Unit 12 Real Estate Financing

Question 1

What is a mortgage?

Answer 1

A lien or encumbrance on real property of a debtor.

Question 2

Who are the mortgagor and mortgagee?

Answer 2

The mortgagor is the borrower, and mortgagee is the bank.

Question 3

What is title theory?

Answer 3

The principle of the mortgagor giving legal title to the bank, and retaining the equitable title.

Bank would keep rent in a foreclosure.

Question 4

What is lien theory?

Answer 4

The mortgagor retains legal and equitable title, while the mortgagee places a lien on the property for the mortgage debt.

The mortgagor keeps the rent.

Question 5

What is hypothecation?

Answer 5

The retention of property and control while placing that property as collateral for a loan.

Question 6

What is promissory note?

Answer 6

The borrowers personal promise to repay a debt according to the agreed upon terms.

Question 7

What is a deficiency judgement?

Answer 7

A personal judgement to recover any shortage amounts on a mortgage, or loan.

Question 8

What is a note?

Answer 8

A negotiable instrument. The payee may transfer the right to payment to a third party either by 1- signing instrument over (assigning), or 2-delivering the instrument to third party.

Question 9

What is interest?

Answer 9

A charge for money. Usually as a % of balance.

Question 10

What is usury?

Answer 10

Charging interest in excess of the maximum allowed by law.

Question 11

What is a loan origination fee?

Answer 11

A transfer fee charged to borrower by lender to cover expenses involved in generating loan.

Question 12

What is a discount point?

Answer 12

Used to increase the yield for lender.
Determined by 2-factors
1-The difference between the loan’s stated interest rate and the yield required by the lender.
2-How long the lender expects for buyer to pay off.

Question 13

What is a point?

Answer 13

1 percent of the amount of being borrowed, its prepayment to lower the interest rate.

Question 14

What is a deed of trust?

Answer 14

A 3 party instrument that conveys naked or bare legal title, without the right of possession. The trustee holds the collateral for the benefit of the beneficiary (bank). The borrower is the trustor.

Question 15

What is a prepayment penalty?

Answer 15

A charge for the unearned portion of the interest for any payments made ahead of schedule.

Question 16

What is an acceleration clause?

Answer 16

In the event of default, allows bank to accelerate the date of maturity.

Question 17

What is a defeasance clause?

Answer 17

The lender is required to execute a satisfaction of mortgage when the note has been paid.

Question 18

What is a release deed?

Answer 18

The trustee delivers the Aka deed of reconveyance to the trustor, essentially giving deed back to grantor.

Question 19

What is a novation?

Answer 19

In the process of assuming a loan it releases the seller from any liability for the loan being assumed.

Question 20

What is an alienation clause?

Answer 20

A clause in loans that allow lenders the right to call the loan, or have the amount “due-on-sale”. aka resale clause, call clause, due on sale clause.

Question 21

What is foreclosure?

Answer 21

The legal procedure brings the right to security to satisfy the debt.

Question 22

What is judicial foreclosure?

Answer 22

A court ordered foreclosure.

Question 23

What is a nonjudical foreclosure?

Answer 23

Exercised where there is a “power of sale” clause. Allowing the bank to foreclose without a court order.

Question 24

What is a strict foreclosure?

Answer 24

1st appropriate notice with court established deadline for balance on defaulted debt to be paid in full
2nd if balance isn’t paid the court orders legal title to lender. More common with personal property.

Question 25

What is a deed in lieu of foreclosure

Answer 25

Aka “friendly foreclosure”, by mutual agreement. Lender takes the property and borrower is no longer liable. Borrower loses all equity, lender still has to deal with junior liens.

Question 26

What is equitable right of redemption?

Answer 26

The period between default and prior to foreclosure sale where the borrower can redeem the property by paying everything that is due.

Question 27

What is a statutory right of redemption?

Answer 27

Period of time after foreclosure the borrower can redeem the property if debt is paid to the court before time expires.

Question 28

What are the two forms of buying a home with the existing mortgage?

Answer 28

Subject-to and Assumption

Question 29

What is a straight loan?

Answer 29

aka a term loan, or interest only loan buyer makes interest payments with full amount due at the end of loan term period.

Question 30

What is an amortized loan?

Answer 30

aka kill off, direct reduction loan, fully amortized loan, level-payment loan. Each payment credits interest first and then principal.

Question 31

What is an ARM?

Answer 31

adjustable rate mortgage uses an index to determine the base rate + margin with a rate cap on the upper end of interest.

Question 32

What is a growing equity mortgage?

Answer 32

aka rapid payoff mortgage. Uses fixed interest rate and payments o principal are increased according to an index or schedule.

Question 33

What is a balloon payment loan?

Answer 33

A loan with final payment that is at least 2x any other payment.

Question 34

What is CLUE?

Answer 34

Comprehensive Loss Underwriting Exchange

Question 35

What are the 2 forms of homeowners insurance?

Answer 35

Basic and Broad Form