Welcome to Section 5, Financing Documents

There are three parties involved in a deed of trust:

- The borrower is the trustor or grantor who grants the security interest in the property. - The lender is called the beneficiary. - The third party is the trustee, which is the entity that arranges for the property to be released from the lien and reconveyed to the property owner once the loan is paid off. If the borrower defaults, the trustee arranges for the foreclosure.

Mortgage Defined

A mortgage is a legally binding document that creates a lien (or security interest) on a piece of property and gives the lender (or mortgagee) the right to foreclose on property if the borrower (or mortgagor) defaults.

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

A promissory note is a legal instrument that's similar in nature to a contract.

Which of the following is NOT required to transfer ownership of a note?

Assignment of the note to the new owner

When a promissory note is sold, what is recorded in county land records?

Assignment of the security instrument the note is attached to

Which of the following statements about liens is true?

Both mechanic's and materialman's liens are junior liens.

A vendor and vendee are the parties involved when the finance instrument is a ______.

Contract for deed

The three types of finance instruments that can be used when financing a real estate purchase are the note with mortgage, note with deed of trust, and ______.

Contract for deed

Which real estate finance instrument includes the promise to repay and the security instrument within the same document?

Contract for deed

You may see a ______ named as a land contract, real estate contract, contract for sale, agreement for deed, or as articles of agreement.

Contract for deed

Which of the following entities has the authority to place an equitable lien on a property?

Court order by judge

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

Endorsement of the note

Max has a dog that bit his neighbor. The neighbor sued Max, which resulted in a judgment against him. Max refused to pay the neighbor according to the judgment. The neighbor placed a lien against Max. How is this lien classified?

Involuntary, general

Sean hasn't paid his property tax. The tax collector places a lien on his property. How is this lien classified?

Involuntary, specific

A mortgage is a legally binding document that creates a lien on a piece of property and gives the lender the right to foreclose on the property if the borrower defaults. Who or what entity is considered the mortgagee?

Lender

Who or what is the mortgagee?

Lender

What information is listed on the promissory note?

Loan amount and schedule of repayment

Which of the following is an example of an involuntary, specific, statutory lien?

Materialman's lien

Financing for a real estate transaction can use a note with a ______ or a note with a deed of trust.

Mortgage

A beneficiary, trustor, and trustee are the parties involved when the finance instrument is a ______.

Note with deed of trust

The mortgage and the deed of trust are ______ that pledge property as collateral for a loan.

Security instruments

Which parties must be identified on the promissory note?

The borrower and the lender

Which statement correctly describes a contract for deed?

The contract for deed is usually used in a seller-financed transaction.

A lender and a borrower sign a mortgage agreement, placing a(n) ______ lien against the borrower's home.

Voluntary and specific

A mortgage lien is a(n) ______ lien.

Voluntary and specific

Lein Theory

the borrower holds the title and owns the house, but a promissory note signed by the borrower gives the lender the right to seize and sell the house should the borrower default.

Contract for Deed (aka land contract, real estate contract, contract for sale, agreement for deed, installment sale, and articles of agreement)

It's usually used when a seller, rather than an institutional lender, is financing the buyer's purchase. The agreement between the parties allows the seller to retain possession of the property title while the buyer pays off the purchase price and occupies the property. The contract allows the buyer to take possession of the property as long as the requirements for repayment are being met. Once the loan is paid off, the seller delivers the deed to the buyer, and the new deed is recorded, completing the agreement.

Krista is obtaining a loan to buy a home. Her loan agreement consists of one document called a note and one called a deed of trust. What's the role of the note?

States who owes money to whom, how much, and how it will be repaid

promissory note

a promise on the part of the borrower (payor or maker) to repay a certain sum of money to another party (payee or holder) under a certain set of terms.

The parties to a contract for deed are

the vendee (the buyer/borrower) and the vendor (the seller/lender).

mortgagor

borrower

Title Theory

the borrower received the deed, but the lender keeps the title and owns the house until the borrower pays off the loan

A promissory note is a debtor's contractual promise to repay. The note must have these elements:

- Borrower's name(s) with language including the "promise to repay" - Lender's identity - Borrower's signature and date of signing (this identifies lien priority) - Amount of the loan (the principal) - Term of the loan and maturity date - Interest rate of the loan (or details of the changing interest rate if it is an adjustable rate) - Specific schedule of payments to be made - If the note is attached to a security instrument, a reference to the security instrument

The deed of trust, which can also be called a trust deed

is an agreement to use the property as collateral for the loan.

mortgagee

lendor

The parties to a promissory note are the

maker (borrower) and the payee (creditor). The borrower makes the promise to pay the creditor.