real estate financing principles

note

(also called a promissory note) a financing instrument that states the terms of the underlying obligation, is signed by its maker, and is negotiable to (transferable to a third party).

trustor

A borrower in a deed of trust loan transaction; one who places property in a trust. Also called a grantor or settler.

assume

A buyer is personally obligated for the payment of the entire debt of a seller... that is, the buyer assumes the debt. the original seller is not liable for the debt if the property is foreclosed on.

prepayment penalty

A charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost

defeasance clause

A clause used in leases and mortgages that cancels a specified right upon the occurrence of a certain condition, such as cancellation of a mortgage upon repayment of the mortgage loan.

release deed

A document, also know as a deed of reconveyance, that transfers all rights given a trustee under a deed of trust loan back to the grantor after the loan has been fully repaid., An instrument executed by the mortgagee or the trustee reconveying to the mortgagor the real estate which secured the mortgage loan after the debt has been paid in full. Upon recording, it cancels the mortgage lien created when the mortgage was recorded.

discount points

A fee charged by the lender at settlement that results in increasing the lender's effective yield on the money borrowed. One discount point equals one percent of the loan amount., Paying 1% of the loan amount to reduce the borrower's monthly payments or interest rate.

loan origination fee

A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount.

deficiency judgement

A personal judgement levied against the borrower when a foreclosure sale does not produce suffiecient funds to pay the mortgage back in full.

negotiable instrument

A written promise or order to pay a specific sum of money that may be transferred by endorsement or delivery. The transferee then has the original payee's right to payment., To be negotiable, an instrument must: (1) be in writing (2) signed by the maker or drawer (3) containing an unconditional promise to pay or order (4) a fixed amount of money (5) on demand or at a definite time (6) containing no additional unauthorized promises or undertakings (7) payable to order or bearer (checks are now exempt from this final requirement).

alienation clause

Also know as "due on sale" clause permits lender to declare balance of loan immediately due if property is sold; prevents loan assumption without lender approval, Also known as "due on sale, resale, or call" clause permits lender to declare balance of loan immediately due if property is sold or to require the new buyer to assume the loan at an interest rate acceptable to the lender; prevents loan assumption without lender approval

subject to

Buyer takes title of property and makes payments on the existing loan ‎but is not personally obligated to pay the debt in full. Original seller ‎might continue to be liable for debt. 14:230‎

lien theory

Some states interpret a mortgage as being purely a lien on real property. The mortgagee thus has not right of possession but must foreclose the lien and sell the property if the mortgagor defaults.

title theory

Some states interpret a mortgage to mean the lender is the owner of mortgaged land. Upon full payment of the mortgage debt, the borrower becomes the landowner.

novation

Substituting a new obligation for an old one or substituting new parties to an existing obligation, The substitution of a new party or a new obligation in a contract. This process requires the agreement of all original parties in the contract, but once it has been agreed to, the original obligate Is released from liability.

acceleration clause

The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrower defaults on an installment payment or other covenant, Clause that makes all future payments due upon a single default of a loan. Prevents lender from having to sue for each payment once a single payment is late.

statutory right of redemption

The right of a defaulted property owner to recover the property after its sale by paying the appropriate fees and charges.

equitable right of redemption

The right of a defaulted property owner to recover the property prior to its sale by paying the appropriate fees and charges

owner financing

The seller is the primary lender securing his or her interest with the ‎use of a deed, note and mortgage, deed of trust, or contract for deed. ‎The buyer takes possession of the property, but the seller retains legal ‎title until paid in full. 14:231‎

deed in lieu of foreclosure

Way for mortgagor to avoid foreclosure by returning deed to lender/mortgagee, Used by the mortgagor (borrower) who is in default to convey the property to the mortgagee (lender) in order to eliminate the need for a foreclosure.

satisfaction

release or discharge of when a note has been fully paid. this document returns to the borrower all interest in the real estate originally conveyed to the lender. entering this release in the public record shows that the debt has been removed from the property.

usury

the act of lending money at an exorbitant rate of interest, Charging more than the maximum legal interest rate

deed of trust

the document used in some states instead of a mortgage, which gives the lender a security interest in the property. Title is conveyed to a trustee by the borrower (who retains equitable title). When the debt is paid in full, title is reconveyed to the borrower. The trustee has full power to sell, mortgage, and subdivide a parcel of real estate. the beneficiary controls the trustees use of these powers under the provisions of the trust agreement.

hypothecation

the pledge of property as security for a loan, To pledge property as security for an obligation or loan without giving ‎up possession of it. The instrument used for this is called a security ‎agreement (a mortgage or deed of trust). 14:224‎