Georgia Real Estate - Section 14 Unit 3

In the definitions listed on page one of the Deed of Trust, how is the lender described?

"The Beneficiary under this Security Instrument"

In a deed of trust, who is the trustee?

A neutral third party

Subordination

A subordination clause allows the security instrument's lien position to be placed in a lower priority to a new loan using the same property as collateral. For example, a developer purchasing a vacant lot may need a construction loan as well as the loan for purchasing the land. The subordination clause in the mortgage makes it possible to obtain the construction loan. Without it, the developer is unlikely to find a lender willing to finance the development of the lot.

Fannie Mae's multi-state note includes a due-on-sale clause, also known as a(n) ______ clause.

Alienation

If you look at covenant number 18, what clause is included that was also seen in the promissory note?

Alienation clause

Acceleration-Clauses 19 and 22

Although they have the power of sale, the lender canʼt just barge into someoneʼs house and say, "Hey, you missed a payment, get out!" These clauses outline the timeline and actions lenders must abide by in order to initiate the sale of a property when the borrower defaults. For example, the lender must give the borrower at least 30 days from the date of notice to pay the entire debt owed (which is called acceleration) before it can proceed with a sale. If borrowers can pull the funds together within five days of the auction date, they can get their property back

Non-recourse clause

Because a note and mortgage or note and deed of trust are negotiable instruments, this clause can be included to protect the original mortgagee/beneficiary if the security instrument is sold and the borrower subsequently defaults. If the security instrument doesn't include this clause, the entity that sold the security is required to reimburse the security's buyer if the borrower defaults. With the non-recourse clause, the entity that buys the security is responsible for taking action to recover the remaining balance of the loan if the borrower defaults. (In actual practice, the borrower interacts with a loan servicer to make payments, and that loan servicer will take action against the appropriate party if the borrower defaults.)

In a deed of trust, who is the trustor?

Borrower

Who's the mortgagor in a mortgage?

Borrower

In the event of foreclosure, the trustee, at the direction of the lender, advertises the property for sale and sells at public auction.

Deed of Trust

The borrower conveys to the trustee, with power of sale, the property used as collateral.

Deed of Trust

The buyer receives the trustee's deed conveying property without covenant or warranty.

Deed of Trust

The lender completes and files a deed of reconveyance or satisfaction of mortgage form to state that the note has been paid off.

Deed of Trust

Transfer of Rights in Property

Hereʼs where borrowers could lose their shirt—and their house—very quickly. By giving the lender "power of sale," the lender can sell the property without judicial proceedings if the borrower defaults.

In a deed of trust, who is the beneficiary?

Lender

The deed of trust and security deed both provided a definition of the lender on page one. The mortgage also provides a definition for the lender. What is the lender called in the mortgage in the sample form in your resources?

Lender

The ______ clause in a deed of trust allows the lender to foreclose non-judicially.

Power of sale

The signature lines on the multi-state Fannie Mae promissory note are set up for ______ to sign.

The borrower

Two parties to the agreement

The borrower (grantor) The lender (grantee)

Cross-default

This clause automatically puts a borrower in default on all loans if the borrower defaults on any loan where the clause is included.

Partial release clause

This clause is usually seen in an instrument used for a new subdivision. It requires the lender to release a portion of the property from the lien when a part of the debt has been paid. This allows a developer to acquire title to one lot in the subdivision and to convey it to a buyer without having to pay off the entire loan. The clause is called the partial satisfaction clause when used in a mortgage, and a partial reconveyance clause when used in a deed of trust.

Exculpatory

This clause protects the borrower's other assets in case of foreclosure. In a judicial foreclosure, a lender can choose to ask for a deficiency judgment, which would allow the lender to include a request for money over and above the proceeds from the foreclosure sale. The exculpatory clause protects the borrower from that possibility.

Pre-payment clause

This provision allows the borrower to prepay the loan at any time without penalty.

Assumption-Clause 25

This section simply states that if another borrower assumes the loan attached to the security deed (assumption), it doesn't necessarily release the original borrower from liability for payment (novation)

Paula purchases a property and signs the note and mortgage. She then immediately rents the property out and doesn't occupy it herself. Review covenant number six and determine if Paula is in violation of it.

This violates the requirement to occupy the property

At the bottom of page two in your resource, there's a paragraph titled Transfer of Rights in the Property. To whom does the borrower convey the property?

Trustee

Now let's look at covenant number 22 in our mortgage. Which of these rights are described there? Select all that apply.

-Lender's right to call the loan due if the borrower defaults -Borrower's right to cure the default and reinstate the loan -Lender's right to sell the property if the borrower defaults

Now let's look at covenant number 22 in our deed of trust. Which of these rights is described there? Select all that apply.

-Lender's right to call the loan due if the borrower defaults -Borrower's right to cure the default and reinstate the loan -Right of the lender to sell the property if borrower defaults

When you look at the first page of the deed of trust in your resources, you'll see a space at the top with the note "Space above this line for recording data." Why is this space important? Select all that apply.

-The evidence of official recording is placed here. -This document isn't valid until it has been recorded.

Security Instruments and Additional Provisions

Depending on the transaction, clauses and provisions may be included in the security instrument or the promissory note to establish the details of the specific agreement. These are some of the provisions that can be used when needed. -Lock-in clause -Subordination -Cross-default -Pre-payment clause -Exculpatory -Partial release clause -Non-recourse clause -Non-disturbance clause

Non-disturbance clause

If a tenant is renting a property, and the property is sold or the lender seizes the property due to borrower default, this clause prevents the tenant from being evicted. In essence, it assures the tenant that his or her rental agreement will be honored.

Which of the following clauses is included in Fannie Mae's multi-state note?

Late charge

At the bottom of page two in your resource, there's a paragraph titled, "Borrower's Transfer to Lender of Rights in the Property." This is the equivalent of a section in the deed of trust and the security deed called, "Transfer of Rights in the Property." This time, to whom does the borrower convey the property?

Lender

Take a look at covenant 21. It talks about environmental law and the presence of hazardous materials on the property. If Snidely is the mortgagor and homeowner, and the gallon of gasoline he keeps in his garage ignites and causes an explosion, is he in violation of this part of the mortgage?

No

We're getting close to the end of the deed of trust. Take a look at covenant 21, Hazardous Substances. If Chris keeps a one-gallon container of gasoline in his garage to fuel his lawnmower, is he risking default?

No

Similar to the deed of trust, the security deed contains a clause that allows lenders to foreclose on and sell the property non-judicially if the buyer is in default. What is this clause?

Power-of-sale clause

In Georgia, lenders use one of two methods to release the security deed when the promissory note is paid in full. One method is to simply note on the original deed that it's being released. What's the second method?

Prepare a Cancellation of Debt Secured by Deed form

In the event of foreclosure, the lender or lender's representative publicly advertises property for sale and sells the property at public auction.

Security Deed

The borrower conveys to the lender, with power of sale, the property used as collateral.

Security Deed

The buyer receives indefeasible title to property from the lender.

Security Deed

The lender may file a Cancellation of Deed to Secure Debt form to state that the note has been paid in full.

Security Deed

The lender may release the deed simply by noting on the deed itself that it is being released.

Security Deed

Who's the mortgagee in a mortgage?

The lender

There are two parties to the Georgia security deed. Who are they?

The lender and the borrower

What is a statutory right of redemption?

The right of a borrower to redeem the property by paying amounts owed plus costs, even after the foreclosure sale

The definitions on page one of the deed of trust and security deed describe the parties to the deed. How is this section of the security deed different from the same section of the deed of trust?

The trustee is not defined

One difference between a judicial foreclosure and a non-judicial foreclosure is that with a non-judicial foreclosure, ______.

There is no statutory right of redemption

Lock-in clause

This is a form of pre-payment penalty. The borrower isn't allowed to pay the loan in full prior to a specific date, allowing the lender to continue making money from the interest on the loan. Prepayment penalties of any sort have largely been outlawed and are not allowed on most government loans. The lock-in clause is something that is only likely to be included on very high-yield mortgages where the lender wants to ensure earnings for a specific time period.

Carl purchases a property and signs the note and deed of trust. He is then called to active duty by the National Guard and is unable to occupy the property until six months have passed. Page three of your resource is where some "uniform covenants" begin. Review covenant number six and determine if Carl is in violation of it.

This is not a violation of the requirement to occupy the property

Freedom-Clause 23

When the debt is paid in full, the lender must cancel the security deed. The borrower pays to have it recorded. (In a deed of trust, the trustee cancels the security and releases the deed to the borrower). Alternately, the lender can execute an official document called a "Cancellation of Deed to Secure Debt," which the borrower can have recorded to prove that the debt is cleared.

In the case of default on a mortgage,

the lender must initiate the lengthy and often costly judicial foreclosure procedure. To save taxpayers (and the parties) both time and money, Georgia circumvents this process with the security deed, which allows the lender to sell the property without judicial proceedings if the borrower defaults. Georgia doesnʼt have escrow or title closings, so the natural, neutral third party required of a deed of trust doesnʼt exist. The security deed not only removes the need for a third party, it also avoids judicial foreclosure. It's the best of both worlds.