Chapter 14

non-judicial foreclosure

-allows a lender to foreclose on a property without filing a lawsuit, as long as a power of sale clause is included in the security agreement -Georgia is a non-judicial foreclosure state

Georgia Mortgage Fraud Act

-any material misstatement misrepresentation or omission relied upon by an underwriter or lender to fund purchase or insure a loan -allows someone to be charged with mortgage fraud

Promisorry note

-at a closing Georgia, the buyer/borrower will sign both a security deed and a note -in a mortgage the borrower's promise to pay is called a promissory note

trust deed

-at a loan closing where a trust deed is to be used as security a loan, the deed must be signed by the mortgager

package mortgage

-borrower pledges both real and personal property as security for the loan -most commonly used in farms

construction loan

-covers costs of material and labor for construction -typically interest only loans

Ginnie Mae (GNMA)

-federal agency -division of Department of Housing and Urban Development -subsidize loans so that lenders will make lenders in areas they wouldn't usually make them because the lender believes those areas to be unprofitable -also purchase high risk, unmarketable loans

Federal Truth in Lending Act

-gives consumers an opportunity to compare the costs of borrowing before commuting to one lender -regulates the manner in which loan terms are disclosed

Defeasance Clause

-in title theory states -automatically on mortgages in title theory states, forces the lender to relinquish title when the debt has been paid off

discount points/points

-increase the lender's yield and decreases the interest rate to be charged, prepaying interest, paying up front to reduce amount of interest -paid to lower the amount of interest charged -a point is one percent of the loan amount -example: $100,000 loan, 1 point=$1,000 -cash up front from lendee, lendor lowers their interest rate because of it

Freddie Mac (FHLMC)

-independent agency -favors conventional loans -formed to serve s&l's (savings and loans banks)

FHA insured loans

-insures loans at borrower's cost -FHA provides the lender with insurance against loss in the event of foreclosure -doesn't lend money

security deed

-lender acquires title until loan is paid -document used in GA and allows for a non-judicial foreclosure -borrower conveys title to the lender through the security deed, borrower retains all normal rights of ownership

lien theory vs title theory

-lien theory: mortgage loan only creates a lien rather than conveying title. Lender has monetary claim against the property, when the loan has been repaid, the lien is removed by recording a satisfaction -Georgia is a title theory state. A deed conveys title to the lender or to a trustee. When the debt has been repaid, the Defeasance Clause kicks in and obligates the lender to convey title back to relinquish the title

VA Guaranteed mortgages

-not insurance, but rather a guarantee -loans administered from the VA -no max loan amounts -lender will make up to 100% of the value for a loan -can reuse entitlement, but must only have one property at a time -assumable even by a non-vet

conventional loans

-not insured or guaranteed by the government -conforming conventional loans: meet guidelines set by Fannie Mae and Freddie Mac

Fannie Mae (FNMA)

-private corporation -largest participant in the secondary mortgage market -purchases blocks of FHA, VA, and conventional loans -doesn't lend money -buys loans to free up more cash in banks so that more loans can be made

Private Mortgage Insurance (PMI)

-required in a conventional loan -benefits lender, insures lender against loss if loan is defaulted -if down payment is less than 20% of loan amount, lender is requiring the borrower to pay for PMI

loan to value ratio

-the maximum percentage of the value of a property that the lender is willing to loan -loan is based on the sale price or the appraised value, whichever is lower

blanket mortgage

-used by a builder or developer for a subdivision or development -usually retains partial release clause

regulation z

Implements the Truth in Lending Act requiring credit institutions to inform borrowers of the true cost of obtaining credit.

budget loan

Payments consist of principle, interest, taxes, and insurance

federal law that requires that the borrower receives a good faith estimate within three days of loan application is known as

Real Estate Settlement Procedures Act

one who, in good faith and without knowledge of defect, pays valuable consideration for a note before it is due is referred to as

a holder in due course

which of the following loans would be covered by regulation z? -a loan for $375,000 made for the purpose of purchasing a farm -a purchase money mortgage for $125,000 for the purchase of a duplex -a loan to purchase a $20,000 car

a loan to purchase a $20,000 car would be covered by regulation z

acceleration vs alienation clause

alienation clause is activated when you transfer title, acceleration clause is triggered when you fail to meet a requirement of your loan terms

assumptions

allows a buyer to take over the seller's mortgage

reverse annuity mortgage, reverse mortgage, or RAM

allows elderly or retired people to borrow on equity in their home

adjustable rate loan (ARM)

allows lender to adjust rate of interest at stated intervals

what role does the FHA play in a mortgage

an insurer

loan to value ratios are based on

appraised value or contract price, whichever is lower

grantor

borrower

straight term mortgage (balloon mortgage)

borrower pays interest for the duration of the loan, then pay a final balloon payment

mortgaging clause

in lien theory states this clause pledges the property as security for the debt

granting clause

in title theory states this clause conveys title to the lender or the trustee

trustor

individual who sets up the trust

grantee

lender

judicial foreclosure

lender goes to court and files lawsuit against defaulting borrower

fully amortized loan

level payments that cover all interest charged and reduce the principal to zero by maturity

budget mortgage

mortgage with payments including taxes and insurance

A trust deed gives the lender a right to request that the trustee perform certain tasks in order to fulfill the terms of the trust. The trustee may take action in those circumstances because he holds

naked title

naked title

power over the title that the third party has

loan discount

prepaid interest

exculpatory clause

prevents one party from holding the other party liable for damages related to the contract

fully amortized loans

provides for payments of principle and interest sufficient to bring the loan balance to zero at the end of the term

land contract

purchaser takes possession of the property, makes payments to the seller, not just for land, buyer has equitable title

what's an alienation clause (aka due on sale clause)

requires a borrower to pay the remainder of their mortgage loan off immediately during the sale or transfer of a property title, the lender can refuse to allow an assumption

acceleration clause

requires the borrower to pay off the loan immediately under certain conditions, allows lender to demand the entire balance owed due and payable upon default

secondary loan market

resale marketplace for preexisting loans

open end mortgage, or HELOC

revolving line or credit upon which a borrower can draw up to a certain amount

wraparound mortgage

second or junior mortgage

What are Fannie Mae and Freddie Mac?

secondary markets for mortgages

straight term loans are generally

shorter in duration than amortized loans

Stone purchased farm land from Fowler with the idea of developing it. Fowler took part payment in cash and the balance in the form of a note and mortgage. Which of the following clauses did Stone insist on including in the security instrument? A. Alienation B. Subrogation C. Escalation D. Subordination

subordination

Just before the sheriff begins the auction sale of foreclosed property, the delinquent borrower offers to pay the outstanding debt and all costs incurred because of his default. In such a case,

the borrower may pay the judgement and reclaim the property under equitable rights of redemption

When a borrower pays off a note that was secured by a deed of trust, then:

the trustee issues a deed of re conveyance to the borrower

trustee

trustee is legally obligated to manage the property in accordance with the document

example of a loan that would most likely require private mortgage insurance

90% LTV conventional loan

Subordination Clause

A clause which permits the placing of a mortgage at a later date which takes priority over an existing mortgage.

straight term loan

A loan in which only interest is paid during the term of the loan, with the entire principal amount due with the final interest payment.

partial release clause

A part of a mortgage, which provides for the release of part of the property (used as security in the loan) upon payment of a certain amount of the mortgage. Goes well with a blanket mortgage

subordination clause

The holder of the loan that is first recorded agrees to take a subordinate position to a lien that will be recorded later