Chapter 5 - Mortgages-Essential Characteristics and Theories

types of foreclosure proceedings

(1) Judicial foreclosure (2) non-judicial foreclosure (3) strict foreclosure

(1) what is a mortgage (2) who is a mortgager (3) who is a mortgagee

(1) a financing instrument that creates a lien against a property. (2) the borrower who gives the mortgage (3) The lender who gives the money

what are the 2 types of title insurance policies

(1) buyer (2) lender

mortgage forms should include:

(1) identification of participants (2) property description (3) attachment of note (4) due-on-sale clause (5) property taxes (6) insurance (7) preservation and maintenance of property (8) defense clause (9) acceleration clause (10) signatures and acknowledgment (11) prepayment penalty

4 parts of a monthly mortgage payment

(1) principal (2) interest (3) taxes (4) insurance *** Lenders refer to this as PITI

what does a title policy indicate

A title policy indicates the property being encumbered is not owned by someone else and is free of claims against the property. This protects the lender and the borrower against future claims to the property.

When is a mortgage sent to the courthouse for recording? A.) After all parties sign the mortgage closing documents B.) At the time the closing C.) Once the local taxing authority sends out the appropriate forms D.) Within 14 days of the borrower taking possession of the property

A.) After all parties sign the mortgage closing documents

When a mortgage is used to purchase a property, who has ownership of the property? A.) The borrower B.) The state C.) The lender D.) The seller

A.) The borrower

explain how a mortgage is filled out at a courthouse

After all parties sign the mortgage closing documents, the mortgage is sent for recording. In most municipalities, the county courthouse records mortgages by making a copy of the mortgage and assigning the mortgage a book and page number. The copy is filed by the courthouse in its records and the original is returned to the lender with the book and page number indicated on the mortgage.

what is an acceleration clause

Any failure on the part of the borrower can result in the lender accelerating the mortgage and take whatever steps are needed to recover the investment.

what are equitable mortgages

Are considered mortgages under equity because money was lent and security was promised. The lender is secured by taking possession of all the original title documents of the property

What is the "interest" portion of a monthly mortgage payment? A.) The amount of the lender's money (it's interest) invested in a property B.) A charge for the use of the lender's money C.) The amount taken by the government D.) A charge determined by how much money the borrower owes

B.) A charge for the use of the lender's money

What identifies a property being mortgaged? A.) A survey B.) A legal description C.) A plat D.) A mete

B.) A legal description

Gary still owes $78,000 on his mortgage when he sells his house to Allen for $100,000. What would prevent Allen from paying Gary $22,000 and assuming the outstanding $22,000 mortgage? A.) A prevention clause B.) An alienation clause C.) An assumption clause D.) A transfer clause

B.) An alienation clause

When is the note and the mortgage contract signed by a borrower? A.) When an offer is made B.) At the loan closing C.) At the inspection D.) At the recording

B.) At the loan closing

What are the two types of title insurance policies? A.) Broker and owner B.) Owner and lender C.) Lender and seller D.) Lien holder and borrower

B.) Owner and lender

What is a disadvantage when a borrower secures an FHA loan? A.) A high interest rate B.) Property Mortgage Insurance C.)Prepayment penalties D.) A 20% down payment is required

B.) Property Mortgage Insurance

What does title insurance typically insure? A.) The lender against default by the borrower B.) Real property interests of fee simple ownership, or a mortgage C.) The seller against the buyer backing out of the agreement to buy D.) Up to 80% of the value of the property against accidental loss (flood, fire).

B.) Real property interests of fee simple ownership, or a mortgage

Who gets a property's title following a foreclosure? A.) The title passes back to the previous owner. B.) The holder of the mortgage, or a third party who may purchase the real estate at a foreclosure sale. C.) No one, the title is ownerless until the property is resold. D.) The government jurisdiction in which the property is located.

B.) The holder of the mortgage, or a third party who may purchase the real estate at a foreclosure sale.

In what type of mortgage situation does the borrower not actually keep title to the property during the loan term? A.) Mortgage theory B.) Title theory C.) Lien theory D.) Loan theory

B.) Title theory

Besides defaulting on a mortgage, lien holders can also bring about a foreclosure for all of the following EXCEPT for? A.) Overdue taxes B.) Unrepaid overdraft C.) Delinquent homeowner's association dues D.) Unpaid collector's bills

B.) Unrepaid overdraft

Title Insurance protects the lender and the borrower against ______. A.) theft, loss, or damage. B.) future claims to the property. C.) eminent domain action by the government. D.) an increase in property taxes for up to 3 years.

B.) future claims to the property.

The minimum down payment for an FHA loan is A.) 20%. B.) 5%. C.) 3.5%. D.) 10%.

C.) 3.5%.

Why should the note be attached to a mortgage document? A.) Because without it the mortgage would be unenforceable in a court of law B.) Because it is a requirement C.) Because most mortgages do not describe the terms of the note D.) Because it prevents any misunderstandings between the parties

C.) Because most mortgages do not describe the terms of the note

Through what process does a lender take both legal and equitable title to a property in fee simple? A.) Leasehold B.) Loan finance C.) Foreclosure D.) Abandonment

C.) Foreclosure

What type of document does a home owner sign when agreeing to a mortgage? A.) Attachment B.) Covenant of seisin C.) Promissory Note D.) Defeasance clause

C.) Promissory Note

In law, it is assumed that once an instrument affecting title is recorded, everyone is aware of the fact even if they haven't researched the fact. This is called what? A.) The rule of common knowledge B.) The universal law of availability C.) The doctrine of constructive notice D.) The consensus of knowledge

C.) The doctrine of constructive notice

The lender who gives the money to the buyer to purchase a home is called a A.) recorder. B.) mortgagor. C.) mortgagee. D.) finance manager.

C.) mortgagee.

In what type of mortgage situation does the buyer hold the title to the property, but the lender may take back title to the property if the buyer defaults on the loan? A.) Dual theory B.) Title theory C.) Lien theory D.) Intermediary theory

D.) Intermediary theory

In what type of mortgage situation does the buyer hold the deed to the property during the mortgage term? A.) Title theory B.) Security theory C.) Deed theory D.) Lien theory

D.) Lien theory

Who guarantees mortgages offered by the VA loans program? A.) The state government B.) The U.S. treasury C.) Fannie Mae D.) The federal government

D.) The federal government

who manages the FHA insurance program

Department of Housing and Urban Development (HUD)

what is a prepayment penalty

Lenders typically do not want loans that are bringing in high interest to be paid off early. Prepayment penalty allows the lender to assess a penalty to the borrower for paying early.

what happens in lien title states

The buyer holds the deed to the property during the mortgage term. The buyer promises to make all payments to the lender and the mortgage becomes a lien on the property, but title remains with the buyer. The lender's lien is removed once all loan payments have been completed. Foreclosure proceedings in a lien theory state may be more difficult for the lender than in a title theory state, due to the fact that the buyer is holding title to the land and not the lender.

what happens in title theory states

The buyer/borrower does not actually keep title to the property during the loan term. The seller gives the buyer/borrower a deed to the property but when the borrower signs the mortgage for the loan the borrower gives the title back to the mortgage holder. The lender then holds title to the property, as security only, until all loan payments have been made. During that time the borrower has the right to possession of the property, and the lender delivers the deed back to the borrower only after the loan obligation has been satisfied.

what happens in a mortgage by demise

The mortgagee (the lender) becomes the owner of the mortgaged property until the loan is repaid or other mortgage obligation fulfilled in full, a process known as "redemption". Takes the form of a conveyance of the property to the creditor, with a condition that the property will be returned on redemption.

disadvantage of FHA loans

You'll have to pay for mortgage insurance, which will increase the size of your monthly payments.

What identifies a property being mortgaged

a legal description

by definition, what is a foreclosure

a legal procedure in which the property that is used as security for a debt is sold to satisfy the debt in the event of a default.

A loan secured by real estate is called

a mortgage loan or mortgage contract

what is a promissory note or bond

a signed document containing a written promise to pay a stated sum to a specified person or the bearer at a specified date or on demand.

What is used to determine a legal description in a mortgage contract

a survey

due-on-sale clause is also known as

alienation clause

what is a grace period

an agreed-upon time period after the payment is due in which the borrower can still make the payment and not be considered in default.

where is a mortgage recorded

at the courthouse

In the event of default by the purchaser, the lender has the right to do what

bring legal action through the courts to satisfy the debt... This is called a judicial foreclosure since it must be ordered by the court.

Liens tha have attached to the title after the mortgage lien are

junior or subordinate.

VA loans are offered to whom

military service members and their families.

The United States Department of Agriculture (USDA) offers loans to who

rural borrowers who meet certain income requirements. Income must be no higher than 115% of the adjusted area median income (AMI)

Liens that have attached to the title before the mortgage lien are

senior to, or prior to, the mortgage lien

what is a defense clause

states that if the borrower repays the debt when due, the words of grant are void, the mortgage is canceled and the title is given back to the borrower.

what are intermediary theory states

title and lien theories that have been modified

when does the lien attach to the title

when the mortgage is signed by the mortgagor and delivered to the mortgagee and the mortgagor receives the funds whose repayment the mortgage secures.