Real Estate Finance

payee

lender

contract for deed

often used in seller finance deals

In a deed of trust, who is the beneficiary?

the lender

Your client, Ray, wants to purchase a home listed for $200,000. The home is in a revitalization area, and Ray can purchase it under the Good Neighbor Program. How much will he have to pay for the home?

$200,000, less 50%, plus $100 Those who qualify may purchase the home at a 50% discount, and with only $100 down.

Ken and Sue are purchasing a home but are short on the down payment required by their lender. Sue's mother offered to give them cash to help with the down payment. How much can Sue's mother give under current tax laws?

30,000

contract for Deed

= Seller Financing Instrument Purchase agreement, note, security instrument in one document Seller/vendor holds legal title until borrower/vendee pays off loan Terms are flexible

Second mortgage .

A second mortgage (or deed of trust) can be created at the same time as a first mortgage. For example, a second mortgage may be used when the buyer doesn't have enough cash for the entire down payment. The second mortgage is a junior instrument that takes the exact same form as the first mortgage (the senior instrument), but it's identified as junior by displaying the word SECOND across the front. The term "second" means that if there is a foreclosure, this loan is paid off second—after the first mortgage

Reverse Annuity Mortgage (RAM)

A term that is sometimes used in conjunction with reverse mortgages is reverse annuity mortgage (RAM), in which borrowers use the equity in their homes to stay in their homes. A major criterion of a RAM is that the lender makes payments to the homeowner for a specified period of time and gains corresponding ownership.

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. Andrea can negotiate a new loan with the trustee of her current loan and regain title to the property. Andrea can purchase the property from the auction winner who is required to transfer title for 102% of the sale price. Andrea has a statutory right of redemption; she can redeem the property after the foreclosure sale.

Andrea can cure the default and reinstate the loan.

How might a borrower avoid paying the mortgage insurance premium required by an FHA loan? Buy down the interest rates Get conventional financing Have a credit score above 720 Put down a larger down payment

Borrowers may avoid mortgage insurance payments by financing with a conventional loan.

Section 221(d) (3) and (4):

Construction of multi-family rental or cooperative projects

FHA Home Equity Conversion Mortgage (HECM)

FHA reverse mortgages are secured by owner-occupied residential property, including 1-4 unit residential property provided the borrower lives in one unit. Fixed-rate HECM loans are available if the borrower receives a lump sum at the beginning of the loan. If borrowers prefer to receive monthly payments or a line of credit, the rate will be adjustable. Because it is an FHA loan, a mortgage insurance premium is charged.

Government-Sponsored Enterprises (GSEs) List 3 and define

Fannie Mae - buys conforming loans, packages and sells into MBSs, sells shares of MBSs. (from commercial banks) Freddie Mac - buys conforming loans (mostly from thrifts), packages and sells into MBSs, sells shares of MBSs. Federal Home Loan Bank (FHLB) - advances funds to member banks in exchange for collateral (usually mortgages).

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.

Non-Government-Sponsored Enterprises (NonGSEs)

Ginnie Mae Guarantees MBSs that only contain loans insured or guaranteed by a U.S. government agency, which are issued by private institutions.Does not buy mortgages.Does not issue MBSs.

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

Non-disturbance clause:

If a tenant is renting a property, and the property is sold or the lender seizes the property due to borrower default, this clause prevents the tenant from being evicted. In essence, it assures the tenant that his or her rental agreement will be honored.

Instrument Feature Mortgage

In case of default Judicial foreclosure is typical. . Lender executes a satisfaction of mortgage Creates a lien against the property. The mortgagor holds legal title. Two: Mortgagor/borrower Mortgagee/lender

In California, how has state law modified the way the deed of trust works?

It creates a lien on the property, and the borrower, not the trustee, holds legal title.

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 characteristics

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)

Government-Sponsored Enterprises (GSEs)

Private companies such as Fannie Mae, Freddie Mac, Farmer Mac, and the Federal Home Loan Bank that were created by the U.S. Congress to make borrowing easier and more cost effective. Commonly, GSEs serve homeowners, farmers, and students. Farmer Mac buys agricultural loans and loans from rural lenders, and issues MBSs

Promissory Note

Promissory Note Borrower's promise to repay Negotiable instrument If attached to security instrument, security instrument must be referenced Includes amount of principal, interest rate, schedule of repayment, borrower's signature, date of signing Borrower is "maker" Lender is "payee"

Purchase Money Mortgage

Purchase Money Mortgage This is a form of seller financing in which a mortgage is given by the seller to the buyer toward the purchase price. Buyers use this as down payment financing. The seller is the mortgagee and the buyer is the mortgagor. The purchase money mortgage may be a first mortgage, a junior mortgage, or a junior wrap-around mortgage.

Title II Programs Section 203(b):

Purchase of one- to four-family homes

Section 223(e):

Purchase or rehabilitation of a home in an older, declining urban area

VA Loan Requirements

Qualifying calculations-Residual income according to family size, region, and loan amount Debt-to-income ≤ 41% No specific credit score requirement Lender allowed to use compensating factors to qualify a borrower Most loans require the borrower to pay a funding fee (Used by VA to cover expenses in case of default) Fee may be paid in cash or included in loan amount Some veterans are exempt Amount varies and depends on:Down payment amount, First or second VA loan, Military status Certificate of Reasonable Value (CRV) required VA-assigned appraiser creates the CRV VA will not guarantee loan amount above CRV Seller concessions can't exceed 4% of sale price Buyer or seller may buy down interest rate

reverse mortgage

Reverse mortgage loans allow older homeowners, typically 62 and older, to convert home equity into available funds. The home itself is pledged as collateral for the loan and the borrower typically receives the loan funds in one of three ways: Regular monthly advance payments to the borrower, until the approved balance has been achieved A lump-sum payment at the beginning of the loan A line of credit for the approved balance that may be drawn upon as the borrower desires think gives HOME as collateral, bank ends up owning the property

The Secondary Mortgage Market Process

Secondary market players purchase loans from primary lenders and package and sell them as mortgage-backed securities to investors. The money received is then used to purchase additional loans. Makes the primary market possible by giving primary lenders a place to sell their loans to obtain funds to make new loans. Made up of Fannie Mae, Freddie Mac, and investors in mortgage-backed securities (MBSs).

Collateralized Mortgage Obligations (CMOs)

Security made up of mortgages and/or mortgage-backed securities and organized into tranches (security classes). Played a role in the 2007 financial crisis.

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

credit unions

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

Home Equity Line of Credit (HELOC) .

also uses the equity homeowners have in their property. However, because of how it's set up (as a line of credit), homeowners use this as an open-end account. In this way, a HELOC is similar to the revolving credit of a credit card from which the homeowner can take advances, repay money, and even borrow money again. Specific criteria that vary by lender apply to equity loans and HELOCs. In general, here are a few: The draw period is generally 10 to 20 years. The maximum loan-to-value ratio can be as high as 90 to 95%, and in many cases may be as low as 80%. Closing costs may apply. An appraisal is often required. No interest is paid until funds are drawn on the loan. One significant difference between an equity loan and some HELOCs is whether the interest rate is fixed. While the rates on an equity loan are usually fixed, HELOC rates are often variable (ARMs). think is given in payments like a credit card

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

endorsement of the note

Reverse Mortgage

Also called a reverse annuity mortgage, this loan is made using the equity in the property, but the homeowner continues living in the home while the lender makes payments to the homeowner and gains corresponding ownership of the property over time. When the homeowner leaves the home, the lender sells the property to pay back the amount of the loan and interest. This is designed for older homeowners who want to use the equity in their homes to stay in their homes.

Bridge Loan

Also known as a swing loan, this is a temporary (for example, 90-day) loan that provides funds for a homebuyer to use as a down payment for a new home, prior to selling the current home. A bridge loan is more expensive than an equity loan, but often doesn't require repayment of principal for a few months. It's somewhat risky since the homeowner could be paying for a mortgage on the new home, the mortgage on the old home (until it sells), and the bridge loan all at the same time. A bridge loan is best used when the buyer's current home is already under contract.

Non-recourse clause:

Because a note and mortgage or note and deed of trust are negotiable instruments, this clause can be included to protect the original mortgagee/beneficiary if the security instrument is sold and the borrower subsequently defaults. If the security instrument doesn't include this clause, the entity that sold the security is required to reimburse the security's buyer if the borrower defaults. With the non-recourse clause, the entity that buys the security is responsible for taking action to recover the remaining balance of the loan if the borrower defaults. (In actual practice, the borrower interacts with a loan servicer to make payments, and that loan servicer will take action against the appropriate party if the borrower defaults.)

FHA Loan Options

Buyer or seller may buy down interest rate Seller may pay up to 6% of buyer's closing costs Second mortgage may be allowed Assumptions are allowed if new borrower meets credit requirements and occupies property

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.

An industrial development bond is a variety of ______ bond.

Municipal

Section 234(c):

Purchase of a single condo unit

Section 203(n):

Purchase of a unit in a cooperative housing project

Seller Financing Options

Seller Financing Options Full financing Second mortgage (supplement conventional first) Wrap-around mortgage Buydown points (permanent or temporary)

Cross-default:

This clause automatically puts a borrower in default on all loans if the borrower defaults on any loan where the clause is included.

Why might a homebuyer use an FHA 203(k) loan instead of the standard 203(b) loan?

To roll the cost of rehabilitating the purchased home into the mortgage

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

Section 203(h):

Victims of disasters may receive 100% financing to reconstruct or replace a damaged home if they file within one year of the disaster.

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

When a note is sold, the promissory note is endorsed to the new owner of the loan.

The ______ clause protects the borrower's assets that aren't part of the voluntary lien from a deficiency judgment in case of foreclosure.

exculpatory

Jamal is active military. His cousin, Piper, is in the National Guard. If they both qualify for a VA loan ______. Both Jamal and Piper will pay the same funding fee. Jamal's funding fee will be one-half of Piper's. Jamal will pay less than Piper for his funding fee. Jamal will pay slightly more than Piper for his funding fee.

jamal will pay slightly lower fee Active military members with the same loan amount as a reservist or National Guard serve member will pay a slightly lower funding fee.

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

mortgage REITs

Lock-in clause:

this is a form of pre-payment penalty. The borrower isn't allowed to pay the loan in full prior to a specific date, allowing the lender to continue making money from the interest on the loan. Prepayment penalties of any sort have largely been outlawed and are not allowed on most government loans. The lock-in clause is something that is only likely to be included on very high-yield mortgages where the lender wants to ensure earnings for a specific time period.

Pre-payment clause:

this provision allows the borrower to prepay the loan at any time without penalty.

Non-recourse clause:

when included in the sale's agreement, the seller of the security is not liable if the borrower defaults.

The VA loan program offers a basic entitlement amount of ______. $104,250 $144,000 $36,000 $417,000

36,000 The basic entitlement is $36,000, which would allow a veteran to purchase a home priced at $144,000.

Millie and Jerry are purchasing a home using their VA loan benefit. The sales price is $320,000, with 100% financing. Assuming that Jerry has a typical level of entitlement, how much of their loan does the VA guarantee? $104,250 $320,000 $36,000 $80,000

80,000 The VA guarantees up to a quarter of the total loan amount, up to $104,250, so Millie and Jerry's loan is guaranteed for one-fourth of $320,000, which is $80,000.

Loan Modification

A loan modification is an agreement between the borrower and the lender that creates permanent new payment terms. The intent is to make the loan more affordable for the borrower and therefore avoid foreclosure. Modifications are generally considered only when the borrower is already missing payments but still has some financial security and hasn't filed for bankruptcy. Loss of a job may also be a reason to initiate a loan modification. its signed, notarized and recorded

junior lien

A loan that creates a lien against a property that already has been pledged as collateral is a junior lien. The first lien (usually a mortgage or deed of trust) is the senior lien.

Land Contract

Land Contract Also known as a contract for deed, a land installment contract, or an installment sale agreement, this is a contract between a seller and buyer in which the seller finances the buyer's purchase by retaining the deed to the property while the buyer makes payments toward the purchase price. The buyer has the right of possession. Often, there is both a down payment, and at the end of the contract, a balloon payment (which may be a result of the buyer qualifying for a conventional loan). When the loan balance is paid in full, the seller gives the buyer title.

Ralph and Mort are neighbors. Ralph is selling, Mort is buying, and Ralph is offering a second loan to help Mort with his down payment, using a contract for deed. When Mort presents this idea to his lender, his lender balks. Why might that be? It's not an arm's length transaction. Lenders don't approve carryback loans. Lenders don't like contract for deed arrangements. Lenders won't approve a loan in combination with seller financing of any kind.

Lenders don't like contract for deed arrangements.

Section 251:

Loan insurance for adjustable rate mortgages

FHA Loan Programs Title I, Property Improvements:

Loan insurance for moderate rehabilitation of properties without a purchase mortgage or refinance.

Section 255:

Loan insurance for reverse mortgages for borrowers age 62 or older

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.

VA Loan Benefits

No down payment required Competitive interest rates No mortgage insurance (though funding fee may be required) Low closing costs No pre-payment penalty VA works to assist borrowers having trouble making payments

deed of trust

Non-judicial foreclosure is typical due to power of sale clause Trustee executes a deed of reconveyance Trustee holds legal title on behalf of beneficiary Three: Trustor/borrower Beneficiary/lender Trustee

Federal Housing Finance Agency (FHFA)

Oversees Fannie Mae and Freddie Mac and regulates the Federal Home Loan Bank. Establishes limits on conforming loans (loans that meet Fannie Mae and Freddie Mac requirements). Nonconforming loans are those that do not meet all the underwriting standards of Fannie Mae or Freddie Mac.

VA Loan Eligibility

Requires valid Certificate of Eligibility (COE)States eligibility for VA loan and dollar amount of entitlement available Veteran's eligibility based on:Length of service or service commitment Duty status-Character of service Reserves, National Guard, and surviving spouses may be eligible Applicant must also have sufficient income and credit

purchase money loan aka carryback loan types of agreements allow this?

Seller financing, whether it's a first or second loan, and whether it uses a mortgage or a deed of trust, is sometimes called a purchase money loan. Another term used is the carryback loan, which usually refers to a second loan that supplements an institutional loan. second mortgages - note with mortgage and deed of trust only (not contract of deed too I believe)

Regina has defaulted on the terms of her mortgage, and now her lender has foreclosed. The property was sold at a sheriff's sale three months ago. Regina suddenly learns that she has inherited a great deal of money. She wants her property back. Under a judicial foreclosure, what right might allow her to buy her property from the winner of the foreclosure auction?

Statutory right of redemption (used only in judicial foreclosures)

Dana and Phil have evaluated their situation, and have decided to purchase a unit in a cooperative housing project. Which FHA loan program might work for them? Title I Title II, Section 203(n) Title II, Section 234(c) Title II, Section 251

The FHA has a program specifically for the purchase of a unit in a cooperative housing project: Title II Section 203(n).

Exculpatory:

This clause protects the borrower's other assets in case of foreclosure. In a judicial foreclosure, a lender can choose to ask for a deficiency judgment, which would allow the lender to include a request for money over and above the proceeds from the foreclosure sale. The exculpatory clause protects the borrower from that possibility.

growing equity mortgage

This is a fixed-rate mortgage where the monthly payments increase over time according to a set schedule. The interest rate remains the same, and there is no negative amortization; the first payment is a fully amortizing payment. As the payments increase, the amount above what would be a fully amortizing payment is applied directly to the principal balance. This reduces the life of the term and increases the interest savings for the borrower.

graduated mortgage

This is a fixed-rate mortgage with payments that gradually adjust (usually upward) based on a predetermined schedule and amount. The initial payments are less than what would be a fully amortizing payment, which creates negative amortization. However, this type of payment plan can make payments easier in the beginning when perhaps income is lower.

What is the trustee's role when a deed of trust is used to secure property for a loan? To collect payments and service the loan To hold funds in escrow To hold legal title to the property on behalf of the beneficiary until the loan is repaid To hold the note to the property on behalf of the trustor until the loan is repaid

To hold legal title to the property on behalf of the beneficiary until the loan is repaid When a deed of trust is used in a title theory state, the trustee holds legal title to the property on behalf of the beneficiary.

Pledged Account Mortgage

With this type of graduated payment mortgage, the buyer deposits funds into a savings account held by the lender. This fund, plus any earned interest, is used to supplement mortgage payments. The purpose is to reduce payment amounts in the early years.

Straight-Line Mortgage (Constant Amortization)

With this type of mortgage, the amount applied to principal remains constant over the life of the loan. Each payment becomes lower as the loan balance is reduced with each payment.

Bill's loan is secured by a mortgage. Who holds legal title when this security instrument is used?

bill The borrower holds legal title to the property that secures the loan when a mortgage instrument is used.

Home Equity Loan

is made based on the amount of equity the homeowners have in their home. Loan funds, which are received in one lump sum, are frequently used for home renovations, to fund a college education, to pay off credit card debt, or for other major purchases and expenses. Home equity loans are a type of junior financing, which means they're subordinate to the first mortgage, and higher risk means higher interest rates. The amount received is limited to the combined loan-to-value (CLTV) ratio of the first mortgage plus the equity loan (most often this is 90% to 95%). think lump sum is given

Which clause is standard in a deed of trust and affects the foreclosure process that can be used if the borrower defaults?

power of sale clause standard in deed of trust allows non-judicial foreclosure process

Because of the funding fee required for a VA loan, a borrower with no down payment funds saved should ______. Borrow the funds to pay the funding fee Roll the funding fee into the loan Take out two loans Wait until sufficient funds have been saved

roll the funding fee into the loan

The Addams family has an FHA-insured loan. The family's mortgage payment has a fixed interest rate, but after the first five years, the rate will adjust annually. Which FHA loan insurance program are they using?

section 251

Nadia uses a VA loan to buy a house for $125,000. She wants to buy the neighboring property, an empty lot, so she can improve the house using the extra land. The lot is for sale for $135,000. Can she use a VA loan for this purchase? No, she can't obtain another VA loan until she has paid off the first loan entirely. No, since she has already used her entitlement, she can't get another VA loan. Yes, but she must sell the first property and either pay off the loan or have the loan assumed by another veteran before using her VA loan entitlement again. Yes, she should have partial entitlement left.

yes she should have partial entitlement left (remember max is 144,000$ for entitlement) Nadia's first loan was not large enough to use even the entire basic entitlement, so she has sufficient entitlement left to qualify for another VA loan, as long as she can afford the payments.

capitalization rate calculation

(income/prop value) x 100 investors use this to determine how much income is being produced as a percentage of property value

interest paid per month calculated?

(principal x interest) /12

Which of the following best describes a non-recourse mortgage?

A mortgage with a clause that prohibits the lender from suing the borrower for unpaid amounts if foreclosure occurs

Which of the following describes mutual savings bank loans?

Banks focus lending offerings on local businesses and residents.

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

Federal Housing Finance Agency

Tax Implications of Foreclosure

If the lender waives a deficiency (amount still owed by borrower), this may be counted as taxable income for the borrower still could owe taxes on sale in a foreclosure

Alternatives to Foreclosure

Loan modification, short sales, moratoriums, recasting (i believe temp stalling payments), and voluntary conveyance of deed

Qualified Mortgage

Meets certain lending standards. Doesn't include risky features (like balloon payments, terms longer than 30 years, etc.). Borrower's ability to repay has been assessed.

Which of the following statements is true about national lending intuitions? Mortgage-backed securities are offered by credit unions. They control the flow of the local money supply. They fund loans to borrowers. They sell packaged loans to investors.

National lending institutions package loans and sell them to investors. This creates additional funds to purchase more loans from the primary market.

A Notice of Default has been filed to begin the non-judicial foreclosure process. How soon can the Notice of Sale be issued? No sooner than nine months No sooner than one month No sooner than six months No sooner than three months

No sooner than three months

Foreclosure Alternatives

Reinstatement or redemption Deed in lieu of foreclosure Short sale Bankruptcy Loan modification

Contributions for this type of IRA aren't tax-deferred. Roth SEP Simple Traditional

Roth

What is TRID?

TILA-RESPA Integrated Disclosures

Which statement correctly describes a contract for deed?

The contract for deed includes the promise to pay and is usually used in a seller-financed transaction.

blanket lien

The deficiency judgment may include a blanket lien, which will allow the lender to place a lien against any current or future property the borrower owns, until the losses are recovered.

The percentage recommended for a licensee to allocate when building an emergency fund is ______.

The largest percentage possible after paying all essential expenses

Straight Mortgage/Term Mortgage (Interest Only)

This is a mortgage in which the periodic payments go to interest only and the entire principal amount is due at the end of the term

Tonia is buying a new home. She has a down payment of $30,000 and will obtain a $250,000 mortgage from a local bank to make up the remainder of the purchase price. What is this an example of?

leveraging

Which of these would most likely be found in the "potentially negative items" section of a credit report? A current car loan A student loan that has been paid off Credit card with a balance, but no late payments Lien

lien

monthly principal and interest calculated using amoritization chart

loan amount/1000 x factor on chart

What attracts borrowers to adjustable rate mortgages? Balloon payment Convertible feature Initial cap Lower initial interest rate

lower initial interest rate

Home equity loan: vs Home Equity Line of Credit (HELOC)

lump-sum loan based on accrued equity Home Equity Line of Credit (HELOC): open-ended loan based on equity, revolving line of credit for a specified number of years

housing and debt ratio uses net or gross income?

monthly gross income

loan payment thats applied per month calculated?

monthly interest and principal - interest paid per month

debt coverage ratio calculation DCR other calculation

mortgage loan payment amount x number of payments per year DCR = net operating /annual debt service less than 1 is negative return more than 1 is positive return

A property valued at $1 million is returning a net annual income of $85,000. What's its cap rate?

net annual income/prop value 8.5%

To determine debt coverage ratio, ______.

net income/debt service

new principal balance

original principal - amount of payment applied to principal

Which clause is standard in a deed of trust and affects the foreclosure process that can be used if the borrower defaults?

power of sale

growing equity mortgage

principal payments start out smaller and increase in order to gain equity more quickly

if you know amount the person wants to net - calculation for net to seller determining what sales price must be

sales price = net to seller + mortgage payoff amount/100-% commission

net to seller calculation

sales price x (100% - % of commission) - mortgage payoff amount

gross income multiplier calculation

sales price/annual gross income

Gross Rent Multiplier calculation

sales price/monthly gross rent

What is a carryback loan?

second loan financed by the seller

A buyer with a $750,000 loan has a monthly principal and interest payment of $4,376.80. If $3,593.75 is interest, what is the new principal balance after the first payment is applied?

$749,216.95

Judicial process: 11 steps of foreclosure

1) Lender files complaint and notice of action (lis pendens) 2) Court serves summons to borrower 3) Court holds trial and issues order of sale 4) Sheriff records and serves a Notice of Levy 5) Sheriff records and serves a Notice of Sale 6) Court supervises sale of property 7) Sheriff issues Certificate of Sale to highest bidder 8) Sale proceeds are disbursed 9) Lender submits application to see deficiency judgment 10) Redemption period passes 11) Sheriff issues and records Deed of Conveyance to highest bidder

Non-judicial process: 7 steps of foreclosure

1. Before the foreclosure process officially begins, the servicer contacts the borrower about their delinquency and foreclosure alternatives. 2. Trustee files Notice of Default 3. Trustee issues Notice of Sale 4. Reinstatement period occurs 5. Trustee's sale takes place 6. Sale proceeds are disbursed 7. Trustee's deed is issued to highest bidde

In a judicial foreclosure, if a deficiency judgment won't be sought, how soon after the Notice of Levy is recorded can the Notice of Sale be issued? 120 days 20 days 30 days 60 days

120 days

What is the minimum amount of time a Notice of Sale must be posted on a property before the foreclosure sale can take place? 120 days 20 days 30 days 60 days

20 days

You do a listing presentation to a potential client over lunch at a nice restaurant. How much of your meal cost is considered tax deductible? 0% 100% 25% 50%

50%

Which of the following assumptions does the Torrens system make? That any issues that arose in the previous title search have been resolved That any issues that arose in the previous title search remain active That the previous search was not performed accurately That the previous search wasn't performed legally

A Torrens search goes back to just the last search. This approach operates under the assumption that the last search was done appropriately, accurately, and legally, and that any issues that arose were resolved.

Seller Jerome found financing that would include his current mortgage inside the buyer's mortgage. What type of mortgage is this?

A wrap-around mortgage

Which of these transactions must comply with Appraiser Independence Requirements? Duplex being purchased with a Federal Housing Administration loan Five-unit residence being purchased with a conventional loan Four-unit residence being purchased with a conventional loan Single-family home property being purchased with a Veterans Administration loan

AIR apply to conventional loans used to purchase a single-family dwelling of one to four units. Federally insured or guaranteed loans (such as FHA or VA or commercial loans) are exempt.

The ______ clause is also known as a due-on-sale clause.

Alienation

Government loans most often _______. Are either insured or guaranteed by the government Are made directly to homebuyers by a government organization Are unavailable to first-time homebuyers Require at least a 20% down payment

Are either insured or guaranteed by the government

Subprime Lending

Borrowers are rated A, B, C, or D based on their creditworthiness. Borrowers with B, C, or D credit ratings are subprime. The terms subprime and predatory are not synonymous.

How can a foreclosure process be temporarily stalled? By filing for Chapter 7 bankruptcy By fleeing the state By paying off all debts By request

Both Chapter 7 and 11 bankruptcy filings can temporarily stall the foreclosure process. think what can STALL not resolve foreclosure (e.g. paying off all debts)

Business Structures Type: Sole proprietor Protection from personal liability: Legal Requirements: Taxation:

Business Structures Type: Sole proprietor Protection from personal liability: No Legal Requirements: None Taxation: Pass-though

C.A.R. Short Sale Addendum

C.A.R. Short Sale Addendum Notifies parties that the sale is dependent on lender approval

California Foreclosure Reduction

California Foreclosure Reduction Act, a.k.a., the Homeowner Bill of Rights Regulates lenders with high rates of foreclosure; provides for options for borrowers to avoid foreclosure

Which of the following VA programs requires a credit check, new appraisal, and income verification?

Cash Out Refinance

How are account numbers displayed in a credit report? Accounts numbers are truncated for security purposes. Reports display the first four digits of account number. The report displays no portion of the account number. The report displays the entire account number so consumers can ensure the account is theirs.

Credit reports truncate account numbers for security purposes

Deficiency Judgments non recourse vs recourse

Deficiency Judgments Lender's pursuit of amount still owing after foreclosure sale Rarely used A recourse mortgage gives the lender a way to sue the borrower for damages after foreclosure A non-recourse mortgage prohibits the lender from suing the borrower for damages after foreclosure FHA does not allow

Preventing Foreclosure Abuses Mortgage Foreclosure Consultant Law:

Defines a foreclosure consultant, sets certain requirements on these individuals, and sets penalties for violators

The rate at which a bank can obtain a loan from its Federal Reserve bank when using commercial paper as collateral is called the ______ rate.

Discount

dwellings

Dwellings are one to four unit residential property (includes condos, co-ops, mobile homes and trailers used as a residence)

Obtaining an MLO endorsement for a California real estate license requirements: and renewals

Education — Complete 20 hours of pre-licensing Examination — Pass a national and state test Fingerprints — Pass a background check Credit report — Demonstrate financial responsibility RENEW ANNUALLY BY DECEMBER 31 Complete eight hours of continuing education Submit renewal application and fee

Which of the following types of properties may be eligible for purchase by Freddie Mac? A commercial investment property A duplex used as a second home A single-unit commercial space A triplex purchased as a primary residence

Eligible property types include a primary residence that is a single-family home, condo, or manufactured home or properties with up to four units, single-unit second homes, and residential investment properties. a triplex as a primary residence

California's Foreclosure Reduction Act:

Focuses on activities of mortgage servicers and steps in the foreclosure process think reduction of foreclosure is its focus

Randolph is a real estate licensee whose fluctuating income wouldn't qualify him for conventional financing. However, he's able to get financing on a 10-plex. How is this possible? He lied to the lender. He lives in one of the units. Rent covers the mortgage. Ten-plex properties have more flexible financing requirements.

For investors who are willing to manage a property and tenants, buildings whose rental income covers the mortgage make the investor's income less important for qualifying purposes.

Mario lives in a state that requires an abstract of title for property conveyance. The chain of title is broken approximately 50 years prior to the current date. Which of these properly identifies the status of Mario's title? As long as the chain of title is traceable for at least the past 30 years, Mario will have marketable title. Depending on his state's laws, Mario may have marketable title. Mario will have to perform his own research to find information necessary for repairing the broken link. Unless the chain of title can be tracked back to its beginning, Mario won't have marketable title.

If a link in the chain of title is broken, the attorney performing the search will branch out from public records to try to mend the link. State laws dictate how far back the chain must be unbroken for a title to be marketable. depending on states laws, he'll have marketable title

MLO Penalties

Initially $50 per day, then increases to $100 per day after 30 days Maximum of $10,000

How common are interest-only loans today? Rare Somewhat common Somewhat uncommon Very common

Interest-only loans are rare. They were more common before the housing crisis, but because a large number of borrowers defaulted on interest-only loans, they've fallen out of use, and have only recently become available again on a very limited basis. When they're used, the borrower pays only the interest for a specific period of time, usually five to seven years.

What advantage does the 1031 tax-deferred exchange offer?

It allows investors to defer capital gains taxes when selling a property, provided they buy another property.

In California, how has state law modified the way the deed of trust works? If the lender forecloses, the buyer is given a statutory right of redemption, regardless of the foreclosure process chosen. It creates a lien on the property, and the borrower, not the trustee, holds legal title. Legal title to the property stays with the seller until the borrower has 50% equity in the property. The deed of trust may not include a power of sale clause.

It creates a lien on the property, and the borrower, not the trustee, holds legal title.

As independent contractors, licensees may form a(n) ______ to protect personal assets. General partnership LLC Off-shore tax shelter Sole proprietorship

LLC

Which of these business structures offers personal liability protection in the event of a lawsuit against the licensee's business? General partnership LLC Multiple-partner partnership Sole proprietorship

LLC

Which of the following is a passive type of real estate investment? Buy and hold Fix and flip Limited partnership Wholesale

Limited partners are passive investors who invest funds, but don't get involved in the day-to-day activities related to the business.

VA Loan Options

Loans may be assumed by veteran or non-veteran buyers When the new borrower is also a veteran, a substitution of entitlement can be used (creates a novation) Otherwise, the veteran should obtain a release of liability from the new borrower Second mortgages are allowed under certain conditions

what does SAFE stand for

MLO Legislation - SAFE Act The federal Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act)

The Bransons have a conventional loan for which they were required to obtain private mortgage insurance. Their local real estate market has been going like gangbusters, and their house is now appraised at twice their loan balance! Will their PMI be cancelled? what percentage does PMI cancel?

Maybe, but they'll have to petition their lender Cancellation of PMI happens once the borrower reaches a 22% equity position. This is determined by loan-to-value ratio at the time of the purchase. Unless loan-to-value ratio is now 78% or lower, the Bransons would have to petition to get PMI cancelled.

FHA Loan Requirements

Minimum down payment: 3.5% Payment of upfront MIP at closing-May be financed into the loan or paid by seller Payment of annual MIP over life of loan-Adjusted annually and paid monthly-Removal requires pay off of loan or refinance to conventional loan Borrower income and credit qualifications-Housing ratio: 31%Total debt obligation: 43% Credit score: at least 500; 620 preferred Loan limits based on property type and median price for area

Life insurance companies participate in real estate in the ______ arena.

Mortgage blocks from secondary mortgage market

Types of Foreclosures in California Judicial:

Must be used when a security instrument doesn't have a power of sale clause Involves the court May allow lender to seek a deficiency judgment Deficiency judgment protections: Lenders can't seek a deficiency judgment on purchase money loans issued on or after January 1, 2013 Not commonly used in California

The Dodd-Frank Act created the CFPB in part to regulate ______, which were among the largest originators of subprime mortgages prior to the financial crisis of 2007‒2008.

Non-bank lenders

Non-judicial foreclosure elements

Non-judicial: Can be used if security instrument has a power of sale clause Doesn't involve the court, trustee carries out sale Doesn't permit a lender to seek a deficiency judgment More commonly used in California

In a judicial foreclosure, if the sheriff's sale wasn't enough to pay off the borrower's debt plus foreclosure costs, how long does the borrower's redemption period last? 30 days One year There is no redemption period Three months

One year

In which type of partnership does each mortgagee receive a share of the mortgage payment?

Partnership among mortgagees

mortgage loan Originators (MLOs):

Perform certain mortgage-related activities for residential mortgage loans Are regulated by the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) Must be registered with the Nationwide Mortgage Licensing System and Registry (NMLS)

Which of the following best describes foreclosure by writ of entry?

Petition for legal ownership, opportunity to redeem property, notice of eviction if property is not redeemed

Which of the following best describes foreclosure by entry and possession?

Petition to enter, repossession, notice of eviction

Which of the following best describes foreclosure by entry and possession? Notification of pending auction, public auction, notice of eviction Notification of police presence, forced entry, repossession Petition for legal ownership, opportunity to redeem property, notice of eviction if property is not redeemed Petition to enter, repossession, notice of eviction

Petition to enter, repossession, notice of eviction

Private Mortgage Insurance (PMI)

Private Mortgage Insurance (PMI) Required on conventional loans where the LTV is in excess of 80% Protects lender in case the borrower defaults Homeowners Protection Act of 1998 requires PMI to be cancelled when LTV value reaches 78%

Tom, the seller, is financing his buyer Jerry's mortgage. Tom will give this mortgage to Jerry, which will go toward the purchase price. Jerry will use this mortgage for his down payment. What kind of mortgage is this? Package mortgage Purchase money mortgage Reverse mortgage Wrap-around mortgage

Purchase money mortgage

MLO Activities

Receiving information for a loan that will be used to determine qualification Presenting a loan offer to a consumer for acceptance Presenting a revised loan offer to the consumer after they requested a lower rate

Which of the following taxes apply while an investor holds an investment property? Capital gains Recaptured depreciation Rental income Transfer

Rental income is taxable when holding an investment property. The other three taxes take effect when an investment property is sold.

Split/Piggyback Loans

Split/Piggyback Loans 80/10/10 Allows borrower to avoid PMI requirements 10% loan is offered at a higher rate but may be repaid more quickly

The ______ is a government-sponsored enterprise that works through a cooperative system to provide agricultural and rural loans. Agricultural Financial Cooperative System Farm Credit System Federal Agricultural Mortgage Corporation U.S. Department of Agruculture Rural Development Program

The Farm Credit System makes loans available to farmers and rural residents through a system of financial cooperatives.

Bill's loan is secured by a mortgage. Who holds legal title when this security instrument is used?

The borrower holds legal title to the property that secures the loan when a mortgage instrument is used.

home acquisition financing

The loan has to be for ______, which can be a mortgage to buy, build, or improve a main home or even a second home, and the loan amount has to be secured by the property itself. In addition, the loan has to be only for the purchase and improvement—anything used for other purposes is not deductible. The total amount that's treated as home acquisition debt for tax purposes has to be under $750,000 for married couples filing jointly, or $375,000 if the owners are married and filing separately. (unlike regular prop taxes, this doesn't include all prop types like vacation homes etc.)

In a judicial foreclosure, if the sheriff's sale was enough to pay off the borrower's debt plus foreclosure costs, how long does the borrower's redemption period last? 30 days One year There is no redemption period Three months

The redemption period lasts three months following the sheriff's sale if the sale paid off the entire debt (and foreclosure costs).

How soon after the Notice of Default is filed can a trustee's sale occur? One month One month and 20 days Three months Three months and 20 days

The sale may take place three months and 20 days following the recording of the Notice of Default.

Which appraisal approach will likely weigh most heavily during the reconciliation step when appraising a single-family residence? Cost Income Sales comparison Substitution when is cost, income and sales comparison used?

The sales comparison approach is most commonly used for residential properties. The income approach may be best for income-producing properties (such as rentals). The cost approach is often used for unique or newly constructed properties.

Who distributes the trust assets of a person who died? A court-appointed administrator An executor The nearest relative to the trust maker The successor trustee

The successor trustee

When a borrower has paid off the loan, how is the release handled if the security instrument is a deed of trust?

The trustee executes and records a deed of reconveyance and the lender returns the note to the borrower.

Page four of the Closing Disclosure includes consumer education about ______. APR calculations Foreclosure Refinancing The use of an escrow account

The use of an escrow account

In a judicial foreclosure, how long does the borrower's redemption period last if a deficiency judgment isn't being sought? 30 days One year There is no redemption period Three months

There is no redemption period

Growing Equity Mortgage

This is a fixed-rate mortgage where the monthly payments increase over time according to a set schedule. The interest rate remains the same, and there is no negative amortization; the first payment is a fully amortizing payment. As the payments increase, the amount above what would be a fully amortizing payment is applied directly to the principal balance. This reduces the life of the term and increases the interest savings for the borrower.

Graduated Mortgage

This is a fixed-rate mortgage with payments that gradually adjust (usually upward) based on a predetermined schedule and amount. The initial payments are less than what would be a fully amortizing payment, which creates negative amortization. However, this type of payment plan can make payments easier in the beginning when perhaps income is lowe

Package Mortgage

This is a mortgage in which personal property is included with the real property in the sale. This might be used in the case of a furnished condominium, for instance, but it's more commonly used in commercial real estate where business assets are included as collateral.

What is the purpose of the loan transfer disclosure?

To notify the borrower that the loan is being resold on the secondary market, and how and where to make future payments

Fannie Mae Conforming Loans

Total debt ratio: 36 - 45%* Housing ratio: 28%*

Conventional Loans

Total debt ratio: 36% Housing ratio: 28%

VA Loans

Total debt ratio: 41% Housing ratio: N/A

FHA Loans

Total debt ratio: 43% Housing ratio: 31%

Freddie Mac Conforming Loans

Total debt ratio: Up to 45%* Housing ratio: N/A

Type: C Corporation Protection from personal liability: Legal Requirements: Taxation:

Type: C Corporation Protection from personal liability: Yes Legal Requirements: High Taxation: Business and Personal income taxed separately

Type: General Partnership Protection from personal liability: Legal Requirements: Taxation:

Type: General Partnership Protection from personal liability: No Legal Requirements: None Taxation: Pass-though

Type: LLC Protection from personal liability: Legal Requirements: Taxation:

Type: LLC Protection from personal liability: Yes Legal Requirements: Moderate Taxation: Pass-though (For single owner)

Type: Limited Partnership Protection from personal liability: Legal Requirements: Taxation:

Type: Limited Partnership Protection from personal liability: No Legal Requirements: Partnership Agreement Taxation: Pass-though

Type: S Corporation Protection from personal liability: Legal Requirements: Taxation:

Type: S Corporation Protection from personal liability: Yes Legal Requirements: High Taxation: Pass-though

USPAP valuation process steps

USPAP Valuation Process State the problem Identify, gather, analyze data Determine highest and best use Estimate value of the land Use three approaches to estimating property value 6. Reconcile values to determine final appraisal value 7. Report appraisal value

deficiency judgment

When a lender sues a borrower for a deficiency judgment, it's an attempt to recoup the losses the lender sustained in the default and foreclosure process.

What is one disadvantage of a will over a trust? Wills are made public; trusts are not. Wills are more expensive to create than trusts are. Wills don't allow you to appoint an executor. Wills don't allow you to name assets and beneficiaries.

Wills are made public; trusts are not.

power of sale clause

allows borrower in default to sell to avoid foreclosure

Reverse annuity mortgage (RAM):

borrower receives monthly payments, or a lump-sum payment in exchange for ownership of the property. If the loan is not repaid, the bank owns the property think the property is collateral

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

charter

Type of Loan Maximum Loan-to-Value Ratio conventional fannie mae Freddie Mac conforming FHA-insured V A-guaranteed

conventional - 95%(depending on loan type, credit report, etc.) fannie mae confroming - ranges from 60 up to 97% (depends on loan, etc.) freddie mac conforming - 70-95% FHA-insured - 96.5% VA-guaranteed - up to 100% *Mortgage insurance may be required for loans with LTVRs greater than 80%, except for VA loans, which do not require it and don't allow it to be charged.

Which agency regulates FHLBanks? Fannie Mae, Freddie Mac, and the Federal Home Loan Bank are regulated by the ______.

federal housing finance authority federal housing finance agency

Only ______ is paid until the end of a straight mortgage loan term, when the principal is repaid in full. Insurance Interest Points Principal

interest

What type of provision is standard with either the mortgage or the deed of trust, but is included in the promissory note rather than the security instrument?

late charge

calculate total interest paid

monthly principal and interest and total number of payments - original loan amount

Which of the following will be issued only if title is acceptable and an attorney provides a certificate of title opinion? Chain of title Deed Survey Title insurance policy

title insurance policy The title commitment comes before closing; the title insurance policy is issued after closing. The commitment says that a title company is willing to issue title insurance under certain conditions. The policy provides coverage for the property.

Which of the following factors carries the least weight when calculating a credit score? Age of accounts Credit usage Inquiries Type of accounts

type of accounts

RAM

type of reverse mortgage reverse annuity mortgage

torrens system

used in some states, based on last title search and assumes all issues have been resolved

Celeste hopes to qualify for an FHA loan. She calculates her housing ratio as 31%, and her total debt obligation as 42%. Her credit score is 580. Does she qualify under FHA underwriting guidelines? No, she doesn't meet the credit score requirement for an FHA loan. No, she doesn't meet the housing ratio requirement for an FHA loan. No, she doesn't meet the total debt obligation requirement for an FHA loan. Yes

yes housing ratio (under 31% and debt ratio under 43% for FHA)

Growing Equity Mortgage

This is a fixed-rate mortgage where the monthly payments increase over time according to a set schedule. The interest rate remains the same, and there is no negative amortization; the first payment is a fully amortizing payment. As the payments increase, the amount above what would be a fully amortizing payment is applied directly to the principal balance. This reduces the life of the term and increases the interest savings for the borrower. interest stays the same but principal payments increase each month

Wrap-Around Mortgage

This is a form of seller financing in which the seller's mortgage remains in place, but the seller is receiving payments from the new buyer and therefore financing the purchase. The mortgage payments the buyer makes are expected to be higher than the payments on the seller's original loan, so the seller isn't paying out of pocket. It's generally a relatively short-term arrangement (perhaps five years), made until the buyer is able to qualify for a conventional mortgage, and will then pay off the remaining principal to the seller.

Home Equity Loan

This is a loan in which the borrower's home equity is used as collateral. If the property is owned free and clear, the home equity loan is a first mortgage. If not, it is a second or junior mortgage. Rates on home equity loans tend to be higher than conventional loans, and their term rates shorter.

lifting clause

This is a provision that allows the lien(s) ahead of the junior mortgage to be refinanced without changing their priority in lien positions. Lifting clauses in a junior instrument allow a senior loan to be refinanced without affecting its senior lien position.

Blanket Mortgage

This is used in commercial applications where two or more properties are pledged as security for repayment of the loan. For example, a developer may purchase property and subdivide using a construction loan. Once the parcels are ready for sale, the construction loan is converted to a blanket mortgage that covers all the parcels in the subdivisions. When a parcel sells, the release clause allows that individual parcel to be removed from the developer's loan without initiating a due-on-sale clause, which would require the entire loan to be repaid.

Shared Equity Mortgage

This is used most often in commercial lending. The borrower agrees to the lender's participation in the net income from the commercial property or enterprise in order to obtain the loan. The lender may receive interest and a share of the owner's profits.

pre-payment clause

This provision allows the borrower to prepay the loan at any time without penalty. versus lock in clause