chapter 14 part 2 real estate

deed of trust parties

- The borrower = trustor or grantor( who grants the security interest in the property.) - The lender = the beneficiary. The third party is the trustee, which is the entity that arranges for the property to be released from the lien and reconveyed to the property owner once the loan is paid off. If the borrower defaults, the trustee arranges for the foreclosure.

promissory note

- included with two of these financing forms -this is the document that explains who owes money to whom, how much, and how it will be repaid. When it's used in combination with a mortgage or deed of trust, it must also refer to that security instrument.

Power of Sale

-Standard in the deed of trust, but may also be included in a mortgage. -This clause allows the trustee (or the mortgagee, in the case of a mortgage) to sell the property in order to recover losses from borrower default using a non-judicial foreclosure process.

primary mortgage market

-is where the banks that originate loans operate. They have the cash, and they loan it to the borrowers. -The players in the primary mortgage market are home buyers (borrowers) and lenders (commercial banks, credit unions, savings and loans, etc.).

steps of lien theory

1. lender hold lien against property 2. harrowers hold legal and equitable title 3. loan repaid 4. lien removed from title

steps of the title theory

1. lender holds title 2. borrower holds equitable title 3. loan repaid 4. legal title transferred to borrower

In which four of these property transfers does federal law prohibit a lender from enforcing an alienation clause?

1. parent to child 2. spouse to spouse 3. b/w parties in a divorce settlement 4. when a borrower dies and a relative inherits

3 basic instruments of finance

1. the mortgage 2. deeds of trust 3. contract for deed

acceleration clause

Allows the lender to make the loan immediately due and payable if the borrower doesn't abide by the terms of the agreement

What's a discount point?

An upfront charge to make up for the difference between the rate the borrower is receiving and the rate the lender normally requires

Andrea's lender has notified her of its intent to foreclose. Her loan is secured with a deed of trust. What rights does she have to redeem her property?

Andrea can cure the default and reinstate the loan. (the deed of trust gives Andrea the right to cure the default and reinstate the loan, but no rights of redemption after the sale.)

defeasance/reconveyance

Ensures that the borrower will regain full title to the property once the loan is fully repaid

Loan origination fee

Fee charged by the lender to create the loan; expressed as points

Of the institutions listed, which of these is viewed only as a secondary mortgage market player?

Frankie mae

Maggie has a neighbor, Jim, who is facing foreclosure. She likes Jim and wants to help him out, so they agree to do a "subject to" purchase. What does this mean?

Maggie will take over Jim's loan payments without telling his lender she's doing so.

Sheila's financing calls for the use of a promissory note. What's a promissory note?

The borrower's promise to repay a certain sum of money to another party (the lender or holder of the note) under specified terms

Equity

The difference between the home's current value and the amount remaining on the homeowner's loan.

Which of these statements best describes the role that the secondary mortgage market plays?

The secondary market purchases loans from primary lenders and helps keep funds available to loan originators.

reconveyance clause

Used in the deed of trust to describe borrower's right to regain title when debt is repaid

What purpose does the promissory note serve?

a promise the buyer makes to the lender that the note will be repaid in full.

An instrument of finance

is a tradeable asset, like cash, evidence of ownership interest in an entity or property, or a contractual right to receive or deliver cash.

what type of foreclosure? Typical when a borrower defaults on a mortgage

judicial foreclosure

When Brett borrows money to purchase a home, he signs a security instrument called a mortgage, which grants a lien on the property to his lender. Brett is a __________.

mortgagor

what type of foreclosure? Typical when a borrower defaults on a deed of trust

non judicial foreclosure

An investor purchased the mortgage, and the borrower has now defaulted, but the investor can't sue the original lender for reimbursement. what type of provision?

non-recourse

One lot in a new subdivision is finished and ready for sale to a new owner, so the developer will need clear title to transfer the property.

partial release

security instrument

which is what allows the lender to foreclose on the property if the borrower defaults on the loan

RESPA —Real Estate Settlement Procedures Act

which prevents kickbacks for real estate services and requires disclosures

TILA —Truth in Lending Act,

which requires disclosures from the lender to the borrower

The amount charged for use of the money

intrest

Which of the following describes the amount a lender charges a borrower for using money?

interest

negotiable instrument requirements

: 1. Be in writing 2. Have a time limit on the payment (e.g., "on or before January 1, 2016"), or must be payable upon demand; Some negotiable instruments are not payable on demand (for example, drafts, promissory notes, and CDs) while others, such as checks are. 3. Contain a promise or order to pay; The negotiable instrument may not contain any conditions for payment; it must be unconditional. 4. Specify the amount of money to be paid; If interest is charged for the money owed, the rate of interest, which may be fixed or variable, must appear either on the instrument itself or be referenced in an associated document. 5. Be signed by the person/entity who is making the promise or agreement to pay; An authorized agent of the maker/drawer may sign the negotiable instrument for the maker/drawer.

conforming loan

Any mortgage loan that meets the standards of a conforming loan is a loan that Fannie Mae and Freddie Mac will buy. The main standard of a conforming loan is the loan amount, which must be within the maximum allowed for the property type and location. Additional standards include loan-to-value ratio and borrower credit score, so that the risk of default is acceptably lo

defeasance clause.

Used in the mortgage to describe borrower's right to regain title when debt is repaid

Jim decided to refinance his three-year-old mortgage that has a balance of $300,000. He has to pay a fee of 5% of the loan amount to the original lender for paying off the mortgage early. What is this fee called?

a prepayment penalty

in a security instrument makes it clear that the collateral property can't be sold or transferred without the lender's knowledge and consent

alienation clause

When a buyer takes over the seller's original loan with the lender's permission, this is called ______.

an assumption

is officially documented with an assumption agreement signed by the buyer and the seller, which stipulates that buyer will be taking over payments for the note held by the lender.

an assumption

conforming loans or qualified loan? Meets requirements for loan amount and LTV ratio

conforming loan

is a single document that describes the repayment terms and the pledged security; the mortgage and deed of trust both require a separate document that lists the loan payment terms.

contract for deed

The borrower has defaulted on this loan and is automatically in default on another loan.

cross-default

When Don reviews the document that says he pledges the property he just purchased as collateral for his loan, he notices the terms "trustor," "beneficiary," and "trustee." What type of security instrument is being used?

deed of trust

Type of prepaid interest that borrowers pay to lower a loan's interest rate

discount point

The secondary mortgage market buys loans from the primary market. In other words, it helps ______.

ensure funds are available to borrowers

what type of provision? A lender has foreclosed on Pam, but isn't allowed to ask for a deficiency judgment as well.

exculpatory

the mortgage instrument

is a security instrument that describes the agreement between the borrower and the lender to use the property as collateral (security) for the loan. It creates a voluntary lien against the borrower's property so that the lender can foreclose if the borrower doesn't live up to the terms of repayment on the attached promissory note.

contract for deed and parties

is a single document that describes the repayment terms and the pledged security; the mortgage and deed of trust both require a separate document that lists the loan payment terms. -describes the agreement - vendee= the buyer/barrower - vendor= the seller/lendor

legal title

is ownership of the property and gives the holder the right to transfer the property

Release of liability

is simply a written agreement that the lender won't hold the original borrower liable for the loan in case of default

equitable title

is the right to posses the property based on a financial interest, it also give the holder the right to obtain legal title

Gina's mortgage payment arrives late one month. What language in the promissory note allows the lender to charge her a fee as a result?

late charge provision

Charges for loan payments that are received after their due date are usually stipulated in the promissory note attached to the security instrument.

late charge provisions

title theory or lien theory? The borrower holds legal and equitable title, and the lender has a lien against the property.

lien theory

what type of provision? Dennis wishes he could pay his loan off early, but he would have to pay a penalty if he did.

lock-in

prepayment penalties

penalties charged for early repayment of the loan, resulting in the lender receiving less overall interest than agreed

If borrower defaults, allows the property to be sold using non-judicial foreclosure process

power of sale

What is the name of the clause that's standard in a deed of trust and allows the lender to foreclose non-judicially? It can also be included in a mortgage if the state allows it.

power of sale

Fee that's charged when a borrower pays a loan off early

prepayment penalty

Which of the following is the name of a penalty lenders charge when borrowers repay their loans earlier than expected?

prepayment penalty

Janice is obtaining a loan to buy a home. Her loan agreement includes two documents, and she's careful to review the amount of the principal and how it will be repaid. Which document is Janice reviewing?

promissory note

conforming loans or qualified loan? Lender verifies borrower's ability to repay

qualified loan

MIP —Mortgage insurance premium

required on FHA-insured loans

Investors in the____________________ buy loans from primary lenders. They scoop up mortgage debt, which frees up cash for those original lenders to lend out again.

secondary mortgage market

Krista is obtaining a loan to buy a home. Her loan agreement consists of one document called a note and one called a deed of trust. What's the role of the note?

states who owes money to whom, how much, and how it will be repaid

a buyer may not want to assume a loan, but instead will buy the property "subject to" the existing financing. - buyer gets the deed, the new buyer makes the payments on the seller's loan as if nothing has changed.

subject to

The borrower will need a second loan to develop the land purchased with this loan.

subordination

How is a loan assumption documented?

the buyer and seller both sign a assumption agreement

principal

the loan amount balance

two parties of mortgage instrument

the mortgagor (borrower, who grants the lien on the property) and the mortgagee (the lender).

title theory or lien theory? The borrower has equitable title, but the lender or trustee holds legal title to the property.

title theory

usury

when a lender charges a borrower more than the highest allowable interest rate

novation

It's a process that replaces the original borrower with the new borrower as the maker of the note.

What could be a consequence if there were no secondary mortgage market?

Lenders might not have funds available to make new loans to the public.