Vocabulary: Chapter 17: Real Estate Financing Principals

Question 1

Acceleration clause

Answer 1

Clause in 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 other covenant

Question 2

Alienation clause

Answer 2

Clause in mortgage, or deed of trust that states that the balance of the secured debt becomes immediately due and payable at the lenders option if the property is sold by the borrower, in effect, this clause prevents the borrower from assigning the debt without the lenders’ approval

Question 3

Assume

Answer 3

A buyer is personally obligated for the payment of the entire debt of a seller; that is, the buyer assumes the debt. The original seller is not liable for the debt if the property is foreclosed on

Question 4

Beneficiary

Answer 4

(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

Question 5

Deed in lieu of foreclosure

Answer 5

A deed given by the mortgagor (owner) to the mortgagee (bank) when the mortgagor (owner) is in default under the terms of the mortgage, This is a way for the mortgagor (owner) to avoid foreclosure

Question 6

Deed of trust

Answer 6

(TRUST DEED) 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)

Question 7

Defeasance clause

Answer 7

Clause used in leases and mortgages that cancels a specified right upon the occurrence of a certain condition, such as cancellation of a mortgage upon repayment of the loan

Question 8

Deficiency judgment

Answer 8

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

Question 9

Discount points

Answer 9

unit of measurement used for vairous loan charges; 1 point= 1% of loan amount

Question 10

Equitable right of Redemption

Answer 10

Right of a defaulted property owner to recover the property prior to its sale by paying the appropriate fees and charges

Question 11

Foreclosure

Answer 11

A legal procedure whereby property used as security for 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

Question 12

Hypothecation

Answer 12

To pledge property as security for an obligation or loan without giving up possession of it

Question 13

Interest

Answer 13

A charge made by a lender for the use of money

Question 14

Lien Theory

Answer 14

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

Question 15

loan origination fee

Answer 15

A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a % of the loan amount

Question 16

Mortgage

Answer 16

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

Question 17

Mortgagee

Answer 17

A lender in a mortgage loan transaction

Question 18

Mortgagor

Answer 18

A borrower in a mortgage loan transaction

Question 19

Negotiable instrument

Answer 19

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 payee’s right to payment

Question 20

Note

Answer 20

A financing instrument that states the terms of the underlying obligation, is signed by its maker, and is negotiable (transferable to a third party)

Question 21

Novation

Answer 21

Substituting a new obligation (NOVA=NEW) for an old one or substituting new parties to an existing obligation

Question 22

Owner Financing

Answer 22

The seller is the primary lender securing his or her interest with the use of a deed, note, and mortgage, deed of trust, or contract for deed. The buyer takes possession of the property, but the seller retains legal title until paid in full

Question 23

Prepayment penalty

Answer 23

A charge imposed on a borrower who pays off the loan principal

Question 24

Promissory Note

Answer 24

A financing instrument that states the terms of the underlying obligation, is signed by its maker, and is negotiable (transferable to a third party)

Question 25

Release deed

Answer 25

A document, known as a deed of re conveyance, that transfers all rights given a trustee under a deed of trust loan back to the grantor after the loan has been fully repaid

Question 26

Satisfaction

Answer 26

Release or discharge of when a note has been fully paid. This document returns tho the borrower all interest in the real estate originally conveyed to the lender. Entering this release in the public record shows that the debt has been removed from the property

Question 27

Statutory right of “Redemption”

Answer 27

The right of a defaulted property owner to recover the property after its sale by paying the appropriate fees and charges

Question 28

“Subject to”

Answer 28

A clause in ta contract specifying exceptions or contingencies of a purchase

Question 29

Title Theory

Answer 29

Some states interpret mortgage to mean that the lender is the owner of mortgaged land. Upon full payment of the mortgage debt, the borrower becomes the landowner

Question 30

Trustor

Answer 30

A borrower in a deed of trust loan transaction; one who places property in a trust

Question 31

Usury

Answer 31

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