Chapter 14 Finance

Reconveyance Deed

"a deed executed by the trustee of a deed of trust after the promissory note is paid off in full by the borrower and the lender instructs the trustee to so execute the reconveyance deed, which reconveys legal title to the borrower"

Firm Commitment

A commitment to insure that a loan will be available for a given buyer.

receiver

A court appointed official responsible for managing a property suiting the period beginning after default and continuing until foreclosure

Deed in Lieu of Foreclosure

A deed given to a lender by a defaulting borrowers who wishes to avoid foreclosure proceedings. The lender may or may not accept the deed

Statutory Right of Redemption

A delinquent borrower's right to redeem property by paying off the debt within a specified period of time after a foreclosure sale.

Real Estate Settlement Procedures Act (RESPA)

A federal law which requires lenders to inform potential homebuyers about various costs involved in arranging mortgage financing and which attempts to standardize settlement practices.

Package Mortgage

A financing arrangement where the borrower pledges both real and personal property as security for a loan.

Sale Lease Back

A financing arrangement which enables a business property owner to sell property with an agreement to lease it back on a long-term, net-lease basis from the investor who bought it.

Deficiency Judgement

A judgement ordered by the court against the borrower when the process from a foreclosure sale are insufficient to satisfy the debt. The defaulting borrows other assists may be sold to satisfy the judgment

Wraparound Mortgage

A junior mortgage which includes the amount of any existing loan(s) plus the balance of the seller's equity after deducting the buyer's down payment. The hold of the wraparound continues to make payments on the existing loan(s). (END OF CHAPTER 14)

subordinate clause

A lease provision which makes the lease inferior in priority to a future mortgage placed against the leased premises

Foreclosure

A legal procedure whereby mortgaged property is either sold to a third party or transferred to the lender in order to satisfy a debt

Foreclosure by Power of Sale

A legal procedure whereby the lender is authorized by the loan agreement to sell the mortgaged property upon default and to apply the proceeds to the debt. The sale must be advertised according to state requirements and an auction sale must be held.

Strict Foreclosure

A legal procedure which enables the lender to take title from a defaulting borrower without a foreclosure sale. The court grants the borrower a specified amount of time to pay off the loan. If the debt is not paid, title is awarded to the lender.

Realease Of Liability

A lender written statement the original borrow from further personal liability on the note.

Take-out Commitment

A lender's commitment to a contractor that permanent financing will be available to pay off a construction loan when the building is completed.

Warehousing

A loan correspondent's practice of holding mortgages in his/her own name until they can be assembled into a package of loans and sold to an investor. The lender usually has a warehouse line of credit at a bank, against which the warehoused mortgages are pledged until they are sold in the secondary mortgage market, and the warehouse line of credit is replenished.

FHA-insured loan

A loan fully insured by the Federal Housing Administration .

Fully Amortized Mortgage

A long-term repayment plan which provides for equal monthly payments of principal and interest. Each months interest is figured on the loan balance at a fixed rate. As the loan matures, the amount of interest decreases each month while the amount paid on the principal increases, also called Amortized Mortgage or Constant Mortgage Plan.

ballon payment

A lump sum pay off of the unpaid balance of a loan, usually at the end of the loan term

subject to

A method of taking over a seller's existing loan without assuming any personal liability for the payment.

Blanket Mortgage

A mortgage loan arrangement where serval parcels of land are pledged as security; used primarily with subdivision financing

VA-guaranteed loan

A mortgage loan where the VA guarantee a lender against loss of foreclosure up to a certain amount for a qualified veteran

Open Mortgage

A mortgage loan which allows the borrower to pay off part or all of principal without penalty at any time before it becomes due .

Graduated Payment Mortgage

A mortgage loan which provides for reduced payments in the first five to ten years in exchange for higher than usual payments which then remain fixed for the balance term of the loan

Defeasance Clause

A mortgage provision which allows the borrower to default the mortgage by repaying the loan according to the terms of the note. When the dent is paid, this provision causes the mortgage to become null and void, allowing the borrower to regain full Right world ownership

Receiver Clause

A mortgage provision which permits a court to appoint a receiver to manage income producing property during a period of default.

Trustee

A neutral third party who holds title on behalf of a lender until the debt is paid

Purchase Money Mortgage

A note secured by a mortgage or deed of trust given by a buyer, as borrower, to a seller, as lender, as part of the purchase price of the real estate.

Partial Release Clause

A part of a mortgage, which provides for the release of part of the property (used as security in the loan) upon payment of a certain amount of the mortgage. Blanket mortgage.

Prepayment Clause

A provision in a mortgage that allows the mortgagor to pay the mortgage debt ahead of schedule without penalty.

Uniform Settlement Statement

A re-printed form on which RESPA requires the lender of certain loans to itemize all settlement charges.

Security Deed

A security instrument which conveys title to the lender until the debt is satisfied. At which time the instrument is cancelled.

collateral

A security pledged for the repayment of a loan.

Swing Loan

A short term loan allowing the purchaser to purchase a new property based on the strength of the equity from the property the purchaser is selling.

Construction Loan

A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

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.

Credit Report

A written report detailing the credit history of a prospective borrower, used by a lender to help determine credit worthiness .

Regulation Z (Truth in Lending)

Adopted by Federal Reserve to implement the truth in leading

Federal Reserve System

Agency responsible for regulating and monitoring the lending practice of federally chartered commercial banks.

Fannie Mae

Agency which buys loans from lenders, to assure them of a continuing flow of funds. It is owned by its stockholders.

Land Contract

Also known as installment contract, installment land contract, or contract for deed. A contract in which the buyer typically makes a small down payment, takes possession, pays the taxes, and makes installment payments of principal and interest to the seller until the purchase price is paid in full. The seller retains title until the buyer has paid all installments and otherwise performed under the contact. (Also in Chapter 14)

Good Faith Estimate

An estimate of the fees due at closing for a mortgage loan that must be provided by a lender to a borrower within three days of the lender taking a borrower's loan application.

Trust Deed

An instrument held by a third party as security for the payment of a note. Unlike a mortgage, a trust deed has a power of sale, allowing the trustee to foreclose non-judiciary. ALSO CALLED: Deed of Trust.

Security Agreement

An instrument which gives a lender a security interest in personal property pledged as collateral for a loan

mortgage

An interest in real property given to a lender as security for the repayment of a loan

Negative Amortization

An loan balance due to insufficient amount of monthly payments to cover the accrued interest. The deficiency is added to the loan balance each month and is compounded at the prevailing interest rate, normally occurs in graduates payment mortgage

Conditional Commitment

An official FHA apprai sal of a specific property. Referred to as cost of acquisition . It is used to determine the amount of loan the FHA \vill insure.

Certificate of Reasonable Value (CRV)

An official VA appraisal of a specific property.

Junior Mortgage

Any mortgage recorded after the first mortgage .

National Banks

Commercial banks which are chartered by the Federal Reserve System.

FHA (Federal Housing Administration)

FHA Mortgage insurance protects the lender against loss in the event of default

FHA Mortgage Insurance Premium (MIP)

FHA mortgage insurance protects the lender against loss in the event of default.

Freddie Mac

Federal Home Loan Mortgage Corporation a secondary mortgage market company similar to RNMA

Federal Equal Credit Opportunity Act

Federal law which prohibits discrimination against credit applicants on the basis of race, color, religion , sex, national origin, marital status, or age.

Trust-in-Lending Laws

Federal law which requires a lender to disclose the exact cost of credit on certain loans so the borrow can compare cost from other credit sources before committing to take the loan

Ginnie Mae

Government National Mortgage Association (GNMA) was established in order to buy special assistance mortgages carrying below market interest

Mortgage Clause

In lien theory state, this provision gives the lender a lien in the property pledged as security.

Granted Clause in a Mortgage

In title theory states, this provision makes the mortgage an outright conveyance of title to the lender

Private Mortgage Insurance (PMI)

Insurance provided by a private carrier that protects a lender against a loss in the event of a foreclosure and deficiency.

Certificate of Sale

Issued to the successful bidder at a foreclosure sale if the state provides a statutory period of redemption to the defaulting owner. If the property is not redeemed within the time allowed by law, a sherifrs deed is issued to the new owner .

Certificate of Sale

Issued to the successful bidder at the foreclosure sale if the state provides a statutory period of redemption to defaulting owner. If th

Usury

Legal limit of interest imposed by states laws, does not Apple to VA and FHA loan

Judicial Foreclosure

Legal proceeding where a lender files a lawsuit against a defaulting borrower in order to force the sale of property held as collateral .

Impounds

Monthly payments of taxes and insurance collected by the lender to assure payment of these items when they become due.

budget market

Mortgage loan in which monthly payments include not only principal and interest but also one-twelfth (1/12) of the annual cost of tax and insurance

exculpatory clause

Mortgage loan provision in which the lender waives the right to seek a deficiency judgment against the borrower. The borrower's personal liability on the note is eliminated, leaving the property itself as the lender's sole security for the debt.

Alienation Clause

Mortgage loan provision which allows the lender to demand the entire loan balance due if the property is sold, or the lender can allow the loan to be assumed by a credit worthy buyer and with an interest rate increase. Also known as due-on-sale clause.

beneficiary

One for whom title is held under a trust and is entitled to receive income from the trust

First Mortgage

One that has the earliest recording date in most instances . See Subordination Clause.

Conventional Loan

One that is neither insured nor guaranteed by the government.

Hold in Due Course

One who, in good faith and without notice of defect, pay valuable condensation to receive a note before it is due

Trustor

Person who creates a trust

Loan Discount

Prepaid interest, paid by a borrower in seeking a loan, designed to increase the lender's yield or profit.

power of sales clause

Provision which enables the lender to foreclose without filing a lawsuit against the defaulting borrower

Notice of Lis Pendens

Recorded notice which indicates that a lawsuit is pending.

Naked Title

Rights granted to a trustee by a trust deed.

thrift institutions

Saving and Loan Association and Saving Banks

Certificate of Eligibility

The VA's official statement regarding the amount of entitlement available to a particular veteran

Entitlement

The amount of loan guarantee that a verteran is eligible to receive for a VA loan

Intrest

The amount paid accrued in return for the use of money

straight term mortgage

The borrower makes periodic payments of interest only for the term of the loan plus a balloon payment at maturity .

Equity of Redemption

The borrower's right prior to foreclosure to repay the balance due on a delinquent mortgage loan.

Estoppel Certificate

The borrower's written acknowledgement of a loan balance. Execution of this document prevents the borrower from later asserting that the amount owed is less than was stated

Hypothecaution

The borrowers retaining possession of property pledged as a security for a mortgage loan

Equitable Title

The buyer's interest in a property from the time he/she enters into a contract until legal title is conveyed at closing. The ultimate right to receive legal title. (Also in Chapter 14)

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.

Equity

The difference between the value of the property and the outstanding loan balance

Title Theory

The legal position adopted by some states holding that the mortgage conveys title to the lender. Upon payment of the debt, the mortgage is defeated and all full rights of ownership are restored to the borrower.

Lien Theory

The legal position adopted by some states, holding that a mortgage only creates a lien rather than conveying title to the lender.

Secondary Mortgage Market

The market where loans are brought from local lenders in order to provide them with a constant supply of cash to originate more loans to homebuyers

Discount Points

The percentage of a loan which determines the amount paid to the lender to increase yield. One point is equal to one percent of the loan anount

Kickbacks

The practice of accepting fees for referrals without providing an actual service.

Discount Rate

The rate of interest the Federal Reserve System charges member banks to borrow money. By controlling the discount rate l, Federal Reserve controls the money Avila me for credit

Annual Percentage Rate (APR)

The total annual cost of credit, including interest, loan discount, all other finance charges for obtaining the loan, expresses as a percent

pledge

The transfer of property to be held by the lender as security for a loan.

Redlining

The unlawful practice of a lender refusing to make a loan solely on the basis of the particular neighborhood involved. Federal Fair Housing Law prohibits the denial of a loan to a qualified borrower purely on the basis of the particular neighborhood

Primary Mortgage Market

Where individual homebuyers go to obtain mortgage loan financing.

jointly and severally liable

Where more than one person signs a note, they are not only liable for their proportionate share, but each is responsible for the entire debt .

prepayment penalty

a fee charged if you repay a loan before the agreed-upon time

promissory note

a written and signed promise to pay a sum of money at a specified time

Shared Appreciation Mortgage

borrower receives below-market interest rate, lender receives a portion of future appreciation

closing costs

fees involved in arranging for a mortgage or in transferring ownership of property

Adjustable Mortgage Rate

when interest starts low, then goes up over time