RE174 CH 10 REAL PROPERTY SECURITY DEVICES

deficiency judgment

1. A personal judgment levied against the borrower when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full. 2. A deficiency judgment is a judgment against a borrower for the balance of a debt owed when the security for a loan is insufficient to satisfy the debt. A deficiency occurs when the foreclosure sale of a property produces less than the amount due on the loan.

Common Provisions of Notes:

1. Balloon payments are described as a payment more than twice the amount of the smallest payment.

Classification of Promissory Notes:

1. Straight notes is an interest only payment note with the principal to be paid in full when due. The advantage to the borrower is a lower payment than what would be required with an amortized note. 2. Installment note provides for regular payments of principal and interest. 3. Amortized Note. The regular payments for a fully amortized installment loan pay off the entire principal as well as the interest during the loan term. A partially amortized note would have payments based on an amortized schedule, but it would have to be paid in full at a date before the end of the amortization schedule, balloon payment.

To be a negotiable instrument, a note or draft must be:

1. in writing 2. signed by the maker 3. an unconditional promise or order to pay another, and 4. payable on demand or at a specific time in the future, for a certain sum in money, and payable to the order of the payee or to the bearer.

Some defenses are valid against even a holder in due course. These are known as real defenses and include:

1. incapacity - the maker lacked legal or mental capacity 2. illegality - the note was executed for an illegal purpose; 3. forgery; and 4. material alteration by the holder. If the note were raised by a prior holder, a holder in due course could collect on the original terms.

They are at best questionable go arounds to the assumption prohibition, and at worst could subject the property owner and broker to criminal liability for fraud against a lender. These methods include:

1. long-term unrecorded lease options 2. unrecorded land contracts 3. friendly foreclosures, in which the lender is really the buyer and the seller does not make payments, so the lender forecloses and obtains the buyer's interest, and 4. land trusts

For a party to be a holder in due course: https://www.youtube.com/watch?v=yUXjKk-Aq-A see this great youtube on holder in due course meaning

1. the instrument must be proper and complete on its face 2. the holder must have acquired the instrument before its due date without any notice as to previous dishonor. 3. the transferee must have been a good-faith purchaser for value, and 4. the transferee must have had no notice of any defenses of the maker or any defects in the title of transferor of the paper. Legal term for an original or any subsequent holder of a negotiable instrument (check, draft, note, etc.) who has accepted it in good-faith and has exchanged something valuable for it. For example, anyone who accepts a third-party check is a holder in due course.

Impound accounts cannot be required for single family residences unless:

1. they are required by state or federal law, FHA and VA loans, or 2. the trustor has failed to pay two consecutive tax payments, or 3. the loan is 90% or more of the property value or sales price, and the lender requires impounds

Not all transfers trigger the due-on-sale provisions of notes. which of the following is an exception?

1. transfers resulting from the death of one of the co-borrowers 2. transfers resulting from the dissolution of a marriage 3. transfers resulting from the foreclosure of a junior lien

For impound accounts for one to four residential units, state licensed lenders must pay interest of at least blank percent

2

Loans on one to four residential units that were not negotiated by a real estate broker can be prepaid at anytime, but prepayment penalties can be assessed for only blank years.

5

Truth in lending Act - TILA

A body of federal law effective July 1969 as part of the Consumer Credit Protection Act, and implemented by Regulation Z that is now subject to the Consumer Financial Protection Bureau. It was amended in 1982 by the Truth-in-Lending Simplification and Reform Act and later amendments. The main purpose of this law is to ensure that borrowers and customers in need of consumer credit are given meaningful information with respect to the cost of credit. In this way consumers can more readily compare the various credit terms available to them and thus avoid the uninformed use of credit. This law creates a disclosure device only, and does not establish any set maximum interest rates or require any charges for credit.

grantee

A buyer. A person who receives a conveyance of real property from a grantor. The one to whom a deed is given.

Antimerger Clause

A clause in a mortgage or deed of trust specifying that the senior lienholder will retain lien priority in the event of a merger.

Real Estate Settlement Procedures Act, RESPA

A federal law, enacted in 1974 and later revised, that ensures that the buyer and seller in a real estate transaction have knowledge of all settlement costs when the purchase of a one-to -four family residential dwelling is financed by a federally related mortgage loan. Federally related loans are broadly defined to include loans made by savings and loan associations or other lenders whose deposits are insured by federal agencies, insured by the FHA or VA, administered by the Dept of Housing and Urban Develop or intended to be sold by the lender to Fannie Mae or a similar federal agency.

due-on-sale-clause

A form of acceleration clause found in some mortgages, especially savings and loan mortgages, requiring the mortgagor to pay of the mortgage debt when the property is sold, resulting in automatic maturity of the note as the lender's option.This clause effectively eliminates the possibility of the new buyer's assuming the mortgage unless the mortgagee permits the assumption, in which case the mortgagee might increase the interest rate or charge as assumption fee.

wraparound mortgage

A method of financing in which the new mortgage is placed in a secondary or subordinate position; the new mortgage includes both the unpaid principal balances of the first mortgage and whatever additional sums are advanced by the lender. Sometimes called an all-inclusive loan, an overriding loan or an overlapping loan. In essence, it is an additional mortgage in which another lender refinances a borrower by lending an amount over the existing first mortgage amount, without cashing out or disturbing the existence of the first mortgage. The entire loan combines two or more debts and is treated as a single obligation, and the wrap, or secondary, mortgagee pays the obligations of the first mortgage from the total payments received. While the wraparound lender makes the debt service payments on the first mortgage, the lender does not assume liability for this first lien. A default on the wraparound mortgage would usually result in a default on the underlying mortgage.

good-faith estimate

A preliminary accounting of expected closing costs. The Real Estate Settlement Procedures Act, RESPA, requires the lender to promptly give loan applicants a good-faith estimate of closing costs.

negotiable instrument

A written promise or order to pay a specific sum of money that may be transferred by endorsement or delivery. The transferee then has the original payee's right to payment.

trust deed

Also called a deed of trust. A legal document in which title to property is transferred to a third party trustee as security for an obligation owed by the trustor, borrower, to the beneficiary, lender. A trust deed is similar to a mortgage; the main difference is that it involves 3 parties. When a borrower repays the note secured by a trust deed, the trustee must reconvey title back to the borrower by way of a deed of reconveyance.

California housing financial discrimination act of 1977

Also know as the Holden Act. A California act prohibiting discrimination by a lender for any reason unrelated to the creditworthiness of the loan applicant.

bait and switch

An illegal sales tactic whereby a seller advertises a product with a low price with the intention of persuading customers to purchase a more expensive product. When a seller uses this tactic, they frequently tell the customer the original product is sold out or no longer available and push the customer to purchase a costlier product. This tactic can be considered false advertising if the seller is not actually providing the original product. In general, no legal action can be taken if the item is available but the seller strongly encourages the customer to purchase the more expensive item.

Obligatory advance

Any advance which, under the terms of the credit line deed of trust or other agreement, the secured party has legally obligated itself to make in the absence of a default, breach, or other such event. Obligatory advances include, but not limited to, advances which the secured party has agreed to make as a term or condition of the credit line deed of trust or other related agreement; obligations arising out of the occurrence of a condition, event or circumstance contemplated by the agreement; obligations arising on a specified date or time; or advances made upon application therefor by the grantor under the credit line deed of trust or by another obligor whose indebtedness is secured by the deed of trust.

controlled business arrangement

As defined under the Real Estate Settlement Procedures Act, RESPA, an arrangement or combination in which an individual or a firm has more than a 1% interest in a company to which the individual or firm regularly refers business. Such arrangement is permitted provided that written disclosure of the affiliation is made; an estimated charge for the service is provided; and referral fees are not exchanged among the affiliated companies.

Right of redemption

California statutes allow a mortgagor to recover the property after a judicial foreclosure sale. If the sale proceeds are less than the foreclosing mortgage debt, the mortgagor has a one-year period of redemption. If the sale proceeds satisfy the foreclosing mortgagee's debt, the period of redemption is 3 months. By paying the purchaser at foreclosure the sale costs plus interest within the redemption period, the mortgagor can regain title. The mortgagor cannot waive this right of redemption.

certificate of sale

Document received by the buyer at an execution or a judicial foreclosure sale; replaced by a sheriff's deed if the debtor fails to redeem the property during the statutory redemption period.

rent skimming

In 'no down-payment sales' where the buyer of a property collects rents and deposits on the property without making payments on the loan.

notice of delinquency

In junior financing, when the borrower gives the senior lender permission to notify the junior lender in the vent of a default.

Garn-St. Germain Bill

Or the Depository Institutions Deregulation and Monetary Control Act of 1980 which authorized the deregulation of banks and savings institutions. Allowed savings and loan associations to offer checking-type accounts; to issue credit cards. Established loan loss reserve requirements. A follow-on bill, The Depository Institutions Act of 1982, also sponsored by Senators Garn and St. Germain, allowed savings and loan associations to have up to 50% of assets in real estate development; 30% of assets in consumer loans and corporate debt; own real estate development companies; and offer money market deposit accounts.

PREDATORY lending

Predatory lending refers to secured loans such as home or car loans that are made by a lender with the intention that the borrower default on the loan, allowing the lender to seize the car or home and sell it for a profit. The term has been expanded to refer to the practice of convincing borrowers to agree to unfair and abusive loan terms.

Financing statement

Security interests in chattels, personal property, are created by an instrument known as a security agreement. To give notice of a security interest, a financing statement must be recorded.

Deficiency judgments

Should the judicial foreclosure sale bring less than the amount owed on the mortgage, the foreclosing lien holder can apply for a deficiency judgment for the difference.

Fair Credit Reporting Act

The Fair Credit Reporting Act gave consumers the rights of access to, and correction of, credit reports.

Holder in due course

The holder of a negotiable instrument, check or note, purchased for value when the instrument appears complete and regular on its face; is taken before its due date and without notice of previous dishonor; and the holder has no notice of any defects in title of the transferor.

Uniform Settlement Statement

The standard HUD Form 1 required to be given to the borrower, lender and seller at the time or before settlement by the settlement agent in a transaction covered under the Real Estate Settlement Procedures Act. The lender must retain its copy for at least 2 years. The document can be found at www.hud.gov/offices/adm/hudclips/forms/files.1.pdf.

Prepayment penalties are not allowed on FHA-insured or VA-guaranteed loans. true or false

True

This usury rate does not apply to individuals who sell their property and carry back paper, purchase-money loans. True or False

True. usury rates do not apply

Balloon Payment

Under an installment loan agreement, a final payment that is substantially larger than the previous installment payments and repays the debt in full; the remaining balance that is due at maturity , stop date, of a note or obligation.

Impound accounts are required for FHA loans but not blank loans

VA

Negotiable Instruments

While not money, negotiable instruments are freely transferable and are used in lieu of money. They are either promises to pay, notes, or orders to another to pay, drafts.

defeasance clause

a clause used in leases and mortgages that cancels a specified right upon the occurrence of a certain condition, such as cancellation of a mortgage upon repayment of the mortgage loan.

lock-in clause

a condition in a promissory note that prohibits prepayment of the note.

Deed of reconveyance

a document used to transfer legal title from the trustee back to the borrower, trustor, after a debt secured by a deed of trust has been paid to the lender, beneficiary.

mortgage

a mortgage is a lien, other than a judgment, on a fee simple estate or leasehold in real property located in Pennsylvania, together with the credit instruments secured. Mortgage includes both insured and uninsured mortgages.

Usury interest rate

a rate of interest greater than allowed by law. the rate of interest individuals, not exempt from usury limitations, can charge for loans to purchase, construct, or improve real estate cannot exceed 10%, or 5% greater than the rate designated by Federal Reserve Bank of SF to member banks for advances as of the 25th day of the month preceding the loan.

If the lender does not elect to accelerate the loan upon sale, but the buyer wanted to prepay, a prepayment penalty would appear to be proper, even for one to four residential units, because the lender has not blank the payments.

accelerated

Due on encumbrance clause

accelerates the payments on a loan if the owner places a further encumbrance on the property. However, prohibits such acceleration for single-family dwelling, a lender can accelerate payments only if the encumbrance endangers the lender's security. this would be a very unusual situation.

Due-on-sale-clause

also known as an alienation clause, calls for the note to be paid in full upon sale of the property. It accelerates the payments.

Promissory note

an unconditional written promise of one person to pay a certain sum of money to another person, order or bearer at a future specified time. A broker who accepts a promissory note as a deposit from a prospective purchaser must generally disclose to the seller that the buyer's deposit is in the form of a promissory note.

Prepayment penalties

are not allowed on FHA-insured or VA-guaranteed loans

Impound accounts

are trust account reserves kept by the lender for advance payments made by the borrower for property taxes and insurance. The impound account protects the lender in that funds will be available for the taxes and insurance when they are due.

A loan with a term of less than 3 years for non-owner-occupied property may not have a balloon payment. A loan with a term under 6 years on an owner-occupied dwelling of fewer than 3 units may not have a blank payment.

balloon

Often installment notes provide that the entire balance shall be due at a date before the note's being fully amortized. Such a lump sum payment is called a

balloon payment. Such notes are called partially amortized notes, and the large payment is known as a balloon payment. A balloon payment is described as a payment more than twice the amount of the smallest payment.

A mortgage is a two party security instrument in which the mortgagor is the owner or the buyer who gives a lien to the mortgagee. The mortgagee is the lender in cases of hard-money loan, where money actually is advanced, or the seller in cases of a purchase-money load, where the seller finances the blank.

buyer.

notes frequently provide that the maker agrees to pay reasonable attorney fees if legal action becomes necessary for blank

collection

After payment of the note, if the mortgagee fails to record a satisfaction of mortgage within 21 days of a written request by the mortgagor, the mortgagee is liable for all blank, as well as the sum of $500.00

damages

Mortgages and trust deeds for income property often provide for an assignment of rent, which allows the mortgagee to take over the property during the redemption period and apply the rents received to the blank.

debt. Without this provision, the mortgagor would keep possession and would be collecting the rents.

After the foreclosure sale, the sheriff provides the high bidder a certificate of sale stating that the property is subject to redemption rights. This certificate of sale is recorded. Within one week of the sale, the sheriff must inform the blank of the right to redeem.

debtor

Acceleration upon default

even when a note states that all payments on the note become due upon default, a borrower can cure a debt that becomes accelerated because of default of payment on principal, interest, taxes, or insurance by paying the amount in arrears plus costs up to 5 days before sale under a trust deed power-of-sale foreclosure, or at any time before entry of a decree on a mortgage foreclosure by court action. Trustee or attorney fees are limited by statute.

Liens senior to the foreclosing lien will still be in force against the property. At this point, the grantee can blank the mortgagor or tenant in possession.

evict

The holder of a balloon note secured by an owner-occupied dwelling of 4 or fewer units must give from 90 to 150 days' warning of the due date of the balloon payment. Construction loans and loans where seller financial disclosures have been made are blank from the notification requirement.

exempt

Late charges

for a single-family dwelling loan made after 1/1/76 cannot exceed 10% of the installment due; however, a $5 minimum late charge is allowed. No late charge is allowed for payments less than 10 days late.

Only the mortgagor or successors in interest, heirs or assignees, can redeem after the blank sale.

foreclosure

The defeasance clause in the mortgage provides for the cancellation of the lien upon blank payment

full

Trust account reserves kept by the lender for advance payments made by the borrower for property taxes and insurance are referred to as

impounds

If a contract is usurious, that portion of the contract calling for interest is void, interest cannot be collected. If a borrower has paid usurious interest, the borrower is entitled to recover the entire amount of blank paid in the last 2 years plus treble damages, three times the interest paid, for the last year of the loan.

interest

Balloon payments are limited for regulated loans made or arranged by loan brokers. These restrictions do not apply to first trust deeds of $30,000 or more, or to 2nd trust deeds of $20,000 or more, nor do they apply to construction loans or notes given by the buyer to the seller to finance the purchaser or to loans made by institutional blank.

investors.

The grantee receives all the rights of the foreclosed mortgagor without the foreclosing lien and liens blank to it.

junior

mortgagor = borrower mortgagee = lender or seller financed Mortgagor has title and possession Mortgagee has blank

lien

The absence of any provision allowing prepayment would have the effect of being a blank clause, locking the borrower in to the full interest for the term of the loan even if the loan is prepaid. To avoid this harsh effect, prepayment is allowed by statute on one to four residential units.

lock-in

A clause that provides for payments of a specified amount 'or blank' allows prepayment without penalty.

more

The property is sold at a public sale conducted by the county sheriff . The mortgagee can bid the amount of hte mortgage lien. Other bidders have to bid cash. Because a foreclosure sale would wipe out all liens junior to the foreclosing mortgage, a junior lienholder who wanted to protect his interest would have to bid against the foreclosing blank.

mortgage.

Equal Credit Opportunity Act - ECOA

no bias on lending. creditor must state reasons for denial of credit under Consumer Credit Protection Act

The mortgagor can stop the foreclosure anytime before the sale date by

paying past delinquencies plus costs and fees. Even if the note has an acceleration clause making the entire balance due if a payment is late, the mortgagor need only make the payments current.

Often, installment notes provide that the entire balance will be due at a date before the note's being fully amortized. Such notes are called partially amortized notes, and the large payment is known as a balloon blank..

payment

20% of the loan can be prepaid in any 12 month period without

penalty

For loans negotiated by a real estate broker on single-family owner-occupied dwellings, prepayment may be made any time, but prepayments within 7 years of the date of execution could be subject to a prepayment charge. the charge can be imposed only on that portion of the prepayment in excess of 20% of the unpaid balance in any 12 month blank.

period.

When the loan is for other than 1 to 4 residential units, a prepayment fee can be collected only if the borrower expressly waived the right to prepay or agreed in writing to a penalty for blank

prepayment. The borrower must sign this waiver separately.

On real property contract sales, land contracts, of one to four residential units the buyer has the right to prepay; however, the lender can blank prepayment for 12 months after the sale.

prohibit

With a mortgage or trust deed, which of the following serves as evidence of the debt

promissory note. While a promissory note is the evidence of the debt, a security device, such as a mortgage or a trust deed, provides security for the note.

The usury rate also does not apply to loans made or arranged by real estate brokers. The broker is exempt from usury restrictions, even though a loan made by a broker is outside the scope of activity requiring a blank estate license.

real

Purchasers at mortgage foreclosure sales will have difficulty disposing of property while the mortgagor can still blank.

redeem.

The mortgagor has the right to occupy the property during the redemption period, although the mortgagee is entitled to reasonable rent during this period. In reality, the mortgagee might have difficulty collecting the rent, and courts tend to be reluctant to evict a mortgagor during the blank period.

redemption

Mortgages and trust deeds: while a promissory note is the evidence of the debt, a security device, such as a mortgage or a trust deed, provides security for the note. Mortgages and trust deeds hypothecate, or pledge, the property, the borrower keeps possession but gives a blank interest.

security

security agreement

security interests in chattels, personal property, are created by an instrument known as a security agreement. To give notice of a security interest, a financing statement must be recorded.

A real property sales contract

see land contract

If the property is not redeemed during the redemption period, the sheriff issues a blank deed.

sheriff's

In the event of nonpayment by the mortgagor, the mortgagee can enforce the lien and foreclose by court action. Because foreclosure is considered an equitable action, it must be brought in blank court.

superior

California favors trust deeds, t or f

t

Loans with due-on-sale clauses cannot be assumed unless

the assumption impaired the lender's security or otherwise increased the lender's risk per California. Because due-on-sale clauses are now considered fully enforceable by lenders, a number of methods have been devised to get around the assumption prohibitions.

beneficiary statement

the escrow agent obtains a beneficiary statement when an existing loan is to be paid or assumed by a buyer. The statement includes the balance due on the loan so the buyer receives the proper amount of credit.

A promissory note is

the evidence of the debt. It is an unconditional written promise signed by the maker to pay a certain sum in money now or at a specific time in the future.

right of redemption

the right of a defaulted property owner to recover his or her property by curing the default. see equitable redemption or statutory redemption.

hypothecation

to pledge real or personal property as security for a loan or other obligation without surrendering possession of the property. The borrower retains the rights of control and possession, and the lender secures an underlying equitable right in the pledged property.

Not all transfers trigger the due-on-sale provision of notes. EXceptions include

transfers resulting form the death of one of the coborrowers and from the dissolution of a marriage, as well as transfers resulting from the foreclosure of a junior lien. A lender knowing of a transfer and failing to act might waive its rights to enforce the due-on-sale clause.

Mortgage foreclosure

under common law, the mortgagee received the property without a sale upon the mortgagor's default. This so-called strict foreclosure is not permitted in California.

A lender may not collect a prepayment penalty when the lender accelerates the payments upon default for one to four residential blank

units. Nor for disasters.

Points charged by non-licensed lenders are considered to be interest in determining whether a loan is blank

usurious

Charging a rate of interest greater than allowed by law is referred to as

usury

subject to

when a grantee takes title to real property 'subject to' a mortgage or trust deed, the grantee is not responsible to the holder of the promissory note for the payment of the amount due, and the original maker of the note retains primary responsibility for the underlying debt.