RE Section 4 Chapter 1

Judicial foreclosure steps

1) lender files lawsuit 2) property for sale 3) stop foreclosure by paying off loan (can't regain ownership) 4) property sold at trustees sale 5) buyer at auction receives trustee deed

Subordination Clause

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

Alienation Clause

A provision in a mortgage requiring full payment of the debt upon the transfer of title to the property, due on sale. Prevents loan assumptions.

Lis Pendens

A recorded legal document giving constructive notice that an action affecting a particular property has been filed in either a state or a federal court.

Title Theory State

A state where the mortgage lender has title to the property until the debt is repaid

Assumption of Mortgage

Acquiring title to property on which there is an existing mortgage and agreeing to be personally liable for the terms and conditions of the mortgage, including payments.

Subordination agreement

An agreement whereby a superior mortgage, such as a first mortgage, agrees to take a subordinate or junior position with respect to a new or future lien.

Satisfaction of Mortgage Document

As soon as the mortgage note is paid in full, the lender returns the cancelled note to the borrower along with this

Deed in Lieu of Foreclosure

Bilateral agreement where the borrower agrees to give the lender the deed to the property to avoid forclosure

Covenant against removal

Borrower agrees not to destroy or remove improvements

Covenant to pay insurance

Borrower must have property insurance

Covenant to pay indebtedness

Borrower's promise to repay the loan according to the terms of the note.

Covenant of good repair

Here, the borrower agrees to keep the property in good shape.

Deficiency Judgment

In the event a foreclosure sale does not produce enough money to cover the cost of foreclosure and pay off the entire debt, then the lender may file this against the maker of the note and/or against any additional parties responsible for repayment of the debt, such as endorsers or guarantors on the note, and a subsequent purchaser who assumed the mortgage.

Prepayment Clause

The clause in a mortgage or note stating the penalty, if any, for payment before it actually becomes due.

Equity of Redemption

The right of a borrower in default on a mortgage loan to reclaim the forfeited property prior to the foreclosure sale through payment in full of all debt and associated costs.

Bare Title

The title interest that the lender holds. it does not include the rights of possession and use of the property.

Statutory redemption laws

This gives the foreclosed borrower from one month to one year or more to pay his judgment in full and redeem his title.

Hypothecation

To pledge property as security for an obligation or loan without giving up possession of it.

Covenants

Unconditional binding promise

Subject to the mortgage

When a grantee takes title to real property subject to a mortgage, grantee is not responsible to the holder of the promissory note for the payment of any portion of the amount due. The most that grantee can lose in the event of a foreclosure is grantee's equity in the property. (See also "assumption of mortgage".) In neither case is the original maker of the note released from primary responsibility. If liability is to be assumed, the agreement must so state.

When a buyer obtains a loan for the purchase of property, the lender will require: Select one: a. Mortgage and a promissory note. b. Deed of trust and a hypothecation note. c. Promissory note and a purchase agreement. d. Deed of trust note and a contract for sale

a. Mortgage and a promissory note.

Which of the following instruments shows evidence of a debt? Select one: a. Note b. Option c. Contract d. Abstract

a. Note

A couple buys a furnished home by assuming the existing loan. Which of the following papers would the settlement attorney NOT have to prepare? Select one: a. Note and mortgage. b. Bill of sale. c. Assumption papers. d. Warranty deed.

a. Note and mortgage.

If a seller sells a home "subject to" a loan, who has the liability to repay the loan? Select one: a. The seller only. b. The buyer only. c. Both the seller and the buyer equally. d. Primarily the seller but the buyer has secondary liability.

a. The seller only.

The clause in a mortgage that terminates the lender's interest in real property when the mortgage is paid in full is known as? Select one: a. defeasance. b. alienation. c. acceleration. d. satisfaction.

a. defeasance.

By including an exculpatory clause in a mortgage contract, the lender? Select one: a. Waives her right to escalate the interest rate. b. Releases the borrower from personal liability. c. Agrees to permit an assumption to a qualified buyer. d. Grants the borrower immunity from foreclosure.

b. Releases the borrower from personal liability.

Covenant to pay taxes

borrower agrees to pay all property taxes on the property

Which clause in a mortgage loan would allow the lender to foreclose to recover the entire remaining loan balance if the borrower defaults on the loan? Select one: a. The defeasance clause. b. The subordination clause. c. The acceleration clause d. The alienation clause.

c. The acceleration clause

A promissory note is best described as? Select one: a. A pledge of property. b. An earnest money deposit. c. Written evidence of debt. d. A form of unilateral contract.

c. Written evidence of debt.

In a home loan using a trust deed, who holds naked legal title to the property? Select one: a. The trustor b. The beneficiary c. The intermediary d. The trustee

d. The trustee

power of sale clause

gives a trustee in states that use deeds of trust the right to sell the property in the event of default.

Acceleration Clause

if the borrower fails to keep the covenants of the mortgage or trust deed, the entire loan balance is due and payable upon demand. not assumable (transferable)

escalator clause

loan payments to be adjusted either up or down following default in payment by

Defeasance Clause

provides for the "defeat" or cancellation of the mortgage or trust deed when the borrower (mortgagor) has repaid the entire debt.

exculpatory clause

states that the lender waives his right to a deficiency judgment (when the sale of a property falls short of a debt)

promissory note

the unconditional, written promise to repay the loan, and is evidence of the debt. It states the loan amount, the interest rate, the time and method of repayment, and the obligation to repay. Doesn't need to be recorded

Deed of Trust

three-party instrument whereby an owner pledges real property as security for the payment of a debt, and the owner surrenders bare title (naked title) to a neutral third-party trustee. The fact that the lender holds a title interest in the property is the primary difference

mortgage contract

two-party instrument whereby an owner pledges real property as security for the payment of a debt. the owner retains possession, use, and title to the property. The lender holds no interest in the title. needs to be recorded to create lien on property

Partial Release Clause

used by developers to provide for the release of lots as the principal amount of the loan is paid back. A developer who owes money on a Sub division development, sells one lot and can partially pay off that portion of the loan