Unit 14 - Real Estate Financing : Principles

Question 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 another covenant.

Answer 1

acceleration clause

Question 2

A loan characterized by a fluctuating interest rate, usually one tied to a published index. Caps for adjustments on periodic interest, lifetime interest, and payment amounts are normal.

Answer 2

adjustable rate mortgage (ARM)

Question 3

This clause prevents the borrower from letting someone else assume the debt without the lender’s approval. A provision in a mortgage that states that the entire balance of the note is immediately due
and payable if the mortgagor transfers (sells) the property

Answer 3

alienation clause AKA

due-on-sale clause

Question 4

A loan in which principal as well as interest is payable in periodic installments over the term of the loan

Answer 4

amortized loan

Question 5

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

Answer 5

balloon payment

Question 6

(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. (3) The
recipient of personal property (a bequest or legacy) in a will.

Answer 6

beneficiary

Question 7

The principle and interest payment on a loan.

Answer 7

debt service

Question 8

A deed given by the
mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. This avoids
foreclosure but does not remove liens from the property

Answer 8

deed in lieu of foreclosure AKA

friendly foreclosure

Question 9

An instrument used to create a mortgage lien by which the borrower conveys title to a trustee, who holds it as security for the benefit of the note holder (the lender);

Answer 9

deed of trust AKA

trust deed

Question 10

The nonperformance of a duty, whether arising under a contract or otherwise; failure to meet an obligation when due.

Answer 10

default

Question 11

A personal judgment levied
against the borrower when a foreclosure sale does not
produce sufficient funds to pay the mortgage debt in full

Answer 11

deficiency judgment AKA

general lien

Question 12

A mortgage loan that requires a fixed amount of principal payment in each period; the total debt service payment starts higher than with a level payment loan since interest portion will reduce with each payment.

Answer 12

direct reduction loans

Question 13

Interest paid in advance; one point equals 1% of the loan amount for the borrower and
increases the yield for the investor approximately %%

Answer 13

discount points

Question 14

(1) The interest held by the grantor in a deed of trust that allows possession and use of the pledged property. (2) The interest held by a vendee under a contract
for deed or an installment contract; the equitable right to obtain absolute ownership to property when legal title is held in another’s name

Answer 14

equitable title

Question 15

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

Answer 15

equity

Question 16

The right of a borrower in
default on a mortgage loan to reclaim the forfeited property prior to the foreclosure sale through payment in full of all
debt and associated costs

Answer 16

equity of redemption

Question 17

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 all 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, free of all liens affecting the property subsequent to the mortgage

Answer 17

foreclosure

Question 18

A loan in which the monthly principal and interest payments increase by a set amount each year for a certain number of years
and then level off for the remaining loan term; probable negative amortization in early years.

Answer 18

graduated payment mortgage (GPM)

Question 19

(1) The property owner that is transferring title to or an interest in real property to a grantee. (2) A borrower in a deed of trust loan transaction

Answer 19

grantor/trustor

Question 20

The pledging of property as security for an obligation or a loan without losing possession of it.

Answer 20

hypothecation

Question 21

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

Answer 21

interest

Question 22

The form of foreclosure used in lien theory states

Answer 22

judicial foreclosure

Question 23

Some states interpret a mortgage as being purely a lien on real property. The mortgagee thus has no
right of possession but must foreclose the lien and sell the property if the mortgagor defaults.

Answer 23

lien theory

Question 24

An administrative fee charged to the borrower by the lender for making a mortgage loan; usually computed as a percentage of the loan amount.

Answer 24

loan origination fee

Question 25

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

Answer 25

loan-to-value ratio

Question 26

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

Answer 26

mortgage

Question 27

The lender in a mortgage loan transaction

Answer 27

mortgagee

Question 28

The borrower in a mortgage loan transaction.

Answer 28

mortgagor

Question 29

When the debt service payment on a loan is not large enough to pay the interest due; the principal balance actually grows with each payment

Answer 29

negative amortization

Question 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 payees right to payment.

Answer 30

negotiable instrument

Question 31

The form of foreclosure

used in a title theory state, such as North Carolina

Answer 31

power of sale foreclosure AKA

nonjudicial foreclosure

Question 32

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 due to payments made ahead of
schedule.

Answer 32

prepayment penalty

Question 33

(1) A sum loaned or employed as a fund or an investment, as distinguished from its income or profits.
(2) The original amount (as in a loan) of the total balance
due and payable at a certain date.

Answer 33

principal

Question 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)

Answer 34

promissory note AKA

personal IOU

Question 35

A document acknowledging

the full repayment of a mortgage debt.

Answer 35

satisfaction of mortgage

Question 36

When a lender allows a borrower in default on mortgage loan payments to sell the mortgaged property for less money than necessary to satisfy the loan to avoid the delay and expense of a foreclosure sale; lender usually
“forgives” the balance owed after the sale; although the IRS will frequently consider the forgiven amount to be taxable income for the borrower

Answer 36

short sale

Question 37

10 day period after the auction when a borrower can try to raise the necessary funds to redeem the property

Answer 37

statutory redemption period AKA

upset bid period

Question 38

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

Answer 38

term loan AKA

straight loan

Question 39

Describing those states like North Carolina that interpret a mortgage to mean that the lender is the owner of mortgaged land who vests the legal title with the trustee while borrower holds equitable title. Borrower regains legal title upon full payment of the mortgage debt

Answer 39

title theory

Question 40

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

Answer 40

usury

Question 41

The return on investment; amount of profit.

Answer 41

yield