Unit 14

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

A PROMISSORY NOTE STATING THE AMOUNT OWED AND A SECURITY DOCUMENT, EITHER A MORTGAGE OR A DEED OF TRUST. When a property is mortgaged, the owner must execute (sign) two separate instruments—a promissory note stating the amount owed and a security document, either a mortgage or deed of trust, specifying the collateral used to secure the loan.

A state law provides that lenders cannot charge more than 24 percent interest on any loan. This kind of law is called

A USURY LAW. A law that set limits on rates of interest that may be charged is a usury law. Usury is charging a higher interest rate than the law allows for a specific kind of loan.

A charge of three discount points on a $120,000 loan equals

$3,600. A point is 1 percent of the amount borrowed (the loan amount). Three points would be three times as much: 3% × $120,000 = $3,600.

A promissory note used as a debt instrument without any related collateral is called

AN UNSECURED NOTE. A promissory note used as a debt instrument without any related collateral is called an unsecured note.

A buyer purchased a home under an agreement that made the buyer personally obligated to continue making payments under the seller's existing mortgage. If the buyer defaults and the court sale of the property does not satisfy the debt, the buyer will be liable for making up the difference. The buyer has

ASSUMED THE SELLER'S MORTGAGE. Purchasers who buy a property and formally assume an existing mortgage debt become liable for any deficiency arising from a foreclosure sale. Purchasers who buy a property subject to an existing mortgage are not liable for such a deficiency; the original borrower is still "on the hook."

Judicial foreclosure allows the property to be sold by

COURT ORDER AFTER THE MORTGAGEE HAS GIVEN SUFFICIENT PUBLIC NOTICE. Some states allow nonjudicial foreclosure procedures to be used when the security instrument contains a power-of-sale clause.

The seller agrees to sell the house to the buyer for $100,000. The buyer is unable to qualify for a mortgage loan for this amount, so the seller and the buyer enter into a contract for deed. The interest the buyer has in the property under a contract for deed is

EQUITABLE TITLE. Equitable title in a contract for deed gives the borrower rights of possession and use while the seller retains the legal title during the contract term. If the buyer defaults, the traditional view of a land contract (contract for deed) provides that the seller can evict the buyer and keep any money the buyer has already paid, which is construed as rent.

In title theory states, the mortgagor retains what is called

EQUITABLE TITLE. In title theory states, the mortgagor retains what is called equitable title.

Mortgage or deed of trust typically includes an assignment clause to assist the lender in foreclosure.

False

Under a land contract, the buyer is called the vendor.

False Vendee

Judicial foreclosure allows the property to be sold without a court order after the mortgagee has given sufficient public notice.

False non judiciary

In lien theory states, the mortgagor actually gives legal title to the mortgagee (or some other designated individual) and retains equitable title.

False:title theory

A mortgagor is the one who

GIVES A MORTGAGE. For instance, in a title theory state, a mortgagor, or borrower, gives legal title to the mortgagee, or lender, while retaining equitable title. While the lender actually owns the property until the debt is paid, the borrower has rights of ownership such as possession and use. Because the lender holds legal title, the lender has the right to immediate possession of the real estate if the mortgagor defaults.

In a land contract the vendee

HAS POSSESSION DURING THE TERM OF THE CONTRACT. In a land (installment) contract, vendees are the buyers. They have possession during the term of the contract. They also have equitable, but not legal, title.

Discount points paid to a lender are used to

INCREASE THE LENDER'S YIELD (RATE OF RETURN) ON ITS INVESTMENT. Discount points paid to a lender are used to increase the lender's yield (rate of return) on its investment.

The general types of foreclosure proceedings are

JUDICIAL, NONJUDICIAL, AND STRICT FORECLOSURE. Judicial foreclosure allows the property to be sold by court order after the mortgagee has given sufficient public notice.

In one state, a mortgagee holds a lien on real property offered as collateral for a loan. The mortgagor retains both legal and equitable title to real property. If the borrower defaults on the loan, the lender must go through formal foreclosure proceedings to recover the debt. This state can be BEST characterized as what kind of state?

LIEN THEORY. This state is a lien theory state. The court is enlisted to order and oversee the foreclosure procedure.

A promissory note

MAKES THE BORROWER PERSONALLY LIABLE FOR THE DEBT. A promissory note is the borrower's personal promise to repay a debt according to agreed terms.

A prospective buyer needs to borrow money to buy a house. The buyer applies for and obtains a real estate loan from a mortgage company. Then the buyer signs a note and a mortgage. In this example, the mortgage company is the

MORTGAGEE. Because it receives the mortgage document, the mortgage company is the mortgagee.

A prospective buyer needs to borrow money to buy a house. The buyer applies for and obtains a real estate loan from a mortgage company. Then the buyer signs a note and a mortgage. In this example, the buyer is referred to as the

MORTGAGOR. A buyer who signs a mortgage—the document to be given to the lender—is a mortgagor. The buyer is also the maker (obligor) on the note.

To institute a nonjudicial foreclosure, the trustee or mortgagee may be required to record a

NOTICE OF DEFAULT AT THE COUNTY RECORDER'S OFFICE. In those states that recognize deed of trust loans, the power-of-sale provision is generally given to the trustee.

The lender who holds a promissory note is called the

PAYEE. The lender who holds a promissory note is called the payee.

A woman has just made the final payment on her home mortgage to her lender. There will still be a lien on her property until the lender records a(n)

SATISFACTION OF MORTGAGE. A satisfaction of mortgage, also known as a release or discharge, is executed by the lender when the note has been fully paid. This document returns to the borrower all interest in the real estate originally conveyed to the lender. This release must be recorded in the public record to show that the debt has been removed from the property.

The mortgagee foreclosed on a property after the borrower defaulted on the loan payments. At the foreclosure sale, however, the house sold for only $129,000. The unpaid balance of the loan at the time of the sale was $140,000. What must the lender do to recover the $11,000 the borrower still owes?

SEEK A DEFICIENCY JUDGMENT. A deficiency judgment entitles the mortgagee to a personal judgment against the borrower for the unpaid balance when a foreclosure sale does not produce enough cash to pay the loan balance in full after deducting expenses and accrued unpaid interest. It may also be obtained against any endorsers or guarantors of the note and against any owners of the mortgaged property who assumed the debt by written agreement.

After the foreclosure sale, a borrower who has defaulted on a loan may seek to pay off the mortgage debt plus any accrued interest and costs under what right?

STATUTORY REDEMPTION. The redemption of property by paying off the mortgage debt plus interest and other charges after foreclosure is the right of statutory redemption. It is only possible in states that have statutes permitting it. All states, however, permit redemption before the foreclosure sale; this right is the right of equitable redemption.

A junior lien may become first in priority if the original lender agrees to execute a

SUBORDINATION AGREEMENT. If the original (first mortgage) lender signs a subordination agreement, another loan made more recently (later) may be allowed to take first place; the original loan then drops to second place in priority.

In title theory states, the mortgagor retains equitable title.

True

The lender under a deed of trust is known as the beneficiary.

True

The promissory note is called the note or financing instrument.

True

The seller in a land contract retains legal title to the property during the contract term, and the buyer is granted equitable title and possession.

True

Under a land contract, the buyer is called the

VENDEE. Under a land contract, the buyer is called the vendee.

Under a land contract, the seller is called the

VENDOR. Under a land contract, the seller is called the vendor.

Under a typical land contract, when does the vendor give the deed to the vendee?

WHEN THE CONTRACT IS FULFILLED AND ALL PAYMENTS HAVE BEEN MADE. In the usual land (installment) contract arrangement, the vendor (seller) does not have to give a deed to the vendee (purchaser) until the last payment has been made.

Lenders may charge prepayment penalties on mortgage loans insured or guaranteed by the federal government or on those loans that have been sold to Fannie Mae or Freddie Mac.

false

Nonjudicial foreclosure procedures may be used when the security instrument contains a power

of-sale clause.-True