Real Estate Finance

Under current tax law, what's the maximum tax- free gift an individual can give to another individual annually?

$15,000

A real estate investment trust

("REIT") is a company that owns, operates or finances income-producing real estate. REITs provide all investors the chance to own valuable real estate

Mortgage REITs

(mREITs) invest in mortgages or mortgage securities tied to commercial and/or residential properties.

Credit Unions

- Valuable resource for real estate financing - Have greater flexibility in making loans - Generally not governed by federal, state, or local regulations

Note with deed of trust

A beneficiary, trustor, and trustee are the parties involved when the finance instrument is a ______.

The existing mortgage

A homeowner who's preparing to sell can't transfer the property until an encumbrance is removed. Which of the following is an encumbrance that would delay the property sale?

Voluntary Specific Lien

A lender and a borrower sign a mortgage agreement, placing a(n) ______ lien against the borrower's home.

Specific Lien

A lien against a single property.

There are three types of international buyers: those who have work visas and are looking for a home to purchase while they're in the U.S., those who are looking for a vacation home in the U.S., and those who are looking for ______.

A luxury home to purchase as an investment Those who are looking for a luxury property as an investment are another group of international buyers.

Which of the following describes mutual savings bank loans?

Banks focus lending offerings on local businesses and residents. Mutual savings bank loans are offered to local businesses and residents.

A buyer can obtain a qualified mortgage with a debt-to-income ratio of ________.

Below 43%

Which of the following represents a potential concern when borrowing funds from a pension or retirement plan?

Borrowing without consulting a financial expert can result in unintended consequences, such as income tax liability and loss of retirement income.

involuntary, specific statutory liens. An involuntary lien occurs when a creditor places a claim on real or personal property through legal means without the owner's consent in order to collect a debt.

Both materialman's and mechanic's liens

Which of the following statements about liens is true?

Both mechanic's and materialman's liens are junior liens.

In which U.S. market(s) do foreign lenders participate?

Both the primary and secondary mortgage markets Foreign lenders participate in both the primary and secondary mortgage markets.

Mutual savings banks have limitations on their lending activities, as specified in their ______.

Charter A mutual savings bank's lending activities are limited by its charter and vary from state to state.

Kaycie is a new employee at a mutual savings bank. During orientation, she learned that mutual savings banks have limitations that are set by their ______.

Charter Limitations are set by the bank's charter and vary from state to state.

Private loan companies may charge higher interest, larger fees, and could require to secure a loan.

Collateral

You may see a ______ named as a land contract, real estate contract, contract for sale, agreement for deed, or as articles of agreement.

Contract for deed

Secured corporate bonds use ______ as collateral.

Corporate assets Corporate assets are used as collateral so that bond purchasers can repossess the asset in the event of default.

Memoryjet, Inc has developed a new technology for high-volume jump drives. In order to manufacture their new devices they will need to gear up a new production line, which will cost about $85 million. What kind of bond instrument could they use to help secure the funds they need for their new line?

Corporate bond Corporate bonds are used to raise capital, and would be the best choice for Memoryjet, Inc.

Which type of real estate investment trust is designed to deal exclusively in equities?

Equity REITS are owners of improved income properties and are designed to deal in equities.

Private loan companies are divisions of commercial banks.

False

Fannie Mae, Freddie Mac, and the Federal Home Loan Bank are regulated by the _______.

Federal Housing Finance Agency

They're not really companies, but individuals with a lot of money to lend.

Folse

The FHFA was established in 2008 to provide oversight to___________.

GSES (Freddie Mac and Fannie Mae) and to regulate the FHLB System.

The three general groups of international buyers that real estate professionals may encounter are those who ______, those who are looking for a vacation home for when they travel to the U.S., and those who are looking for a luxury property as an investment.

Have work visas and are looking for a home to purchase while they're in the U.S. The three general groups of international buyers that real estate professionals may encounter are those who have work visas and are looking for a home to purchase while they're in the U.S., those who are looking for a vacation home for when they travel to the U.S., and those who are looking for a luxury property as an investment.

Which type of real estate investment trust derives its income from the rent or sale of property and interest dividends?

Hybrid REIT

Kathy decided to borrow funds from her retirement account to fund the down payment on her new house. Which of the following is true about this loan?

If Kathy's loan is through an employer-sponsored pension plan and she loses her job, the loan will become payable immediately. While the loan Kathy takes from her retirement account won't be used in the lender's DTI calculation, she'll have only five years to repay the loan. If the loan is from an employer-sponsored pension plan and she loses her job, the loan comes due immediately. If she's unable to pay it off or if she fails for any other reason to repay the loan, she'll face income tax consequences.

Which of the following best describes an equity real estate investment trust?

Invests in equity by owning income-producing property, such as malls, apartments, or office parks Equity REITs invest in equity. These REITS own income-producing property, such as malls, apartments, or office parks.

Anna is selling her home and met a nice young couple she really wanted to sell to, but they couldn't get financing. If Anna agrees to carry part of the loan for the buyers, what does she need to understand?

It's important for sellers to understand all of the risks involved in carrying a loan for potential buyers. A E nancial advisor should be consulted.

What did a 2019 National Association of REALTORS® study say about foreign investment in U.S. real estate?

It's less stable than in previous years. According to the National Association of REALTORS® (NAR), foreign investment in U.S. real estate is less stable than in prior years. Between April 2018 and March 2019, foreign investors purchased $77.9 billion of residential property in this country, a decrease from a peak of $153 billion just a couple of years prior.

Involuntary specific lien

Jessica hasn't paid the roofing company that replaced the roof on her home. The contractor placed a mechanic's lien on her property, which is a(n) ______ lien.

Physical

Jody is concerned about the ______ encumbrance that doesn't allow her to start her gardening greenhouse because it sits next to a nature conservancy.

A nonconforming loan is

Loan that doesn't meet Fannie Mae and Freddie Mac requirements.

How much of a mutual savings bank's assets come from savings accounts?

More than 70% of the assets of a mutual savings bank come from savings accounts.

Financing for a real estate transaction can use a note with a __________ or a note with a deed of trust.

Mortgage

Which of the following REITs focuses on lending money for mortgages and investing in mortgage-backed securities?

Mortgage REIT Mortgage REITs lend money for mortgages and make investments in mortgage-backed securities. Retake this Exam Return to Unit 2: Other Institutional Sources of Funds View Exam Results

Which type of real estate investment trust derives a portion of its income from interest dividends?

Mortgage REITs are often owners of real estate mortgage trusts (REMT) and derive a portion of their income from interest dividends.

Municipal bond

Municipal bonds are used for community improvements, such as schools, street improvements, etc.

Which type of bond is used to pay for community improvements?

Municipal bonds are used for community improvements, such as schools, street improvements, etc.

A qualified mortgage is ____.

One that meets stringent CFPB guidelines

What does REIT stand for?

Real Estate Investment Trust

Voluntary and specific A home equity loan creates a voluntary lien because the homeowner consents to the lien. It is specific because it is attached to only one property.

Rich wants to add a room to his house, so he takes out a home equity loan. This creates a(n) ______ lien.

More than 70% of the assets of mutual savings banks are derived from ______.

Savings accounts

Involuntary, specific

Sean hasn't paid his property tax. The tax collector places a lien on his property. How is this lien classified?

The mortgage and the deed of trust are ________ that pledge property as collateral for a loan,

Security instruments The security instrument pledges the property as collateral for the loan, which is described in the promissory note.

Janice is planning to borrow money from her retirement savings. Which of the following is a true statement about her situation?

She should consult with a financial expert before withdrawing the funds. Borrowing funds from any kind of retirement account is a potentially dangerous financial plan. Anyone considering this type of loan should consult with a professional and carefully weigh all the options. Retake this Exam Return to Unit 2: Other Institutional Sources of Funds View Exam Results

Travis made the final payment on his loan according to the loan terms. What must the note holder do to acknowledge that the debt has been repaid?

Sign the note, mark it "paid in full," and return it to Travis.

After bonds are ______, their value goes up and down with the market.

Sold

Her existing mortgage

Stacy is preparing to sell her home, but learns she can't transfer the property until she removes an encumbrance. Which of these is encumbering her property?

Some countries have banks that issue loans for U.S. real estate purchases. What are the main countries that participate?

Taiwan, the U.K., and Canada According to NAR, Taiwan, the U.K., and Canada are three main players in the international lending arena.

promissory note

The document that describes the loan amount and the terms for repaying and is attached to a security instrument is called the ______.

Joe decided to borrow funds from his retirement account to fund the down payment on his new house. It's now two years later and he lost his job. What is true about his pension plan?

The loan must be repaid immediately. When the loan is from an employee-sponsored pension plan, the loan must be repaid immediately or be subject to income taxes and penalties if the former employee has not reached retirement age.

Contract for deed The contract for deed is used by a seller who extends credit to a buyer.

The three types of finance instruments that can be used when financing a real estate purchase are the note with mortgage, note with deed of trust, and ______.

Mutual savings banks prefer to keep their lending activities in their immediate geographic area. Why?

They prefer to personally monitor the loans they issue. Mutual savings banks prefer to keep their mortgage lending in the immediate geographic area (think East Coast) so they can closely monitor the loans.

Government-Sponsored Enterprises (GSES) were created by the U.S. Congress for what purpose?

To make a percentage of loans available to low and moderate income borrowers

Some loan companies are individual entrepreneurs.

True

There are nationwide private loan companies.

True

There are nationwide, regional, and local loan companies.

True

It restricts the owner's use or decreases the value.

What are the effects on a property if it includes an encumbrance?

Loan amount and schedule of repayment

What information is listed on the promissory note?

Equitable Lien An equitable lien is placed on a property as a result of a court order.

What type of lien is placed on a property as a result of a court order?

Endorsement of the note

When a promissory note is sold, how is ownership transferred?

Assignment of the security instrument the note is attached to

When a promissory note is sold, what is recorded in county land records?

A lien on the property due to an unpaid tax bill

Which of the following describes an encumbrance?

Assignment of the note to the new owner

Which of the following is NOT required to transfer ownership of a note?

The borrower and the lender

Which parties must be identified on the promissory note?

Contract for deed

Which real estate finance instrument includes the promise to repay and the security instrument within the same document?

The contract for deed is usually used in a seller-financed transaction.

Which statement correctly describes a contract for deed?

Mutual savings banks were created to serve ______ during the mid-19th century.

Workers

Mutual savings banks were created to serve ______ during the mid-19th century.

Workers Mutual savings banks are primarily concentrated along the East Coast and were created to serve workers during the industrial expansion of the mid-19th century.

An involuntary lien

occurs when a creditor places a claim without the owner's consent.

• Qualified mortgage rules were put in place to protect

protect borrowers from toxic terms in lending and to tighten up loose lending criteria. Borrower income and debt loads are specified in the rules.

What is a government-sponsored enterprise? (GSE)

A private company the U.S. Congress created to make certain borrowing easier and cheaper

Mike has had some financial problems and is considering borrowing from his retirement plan. Which of the following is a true statement?

He should consult with a financial expert before doing so. Borrowing funds from any kind of retirement account is a potentially dangerous financial plan. Anyone considering this type of loan should consult with a professional and carefully weigh all the options. Retake this Exam Return to Unit 2: Other Institutional Sources of Funds View Exam Results

Which of the following are potential private loan resources that may be willing to finance a home?

Individual entrepreneurs

Involuntary, general

Max has a dog that bit his neighbor. The neighbor sued Max, which resulted in a judgment against him. Max refused to pay the neighbor according to the judgment. The neighbor placed a lien against Max. How is this lien classified?

Which type of real estate investment trust involves both residential and commercial properties?

Mortgage REIT

An industrial development bond is a variety of ______ bond.

Municipal An industrial development bond is a variety of municipal bond. They give private investors an opportunity to take advantage of tax-exempt funds in exchange for helping to fund municipal projects, such as apartment buildings.

A local town has been growing and needs a new elementary school. What kind of bond instrument will the town use to finance this project?

Municipal bond

A beneficiary, trustor, and trustee are the parties involved when the finance instrument is a ______.

Note with deed of trust The beneficiary is the lender, the trustor is the borrower, and the trustee is the third party who reconveys title when the loan is paid off.

_________ sets conforming loan limits for mortgages.

The Federal Home Financing Agency

Pension Funds and Trusts

- Buyers can borrow money from their pension plans/retirement accounts. - Funds don't count in the debt-to-income ratio used by lenders. - Failure to pay back the borrowed funds in time is considered early distribution.

Foreign Lenders/Investors

- Foreign lenders provide real estate loans for U.S. purchases. - Foreign investment in U.S. real estate is less stable than in prior years. Between April 2018 and March 2019, foreign investors purchased $77.9 billion of residential property in this country, a decrease from a peak of $153 billion just a couple of years prior.

Real Estate Investment Trusts (REITs)

- Give investors opportunity to invest in real estate - Can be equity, mortgage, or hybrid - Invest mostly in commercial and multi-family real estate - Sold like stock on the open market

Mortgage Brokers and Bankers

- Mortgage bankers originate their own loans and stay with the loan for the entire lifecycle. - The SAFE Act requires loan originators to be fully licensed and carry a mortgage surety bond. - Mortgage brokers seldom invest capital, work with many lenders, and don't service the loan beyond placement

Mutual Savings Banks and Savings Associations

- Mostly concentrated in the eastern U.S. - Prefer to keep lending in their immediate geographic area

Life Insurance Companies

- Prefer to finance large, commercial projects rather than traditional single-family homes - Often purchase blocks of single-family mortgages from the secondary market

Commercial Banks

- Primary source of capital is checking account deposits - Provide construction (interim financing), home improvement, manufactured housing, and home equity loans - Demand deposits = fund supply - Interim financing (e.g., construction loans)

Private Financing

- Sellers - Family member or other individual may make $15,000 tax-free gift to other individuals within IRS limits - Private loan companies - Companies may be national, regional, local, or individual entrepreneurs. - Use junior financing; require collateral - Higher fees and interest rates fees and interest

Real Estate Bonds

- Used to secure funds for financing real estate projects - Municipal bonds are used to fund local projects like roads, schools, and other infrastructure - Corporate bonds are credit instruments used to raise funds

Contract for Deed The vendee is the buyer/borrower, and the vendor is the seller/lender in a contract for deed.

A vendor and vendee are the parties involved when the finance instrument is a ______.

Mark and Nancy purchased a municipal bond to help with the funding of a new school gymnasium. In exchange for their investment, what will they receive?

Interest Municipal bonds are issued for community improvements. Mark and Nancy will receive interest on their bond purchase.

A promissory note is a legal instrument that's similar in nature to a contract.

Which of the following is a true statement about the use of a promissory note?

The promissory note is endorsed to the new owner of the loan

Which of the following is a true statement about when a promissory note is sold?

Materialman's lien Both materialman's and mechanic's liens are involuntary, specific statutory liens.

Which of the following is an example of an involuntary, specific, statutory lien?

Equity REITs

generate income through the collection of rent on, and from sales of, the properties they own for the long-term.

The Contract for Deed

is used by a seller who extends credit to a buyer.

Jumbo loans

loans above the conforming loan limit, set by the FHFA.