Unit 12: Residential Mortgages Flashcards
Legal concept that regards a mortgage as a just claim on specific property pledged as security for a mortgage debt.
Lien Theory
Legal concept that vests title to mortgaged property in the mortgagee (lender) or a third party.
Title Theory
A written agreement that pledges property as security for payment of a debt.
Mortgage
A borrower who gives a mortgage on the borrower’s property in order to obtain a loan from a lender.
Mortgagor
A lender who holds a mortgage on specific property as security for the money loaned to the borrower.
Mortgagee
To pledge real or personal property as security for a debt or obligation without giving up possession of the property.
Hypothecation
A certificate issued by the lender when the debt obligation is paid in full.
Satisfaction Of Mortgage
A mortgage on property that is superior in right to any other mortgage.
First Mortgage
A mortgage, such as a second mortgage, that is subordinate in right or lien priority to an existing mortgage on the same real property.
Junior Mortgage
A written agreement between holders of liens on a property that changes the priority of mortgage, judgment, or other liens under certain circumstances.
Subordination Agreement
True/False In lien theory states, the lender retains title to the property.
False. In lien theory states, the borrower retains title to the property.
True/False The pledging of property as security for repayment of debt is called hypothecation.
True
True/False A note requires that the lender be liable for paying the borrower according to the agreed-upon terms of the loan.
False. A note represents the borrower’s promise to pay the lender according to the agreed-upon terms of the loan.
A provision in a mortgage that allows the mortgagor to pay the mortgage debt ahead of schedule without penalty.
Prepayment Clause
The amount set by the creditor that the debtor is charged for retiring the debt early.
Prepayment Penalty
Stipulation in a mortgage that the entire unpaid balance of the debt may become due and payable if a default of expressed conditions should occur.
Acceleration Clause
A mortgage clause based on the equity of redemption. The mortgagor’s right to reinstate the original repayment terms in the note after the mortgagee has initiated the acceleration clause.
Right To Reinstate
A provision in a conventional mortgage that entitles the lender to require the entire loan balance to be paid in full if the property is sold.
Due-on-sale Clause
A provision in a mortgage that specifies the terms and conditions to be met in order to avoid default and thereby defeat the mortgage.
Defeasance Clause
True/False The right to reinstate is the mortgagor’s right to reinstate the original repayment terms in the note after the lender initiated the acceleration clause.
True
True/False A prepayment penalty clause is normally included in FHA and VA mortgages on real property.
False. A prepayment clause (not prepayment penalty clause) is normally included in FHA and VA mortgages, allowing the borrower to pay off part or all of the debt without penalty before loan maturity.
True/False The defeasance clause prevents a buyer from assuming the mortgage.
False. The defeasance clause in a Florida mortgage releases the mortgage lien once the debt is paid in full.
Relationship between amount borrowed and appraised value (or sale price) of a property.
Loan-to-value Ratio (LTV)
The market value of a property less any debt against it; in a business entity, assets minus liabilities equals capital (owner’s equity); a system of legal rules administered by a court of chancery.
Equity
The price paid for the use of borrowed money; estate.
Interest
An additional source of income for lenders. Servicing fees typically range from ⅜ to ¾ of 1% of the unpaid balance of loans serviced.
Loan Servicing
An impound account required by most lenders that require borrowers to pay in advance monthly installments for property taxes and hazard insurance. The monthly escrow payment is one-twelfth of the estimated annual expense for property taxes and the hazard insurance premium.
Escrow
Principal, interest, taxes, and insurance payment on a mortgage loan.
PITI
A method for increasing a lender’s yield. See also mortgage discount point.
Discount Points
A charge by a lender for taking a mortgage in exchange for a loan.
Loan Origination Fee
True/False A lender is charging an origination fee of 1.5% on a new mortgage loan of $300,000. The cost of the loan origination fee is $4,500.
True $300,000 × .015 = $4,500.
True/False Each discount point lowers the lender’s yield.
False. Discount points are a method for increasing a lender’s yield.
True/False The current market value of a home is $300,000. There is a mortgage loan on the property of $240,000. The homeowners have $60,000 equity in their home.
True $300,000 market value – $240,000 mortgage debt = $60,000 equity.
True/False The loan-to-value ratio is 90%. A buyer wants to acquire a property with a purchase price of $350,000. The buyer’s down payment is $35,000.
True. The down payment is 10% of the purchase price. $350,000 × .10 = $35,000.
True/False A borrower is getting a loan for $250,000 at 4% interest. The lender is charging 2 points. The borrower will be charged $10,000 for the points.
False. $250,000 loan × .02 points = $5,000 points
True/False A home was purchased for $406,250. The buyer received a mortgage loan for $325,000. The LTV is 80%.
True
A legal instrument stating that the mortgagee assigns (transfers) the mortgage and promissory note to the purchaser.
Assignment Of Mortgage
A written statement that bars the signer from making a claim inconsistent with the instrument (commonly used with a mortgage assumption).
Estoppel Certificate
True/False An estoppel certificate verifies the unpaid loan balance, interest rate, and the date to which interest has been paid before the assignment of a mortgage instrument.
True
True/False The lender assigning the mortgage to another company (investor) is the assignee.
False. The lender assigning the mortgage to another company (investor) is the assignor. The assignor signs the assignment of mortgage and delivers it to the assignee.
True/False An assignment is when ownership of a mortgage is transferred from one company to another company.
True
A buyer makes regular periodic payments on the mortgage but does not assume responsibility for the mortgage.
Subject To
The buyer of real property that is already mortgaged assumes liability for the mortgage payments of the original loan that remains on the property.
Assumption
The substitution of a new party and/or new terms to an existing obligation.
Novation
A financing technique wherein the seller agrees to deliver the deed at some future date and the buyer takes possession while paying the agreed amount. Also called an installment sale contract or agreement for deed.
Contract For Deed (land Contract)
Financing instrument for the installation of on- and offsite improvements to the land, including sewers, streets, and utilities.
Land Development Loan
A written commitment from a financial institution certifying that permanent financing will be provided when the project is completed.
Takeout Commitment
A financing technique in which points are paid to the lender by the seller or the builder that lowers (buys down) the effective interest rate paid by the buyer/borrower, thus reducing the amount of the monthly payment for a set period of time.
Buydown
True/False When allowing a buyer to assume an existing mortgage, the seller should require the parties to execute a partial release clause to prevent future liability should the buyer default on the assumed mortgage debt.
False. A written novation makes the buyer solely responsible for any default on the mortgage loan.
True/False Under a contract for deed, the vendee is granted unilateral title.
False. Under a contract for deed, the vendee (purchaser) is granted equitable title.
True/False When a property is sold subject to the mortgage, the buyer is NOT personally obligated to pay the debt in full.
True
Failure to comply with the terms of an agreement or to meet an obligation when due.
Default
A legal procedure whereby property used as security for a debt is sold to satisfy the debt owing to default in payment of the mortgage note or default of other terms in the mortgage document.
Foreclosure
The right of a mortgagor, before a foreclosure sale, to reclaim forfeited property by paying the entire indebtedness.
Equity Of Redemption
A sale of secured real property that produces less money than is owed the lender. The lender releases its mortgage so that the property can be sold free and clear to the new purchaser.
Short Sale
A friendly foreclosure (nonjudicial procedure) in which the mortgagor gives title to the mortgagee.
Deed In Lieu Of Foreclosure
A provision in a mortgage, related to income-producing property, that is designed to require that income derived be used to make mortgage payments in the event the mortgagor (borrower) defaults.
Receivership Clause
A pending legal action.
Lis Pendens
True/False A lis pendens is a type of constructive notice indicating that the property is involved in pending legal action.
True
True/False A deed in lieu of foreclosure is a nonjudicial procedure.
True
True/False When default occurs, the lender has the right under the mortgage contract to pursue legal action against the borrower for payment of the debt.
True
A buyer agrees to purchase a property with an existing mortgage lien. In which situation is the new buyer the only party responsible for the debt?
A) Assumption of an existing mortgage
B) Subject to the mortgage
C) Estoppel
D) Novation
D) Novation
The loan-to-value ratio is 80%. A buyer wants to acquire a property with a purchase price of $116,000. Calculate the required down payment.
A)$32,800
B)$92,800
C) $20,000
D) $23,200
D) $23,200
A type of seller financing in which the vendor holds legal title to the property until the buyer has repaid the debt is a
A) term mortgage.
B) balloon mortgage.
C) contract for deed.
D) purchase-money mortgage.
C) contract for deed.
The person who borrows money to help pay for the purchase of real property is called at various times the
A) mortgagee.
B) lienor.
C) lender.
D) mortgagor.
D) mortgagor.
In title theory states, the mortgage clause that provides that the conveyance of title to the lender is defeated when all the terms of the agreement have been fulfilled is the
A) defeasance clause.
B) release clause.
C) penalty clause.
D) insurance clause.
A) defeasance clause.
A lender declares all the unpaid balance due and payable as a result of default. The lender is exercising the
A) defeasance clause.
B) acceleration clause.
C) right to reinstate clause.
D) due-on-sale clause.
B) acceleration clause.
In a mortgage transaction in Florida, the legal evidence of the personal debt is the
A)mortgage instrument.
B) note.
C) property (collateral).
D) borrower’s credit history.
B) note.
If a mortgagee does NOT want the mortgage to be paid ahead of schedule, the mortgage will normally contain
A) an acceleration clause.
B) a prepayment penalty clause.
C) a defeasance clause.
D) a redemption clause.
B) a prepayment penalty clause.
A borrower who is in default on a mortgage is allowed to prevent the lender from foreclosing on the property by paying the mortgagee the delinquent principal and interest, plus any expenses the mortgagee has incurred in attempting to collect the payments. This right is called
A) a satisfaction of mortgage.
B) an acceleration clause.
C) novation.
D) the equity of redemption.
D) the equity of redemption.
A home was purchased with a down payment of $50,000 and a loan of $200,000 at 6% interest for 20 years. Monthly payments are $1,432.86. What is the loan-to-value ratio?
A) 75%
B) 70%
C) 80%
D) 25%
C) 80%
$50,000 down payment + $200,000 loan = $250,000 purchase price; $200,000 ÷ $250,000 = .80
When a property is sold “subject to the mortgage,” the
A) buyer is not responsible for the note.
B) original obligation is substituted with a new note by novation.
C) seller is relieved of the obligation for the promissory note.
D) buyer becomes responsible for the note.
A) buyer is not responsible for the note.
A couple has just made the final mortgage payment on their home. What document must the mortgagee file on their behalf?
A) Novation
B) Lis pendens
C) Estoppel certificate
D) Satisfaction of mortgage
D) Satisfaction of mortgage
