chapter 14 part 2 real estate
deed of trust parties
- The borrower = trustor or grantor( who grants the security interest in the property.) - The lender = the beneficiary. The third party is the trustee, which is the entity that arranges for the property to be released from the lien and reconveyed to the property owner once the loan is paid off. If the borrower defaults, the trustee arranges for the foreclosure.
promissory note
- included with two of these financing forms -this is the document that explains who owes money to whom, how much, and how it will be repaid. When it's used in combination with a mortgage or deed of trust, it must also refer to that security instrument.
Power of Sale
-Standard in the deed of trust, but may also be included in a mortgage. -This clause allows the trustee (or the mortgagee, in the case of a mortgage) to sell the property in order to recover losses from borrower default using a non-judicial foreclosure process.
primary mortgage market
-is where the banks that originate loans operate. They have the cash, and they loan it to the borrowers. -The players in the primary mortgage market are home buyers (borrowers) and lenders (commercial banks, credit unions, savings and loans, etc.).
steps of lien theory
1. lender hold lien against property 2. harrowers hold legal and equitable title 3. loan repaid 4. lien removed from title
steps of the title theory
1. lender holds title 2. borrower holds equitable title 3. loan repaid 4. legal title transferred to borrower
In which four of these property transfers does federal law prohibit a lender from enforcing an alienation clause?
1. parent to child 2. spouse to spouse 3. b/w parties in a divorce settlement 4. when a borrower dies and a relative inherits
3 basic instruments of finance
1. the mortgage 2. deeds of trust 3. contract for deed
acceleration clause
Allows the lender to make the loan immediately due and payable if the borrower doesn't abide by the terms of the agreement
What's a discount point?
An upfront charge to make up for the difference between the rate the borrower is receiving and the rate the lender normally requires
Andrea's lender has notified her of its intent to foreclose. Her loan is secured with a deed of trust. What rights does she have to redeem her property?
Andrea can cure the default and reinstate the loan. (the deed of trust gives Andrea the right to cure the default and reinstate the loan, but no rights of redemption after the sale.)
defeasance/reconveyance
Ensures that the borrower will regain full title to the property once the loan is fully repaid
Loan origination fee
Fee charged by the lender to create the loan; expressed as points
Of the institutions listed, which of these is viewed only as a secondary mortgage market player?
Frankie mae
Maggie has a neighbor, Jim, who is facing foreclosure. She likes Jim and wants to help him out, so they agree to do a "subject to" purchase. What does this mean?
Maggie will take over Jim's loan payments without telling his lender she's doing so.
Sheila's financing calls for the use of a promissory note. What's a promissory note?
The borrower's promise to repay a certain sum of money to another party (the lender or holder of the note) under specified terms
Equity
The difference between the home's current value and the amount remaining on the homeowner's loan.
Which of these statements best describes the role that the secondary mortgage market plays?
The secondary market purchases loans from primary lenders and helps keep funds available to loan originators.
reconveyance clause
Used in the deed of trust to describe borrower's right to regain title when debt is repaid
What purpose does the promissory note serve?
a promise the buyer makes to the lender that the note will be repaid in full.
An instrument of finance
is a tradeable asset, like cash, evidence of ownership interest in an entity or property, or a contractual right to receive or deliver cash.
what type of foreclosure? Typical when a borrower defaults on a mortgage
judicial foreclosure
When Brett borrows money to purchase a home, he signs a security instrument called a mortgage, which grants a lien on the property to his lender. Brett is a __________.
mortgagor
what type of foreclosure? Typical when a borrower defaults on a deed of trust
non judicial foreclosure
An investor purchased the mortgage, and the borrower has now defaulted, but the investor can't sue the original lender for reimbursement. what type of provision?
non-recourse
One lot in a new subdivision is finished and ready for sale to a new owner, so the developer will need clear title to transfer the property.
partial release
security instrument
which is what allows the lender to foreclose on the property if the borrower defaults on the loan
RESPA —Real Estate Settlement Procedures Act
which prevents kickbacks for real estate services and requires disclosures
TILA —Truth in Lending Act,
which requires disclosures from the lender to the borrower
The amount charged for use of the money
intrest
Which of the following describes the amount a lender charges a borrower for using money?
interest
negotiable instrument requirements
: 1. Be in writing 2. Have a time limit on the payment (e.g., "on or before January 1, 2016"), or must be payable upon demand; Some negotiable instruments are not payable on demand (for example, drafts, promissory notes, and CDs) while others, such as checks are. 3. Contain a promise or order to pay; The negotiable instrument may not contain any conditions for payment; it must be unconditional. 4. Specify the amount of money to be paid; If interest is charged for the money owed, the rate of interest, which may be fixed or variable, must appear either on the instrument itself or be referenced in an associated document. 5. Be signed by the person/entity who is making the promise or agreement to pay; An authorized agent of the maker/drawer may sign the negotiable instrument for the maker/drawer.
conforming loan
Any mortgage loan that meets the standards of a conforming loan is a loan that Fannie Mae and Freddie Mac will buy. The main standard of a conforming loan is the loan amount, which must be within the maximum allowed for the property type and location. Additional standards include loan-to-value ratio and borrower credit score, so that the risk of default is acceptably lo
defeasance clause.
Used in the mortgage to describe borrower's right to regain title when debt is repaid
Jim decided to refinance his three-year-old mortgage that has a balance of $300,000. He has to pay a fee of 5% of the loan amount to the original lender for paying off the mortgage early. What is this fee called?
a prepayment penalty
in a security instrument makes it clear that the collateral property can't be sold or transferred without the lender's knowledge and consent
alienation clause
When a buyer takes over the seller's original loan with the lender's permission, this is called ______.
an assumption
is officially documented with an assumption agreement signed by the buyer and the seller, which stipulates that buyer will be taking over payments for the note held by the lender.
an assumption
conforming loans or qualified loan? Meets requirements for loan amount and LTV ratio
conforming loan
is a single document that describes the repayment terms and the pledged security; the mortgage and deed of trust both require a separate document that lists the loan payment terms.
contract for deed
The borrower has defaulted on this loan and is automatically in default on another loan.
cross-default
When Don reviews the document that says he pledges the property he just purchased as collateral for his loan, he notices the terms "trustor," "beneficiary," and "trustee." What type of security instrument is being used?
deed of trust
Type of prepaid interest that borrowers pay to lower a loan's interest rate
discount point
The secondary mortgage market buys loans from the primary market. In other words, it helps ______.
ensure funds are available to borrowers
what type of provision? A lender has foreclosed on Pam, but isn't allowed to ask for a deficiency judgment as well.
exculpatory
the mortgage instrument
is a security instrument that describes the agreement between the borrower and the lender to use the property as collateral (security) for the loan. It creates a voluntary lien against the borrower's property so that the lender can foreclose if the borrower doesn't live up to the terms of repayment on the attached promissory note.
contract for deed and parties
is a single document that describes the repayment terms and the pledged security; the mortgage and deed of trust both require a separate document that lists the loan payment terms. -describes the agreement - vendee= the buyer/barrower - vendor= the seller/lendor
legal title
is ownership of the property and gives the holder the right to transfer the property
Release of liability
is simply a written agreement that the lender won't hold the original borrower liable for the loan in case of default
equitable title
is the right to posses the property based on a financial interest, it also give the holder the right to obtain legal title
Gina's mortgage payment arrives late one month. What language in the promissory note allows the lender to charge her a fee as a result?
late charge provision
Charges for loan payments that are received after their due date are usually stipulated in the promissory note attached to the security instrument.
late charge provisions
title theory or lien theory? The borrower holds legal and equitable title, and the lender has a lien against the property.
lien theory
what type of provision? Dennis wishes he could pay his loan off early, but he would have to pay a penalty if he did.
lock-in
prepayment penalties
penalties charged for early repayment of the loan, resulting in the lender receiving less overall interest than agreed
If borrower defaults, allows the property to be sold using non-judicial foreclosure process
power of sale
What is the name of the clause that's standard in a deed of trust and allows the lender to foreclose non-judicially? It can also be included in a mortgage if the state allows it.
power of sale
Fee that's charged when a borrower pays a loan off early
prepayment penalty
Which of the following is the name of a penalty lenders charge when borrowers repay their loans earlier than expected?
prepayment penalty
Janice is obtaining a loan to buy a home. Her loan agreement includes two documents, and she's careful to review the amount of the principal and how it will be repaid. Which document is Janice reviewing?
promissory note
conforming loans or qualified loan? Lender verifies borrower's ability to repay
qualified loan
MIP —Mortgage insurance premium
required on FHA-insured loans
Investors in the____________________ buy loans from primary lenders. They scoop up mortgage debt, which frees up cash for those original lenders to lend out again.
secondary mortgage market
Krista is obtaining a loan to buy a home. Her loan agreement consists of one document called a note and one called a deed of trust. What's the role of the note?
states who owes money to whom, how much, and how it will be repaid
a buyer may not want to assume a loan, but instead will buy the property "subject to" the existing financing. - buyer gets the deed, the new buyer makes the payments on the seller's loan as if nothing has changed.
subject to
The borrower will need a second loan to develop the land purchased with this loan.
subordination
How is a loan assumption documented?
the buyer and seller both sign a assumption agreement
principal
the loan amount balance
two parties of mortgage instrument
the mortgagor (borrower, who grants the lien on the property) and the mortgagee (the lender).
title theory or lien theory? The borrower has equitable title, but the lender or trustee holds legal title to the property.
title theory
usury
when a lender charges a borrower more than the highest allowable interest rate
novation
It's a process that replaces the original borrower with the new borrower as the maker of the note.
What could be a consequence if there were no secondary mortgage market?
Lenders might not have funds available to make new loans to the public.