Unit 7: Financing Documents Flashcards
How is a promissory note secured in a title theory state?
By a deed of trust. The borrower gives legal title to the lender and retains equitable title. In theory, the lender actually owns the property until the debt is paid.
How is a promissory note secured in a lien theory state?
By a mortgage. The borrower retains both legal and equitable title. The lender simply has a lien on the property.
What are the two ways a promissory note is secured?
- Mortgage
2. Deed of trust
What is a promissory note?
Legal instrument that evidences the debt.
Who holds the promissory note?
The lender
T/F A key element of the promissory note is that it is signed by the lender.
False. A key element of the promissory note is that it is signed by the BORROWER.
What is an acceleration clause?
If the borrower defaults, the lender can demand immediate payment of the entire balance.
What is created once a mortgage or deed of trust is recorded?
Lien
T/F Interest on the majority of home loans is compounded.
False. Interest on the majority of home loans is SIMPLE. This means that what you pay in interest is pre-determined. You don’t pay interest on top of interest.
How many parties are involved in a mortgage?
2 parties: Borrower & Lender
How many parties are involved in a deed of trust?
3 parties: Borrower, Lender & Trustee
Besides the number of parties, what is another difference between a mortgage and a deed of trust?
The foreclosure process is different. With a mortgage, the foreclosure goes through the courts (judicial). A foreclosure on a deed of trust does not go through the courts and is conducted by the trustee.
In a mortgage, what is another name for the borrower?
Mortgagor
In a mortgage, what is another name for the lender?
Mortgagee
In a deed of trust, what are the 2 other names for the borrower?
- Trustor
2. Grantor
In a deed of trust, what is another name for the lender?
Beneficiary
What does the defeasance clause?
When the debt is paid, the lien must be removed.
When a mortgage is fully paid, what does the mortgagee provide?
Satisfaction
When a deed of trust is fully paid, what does the trustee provide?
Deed of reconveyance
What is the due on sale clause?
The borrower is required to pay the entire loan balance if the property is being sold.
What is another name for the due on sale clause?
Alienation Clause
What is the prepayment clause?
It sets the terms of how and when the borrower can pay off the loan.
Who is protected by the prepayment clause?
The lender. The lender will be compensated for the interest income lost over the life of the loan.
What is the power of sale clause?
Gives the trustee/mortgagee the power to foreclose without going to court.
Standard for deed of trust but optional for mortgage.
Why is waste a reason for loan acceleration and foreclosure?
A home owners lack of maintenance would lower the value below what is owed.
