Vocabulary for Financing, Mortgages and Deed of Trust Flashcards
a debt document; an unconditional written promise of a person to pay a specified amount of money to another at a specified time in the future; an IOU; does not need to be recorded but is negotiable
Promissory Note
this document shows “evidence of debt”, financial liability and can be transferred to a third party by endorsement (which is common in the secondary market)
Three characteristics of a Promissory Note
a repayment plan where an amortized mortgage is repaid in equal, periodic payments that include principal and interest; principal is paid down slowly at beginning and more at the end of the life of the loan
Level Payment
a repayment plan where the borrower repays in installments of principal owed and interest is added; every month the payment is recalculated
Installment Payment (non level payment)
a repayment plan where there are periodic payments of interest only and at the end of the term of the loan full principal is due; these are no longer allowed on residential properties but still used in commercial
Interest only payment (term payment, straight payment)
a repayment plan where monthly payments include principal, interest, taxes, fire insurance, (PITI) and if unpaid could result in foreclosure
Budget Payment (used in VA and FHA loans) aka “Housing Payment
a repayment where early monthly payments are less than amortized amounts, where the shortfall is being added to the original principal; payments increase rather than decrease over he course of the loan but interest stays the same
Flexible Payment of Graduated Payment Mortgage (GPM)
a repayment where payments vary depending on an interest rate that floats in accordance with a base index; borrower can increase payment or refinance; these are best used when interest rates are high
Variable Interest and Payment (VRM)
a repayment found mostly in commercial properties where a lender offers low interest rates, down payment and other perks in return for a share of the buyer’s equity profit when the property is sold; when you need a “sugar daddy” with deeper pockets to help fund your endeavor
Equity Participation or Equishare or Shared Appreciation Mortgage (SAM)
a mortgage that can be expanded incrementally up or down to a specified dollar amount with each advance being secured by the same mortgage; a home equity loan or a farmer’s loan that is used like a line of credit to meet seasonal operating costs
Open End Mortgage
a short term loan designed to cover construction costs of building projects; the loan is parceled out in “draws” or “progress payments” as work progresses and when the project is completed with a certificate of completion; the borrower is expected to arrange for a more permanent loan to repay the lender; buys time to get a permanent loan
Construction Loan (aka “interim”, “gap” “bridge” “swing” loans)
Must be 62, have substantial equity in home, must be principle residence and term changes but is usually 10-15 years
Requirements for a home equity loan; reverse mortgage; reverse annuity
a mortgage in which personal property is the security; it might finance an entire restaurant (plates, silverware etc); no real estate is involved
Chattel Mortgage or Security Agreement
a mortgage or trust deed that covers both real estate and on site fixtures and appliances
Package Mortgage
a loan over different properties and if one is sold it is released and the loan continues or where when one property is paid off, the loan continues for the other properties; utilizes a “partial release” clause
Blanket Loan
a mortgage that takes second priority to an existing mortgage; tends to have higher interest rate; permission is granted to subordinate a prior lien through a subordination clause agreed to by the lenders
Junior Loan
pledging collateral but keeping it and using it; a deed of trust
Hypothecate
security for a note; in a mortgage it is the property itself
Collateral
a collateral lien document that is recorded, signed, notarized and contains a legal description of property; you are pledging property as collateral
Claim
borrower is the mortgagor, lender is the mortgagee; legal title and all rights of ownership belong to the mortgagor (borrower)
Mortgage
borrower is trustor, lender is beneficiary and trustee is middle man; trustee holds bare legal or naked legal title but no ownership; trustee has power of sale as they hold the deed of trust
Trust Deed or Deed of Trust
who can be a trustee?
Broker, attorney, title officer, bank
who cannot be a trustee
CPA
pay debt as agreed upon monthly, pay taxes and assessments, keep property insured, abide by all covenants
Duties of the borrower
in event of foreclosure, lease and rents are paid to original leasor
Assignment of Rents
in event of foreclosure, this protects lender as a lease continues even if in foreclosure
Non-disturbance
in event of foreclosure, this protects the tenant and they cannot be disturbed
Quiet enjoyment
a term meaning once the loan is paid, it is set aside ie. lender’s claim is “defeated” or nullified; this protects the buyer.
Defeasance
a loan is paid off;
Satisfaction piece
a certificate that is delivered to the buyer (mortgagor) by the lender showing the mortgage is paid off and is recorded, conveying all interest to the buyer; lien must be released within 30 days;
Satisfaction of Mortgage
a deed of trust is paid off and is recorded; lien must be released within 30 days; deed is delivered to the buyer.
Deed of Reconveyance
Due on sale clause requiring the mortgagor to pay off the mortgage when the property is sold; it separates mortgagor from the title and prevents a new buyer from assuming the mortgage
Alienation
Alienation
Due on Sale clause
acquisition of a title to property under the terms and agreements of an existing mortgage; requires notification to the lender along with a fee and a qualified buyer; can escalate the interest
Assumption of a mortgage or cash to mortgage
duty to hold legal title, return legal title to borrower when loan is repaid and hold a trustee sale if borrower defaults on the loan
Duties of Trustee
loans that are not backed by the government; greater risks so usually higher interest rates; qualifying can be strict
Conventional Loan
the lender is insured against loss by the government; interest rates are slightly lower because risk is lower
FHA Insured Loan
the lender is guaranteed partial coverage on loans by the government; generally require no downpayment; interest rates are lower; loan cannot exceed the appraised value; this loan is assumable
VA Guaranteed Loan
liability on a CTM, where the buyer is liable for the payment of the loan and the balance if foreclosed
Assumption with Novation
liability for a CTM, where the buyer is liable for the payment but if foreclosed the seller is liable for the balance
Assumption without novation
liability on a CTM, where the seller is liable for the payment (with buyer paying seller and seller paying the bank) and if foreclosed the seller is also liable for the balance; buyer is now the vendee
Assumption “Subject To the Mortgage”
verification of the note of balance on a CTM that informs the buyer of the terms of the loan, including rate of interest, date of maturity and unpaid balance
Reduction Certificate or Letter of Assumption
a document signed by the mortgagor that certifies the amount owed on a loan, rate of interest and date to which interest is paid so that they cannot claim they do not owe; protects new buyer
“Estoppel Certificate”
a penalty that might be sustained if a borrower pays off a loan in advance; designed to compensate the lender for interest lost
Prepayment Penalty
failure to meet a duty or obligation in a contract, manifested by nonpayment of money, failure to pay insurance or taxes, or damaging property
Default
a clause which allows the lender to demand immediate payment on a loan
Acceleration Clause
it permits a larger monthly payment without penalty
Or More Provision
to “kill” a loan
Amortization
usually used to plug a gap between the first mortgage and down payment, given by buyer to seller
Purchase Money
a recorded judgment
Docketed judgment
what title the trustee holds with a deed of trust
Legal Title
bringing an interest rate up to market rate
Escalation
in a mortgage, the lender is this
Mortgagee
in a deed of trust the lender is this
beneficiary
in a mortgage the borrower/buyer is this
Mortgagor
in a deed of trust the borrower/buyer is this
trustor
in a deed of trust the one who holds the lien is this
trustee
in a construction loan, this is taken as a certain percentage of the work is completed
Draw
in a construction loan, this is taken at agreed upon increments of time
Obligatory Advance
date it records with page and docket number
Recordation
