Chapter 5 foreclosure carry back and financing

Agreement for Sale (type of financing)

- land contract - another security instrument used for carry back financing. - agreement that buyer makes a down payment and then pays the balance of the purchase price in installments to the seller. The buyer has the right to occupy and use the property but no deed or title is transferred until all the payments have been made. - Agreement for sale are also called land contracts, installment sales or contracts for deeds. the agreement for sale is a single document; no separate note. - Under land contract, seller (vendor) actually holds legal title to the property as security, not just a lien, the buyer/debtor (called vendee) has the right or posses and enjoy the land, having equitable title, but no legal title and no deed. - land contracts are generally recorded to help protect the buyers interest. Most commonly used: - mortgage financing is too expensive or unavailable - buyers can't qualify for a loan with banker - raw land is involved.

deed of trust foreclosure Sale steps (Trustee's Sale):

1. Constructive Notice - trustee records the trustee notice of election to sell in county recorders office and must publish the notice in general circulation newspaper for four consecutive weeks 2. Actual Notice - copy of trustees notice must be delivered to the truster (borrower) by registered mail and be physically posted on property. 3. Trustee Sale - property is auctioned off to highest bidder who is then awarded a trustees deed and instant ownership. the buyer must pay all cash by 5pm the day following the sale. Unlike a mortgage foreclosure, there is no reception period following a trustee sale.

MORTGAGE FORECLOSURE SALE (SHERRIF'S SALE); Steps to foreclosure process:

1. Run ad in newspaper, 4 weeks in newspaper circulated in the county with place and date of sale. 2. on Sale date, public auction held at courthouse where anyone but delinquent owner can bid 3. property sold to highest bidder, with proceeds used to first pay costs of the sale and then to pay off the mortgage and any other junior liens according to lien priority. 4. after sale, a certificate of sale is given to the successful bidder who becomes for the moment, the lien holder, but NOT the owner 5. STATUTORY REDEMPTION period begins - 6 months after foreclosure sale when the borrower can try to redeem property 6. if not redeemed within 6 months, the purchaser is awarded the sheriffs deed and becomes legal owner.

Deed of Trust Foreclosure Procedure (non judicial foreclosure)

1. Truster (borrower doesn't pay 2. Beneficiary (lender) tells trustee to begin foreclosure process 3. Trustee (Neutral 3rd party) begins foreclosure

what is paid first on foreclosure sale?

1. cost of sale 2. property taxes 3. special assessments 4. mechanics lien 5. senior lien 6. junior lien

The AZ the statutory redemption period is:

6 MONTHS 6 months after the foreclosure sale, borrower in default can redeem property with lump sum payment to holder of the certificate of sale. This is the statutory period of redemption. Must include price of certificate (act paid by successful owner), prorated interest between sale and redemption, and any expenses like taxes and assessments. If not done within 6 months, the purchaser is awarded the sheriffs deed and becomes the legal owner. if someone moves out and 'abandons' property, this reduced the statutory period to just 30 days

Lien Theory

A concept of financing where loans are regarded as liens; title remains with the borrower as long as no default occurs

Wrap-around Mortgage

A junior mortgage which provides an owner additional capital without refinancing the first mortgage. (The original mortgage is not disturbed) seller agrees to remain obligated to pay the existing loan and the buyer purchases the property subject to with the exiting loans remaining as encumbrances agains the buyers title interest. buyer then makes a single payment - large enough to amortize not only the amount of the seller carry back, but also or the seller to pay the existing loan. for this to be proper and legal, there must be an assumable first mortgagee with lender approval fro the wrap.

Judicial Foreclosure

A lawsuit filed by a lender to foreclose on a mortgage or other lien; a court ordered sale of property repay the debt.

Deficiency judgements

A personal judgment against a borrower if a creditor does not recite the amount of the lien plus foreclosure costs. - separate court action

Foreclosure

A procedure thru which property is sold to satisfy debt

A borrower in default on a mortgage allows the lender to invoke the:

Acceleration clause (Pay entire balance immediately)

A real estate financing devise that does not transfer legal title - it does place equitable title with the buyer is called a:

Agreement for sale

Statutory Right of Redemption

Allows debtors to redeem themseves after the final sale.

Acceleration Clause

Allows the lender to demand immediate payment of the entire loan if the borrower defaults

A land contract is a name for

An agreement for sale

Trustee

An independent 3rd party that holds the trust instrument in a deed of trust for the benefit of the lender

The selection of the trust is by the

Beneficiary

If there is excess money resulting from the sale, the money goes to the:

Borrower

Trustor

Borrower under a deed of trust

A land contract is an example of:

Carry back or seller financing

The property is auctioned to highest bidder who receives what - which makes them the lien holder

Certificate of sale

Estoppel Certificate

Certification by a borrower of the amt owed and interest rate on the mortgage loan

A trustee under a deed of trust would not be involved in which of the following circumstances?

Collection of monthly loan payments

Which of the following maybe protected by Arizona anti-deficiency legislation?

Home on 9000 sq foot lot (any residential)

Equitable title:

Money invested and possession

Who acts as an intermediary between borrowers and lenders?

Mortgage broker

After a mortgage foreclosure any excess monies would go to the: a. trustee b. mortgagee c. mortgagee's attorney d. mortgagor

Mortgagor (borrower)

Who carries out the foreclosure when a property is secured by a deed of trust?

Neutral 3rd party (trustee)

Once the trustee's sale has occurred in the foreclosure of a trust deed, the trustor has:

No further right to redeem

Origination Fee

Primary market, process of making new loan. Usually 1% of purchase price; part of buyers closing cost

secondary market

Private investors and govt agencies that buy and sell mortgages When secondary market players buy mortgages from local banks, those local banks have more money to lend to other potential homeowners in their area, thus stabilizing local real estate markets. Participants: 1. Fannie Mae - The federal National Mortgage Assoc. FNMA 2. Ginnie Mae - The Government National Mortgage Assoc. GNMA 3. Freddie Mac - The federal Loan Mortgage Corporation (FHLMC)

Hypothecation

Signing the document that pledges the property as security (collateral) for the debt. Pledging your property as security for debt but retaining possession

forbearance agreement (mortgage-related)

The lender agrees to temporarily reduce, postpone, or suspend the mortgage payment and not proceed with foreclosure if the borrower brings the loan current within the specified time.

Fannie Mae

The nation's largest, privately owned, investor in residential mortgages. Federal National Mortgage Association. - 1938 - govt sponsored entity - largest player on secondary market - creates mortgage-backed securities

paper

The note and deed of trust are considered personal property.

Equitable Right of Redemption

The right of a debtor to save (redeem) property from foreclosure proceedings prior to confirmation of sale.

In a seller carry back, whose financial situation should a salesperson be most concerned with?

Vendee

The seller is the

Vendor

The court will issue what to allow lender to move forward with sheriffs sale?

Write of execution

CARRY BACK - Subordination clause

allows the holder of a mortgage to let a new mortgage take priority. Applies mostly to junior mortgages where interest is higher.

Judicial Foreclosure ( = REDEEM OR REDEMPTION)

allows the property to be sold by court order after the mortgagee has given sufficient public notice STEPS: 1. DEFAULT 2. ACCELERATION - declares balance due 3. LAWSUIT - lender files suit, foreclosure action 4. WRIT OF EXECUTION - if court determines lender is rightfully owned the money, judge will issue writ of execution, usually the county sheriff to schedule foreclosure sale. 5. EQUITABLE REDEMTION 6. SHERIFFS SALE 7. STATUATORY REDEMPTION

Mortgagor

borrower

deed in lieu of foreclosure (friendly foreclosure)

carried out by mutual agreement rather than by lawsuit faster way for borrower to end the stress and time it takes to complete a foreclosure. created by agreement of the parties rather then court action, referred to as friendly foreclosure.

When you default on a deed of trust, what is the first notice given?

constructive Then actual

Reinstatement =

deed of trust

agreement for sale default or forfeiture

in case of default, agreement for sale usually has a clause permitting the seller to: - forfeit the contract - retain payments to date and - evict the buyer buyer is afforded time to cure the default and reinstate the agreement. the cure time hinges on the percent of the purchase (not interest) paid by the buyer to date. paid less then 20% - 30 days paid 20% but less then 30% - 60 days paid 30% but less then 50% - 120 days paid 50% or more - 9 months if buyer pays the amount and penalties due in the time allowed, the seller must record a notice of reinstatement with the county recorder. if he doesn't make required payment, an affidavit of completion of forfeiture can be recorded which terminates buyers interests. if buyer still occupying, the seller will initiate a forcible detainer action to evict the buyer.

Mortgagee

lender

primary market

lenders supply funds to borrower, creating "paper" such as promissory notes, mortgages, and deeds of trust. - where loans originate - borrowers and lenders come together to negotiate terms and enter into mortgage transactions functions include 1. origination process of making or originating new loan for a fee (usually 1% of purchase price) 2. underwriting: process of evaluating and deciding whether to make a new loan (credit scores, credit history, job history, appraisals, assets etc. 3. Servicing: continued maintenance of a loan after it has been made. Participants: Savings and loan Associations (Under auth of FIRREA) Commercial Banks Life insurance companies mortgage banking companies Credit unions Mutual Savings Banks

Anti deficiency statutes:

pertain to properties of one or two family residences on two and one-half acres or less. They prohibit a lender from obtaining a deficiency judgment against a borrower after a trustees sale.

collateral

property used as security for a loan

When a mortgage that was in default has been satisfied, the mortgage has been:

redeemed

Which of the following would not apply to a deed of trust?

redemption periods Redemption = judicial foreclosure

In an agreement for sale, when does the title convey?

upon the last payment

The lender may consider a mortgage or trust deed to be:

A security agreement ( collateral)

Deed of Trust

A three party security instrument that conveys naked title to a tristee

Each loan requires these two documents?

1. Promissory note 2. collateral lien document

Deed of trust: sequence

1. TRUSTOR (borrower who has equitable title) repays the debt to lender (beneficiary). 2. Lender notifies the Trustee (who has bare legal title - power of sale). 3. Trustee records the Deed of reconveyance, which removes lien and cleans the title. 4. This conveys legal title to the borrower (Bundle of Rights and Deed)

If borrower chooses to move out of property this is considered abandonment which reduced the redemption period to:

30 days

Trustor

A borrower in a deed of trust loan transaction

Certificate of Sale

A document that the highest bidder receives at a foreclosure sale

Warehousers

Agencies that purchase mortgage loans and assemble them for resale to investors.

In order to reinstate the property, the delinquent borrower must pay the:

Balance plus fees

The funds for a loan secured by a deed of trust are supplied by the :

Beneficiary

After a mortgage had been foreclosed, if the sale amount was insufficient to cover the debt, the lender may ask for a:

Deficiency judgement

Reinstatement period (deed of trust foreclosure sale) Trustee sale

During this period, the borrower has opportunity to bring the delinquent payments current plus fees and stop the foreclosure process. The borrower can sell the property or pay delinquent payments by 5pm the day prior to sale. After the 90 day reinstatement period has expired, the trustee has the power to sell the property at a trustee sale and complete the foreclosure process. The new buyer has immediate ownership. (deed)

Until the final payment is made, the buyer has:

Equitable title

Ginnie Mae

FHA and va 1. Govt owned 2. Guarantees payment of principle and interest 3. Issues pass thru certificate - this allows to pass to investors 4. Purchase low income loans - 1968, operates under HUD

To foreclose, the lender has to file a lawsuit with the court called:

Foreclosure action

Which does not occur in a forbearance?

Foreclosure sale

Trustee

Independent third party (attorney,escrow company, broker) lender chooses the trustee and reserves the right to change any time.

The seller retains

Legal title

beneficiary

Lender under a deed of trust

The reinstatement cure time is based on:

Percentage of purchase price paid

The buyer is the

Vendee

Collecting payments from borrowers and handling late fees is:

Servicing

At the end of the statutory redemption period, if the delinquent borrower has not paid the entire debt, the successful bidder now receives a _____ , which makes them the legal owner of the property.

Sheriffs deed

Who authorizes the use of the power of a sale in a deed of trust?

The beneficiary

Sheriff's Deed

The deed given to the purchaser of property at a sheriff's sale as part of the foreclosure process against the owner of the property.

The redemption period on a deed of trust following the trustee's sale is:

There is none!

The 'power of sale' is carried out by the

Trustee

When the trust deed is signed, the power of sale is given to the:

Trustee they are 3rd party chosen by the lender. the trust deed creates a lien against the property in favor of the beneficiary (lender). the trustee holds bare legal title (power of sale) and the trustor has ownership (deed) when the borrower (truster) repays the debt, the trustee records a deed of reconveyance, which removes the lien and clears the title. The deed of reconveyance must be recorded in the county when there property is located within 30 days after final payment.

A property in process of being foreclosed. Who is responsible for the property taxes?

Trustor

CARRY BACK - ALIENATION CLAUSE

gives seller/lender the option of declaring the loan balance due and payable immediately upon sale of property by the buyer; also called a due on sale clause

Hypothecation

the action of pledging real property as security for a debt

Carryback financing

the seller takes back a note for part of the purchase price secured by a mortgage, deed of trust, wrap around mortgage or agreement for sale (land contract)

Bare Legal Title

title limited to carrying out the power of sale (by the trustee)