Unit 7: Financing Flashcards
Promisory Note
Written promise to repay a debt.
Identifies Borrower and Lendor (mortgagor and mortgagee)
The amount of the debt
Terms of repayment and interest
Lien Theory
Named after what the Lender holds. In FL, the borrower holds title, but the lender holds a lien on the title. Once Loan is defeated, lien is removed.
Title theory
In some states, the lender holds the title till defeasence.
Defeasence
The loan is payed off, or defeated.
Assignment of Mortgage
The doc used by a lender (mortgagee) to transfer the loan to another company or person. Different from estoppel, which verifies unpaid balance.
Estoppel Cert
Given by a lender to an assignee that verifies the current unpaid balance. Different from an Assignment of mortgage, which actually transfers the loan to a different company or person.
Package Loan
A contract that pledges real property AND personal property as security for repayment of a debt.
Blanket loan
A loan that covers multiple properties, used often by builders. Usually has a release clause for each property, meaning that the each property needs to sell for enough money to cover the release clause amount.
Accelleration
The mortgage clause that allows the lender to call the entire balance due in full in the event of defualt by tht mortgagor.
Appears in both Note and Mortgage
Equitable Redemtion
The mortgager’s right to cure the default and stop forclosure on their property. Includes all fees and pricipal owed.
Subordination
The mortgage clause in which the mortgagee agrees to step down in priority to a subsequent mortgage.
Certificate of Title
Mailed 10 days after the cert of sale, conveys the forclosed mortgagor’s interest to the holder of the certificate of sale.
Loan to Value
The max amount a lender will lend on a property based on listing price, or appraisal, whichever is lower.
Discount Points
Charges by the lender to increase their yield while not increasing the borrower’s rate.
Yeild goes up 1/8 of a percent for Lender
Cost of each point is 1% of the loan
4 points is half a percent of yield
8 points is 1 percent of yield
Equity
Current Market Value - Current Debt
Balloon
Final lump sum payment that is larger than previous payments. Example of a PARTIALLY AMORTIZED LOAN
PITI
Principal, Interest, Taxes, Insurance - Each payment includes pricipal, intersest, 1/12 of the year’s taxes and 1/12 of the year’s insurance.
ARM
Adjustable Rate Mortgage, Interest rate can fluxuate over the couse of the loan.
May have interest cap or payment cap.
Interest fluxuates, is Linked with recognizable index
Margin remains constant
Index + Margin = rate
Underwriting
The process by which lenders analyze risk associated with a loan
Growing Equity Mortgage
A method of debt repayment in which payments gradually increase and the increase is applied to the reduction of principal.
The equity redemtion period ends when
A cert of sale is issued
Due on sale
Conventional mortgage clause that allows the lender to accelerate the loan if it is assumed withouth consent.
Deficiency Judgement
If a property sells for less than the remaining mortgage amount at forclosure auction, the bank may sue for deficiency judgement - the rest of the money.
Mortgage
A contract that pledges real property as security for repayment of a debt, and provides that the lender may sell the property if the loan is defaulted on.
Alienation Clause
Restricts the mortgagor from selling the property without paying off the debt, Entitles lender to accelerate loan if it is assumed without consent.
Prepayment clause
No penalty for paying early
Exculpatory Clause
Won’t sue for a deficiency Judgment
Reasons for Acceleration
- Default
- Non Payment of Taxes (#1 position)
- Removal of Improvements
- Insurance Coverage Lapse
- Waste - really bad condition
- Alienation without consent
Assumption “Subject to” the mortgage
- Buyer pays seller and seller is still liable to note.
- Novation releases seller who is replaced by buyer.
- Major savings are: no loan origination fee or points
Mortgagee choices if default
- Sue on promissory note
- Judgment levied against mortgagors property - Judicial Forclosure
- Acceleration plus lawsuit to forclose
- Upon final judgement the property is sold at auction
Forclosure timeline Mortgagee
Defaut - Foreclosure suit and mortgage for summarty jugement -summary judgment - Forclosure sale - cert sale issued - 10 days later, cert of title issued.
Forclosure timeline Mortgagor
Equitable Redemption up until Cert of Sale is issued.
Forcloseure process
- Equitable redemption period, reinstate before sale
- Forclosure sale (auction)
- Cert of sale to high bidder
- 10 days after sale cert title
Gov liens paid & Cost of forclosure
Next paid is lender
Insufficient funds could lead to dificiency judgement
Deed in lieu of forcloser
Could trade deed directly to bank, decision made together.
Doesn’t wipe out other junior liens
Straight term loan
360 day year
entire pricipal is paid back at end of loan, Interest also, or can be monthly
Fully amortised loan
Equal consecutive payments of pricipal and interest
Interest larger in beginning and goes down over time
Balance decreases with each payment and becomes 0 at maturity.
Graduated payment mortgage
Payments start below fully amortized loan and go up over time.
HELOC
- Low interest rate
- can only draw on what isnt spent
- Interest is deductible, but only within loan amount limits - 50k single, 100k married
Reverse mortgage
62+ years
House paid off
bank pays you money each month based on equity
must be paid off upon death or sale of house
Conventional Loans
Repayment rests solely on the borrower’s ability to repay the loan.
Cheaper because no gov guarantee
Higher down payment = lower LTV ration
Standard: 20% down, 1 parcel, 30 yr
Purchase Money Mortgage
Seller financing Seller holds promissory note and mortgage as part of purchase price SEller deeds and takes back mortgage Title transfers and seller holds lien Grantor is Mortgagee Grantee is Mortgagor
Insured Conventional
Insured by a non governemental agency PMI 90% loan 10% DP PLUS PMI- protects lender from default
