Unit 14 - Real Estate Financing : Principles Flashcards
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.
acceleration clause
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.
adjustable rate mortgage (ARM)
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
alienation clause AKA
due-on-sale clause
A loan in which principal as well as interest is payable in periodic installments over the term of the loan
amortized loan
A final payment of a mortgage loan that is larger than the required periodic payments because the loan amount was not fully amortized
balloon payment
(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.
beneficiary
The principle and interest payment on a loan.
debt service
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
deed in lieu of foreclosure AKA
friendly foreclosure
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);
deed of trust AKA
trust deed
The nonperformance of a duty, whether arising under a contract or otherwise; failure to meet an obligation when due.
default
A personal judgment levied
against the borrower when a foreclosure sale does not
produce sufficient funds to pay the mortgage debt in full
deficiency judgment AKA
general lien
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.
direct reduction loans
Interest paid in advance; one point equals 1% of the loan amount for the borrower and
increases the yield for the investor approximately %%
discount points
(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
equitable title
The interest or value that an owner has in property over and above any indebtedness.
equity
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
equity of redemption
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
foreclosure
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.
graduated payment mortgage (GPM)
(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
grantor/trustor
The pledging of property as security for an obligation or a loan without losing possession of it.
hypothecation
A charge made by a lender for the use of money.
interest
The form of foreclosure used in lien theory states
judicial foreclosure
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.
lien theory
An administrative fee charged to the borrower by the lender for making a mortgage loan; usually computed as a percentage of the loan amount.
loan origination fee
The relationship between
the amount of the mortgage loan and the value of the
real estate being pledged as collateral.
loan-to-value ratio
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.
mortgage
The lender in a mortgage loan transaction
mortgagee
The borrower in a mortgage loan transaction.
mortgagor
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
negative amortization
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.
negotiable instrument
The form of foreclosure
used in a title theory state, such as North Carolina
power of sale foreclosure AKA
nonjudicial foreclosure
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.
prepayment penalty
(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.
principal
A financing instrument that states the terms of the underlying obligation, is signed by its maker, and is negotiable (transferable to a third party)
promissory note AKA
personal IOU
A document acknowledging
the full repayment of a mortgage debt.
satisfaction of mortgage
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
short sale
10 day period after the auction when a borrower can try to raise the necessary funds to redeem the property
statutory redemption period AKA
upset bid period
A loan in which only interest is paid during the term of the loan, with the entire principal due with the
final interest payment
term loan AKA
straight loan
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
title theory
Charging interest at a higher rate than the maximum rate established by state law.
usury
The return on investment; amount of profit.
yield
