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-of-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 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 agreeeing 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 payment because the loan amount was not fully amoritized.

Question 7

beneficiary

Answer 7

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

coinsurance clause

Answer 8

A clause in insurance policies covering real property that required the policyholder to maintain fire insurance coverage generally equal to at least 80% of the property’s axtual replacement cost.

Question 9

comprehensive loss underwriting exchange (CLUE)

Answer 9

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

Question 10

debt to income (DTI)

Answer 10

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

Question 11

deed in lieu of foreclosure

Answer 11

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 12

deed of reconveyance

Answer 12

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

Question 13

defeasance clause

Answer 13

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

Question 14

deficiency judgment

Answer 14

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

Question 15

discount point

Answer 15

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

Question 16

due-on-sale clause

Answer 16

a provision in the mortgage stating that the entire balance of the note is immediately due and payable if the mortgagor transfers (sells) the property

Question 17

equity

Answer 17

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

Question 18

escrow cotnract

Answer 18

An agreement between a buyer, a seller, and an escrow holder setting forth rights and responsibilities of each.

Question 19

federal emergency management agency (FEMA)

Answer 19

A federal agency that is responsible for assisting the nation in preparing for, protecting against, responding to, and recovering from hazards.

Question 20

first mortgage

Answer 20

A mortgage that has priority over all other mortgages

Question 21

Foreclosure

Answer 21

A legal procedure whereby property used as security for a debt is sold to satisfy the debts in the event of default in payment of the mortgage note oe 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, the property may be sold free of all other encumbrances incurred prior to the sale.

Question 22

fully amortized loan

Answer 22

A loan consisting of equal, regular payment satisfying the total payment of principal and interest by the due date.

Question 23

growing-equity mortgage

Answer 23

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 24

homeowners insurance

Answer 24

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

Question 25

hypothecation

Answer 25

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

Question 26

index

Answer 26

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

Question 27

Interest-only-loan

Answer 27

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

Question 28

liability coverage

Answer 28

Feature of homeowners insurance that covers injuries or losses sustained within the home

Question 29

lien theory

Answer 29

Principle in which the mortgage retains both legal and equitable title to property that serves as security for a debt. The mortgagee has a lien on the property, but the mortgage is nothing more than collateral for the loan.

Question 30

loan origination fee

Answer 30

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

Question 31

margin

Answer 31

A permium added to the index rate representing the lender;s cost of doing business.

Question 32

mortgagee

Answer 32

A lender in a mortgage loan transaction

Question 33

mortgagor

Answer 33

A borrower in a mortgage loan transaction

Question 34

negative amortization

Answer 34

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 35

negotiable instrument

Answer 35

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

Question 36

P&I

Answer 36

Principal and interest

Question 37

Payment cap

Answer 37

The limit on the amount the monthly payment can be increased on an adjustable-rate mortgage when the interest rate is adjusted.

Question 38

PITI

Answer 38

The basic costs of owning a home– mortgage principal and interest, real estate and hazard insurance.

Question 39

point

Answer 39

A term used for a precentage of the principal loan amount charged by the lender,. Each point is equal to 1% of the loan amount.

Question 40

prepayment penalty

Answer 40

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 41

promissory note

Answer 41

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 42

rate cap

Answer 42

The limit on the amount the interest rate can he increased at each adjustment period in an adjustable rate loan. The cap may also set the maximum interest rate that can be charged during the life of the loan.

Question 43

redemption period

Answer 43

A period of time established by the state law during which property owners have the right to redeem their real estate from a foreclosure or tax sale by paying the sales price, interest, and costs. Man states do not haccve mortgage redemption lawds.

Question 44

release deed

Answer 44

a document, also known as a 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 45

replacement cost

Answer 45

The construction cost at current prices of a property that is not necceessarily an exact duplicate of the subject property but serves the same purpose or function as the original.

Question 46

reverse mortgage

Answer 46

A loan by which a homowner recived a lump sum, monthly payments, or a line of credit based on the homeowner’s equity in the proprty 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 47

satisfaction of mortgage

Answer 47

A document acknowledging the payment of a mortgage debt.

Question 48

subject to

Answer 48

Buyer takes title of property and maes no payments on the existing loan but is no personally obligated to pay the debt in full. Original seller might continue to be liable for debt.

Question 49

straight loan

Answer 49

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 50

title theory

Answer 50

Principle in which the mortgagor conveys legal title to the mortgagee (or some other designated individual) and retains equitable title and the right of possession. In effect, beccause the lender holds legal title, the lender has the right to immesiate possession of the real estate and rents from the mortgaged property if the mortgagor defaults.

Question 51

usury

Answer 51

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