Law of Contracts Ch. 6-11

List the three theories regarding who holds legal title to a mortgaged property.

1. The title theory title to the security interest rests with the mortgagee. 2. The lien theory under which the legal title remains with the mortgagor unless there is foreclosure. 3. Thee intermediate theory applies the lien theory until there is a default on the mortgage whereupon the title theory applies.

Lenders may have the right to file foreclosure actions in as little as ___________ after the missed payment date.

120 days

Which person is best suited to resolve a property title issue?

A Title Agent

Define breach of contract

A breach of contract is a failure to perform according to the terms of the agreement. Also called default, a breach of contract gives the damaged party the right to take legal action.

Name three contracts where witnesses to signatures may be needed.

A contract which may require witnesses include, but are not limited to, wills, deeds, mortgages and sometimes marriage contracts.

What is a deed of trust?

A deed of trust is a legal document which transfers title to a property to a third-party trustee as security for an obligation owed by the trustor (the borrower) to the beneficiary (the lender).

Which contingency gives the buyer time to apply for and obtain financing?

A financing contingency

What is the difference between a short sale and a foreclosure?

A foreclosure occurs when the lender takes back a house because the homeowner has not made mortgage payments. A short sale happens before a foreclosure takes place. Thus, the lender agrees to accept the short sale price (less than what is actually owed) to avoid the foreclosure process.

Who is a good short-sale candidate?

A homeowner who is late, or will soon be late, on their mortgage payments, and can document their inability to make payments.

What is a judgment lien?

A judgment lien attaches to real and personal property as a result of a money judgment issued by a court in favor of a creditor.

What is a land contract?

A land contract is a complete financing contract executed between a seller and a buyer, in which the seller pledges to convey the title to the property at the time when the buyer completes whatever obligations the contract stipulates. Under the terms of the land contract, the buyer gets possession of the property and equitable title, while the seller holds legal title to the property and continues to be primarily liable for payment of any existing mortgage.

What are the four legal features of a lien?

A lien does not convey ownership, with one exception. A lien attaches to the property. A property may be subject to multiple liens. A lien terminates on payment of the debt and recording of documents.

What is a lien?

A lien is a creditor's claim against personal or real property as security for a debt of the property owner.

What is a material defect?

A material defect is any defect in a specific property that could either affect a Buyer's decision to purchase it or affect the property's value, such as a leaking roof or the presence of termites.

List two differences between a mortgage and a deed of trust? (See other correct answers on screen 20.)

A mortgage is a lien on the property being given as collateral, with the legal title remaining in the name of the borrower. In a deed of trust, the borrower conveys the property to the trustee, who holds the title to the collateral on behalf of the lender until the loan terms have been satisfied. A mortgage may be discharged by a simple acknowledgement that the loan terms have been satisfied. A deed of trust is discharged using a reconveyance of title form.

Define liquidated damages

A predetermined amount of money stipulated in the contract to be the total amount of compensation the non-defaulting party should receive upon breach by the other party

What is an ad valorem tax?

A property is taxed according to the value the taxing authority places on the property.

What is a "kick-out" clause?

A sale and settlement contingency with the right to continue marketing a property after a contract has been accepted but not satisfied.

What is a Property Owners' Association Documents Contingency?

A sales contract clause making the sale contingent upon the buyer's receipt and approval of all POA documents, rules and fees.

What are the two ways to write a "sell" contingency?

A settlement contingency and a sale and settlement contingency.

What is a short sale?

A short sale is the sale of a secured real property that produces less money than what is owed to the lender. The lender releases the mortgage or trust deed so that the property can be sold free and clear to a new purchaser by agreeing to a negotiated sale.

An action brought in a court to compel a party to carry out the terms of a contract. A party would be made to perform his or her obligations under threat of contempt of court is known as what?

A suit for specific performance

Who is typically considered the escrow agent in Paragraph 5?

A title company

List two reasons that lenders prefer to use the deed of trust when making loans.

A trustee may be given the power to sell property after default without going through the time-consuming judicial foreclosure process. A deed of trust can be used to secure more than one note.

What is a lock-in clause?

A very drastic form of a prepayment clause which actually prohibits the borrower from paying the mortgage loan in full before a specific date.

What are the three remedies covered in the Default paragraph of the TREC promulgated forms

Accept the earnest money as liquidated damages Sue the defaulting party for specific performance Sue the defaulting party for money damages

What is it called when the seller accepts the entire offer?

Accepted

What is the main advantage and what is the main disadvantage to a borrower to purchase a property "subject to" the mortgage?

Advantage: He cannot be held personally liable for the amount of the debt he assumed. The original owners are still personally and legally responsible for the loan and they may be held liable for any deficiency judgment that could be the result of a foreclosure sale. Disadvantage: They risk losing all the equity they have in the property.

What must be included in all addenda?

All addenda must have the names of the parties involved and the legal address of the property it pertains to.

Identify two actions can modify the terms of a real estate contract?

Amendment and Addendum

List and describe three provisions that are common to most notes. (See other correct answers on screen 5.)

Amount borrowed- This is the face amount of the note that is advanced when the note is executed. Interest rate - The rate can be either fixed or adjustable. If it's adjustable, the note should specify how the rate will change. Amount of payments - The amount of the payments will be determined by the face amount of the loan, the length of the loan and the interest rate.

Define a contract addendum?

An addendum means including an additional document in the already existing one

Define a contract amendment?

An amendment makes changes in an already existing agreement

Describe and define the two classifications of encumbrances.

An encumbrance that affects the physical condition of the property, such as restrictions, encroachments and easements. An encumbrance that affects the title, such as judgments, mortgages, mechanics' liens and other liens.

When one party announces, in advance of the due date for performance, that he or she intends not to perform on his or her side of the bargain, this is called what?

Anticipatory breach

What is a deficiency judgment?

Any outstanding debt remaining after foreclosure and sale of a property.

What type of contingency protects the buyer by ensuring that the property is valued at the sell price?

Appraised Contingency

What are the requirements for someone else to sign a contract in the first person's place?

As long as the person is authorized to do so. This can occur through the power of attorney, corporate management structure, or by creating a contract granting a designated person such authorization.

List 4 environmental disclosures that could accompany a contract?

Asbestos Lead-based paint Radon gas Waste disposal sites

The primary security instruments used by lenders and secured by properties include a ______________. There is not usually a right of redemption allowed and deficiency judgments may be allowed should the lender lose more money that the current value of the subject property that was foreclosed upon.

Both A and B

The two main types of foreclosure options for lenders in Texas are __________________________.

Both A and B

What does a right of rescission clause set forth?

Buyer's right under certain conditions to rescind the sale contract and re-claim their deposits if sellers fail to complete and deliver the property condition disclosure statement to buyers in a timely fashion. The buyer must follow certain procedures and meet certain deadlines in order to legitimately effect the cancellation.

What is a contingency clause?

Conditions attached to an offer to purchase property and is included in the real estate contract which must be met in order to make the purchase offer binding.

Define conveyance

Conveyance is the transfer of legal title of property from one person to another, or the granting of an encumbrance such as a mortgage or a lien.

What are the three stages of conveyance?

Conveyance occurs in three stages: before contract, before completion and after completion.

What does the FHA expect a lender to do at the foreclosure sale for an FHA-insured property if the bids are less than the loan balance?

FHA expects the lender to bid on the debt, take the title, and present it to the FHA along with a claim for insurance.

What causes of death must be disclosed?

Faulty electrical wiring or a gas leak that caused a death on the property along with the corrections made to eliminate the danger. Any murder. Texas has no time limits as to the date of death, however, only known information of a murder must be disclosed.

What information is included in the price and terms provision?

Final price, down payment, and financing information

What type of loan assumption requires a lawyer directed transaction?

Financing through a contract for deed

What are the disadvantages of a land contract for the buyer and the seller?

From the buyer's perspective: The buyer has the risk of making payments before the Seller delivers title. The buyer may have some trouble getting the seller to deed the property at the end of the term. During the life of the contract, liens could have arisen against the seller that would cloud the title. The seller may not be paying the existing mortgage with the buyer's monthly payments. From the seller's perspective: If the buyer defaults, the process of clearing the title could be time consuming and expensiveSince the land contract is indeed a contract, it is subject to differing interpretations, which allows for the prospect of disputes and lawsuits.

Which of the following types of financing is not mentioned in paragraph 3?

Gifts

What type of contingency clause might an insurance agent want if he or she wants to buy a home and be able to conduct business from his basement office?

Home Business Contingency

Define acceleration.

If the borrower violates any of the covenants of the contract, the beneficiary may call for payment of the loan in full and the trustee may sell the property after he or she has filed all the proper notices.

What creates the forbearance period?

In addition to any monetary penalties, the lender can specify a grace period during which a borrower can make a late payment without the lender asserting that the borrower is in default.

The Statute of Frauds in Texas requires that all contracts affecting title to or interest in real estate be what?

In writing and signed by the parties. An oral agreement of sale is void and therefore unenforceable.

Name just two, of the many conditions that a buyer must meet in order to assume a VA loan?

Is a veteran Has sufficient unused entitlement Is otherwise qualified

According to the TREC promulgated Seller Financing Addendum how many days does the buyer have to get financial information to the seller?

It is negotiable

What does the escrow clause in a sales contract do?

It provides for the custody and disbursement of the earnest money deposit, and releases the escrow agent from certain liabilities in the performance of escrow duties.

Who is involved in a primary mortgage market?

Lenders who originate loans

What basically happens in a foreclosure?

Lienors force a property owner to give up title through court action. This may involve either the lienors' forcing the owner to sell and pay off the creditors, or taking title directly.

Mortgages are also known as what?

Liens against property or claims on property

The TREC No. 41-2 addendum is used for what purpose?

Loan assumptions

Define Mediation as set forth in Sec. 154.023.

Mediation is a forum in which an impartial person, the mediator, facilitates communication between parties to promote reconciliation, settlement, or understanding among them.

What may be awarded to the aggrieved party as restitution or to compensate him or her for expenses incurred as a result of a transaction where there is a breach of contract?

Money damages

An investor that lends money secured by a mortgage on real estate is known as a what?

Mortgage Lender

Once the mortgagor has paid off the mortgage in full, the lender will execute and record a document indicating that the loan terms have been met. What is the name of the document?

Mortgage Release

How many pages long is the Addendum For Release Of Liability On Assumed Loan And/Or Restoration Of Seller's VA Entitlement?

One page

The Sales Price, Paragraph 3.C, is calculated by adding what two numbers together?

Paragraph 3.C is calculated by adding 3.A (the down payment) with 3.B (the total financing amount).

Which paragraph of the TREC One to Four Family Residential Contract (Resale) describes the good faith money?

Paragraph 5 - Earnest Money

Explain part performance under the Statute of Frauds.

Part performance is proven when the purchaser pays the purchase price, has possession of the land, and makes improvements on the land, all with the permission of the seller.

The abbreviation POA stands for what?

Property Owners' Association

Explain Renunciation breach of contract.

Renunciation occurs where a party refuses to perform his obligations under the contract. It may be either express or implied. A renunciation occurs when one party, by words or conduct, evinces an intention not to perform, or expressly declares that they will be unable to perform their obligations under the contract in some essential respect.

Which TREC form was designed to document a contract amendment?

TREC # 39-8 is a promulgated Texas amendment form that is a one page, easy to use document

What is Texas' position regarding late payments on a loan?

Texas has no restrictions on late fees. The customary fee is the Fannie Mae standard of 5% after 15 days.

According to Texas law, what is true about prepayment penalties?

Texas law prohibits prepayment penalties on residential mortgage loans secured by the homestead of the borrower if the interest rate on the loan is greater than 12% unless the charge or penalty is required by an agency created by federal law.

What is the most common FHA loan type by number?

The FHA 203 (B) loan

Which Government entity makes low interest loans to Veterans?

The Texas Veterans Land Board

What document is to be used if the buyer is applying for a loan with conventional, FHA, VA or other forms of financing?

The Third Party Financing Addendum for Credit Approval addendum.

List at least two general guidelines to following when working with contingencies?

The fewer contingencies the more attractive the offer will be to the seller. If possible, limit the offer to a single contingency. Only carry out a contingency if absolutely necessary. Contingencies can be negotiated after the fact.

Name the four types of evidence of title.

The four kinds of evidence of title: abstract and opinion, certificate of title, title insurance and Torrens certificate.

How can a short sale be a win-win-win-win for all parties involved?

The lender wins because they are getting back as much of the non-performing loan as they can without the additional time and expense of the foreclosure process. The borrower wins because a portion of the money owed is going to be forgiven and their credit is less affected. The buyer wins because they have purchased a house that is priced right. The licensee wins because the short sale is an opportunity for more listings, to earn more commission dollars and add more value to our services.

List what a mediator does during mediation.

The mediator does:Facilitate communication between the disputing parties,Set ground rules for the process,Remain impartial throughout the proceeding.

What does a due-on-sale clause say?

The parties state their understanding that loans that survive the closing may be called due by the lender. Both parties agree to hold the other party harmless for the consequences of an acceleration of the loan.

What form should a seller use to avoid any responsibility for an assumed loan beyond the closing?

The seller may want to use the TREC Release of Liability Addendum.

With a judicial foreclosure, when is the Deed of Conveyance issued and who issues it?

The sheriff will issue a Deed of Conveyance if the debtor does not redeem the property within the redemption period.

What are the two possible ways to deal with an unbalanced closing statement?

There are two possible ways this could be dealt with: The buyer could pay the seller cash for the difference at closing. The sales price will be lowered to reflect the new lower amount that is owed on the property.

In a non-judicial foreclosure sale, the new purchaser will receive a trustee's deed to the property. But what potential problem exists?

There is no guarantee that the title is clear. There may be some outstanding liens still in effect, such as a federal tax lien, real property taxes or assessments, or a valid mechanic's lien.

Why do many brokers in south Texas often advise including a Lead-paint based disclosure regardless of a property's age?

There is no similar law that applies to paint manufactured in Mexico, and border areas may have homes that used paint made south of the border.

What is the name of the form that discusses Types of Financing?

Third Party Financing Addendum

Which clause in a mortgage allows the mortgagee to declare that the entire mortgage debt is due and must be paid immediately?

This is accomplished through an acceleration clause in the mortgage.

Any legal instrument in writing which passes, affirms or confirms an interest, right, or property and that is signed, attested, delivered, and in some jurisdictions sealed is known as a what?

This is the definition of a deed.

When does a contingency become part of a binding sales contract?

When both parties agree to the terms and sign the contract.

A Judicial Foreclosure typically goes through the __________ while a Non-Judicial Foreclosure action is held _______________.

court system, outside of a courtroom

A contingency clause

gives parties the right to back out of the contract if certain circumstances are not met.

What three types of foreclosure processes enforce mortgage liens?

judicial foreclosure non-judicial foreclosure strict foreclosure

Default of a real estate contract is also called:

material breach of contract.

In a breach of contract the non-defaulting party is:

released from any further obligations of the agreement.

Which offer should be the best one made by the buyer?

the first one

A seller can have another party assume her loan if:

the lender allows it.

What two factors primarily determine lien priority?

the lien's categorization as superior or junior the date of recordation of the lien