Real Estate Principles Chapter 9
Reasons for using debt financing in real estate include to:
-enable greater diversification by purchase of more assets. -enable the purchase of a home -preserve cash for use in one's primary business -lever the purchase of investment property for higher returns
Common types of prepayment penalties for mortgage loans include:
-fee equal to a percentage of the remaining balance. -yield maintenance penalty. -defeasance requirement.
Different methods of amortization of a mortgage loan include:
-fully amortizing, in which the loan exactly pays off with the last regular payment -non-amortizing, in which the regular payments are interest only and the full balance is paid off in the last payment. -partially amortizing, in which a final, larger balance payoff is required in the last payment.
In case of default, accepting a deed in lieu of foreclosure can be preferable to foreclosure for the lender because:
-it is quicker -it creates less public attention -it can be less disruptive to a business property
Creation of the CFPB (Consumer Financial Protection Bureau) was a significant departure in national consumer protection in the CFPB was empowered to oversee and enforce:
-national consumer protection loans -regulation of unfair or deceptive practices -national anti-discrimination laws in consumer finance
Different methods of amortization of a mortgage loan include:
-non-amortizing, in which the regular payments are interest only and the full balance is paid off in the last payment. -fully amortizing, in which the loan exactly pays off with the last regular payment. -partially amortizing, in which a final, larger balance payoff is required in the last payment.
Reasons a deficiency judgment seldom is pursued include:
-nonresidential loans usually are nonrecourse loans -some states do not always permit deficiency judgments -a defaulting borrower usually has few, if any, financial resources
Power of sale foreclosure has statutory protections for the borrower, including requirements for:
-required minimum time before the sale -proper sale procedure -proper legal notice to the borrower
Problems or risks with a contract for deed include:
-seller may encumber the property with liens after the sale -no assurance that clear title can be delivered -absence of standards of practice in such transactions
The index rate in an adjustable mortgage interest rate is
-the "moving part" of the rate -required to be regularly reported -beyond the control of the borrower
Caps for an adjustable rate loan can limit the change in
-the payment from one period to the next -the interest rate over the lifetime of the loan -the interest rate from one period to the next
The contract for deed can be a useful means of financing a property sale
-when either the buyer or the property are substandard to a mortgage lender -when the purchase is too "speculative" to qualify for standard mortgage financing.
The Truth-in-Lending Act requires numerous disclosures to a home mortgage loan applicant, including:
-whether the loan is assumable -whether the loan has a "demand feature" -any prepayment charges -any late charge provisions
The right of a lender to pursue a deficiency judgment when a home mortgage loan is sold at foreclosure auction for less than the mortgage balance exists in some _________ states
40
Lenders prefer chapter 7 bankruptcy over both Chapter 11 and Chapter 13. A major reason is :
Chapter 7 is much faster, avoiding delays in recovery of funds and neglect of the property
Under the Equal Credit Opportunity Act (ECOA) which of these practices probably would be prohibited? Asking a woman applicant:
about child bearing plans
Late fees on standard residential first mortgage loans range ____________ of the late amount
around 4 to 5 %
Which residential mortgage lender tends to require a demand clause in certain common types of home mortgage loans?
commercial bank
Types of home first mortgages differ by the presence or absence of a due-on-sale clause. Types of loans that almost always have due-on-sale clause include:
conventional mortgage loans
A mortgage note usually incorporates all of the _________ of the mortgage
covenants
When the term for maturity is less than the term for amortization then the final payment is:
equal to the regular payment plus an unpaid balance
A buyer acquires a property with existing mortgage debt either "subject to" the debt or by assuming the debt. In which case can default result in foreclosure?
in both cases
The goal of the Home Mortgage Disclosure Act (HMDA) is to assure that home mortgage lenders make loans on the merits of an individual borrower application rather than on:
neighborhood features
A major focus of the Home Mortgage Disclosure Act (HMDA) was to prohibit home mortgage lenders from the practice called:
redlining
Under the Truth-in-Lending Act, a home mortgage borrower has the right to cancel a mortgage loan within three business days after consummation of the loan, so long as it is not for purchase or construction of a principal residence. This is known as the right to:
rescind
The Home Ownership and Equity Protection Act (HOEPA) was enacted out of concern for abuse and predatory practices in _________ mortgage lending
subprime
Late fees are assessed as the percentage of:
the amount of principal and interest over-due
A contract for deed differs from a "normal" sale of property with seller financing in that ______ by the seller until the installment payments are largely completed
title is retained
A deed of trust and a mortgage are generally equivalent, except that the deed of trust is held for the lender by a third party, the trustee who acts in case of default returns the deed of trust to the borrower when the loan is paid off
true
A major focus of the Home Mortgage Disclosure Act (HMDA) and the Community Reinvestment Act (CRA) was to identify and suppress discrimination against neighborhoods on the basis of demographics, a practice called redlining
true
A major risk to the lender in foreclosure is that the process will overlook or fail to properly treat someone with a lien on the property
true
A mortgage loan where the borrower is not personally liable is called a nonrecourse loan
true
A mortgage loan without a due-on-sale clause is called a(n) assumable loan
true
A mortgage note usually adds to its clauses all the covenants of the mortgage
true
A risk that a lender faces in agreeing to change the schedule of payments for a defaulting borrower is that courts may view the change as a new, replacement mortgage, with priority below any other existing lien. This risk is known as recasting of the mortgage
true
An important difference between states requiring judicial foreclosure and states allowing power of sale is that the latter do not require a court-administered public auction
true
An insurance clause in a mortgage requires the borrower to maintain property casualty (homeowner's) insurance acceptable to the lender, and with the lender having joint control
true
Default generally becomes considered substantive when payments have been missed for 90 days. Then the ultimate response of the lender is likely to be foreclosure
true
Default is failure to meet the requirements of the not and, by the reference, the mortgage.
true
Failure to meet some condition required by a mortgage while still maintaining timely payments is referred to as a technical default
true
For a mortgage loan the number of months over which a level payment will fully pay off the loan is called the term for amortization
true
For a mortgage loan the number of months over which a level payment will fully pay off the loan is called the term for amortization.
true
For a mortgage loan the number of months until the final payment is the term to maturity
true
Foreclosure is a legal process of terminating the ownership of the borrower and all liens inferior to the mortgage
true
Historically, two theories of mortgage lending are the title theory where the borrower is considered to transfer title to the lender until the loan is paid off, and the more modern lien theory where the borrower is considered to retain title and convey a lien to the lender
true
If a buyer purchases a property and "assumes" an existing mortgage, this means that the buyer signs the note and is personally liable for the loan
true
If the interest rate is 6 percent on a home mortgage loan and the beginning of month balance is $200,000, then the interest payable at the beginning of the next month would be $1,000
true
In addition to requirements concerning use of the Loan Estimate and the Closing Disclosure, RESPA sets limits on required escrow deposits
true
In case of default, funds not recovered by a lender through foreclosure can be pursued through a deficiency judgement
true
In foreclosure the defaulted borrower has the right to redeem the property up to the time of sale at public auction by paying off the defaulted loan and paying foreclosure expenses of the lender. This is the right called equity of redemption
true
In foreclosure, the priority of a lien is very important since all liens tend to default at once, and the superior lien gets total satisfaction before the next lien gets anything
true
In general, a mortgage borrower takes on personal liability for a loan upon signing the note
true
In modern times most state laws provide for some right of prepayment at least for residential first mortgage loans.
true
In some States, including California, a deed of trust is used instead of a mortgage
true
Personal liability on a mortgage loan means that, in case of default and foreclosure, the borrower can be sued for any unpaid balance
true
Prepayment penalties are limited to a small percentage of residential mortgage loans, while they exist for most mortgage loans on commercial real estate
true
Probably the best known provision of the Truth-in-Lending Act of 1968 is the required computation of APR
true
The Dodd-Frank Act, in creating new standards for home mortgages adopted as a central standard ability to repay
true
The date when an adjustable interest rate is recomputed is called the change date
true
The note defines the exact terms and conditions of a loan
true
The two documents of a mortgage loan are the note and the mortgage
true
They repayment of a loan through a series of scheduled balance reductions is called amortization
true
Under RESPA as modified in 2013, the completed Closing Disclosure form must be available for inspection to a mortgage loan applicant three business days before the closing date
true
Under the traditional common law, a mortgage borrower had no right of prepayment unless it was explicitly stated in the note
true
While a demand clause is rare in fixed-term standard residential mortgage loans it is common in "home equity" credit line loans from a commercial bank.
true
While the borrower is personally liable in almost all residential mortgage loans, most borrowers are not personally liable for commercial property mortgage loans
true
A mortgage prepayment penalty calculated to equal the amount of interest income the lender loses due to prepayment is frequently used in commercial property mortgages, and is called a:
yield maintenance penalty
Match the bankruptcy title to the description. 1: Chapter 7 2: Chapter 11 3: Chapter 13 ____ Court supervised workout of a troubled business. Creditors must accept a workout plan from the debtor and court. ____ Choice, Court supervised workout of a troubled household. Creditors must accept a workout plan from the debtor and court. Court supervised workout of a troubled household. Creditors must accept a workout plan from the debtor and court. ____ traditional bankruptcy where the debtor's unincumbered assets are divided among unsecured creditors in proportion to each creditor's claim.
__2__ Court supervised workout of a troubled business. Creditors must accept a workout plan from the debtor and court. __3__ Choice, Court supervised workout of a troubled household. Creditors must accept a workout plan from the debtor and court. Court supervised workout of a troubled household. Creditors must accept a workout plan from the debtor and court. __1__ traditional bankruptcy where the debtor's unincumbered assets are divided among unsecured creditors in proportion to each creditor's claim.
In selecting from alternative responses to default that are short of foreclosure, the probable order of choices in terms of severity, from mildest to most severe would be: ____ reduction or postponement of mortgage payments .____ deed in lieu of foreclosure. ____short sale. ____Counseling and financial reorganization.
__2__reduction or postponement of mortgage payments. __4__ deed in lieu of foreclosure. __3__ short sale. __1__ Counseling and financial reorganization.
If the interest charge for the current month for a standard home loan is $1,000.00, and the stated interest rate is 4.0 percent per year, what is the approximate current balance on the loan?
$303,030
A defaulted borrower who is seeking to obtain a new home mortgage may have to wait as long as:
-2 years for a VA loan -3 years for an FHA loan -7 years for a loan going to Fannie Mae or Freddie Mac
For home mortgage lending, important results of the Dodd-Frank of 2010 include
-Creating the standard of "Qualified Mortgages" -Integrating all consumer protection regulation concerning home mortgages under a single agency -Creating the CFPB (Consumer Financial Protection Bureau)
Which of these are correct statements about the Home Ownership and Equity Protection Act of 1994 (HOEPA)?
-It had little effect in its first decade or more -It was enacted to curtail predatory practices in home mortgage lending
Which of these statements is (are) correct about the amortization of a standard, level payment home mortgage loan?
-The principal reduction increases each month -More than half the monthly payment is interest for about half the loan term
The Real Estate Settlement Procedures Act (as modified by the Dodd-Frank Act of 2013) requires for virtually every standard home loan:
-a good-faith estimate of closing costs: Loan Estimate -a document explaining the Closing Disclosure and fees -a standard closing statement: Closing Disclosure -Prohibition of "kickbacks"
Clauses of a mortgage that commonly are also restated in the note include:
-acceleration clause -due-on-sale clause
Elements unique to an adjustable mortgage interest rate, rather than a fixed rate, can include:
-adjustment period -index rate -caps -change date -margin
ECOA, the Equal Credit Opportunity Act of 1974 prohibits consideration in home mortgage lending of:
-child bearing plans of a woman applicant -information about a spouse who is not part of the loan application -whether income is from public assistance -whether income is from part-time or full-time work
ECOA, the Equal Credit Opportunity Act of 1974, prohibits discrimination in home mortgage lending on the basis of numerous criteria, including:
-disability -race -marital status and familial -status -religion -national origin -age -sex
Advantages from a lender's perspective with power of sale rather than judicial foreclosure include:
-faster -less costly
If a default goes into a residential borrower's record, it remains for ___________ years
7
Because it is the quickest form of bankruptcy proceeding, and still preserves the mortgage lien of the lender, lenders prefer, if bankruptcy is to happen, that it be a ___________ proceeding.
Chapter 7
In the United States today, the general pattern for right of prepayment for home mortgage loans is as follows:
Most first mortgage home loans allow prepayment without penalty
A buyer acquires a property with existing mortgage debt either "subject to" the debt or by assuming the debt. In which case is the seller relieved of all possible liability for the loan?
Only in the case of assuming, and only with a release from the lender