RE Finance Exam 2: Ch. 2 Questions

What does it mean when a lender accelerates on a note? What is meant by forbearance?

A contract provision that allows a lender to require a borrower to repay all or part of an outstanding loan if certain requirements are not met. An acceleration clause outlines the reasons that the lender can demand loan repayment. Also known as "Acceleration Covenant" Forbearance is a special agreement between the lender and the borrower that allows the borrower to pay a lower amount payment or even skip a payment. BUT this amount that is not paid is almost always added to the end of the loan as a Ballon Payment

What is a deficiency judgement and how is its value to a lender affected by the bankruptcy code?

A deficiancy

What does "assignment" mean and why would a leader want to assign a mortgage loan?

Assignment gives the lender the right to sell or exchange a mortgage to another party without the approval of the borrower A lender would want to assign a mortgage if they sell said mortgage on the secondary market

What does "non recourse" financing mean?

Non recourse financing is a type of loan secured by collateral, which is usually property... In the case that the borrower defaults, the issuer may obtain the collateral, but nothing else. Even if the collateral does not cover the full value of the defaulted amount.

What does default mean? Does it occur only when borrowers fail to make scheduled loan payments?

Default means that the borrower has failed to make scheduled loan payments, or violated a provision in the note or mortgage. It does NOT only occur when the borrower fails to make loan payments. If the loan contract states that a person can default on their loan if they do not keep the property that is collateral for the loan, clean; then the borrower

Name several mortgageable interests in Real Estate an comment their risk as collateral to lenders

Fee Simple Estate: Represents the most complete for of ownership in RE. Little risk to lender because the owner completely owns all rights to the RE Life Estate: is a freehold estate that lasts only as long as the life of the owner of the estate or the life of some other person. Because of the uncertainty surrounding the duration of the life estate, its marketability and value as collateral are severely limited. Remainder: exists when the grantor of a present estate with less ownership rights than his/her own conveys to a 3rd person the reversionary interests he/she or his/hers heirs would otherwise have in the property upon termination of the grantee's estate Reversion: exists when the holder of an estate in land (the grantor) conveys to another person (a grantee) a present estate in the property that has less ownership rights than his/her own estate and retains for himself/herself or his/her heirs the right to take back, at some time in the future, the full estate which he/she enjoyed before the conveyance. A reversionary interest can be sold or mortgaged because it is an actual interest in the property.

What is meant by mortgage foreclosure, and what alternatives are there to such action?

Foreclosure involves the sale of property by courts to satisfy the unpaid debt. Alternatives: 1. restructuring the mortgage loan 2. transfer of the mortgage to a new owner 3. Voluntary conveyance of the title to the mortgagee 4. A "friendly" foreclosure 5. A prepackaged bankruptcy

What does deficiency judgement mean?

If default occurs and the property is sold, if the dollars from the sale is not enough to pay off the loan balance, the borrower is liable for the difference

When might a borrower want to have another party assume his liability under mortgage loan?

If the loan was made with a favorable interest rate, the seller of the property may want to include this low rate loan as an additional incentive to sell the property

Explain the difference between a buyer assuming the mortgage and taking title "subject to" the mortgage

If the purchase acquires the property "subject to" the existing debt, he does not acquire any personal liability for the debt. When a mortgage is assumed the original borrower may be released from any obligations to the lender.

How can mechanics' leans achieve priority over first mortgages that were recorded prior to the mechanics lien?

Mechanics liens are permitted to be recorded after the fact. State laws generally give contractors, laborers, or suppliers of materials a certain period of time following the completion of work or delivery of materials during which to file their lien. When the lien is filed it relates back and takes priority over all liens filed after the time when materials were first delivered or work was first performed on real estate.

How does a PMM differ from a land contract?

PMM: any mortgage by a buyer to secure a payment of all or part of the purchase price of a property Land Contract: the land contract seller promises to convey title to the property at such time as the purchaser completes the performance of the obligation called for in the contract. * A land contract buyer does NOT have title to the property, and, therefore, cannot control whether the property will be mortgaged subsequent to the execution of the land contract or be made subject to covenants and easements

Distinguish between a Mortgage and a Note

Promissory Note: An IOU, sets forth what the terms of the payment are... Once you sign, the lender can sue on the note if you do not make the payments. They can obtain a money judgement against and can attach your assets to it. Mortgage: A pledge of Collateral. NOT an IOU, a pledge of the Real Estate for the loan you took out to pay for the Real Estate. A mortgage puts a lien on your Real Estate and the lender can foreclose on your Real Estate if you default

What is meant by a "purchase-money" mortgage loan? When could a loan not be a purchase-money mortgage loan?

Purchase money means funds from the loan will be used to purchase a property. It will not provide funds for other uses such as could be the case with a refinancing. When the loan is used for refinancing of a previous purchase money mortgage loan

Can borrowers pay off part, or all, of loans any time they desire?

Some loans you can, but some of the loans may have a prepayment penalty

What is the difference between the equity of redemption and statutory redemption?

The equity of redemption is the right of a mortgagor to redeem his/her property from default during the period from the time of default until foreclosure proceedings are begun. Statutory redemption is the right to redeem after foreclosure.

What special advantages does a mortgagee have in binding at the foreclosure sale where the mortgagee is the foreclosing party? How much will the mortgage normally bid at the sale?

The mortgagee can use his/her claims as a medium of exchange in the purchase, except for costs, which must be paid in cash. Others must pay cash for their purchases or by obtaining a new loan. Lenders will normally bid the full amount of their claim only here it is less than equal to the market value of the security less foreclosure, resale, and holding costs.

Is a foreclosure sale sometimes desirable or even necessary when the mortgagor is willing to give a voluntary deed?

The mortgagee may find it necessary to foreclose instead of taking a voluntary conveyance, because the title conveyed is subject to junior liens. Foreclosure provides the mortgagee with a lawful method of becoming free from the liens of junior claimants.

What dangers are encountered by mortgages an unreleased mortgages when property is sold "subject to" a mortgage?

The mortgagor will be responsible if the person acquiring the property subject to the mortgage defaults. In turn, if the original mortgagor then defaults, the bank will have to foreclose on the property which may or not be worth what left to pay on the mortgage.