Unit 12 - Residential Mortgages

Question 1

Acceleration Clause

Answer 1

Stipulation in a mortgage that the entire unpaid balance may become due and payable if a default of expressed conditions should occur.

Question 2

Assignment of mortgage

Answer 2

A legal instrument stating that the mortgagee assigns the mortgage and promissory note to the purchaser.

Question 3

Assumption

Answer 3

The buyer of real property that is already mortgaged assumes liability for the mortgage payments of the original loan that remains on the property.

Question 4

Blanket Mortgage

Answer 4

One debt instrument covering two or more parcels.

Question 5

Buydown

Answer 5

A financing technique in which points are paid to the lender by the seller or the builder that lowers the effective interest rate paid by the buyer/borrower, thus reducing the amount of the monthly payment for a set period of time.

Question 6

Contract for Deed (Land Contract)

Answer 6

A financing technique to 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

Question 7

Deed in lieu of foreclosure

Answer 7

A friendly foreclosure (non judicial) in which the mortgagor gives title to the mortgagee.

Question 8

Default

Answer 8

Failure to comply with the terms of the agreement or meet an obligation when it is due.

Question 9

Defeasance clause

Answer 9

A provision in a mortgage that specifies the terms and conditions to be met in order to avoid default and thereby defeat the mortgage.

Question 10

Discount points

Answer 10

A method for increasing a lender’s yield. A discount point is equal to 1% of the mortgage if paying cash up front. When determining the effective yield that a discount point adds to the interest rate, each point is equal to 1/8 (0.125) of 1%.

Question 11

Due-on-sale clause

Answer 11

A provision that in a conventional mortgage that entitles the lender to require the entire loan balance to be paid in full if the property is sold.

Question 12

Equity

Answer 12

The market value of a property less any debt against it; in a business entity, assets minus liabilities equals capital (owner’s equity)

Question 13

Equity of Redemption

Answer 13

The right of a mortgagor, before a foreclosure sale to reclaim forfeited property by paying the entire indebtedness

Question 14

Escrow

Answer 14

An impound account required by most lenders that require borrowers to pay in advance monthly installments for property taxes and hazard insurance.

Question 15

Estoppel Certificate

Answer 15

A written statement that bars the signer from making a claim inconsistent with the instrument (commonly used with a mortgage assumption).

Question 16

First mortgage

Answer 16

A mortgage superior to other mortgages on a property

Question 17

Foreclosure

Answer 17

A legal procedure whereby property used as security for debt is sold to satisfy the debt owing to default of other terms in the mortgage document.

Question 18

Hypothecation

Answer 18

To pledge real or personal property as security for a debt or obligation without giving up possession of the property.

Question 19

Interest

Answer 19

The price paid for the use of borrowed money; estate

Question 20

Junior mortgage

Answer 20

A mortgage that is subordinate in right or lien priority to a superior mortgage.

Question 21

Land development loan

Answer 21

Financing instrument for the infrastructure on land.

Question 22

Lien Theory

Answer 22

Legal concept that regards a mortgage as a just claim on specific property pledged as security for a mortgage debt.

Question 23

Lis pendens

Answer 23

A pending legal action, typically a foreclosure

Question 24

Loan Origination Fee

Answer 24

A charge by a lender for taking a mortgage in exchange for a loan.

Question 25

Loan servicing

Answer 25

An additional source of income for lenders. Servicing fees typically range from 3/8 to 3/4 of 1% of the unpaid loan balance of loans serviced.

Question 26

Loan-to-value ratio (LTV)

Answer 26

Relationship between the amount borrowed and appraised value of a property.

Question 27

Mortgage

Answer 27

A written agreement that pledges property as security for payment of a debt.

Question 28

Mortgagee

Answer 28

A lender who holds a mortgage

Question 29

Mortgagor

Answer 29

A borrower who gives property as security for a mortgage.

Question 30

Novation

Answer 30

The substitution of a new party and/or new terms to an existing contract

Question 31

Partial release clause

Answer 31

Stipulates the conditions under which the mortgagee will grant freeing building lots from a mortgage lien upon payment of certain amount of money.

Question 32

PITI

Answer 32

Principal, interest, taxes and insurance on a mortgage payment.

Question 33

Prepayment clause

Answer 33

A provision in a mortgage that allows the mortgagor to pay the mortgage debt ahead of schedule without penalty.

Question 34

Prepayment penalty

Answer 34

The amount that has to be paid by the debtor for retiring the mortgage early.

Question 35

Promissory Note

Answer 35

A written promise to pay a specific amount.

Question 36

Receivership Clause

Answer 36

A provision in a mortgage, related to income-producing property, that is designed to require that income derived shall be used to make mortgage payments in the event the borrower defaults.

Question 37

Right to Reinstate

Answer 37

Mortgage clause based on the equity of redemption. The mortgagors right to reinstate the original repayment terms in the note after the mortgage has initiated the acceleration clause.

Question 38

Satisfaction of Mortgage

Answer 38

A certificate issued by the lender when the debt obligation is paid in full.

Question 39

Short Sale

Answer 39

A sale of secured real property that produces less money than is owed to the lender. The lender releases its mortgage so that the property can be sold free and clear to the new purchaser.

Question 40

Subject to

Answer 40

A buyer makes regular payments periodic payments on the mortgage but does not assume responsibility for the mortgage.

Question 41

Subordination Agreement

Answer 41

A written agreement between holders of liens on a property that changes the priority of the mortgage, judgement, or other liens under certain circumstances.

Question 42

Takeout commitment

Answer 42

A written commitment from a financial institution certifying that permanent financing will be provided when the project is completed

Question 43

Title theory

Answer 43

Legal concept that vests title to mortgaged property in the lender or a third party.