Florida Real Estate: Chapter 12: Residential Mortgages

Mortgagor-

A borrower who gives a mortgage on the borrower's property in order to obtain a loan from a lender.

Subject To-

A buyer makes regular periodic payments on the mortgage but does not assume responsibility for the mortgage.

Satisfaction Of Mortgage-

A certificate issued by the lender when the debt obligation is paid in full.

Loan Origination Fee-

A charge by a lender for taking a mortgage in exchange for a loan.

Buydown-

A financing technique in which points are paid to the lender by the seller or the builder that lowers (buys down) the effective interest rate paid by the buyer/borrower, thus reducing the amount of the monthly payment for a set period of time.

Contract For Deed (land Contract)-

A financing technique wherein the seller agrees to deliver the deed at some future date and the buyer takes possession while paying the agreed amount. Also called an installment sale contract or agreement for deed.

Deed In Lieu Of Foreclosure-

A friendly foreclosure (nonjudicial procedure) in which the mortgagor gives title to the mortgagee.

Assignment Of Mortgage-

A legal instrument stating that the mortgagee assigns (transfers) the mortgage and promissory note to the purchaser.

Foreclosure-

A legal procedure whereby property used as security for a debt is sold to satisfy the debt owing to default in payment of the mortgage note or default of other terms in the mortgage document

Mortgagee-

A lender who holds a mortgage on specific property as security for the money loaned to the borrower.

Discount Points-

A method for increasing a lender's yield. See also mortgage discount point.

Right To Reinstate-

A mortgage clause based on the equity of redemption. The mortgagor's right to reinstate the original repayment terms in the note after the mortgagee has initiated the acceleration clause.

First Mortgage-

A mortgage on property that is superior in right to any other mortgage.

Lis Pendens-

A pending legal action.

Due-on-sale Clause-

A provision in a conventional mortgage that entitles the lender to require the entire loan balance to be paid in full if the property is sold.

Prepayment Clause-

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

Defeasance Clause-

A provision in a mortgage that specifies the terms and conditions to be met in order to avoid default and thereby defeat the mortgage.

Receivership Clause-

A provision in a mortgage, related to income-producing property, that is designed to require that income derived be used to make mortgage payments in the event the mortgagor (borrower) defaults.

Short Sale-

A sale of secured real property that produces less money than is owed the lender. The lender releases its mortgage so that the property can be sold free and clear to the new purchaser.

Subordination Agreement-

A written agreement between holders of liens on a property that changes the priority of mortgage, judgment, or other liens under certain circumstances.

Mortgage-

A written agreement that pledges property as security for payment of a debt.

Takeout Commitment-

A written commitment from a financial institution certifying that permanent financing will be provided when the project is completed.

Estoppel Certificate-

A written statement that bars the signer from making a claim inconsistent with the instrument (commonly used with a mortgage assumption).

A mortgage that is recorded after an earlier recorded mortgage is a second mortgage unless a subordination agreement allows the mortgage recorded at the later date to be in higher priority than the earlier recorded mortgage. A. True B. False

A. True A separate subordination agreement (or subordination clause in a mortgage) is used when a mortgage that has been recorded earlier takes a lower lien priority to a mortgage that is recorded later.

An estoppel certificate verifies the unpaid balance and interest rate before the assignment of a mortgage instrument. A. True B. False

A. True The purpose of an estoppel certificate is to stop a claim that the amount owed is different from the actual unpaid balance or that the interest rate is an amount other than the contracted rate.

The current market value of a home is $300,000. There is a mortgage loan on the property of $240,000. The homeowners have $60,000 equity in their home. A. True B. False

A. True The statement is true. $300,000 market value - $240,000 mortgage debt = $60,000 equity.

A lender is charging an origination fee of 1.5% on a new mortgage loan of $300,000. The cost of the loan origination fee is $4,500. A. True B. False

A. True The statement is true. $300,000 × .015 = $4,500.

A home was purchased for $406,250. The buyer received a mortgage loan for $325,000. The LTV is 80%. A. True B. False

A. True The statement is true. $325,000 loan ÷ $406,250 purchase price = .80 or 80% LTV

A lis pendens is a type of constructive notice indicating that the property is involved in pending legal action. A. True B. False

A. True The statement is true. A lis pendens is constructive notice of pending legal action that involves real estate.

The pledging of property as security for repayment of debt is called hypothecation. A. True B. False

A. True The statement is true. Hypothecation refers to the pledging of property as security for repayment of a loan without surrendering possession of the property.

The loan-to-value ratio is 90%. A buyer wants to acquire a property with a purchase price of $350,000. The buyer's down payment is $35,000. A. True B. False

A. True The statement is true. The down payment is 10% of the purchase price. $350,000 × .10 = $35,000.

A deed in lieu of foreclosure is a nonjudicial procedure. A. True B. False

A. True The statement is true. The process is sometimes called a friendly foreclosure because it is a nonjudicial procedure (it does not involve a lawsuit).

The right to reinstate is the mortgagor's right to reinstate the original repayment terms in the note after the lender initiated the acceleration clause. A. True B. False

A. True The statement is true. The right to reinstate clause provides for the mortgagor's right to reinstate the original repayment terms in the note after the mortgagee has initiated the acceleration clause.

When a property is sold subject to the mortgage, the buyer is NOT personally obligated to pay the debt in full. A. True B. False

A. True The statement is true. When a property is sold subject to the mortgage, the buyer is not personally obligated to pay the debt in full.

When default occurs, the lender has the right under the mortgage contract to pursue legal action against the borrower for payment of the debt. A. True B. False

A. True The statement is true. When default occurs, the lender has the right under the mortgage contract to pursue legal action against the borrower for payment of the debt.

An assignment is when ownership of a mortgage is transferred from one company to another company. A. True B. False

A. True The statement is true. When ownership of a mortgage is transferred from one company or individual to another, it is called an assignment.

In title theory states, the mortgage clause that provides that the conveyance of title to the lender is defeated when all the terms of the agreement have been fulfilled is the A. defeasance clause. B. penalty clause. C. insurance clause. D. release clause.

A. defeasance clause. The answer is defeasance clause. In title theory states, the mortgage clause that provides that the conveyance of title to the lender is defeated when all the terms of the agreement have been fulfilled is the defeasance clause.

The person who borrows money to help pay for the purchase of real property is called at various times the A. mortgagor. B. mortgagee. C. lender. D. lienor.

A. mortgagor. The answer is mortgagor. The mortgagor is the borrower (debtor).

In a mortgage transaction in Florida, the legal evidence of the personal debt is the A. note. B. property (collateral). C. borrower's credit history. D. mortgage instrument.

A. note. The answer is note. In a mortgage transaction in Florida, the legal evidence of the personal debt is the note.

Loan Servicing-

An additional source of income for lenders. Servicing fees typically range from ⅜ to ¾ of 1% of the unpaid balance of loans serviced.

Escrow-

An impound account required by most lenders that require borrowers to pay in advance monthly installments for property taxes and hazard insurance. The monthly escrow payment is one-twelfth of the estimated annual expense for property taxes and the hazard insurance premium.

The loan-to-value ratio is 80%. A buyer wants to acquire a property with a purchase price of $116,000. Calculate the required down payment. A. $32,800 B. $23,200 C. $20,000 D. $92,800

B. $23,200 The answer is $23,200. The required down payment is $23,200: $116,000 × .2 = $23,200.

A title company typically does not order an estoppel certificate when handling the closing of a residential condominium unit. A. True B. False

B. False A title company, in preparation for the title closing, will order an estoppel certificate from the association if the property that is being purchased is a condominium.

A borrower is getting a loan for $250,000 at 4% interest. The lender is charging 2 points. The borrower will be charged $10,000 for the points. A. True B. False

B. False The statement is false. $250,000 loan × .02 points = $5,000 points

A note requires that the lender be liable for paying the borrower according to the agreed-upon terms of the loan. A. True B. False

B. False The statement is false. A note represents the borrower's promise to pay the lender according to the agreed-upon terms of the loan.

A prepayment penalty clause is normally included in all mortgages in Florida. A. True B. False

B. False The statement is false. A prepayment clause (not prepayment penalty clause) is normally included in mortgages in Florida, allowing the borrower to pay off part or all of the debt without penalty before loan maturity.

When allowing a buyer to assume an existing mortgage, the seller should require the parties to execute a partial release clause to prevent future liability should the buyer default on the assumed mortgage debt. A. True B. False

B. False The statement is false. A written novation makes the buyer solely responsible for any default on the mortgage loan.

Each discount point lowers the lender's yield. A. True B. False

B. False The statement is false. Discount points are a method for increasing a lender's yield.

In lien theory states, the lender retains title to the property. A. True B. False

B. False The statement is false. In lien theory states, the borrower retains title to the property.

The defeasance clause prevents a buyer from assuming the mortgage. A. True B. False

B. False The statement is false. The defeasance clause in a Florida mortgage releases the mortgage lien once the debt is paid in full.

The lender assigning the mortgage to another company (investor) is the assignee. A. True B. False

B. False The statement is false. The lender assigning the mortgage to another company (investor) is the assignor. The assignor signs the assignment of mortgage and delivers it to the assignee.

Under a contract for deed, the vendee is granted unilateral title. A. True B. False

B. False The statement is false. Under a contract for deed, the vendee (purchaser) is granted equitable title.

A lender agrees to make a loan at 2% interest plus 3 points. The 3 discount points increase the lender's yield by 3%. A. True B. False

B. False Three points increases the lender's yield by 0.375%; or 3 ÷ 8 = 0.375. (The lender's effective yield is 2.375% interest.)

A buyer agrees to purchase a property with an existing mortgage lien. In which situation is the new buyer the only party responsible for the debt? A. Assumption of an existing mortgage B. Novation C. Estoppel D. Subject to the mortgage

B. Novation The answer is novation. A novation agreement makes the buyer solely responsible for any default on the mortgage loan.

A couple has just made the final mortgage payment on their home. What document must the mortgagee file on their behalf? A. Estoppel certificate B. Satisfaction of mortgage C. Novation D. Lis pendens

B. Satisfaction of mortgage The answer is satisfaction of mortgage. The mortgagee must file the satisfaction of mortgage on behalf of the couple.

A home was purchased with a down payment of $50,000 and a loan of $200,000 at 6% interest for 20 years. Monthly payments are $1,432.86. What is the loan-to-value ratio? A. 25% B. 70% C. 80% D. 75%

C. 80% The answer is 80%. $50,000 down payment + $200,000 loan = $250,000 purchase price; $200,000 ÷ $250,000 = .80

If a mortgagee does NOT want the mortgage to be paid ahead of schedule, the mortgage will normally contain A. an acceleration clause. B. a redemption clause. C. a prepayment penalty clause. D. a defeasance clause.

C. a prepayment penalty clause. The answer is a prepayment penalty clause. If a mortgagee does not want the mortgage to be paid ahead of schedule, the mortgage will normally contain a prepayment penalty clause.

When a property is sold "subject to the mortgage," the A. buyer becomes responsible for the note. B. original obligation is substituted with a new note by novation. C. buyer is not responsible for the note. D. seller is relieved of the obligation for the promissory note.

C. buyer is not responsible for the note. The answer is buyer is not responsible for the note. When property is sold "subject to the mortgage," the buyer is not personally liable to the lender for payment of the mortgage debt.

A type of seller financing in which the vendor holds legal title to the property until the buyer has repaid the debt is a A. balloon mortgage. B. purchase-money mortgage. C. contract for deed. D. term mortgage.

C. contract for deed. The answer is contract for deed. The buyer takes possession of the property at closing and receives equitable title to the property until the debt is repaid. Once the debt is repaid, the purchaser receives legal title.

A lender declares all the unpaid balance due and payable as a result of default. The lender is exercising the A. due-on-sale clause. B. right to reinstate clause. C. defeasance clause. D. acceleration clause.

D. acceleration clause. The answer is acceleration clause. The lender is exercising the acceleration clause.

A borrower who is in default on a mortgage is allowed to prevent the lender from foreclosing on the property by paying the mortgagee the delinquent principal and interest, plus any expenses the mortgagee has incurred in attempting to collect the payments. This right is called A. novation. B. a satisfaction of mortgage. C. an acceleration clause. D. the equity of redemption.

D. the equity of redemption. The answer is the equity of redemption. This right allows the mortgagor, before a foreclosure sale, to reclaim the property by paying the indebtedness.

Default-

Failure to comply with the terms of an agreement or to meet an obligation when due.

Land Development Loan-

Financing instrument for the installation of on- and offsite improvements to the land, including sewers, streets, and utilities.

Lien Theory-

Legal concept that regards a mortgage as a just claim on specific property pledged as security for a mortgage debt.

Title Theory-

Legal concept that vests title to mortgaged property in the mortgagee (lender) or a third party.

PITI-

Principal, interest, taxes, and insurance payment on a mortgage loan.

Loan-to-value Ratio (LTV)-

Relationship between amount borrowed and appraised value (or sale price) of a property.

Acceleration Clause-

Stipulation in a mortgage that the entire unpaid balance of the debt may become due and payable if a default of expressed conditions should occur.

Prepayment Penalty-

The amount set by the creditor that the debtor is charged for retiring the debt early.

Assumption-

The buyer of real property that is already mortgaged assumes liability for the mortgage payments of the original loan that remains on the property.

Equity-

The market value of a property less any debt against it; in a business entity, assets minus liabilities equals capital (owner's equity); a system of legal rules administered by a court of chancery.

Interest-

The price paid for the use of borrowed money; estate.

Equity Of Redemption-

The right of a mortgagor, before a foreclosure sale, to reclaim forfeited property by paying the entire indebtedness.

Novation-

The substitution of a new party and/or new terms to an existing obligation.

Hypothecation-

To pledge real or personal property as security for a debt or obligation without giving up possession of the property.