lump sum, monthly payments, or a line of credit based on the homeowner’s equity in the property secured by the mortgage. The loan must be repaid at a prearranged date, upon the death of the owner, or upon the sale of the property.

Question 37

SATISFACTION OF MORTGAGE

Answer 37

A document acknowledging the payment of a mortgage debt.

Question 38

SHORT SALE

Answer 38

Sale of a property in which the sales price is less than the remaining indebtedness.

Question 39

STRAIGHT LOAN

Answer 39

A loan in which only interest is paid during the term of the loan, with the entire principal amount due with the final interest payment.

Question 40

“SUBJECT TO”

Answer 40

A clause in a contract specifying exceptions or contingencies of a purchase.

Question 41

TRUSTOR

Answer 41

A borrower in a deed of trust loan transaction; one who places property in a trust. Also called a grantor or seller.

Question 42

USURY

Answer 42

Charging interest at a higher rate than the maximum rate established by state law.