real estate principles and practice ch. 15

When a property is mortgaged, the owner must execute (sign) two separate instruments:

1. the promissory note, also referred to simply as the note or financing instrument, it is the borrowers's personal promise to repay a debt according to agreed terms. 2. the mortgage, also known as the security instrument, creates the lien on the property. The mortgage gives the creditor the right ot sue for foreclosure in the event the borrower defaults.

discount points

A fee charged by the lender at settlement that results in increasing the lender's effective yield on the money borrowed. One discount point equals one percent of the loan amount. (prepaind interest at closing).

owner financing

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.

prepayment penalty

a penalty a borrower pays for making payments ahead of schedule which causes the lender to loose money i.e interest.

statutory right of redemtion

a period in which certain states allow defaulted borrowers to redeem their real estate after the sale, this period may be as long as a year.

deed of trust

a three-party instrument, that conveys naked title or bare legal title, that is , title without the right of paossesion. the deed is given as security for the loan to a third party, called the trustee.

loan origination fee

alslo called transfer fee, a charge by most lenders to cover the expencses involved in generating the loan.

Mortgagor

also called the borrower, receives a loan and in retun gives a note and a mortgage to the lender.

Mortgagee

also called the lender, when the loan is paid in full the mortgagee issues a mortgage of satisfaction.

alienation clause

also known as due on sale clause, resale clause or call clause, this clause provides that when the property is sold, the lender may either declare the entire debt due immediatly or permit the buyer to assume the loan at the current market interest rate.

beneficiary

also known as the lender, for whom the trustee holds the bare title. the beneficiary is the holder of the note.

acceleration clause

assists the lender in forclosure, if a borrower defaults, the lender has the right to accelerate the maturity of the debt.

defeasance clause

by these provisions in most mortgage documents, the mortgagee is required to eecute a satisfaction of mortgage when the note has been fully paid.

Usury

charging interest in amounts exceeding the maximum rate

equitble right of redemption

if , after default but before the foreclosure sale, the borrower pays the lender the amount in default, plus costs, the debt will be reinstated.

Interest

is a charge for the use of monety

forclosure

is a legal procedure in which property pledged as security is sold to satsfy the debt.

Mortgage

is a lien or encumbrance on the real property of a debtor, called a mortgagor.

Note

is a negotiable instrument like a check or bank draft. the individual who holds the note is referred to as the payee.

Hypothecation

pledging of property as security for payment of a loan without actually surrendering the property.

Promissory note

referred to as the note or financing instrument, is the borrowers personal promise to repay a debt according to agreed terms.

satisfaction of mortgage

release of mortgage or mortgage discharge, this document returns all interest in the real estate to the mortgagor.

deed in lieu of forclusure

sometimes known as friendly forclosure, because it is carried out by mutual agreement rather than lawsuit.

trustor

the borrower in a trust deed.

There are two parts on a mortgage loan

the debt itself and the security for the debt.

title theory

the mortgagor actually gives legal title to the mortgagee and retains equaitable title. Legal title is returned back to the mortgagor only when the debt is paid in full.

Lien theory

the mortgagor retains both legal and equitable title. The mortgageee simply has a lien on the property as security for the mortgage debt.

loan origination

the processing of a mortgage application

prepayment clause

this clause requires that the borrower pay a prepayment penalty against the unearned portion of the interest for any payments made ahead of schedule.

deficiency judgment

this judgment is against the borrower if the forclosure sale does no produce enough funds to cover the loan balance, in this case the mortgagee is entitled to a personal judgement against the borrower for the unpaid blance.