Level 12: Residential Mortgages
Gino owns a home worth $294,000. He owes the bank $190,000. How much equity does he have in the home?
$104,000
Let's imagine Sami's agent is right and her home is worth $290,000 in five years. Let's also imagine she has paid off $7,000 of her loan. Given that her original loan amount was $184,000, how much equity would she have in this scenario?
$113,000 original loan = 184k amt of loan paid = 7k amount of loan left = 184k - 7k = 107k equity = value of property - debt 290k - 107k = 113k
Given that Sami's principal and interest will be $878 a month, the annual property taxes are $2,530 and the annual insurance premium will be around $1,300, what is Sami's monthly payment (PITI)?
$1197.16
Emmy just bought a house. To purchase the house, she got a loan for $300,000 with 4 discount points. How much did she pay for the discount points?
$12,000
Javier wants to put 20% down on a house that costs $639,000. How much does he need?
$127,800
Ben has a monthly mortgage payment. His principal and interest payment is $950 per month. His annual insurance premium is $1,100 and his annual property taxes are $4,200. What is his monthly mortgage payment?
$1391.67
If Greta has an annual interest total of $24,000, how much is her monthly interest payment?
$2,000
Mikayla, a licensed real estate sales agent, helped her client buy a property outside of Springfield. The listing agreement states that 3% of the sales price will go to the buyer's agent as commission. Mikayla made $7,500 in commission in the purchase of the home.
$250,000
If a loan principal is $150,000, how much would 2 discount points cost?
$3,000
Tara took out a non-amortized loan with a 4% interest rate. Making steady monthly payments, she ended up paying $12,500 in interest. What was Tara's loan principal?
$312,500
Sami is buying two points on her $184,000 loan. How much will those points cost her? $4,275 $3,680 $5,520 $1,840 Submit answer
$3680
Sami's lender also charges a 2.45% origination fee. How much is that fee going to be on her $184,000 loan?
$4,508
If Sami's dream home costs $240,000 and she wants to put down 20%, how much does she need for a down payment?
$48,000
Rudy's loan principal is $521,000. What is the cost of one point on his loan?
$5,210
How are points calculated a part of the principal of the loan?
1 point = 1% of the loan principal
What are the 5 ways a property with an outstanding mortgage be sold?
1. All-Case Purchase 2. Buyer Gets a New Mortgage 3. Buyer Is "Subject to" the Existing Loan 4. Contract for Deed 5. Assumption
Each point increases a lender's yield by:
1/8 or 1% or 0.125%
What is statutory redemption timeframe in Florida?
10 days
What are the most common kinds of builder buydowns?
3-2-1. buydowns and 2-1 buydowns
Allidile Credit Union is offering a loan at 3.75% interest plus three points. What will their yield be on this loan?
4.125%
Sami's interest rate was 4%, and she paid two points. What is the total percentage yield of the loan?
4.25%
Palmetto Bank made a loan at 4.75% interest with two points. What is their yield?
5%
Tina took out a $400,000 loan. Over the first year, she ended up paying $20,000 in interest. What was Tina's interest rate?
5%
How many days do lender's have to record the satisfaction of a mortgage to remove the lien and send the borrower a notice?
60 days
Corbin took out a non-amortized loan of $550,000. He ended up paying $42,250 in interest over the year. What was Corbin's interest rate?
7.6%
What is the loan-to-value ratio of a loan of $90,000 on a property sold for $120,000?
75%
What is the LTV ratio of Sami's loan with a $56,000 down payment and a purchase price of $240,000?
77% If down payment = 56k Purchase price is = 240k loan price = 240k - 56k = 184k 184k/240k = 77%
Hank buys a home for $350,000. He took out a $280,000 mortgage to pay for the home. What is his LTV ratio?
80%
A mortgage and trust deed each include:
A pledge of the property to secure the promissory note Provisions or remedies for default of loan by borrower (More on this to come!) The opportunity to record lender's interest in the property Must be signed and in writing
What do title theory states rely on?
A trust deed
What happens with a deed of trust when the borrower pays the note in full?
A trustee executes a deed of reconveyance or deed of release, which is recorded.
Which clause makes the entire loan amount due immediately upon default?
Acceleration clause
What is the Defeasance/Satisfaction of Mortgage Clause?
Addresses what is done when the terms of the loan agreement are met in full by the borrower
When a buyer takes over a loan from a seller with the lender's permission?
Assumption
they can redeem the home either:
Before the court clerk files the certificate of sale (which finalizes the sale) OR The date specified in the foreclosure judgement, whichever is later
A borrower could default on their mortgage for:
Being delinquent in payments Failure to pay property taxes Failure to maintain the mortgaged property Failure to keep the mortgaged property sufficiently insured
What loan puts up several lots in a development as collateral?
Blanket mortgage
These are the typical steps in a deed in lieu of foreclosure process:
Borrower deeds the property to the lender. Lender cancels borrower's debt. Deed is conveyed and lien satisfaction is recorded. Lender takes possession.
How are a short sale and a deed in lieu of foreclosure both alike and different?
Both are foreclosure alternatives, with a short sale providing lenders sale funds while a deed in lieu of foreclosure conveys the deed to the lender.
What clause require the borrower to apply the funds of an eminent domain sale towards satisfaction of the loan?
Condemnation Clause
Which loan is used to finance the building of whatever is being built on the parcel: homes, retail, office space, or whatever they want?
Construction loan
What is the legal concept that holds the information placed in the public record and is assumed to have been accessed by those who have desire, motivation, or need to know it?
Constructive notice
What sales contract allows the buyer to pay the seller for the property in multiple installments for a predetermine length of time, and the seller holds the title until the property has been fully paid for?
Contract for deed
Karen has failed to keep her mortgaged property insured. Her friend Dara tells her she'd better shape up, or her lender could foreclose on the property. Karen disagrees — she has not missed any mortgage payments, so her lender doesn't have the right to foreclose. Who is right, and why?
Dara is right. Failing to keep the property insured violates Karen's mortgage agreement and puts her in default. Technically, the lender could foreclose.
What's the way of describing the order that debts or liens against a property are paid after a foreclosure?
Debt/lien priority
What is the failure of a borrower to perform according to one or more of the terms and conditions of their mortgage loan agreement?
Default
What is it called when the funds from the sale do not cover the loan amount?
Deficiency
What is the right that a foreclosing party has to pursue a personal judgment against a borrower for the amount of the deficiency?
Deficiency judgment
What's interest that a borrower pre-pays to lower their interest rate?
Discount points
Which clause gives the lender the right to demand payment in full of the loan upon the sale or conveyance of the property?
Due on Sale/Alienation Clause
Which clause is triggered by an attempt to sell or convey the property is intended to prohibit assumption of loan without lender approval?
Due on sale/alienation clause
What is the yield for a specific period of time called?
Effective yield
What is the amount of the property that the owner owns outright?
Equity
What refers to a borrower's right to redeem a loan in default by paying the debt in full?
Equity of redemption
What clause gives the lender the right to raise interest rates?
Escalation Clause
Where do lender's keep pre-paid interest and taxes for a borrowed?
Escrow account (or impound account)
What will the company/person receiving ownership receive once a promissory note is signed?
Estoppel certificate
Which clause protects the borrower in the event of default and foreclosure, stipulating that property serving as collateral for the loan is the only security on the note? This bars the lender from pursuing deficiency judgment against the borrower.
Exculpatory Clause
Which loans do not have due on sale clauses?
FHA and VA
What banking act insured the deposits?
Federal Deposit Insurance Corporation (FDIC)
What acts extended $125 million in credit to savings and loan institutions and created the Federal Home Loan Bank system with 12 regional banks, from which local lenders could borrow funds to finance housing, economic development, and jobs?
Federal Home Loan Bank Act of 1932
Is Florida a title theory state or lien theory state? A state's "theory" has a direct bearing on the security instrument used.
Florida is a lien theory state
Geraldine's home has been sold at a foreclosure auction. It has three liens on it: a primary mortgage, a second mortgage, and a mechanic's lien. The proceeds from the sale were used to satisfy all three lien-holders, and there is $50,000 left over. Who gets that money?
Geraldine
Jeremy took out a mortgage to buy a home. Soon after he closes, his house has a tree fall on it, damaging the roof. Jeremy hates paperwork, so he doesn't file an insurance claim. Instead, he lets the home get more and more damaged as rain seeps in and the roof crumbles. Eventually, he receives a notice from his lender that he is in default. Why?
He has broken the covenant of good repair
What is the pledging of an asset as collateral to secure a loan for the purchase of that same asset— even while allowing the purchaser of the asset to enjoy all the benefits of ownership as they work to pay off the loan.?
Hypothecation
What is additional money paid to a lender for the use of their money?
Interest
What are 3-2-1 buydowns?
Interest rate is 3% lower the first year, 2% lower the second year, 1% lower the third year, then the true rate the fourth year.
In what way does hypothecation benefit borrowers in the financing of a home purchase?
It allows lenders to offer lower interest rates since the loan is secured through the use of the property as collateral.
How did the FDIC work to increase confidence in banks?
It insured deposits, so people knew their money was safe.
What is meant when it is said that a promissory note is a negotiable instrument?
It means that the promissory note is transferable and assignable.
Mindy experienced a foreclosure process that included being named as a defendant in a lawsuit by her lender and seeing her home sold in a foreclosure sale. From that information, what can you guess about the category of foreclosure used and the theory of the state Mindy lives in?
It was most likely a judicial foreclosure in a lien theory state.
What will Floridians facing foreclosure face?
JUDICIAL foreclosure
What are the 2 main categories of foreclosure?
Judicial and nonjudicial
Which loan helps developers purchase the parcel of raw land and create infrastructure like roads, utilities, and sewers?
Land development loans
What are the 3 kinds of loans that builders can use to finance their projects?
Land development loans Construction loans Blanket mortgages
What happens if a borrower is unable to make full payment of the loan?
Lender can choose to initiate foreclosure
What is LTV also called?
Leverage
How did mortgages change with the creation of the FHA?
Loan terms became longer.
What tells you how much of the purchase price is being financed?
Loan-to-value ratio (LTV)
Which clause stipulates that the borrower pay exactly what is due each month without variance and prohibits prepayment altogether?
Lock-in clause
Which of these people is MOST likely to have an assumable loan?
Marty bought a single-family home with an FHA loan.
What's the security instrument of choice for lien theory states?
Mortgage
Who is the person making the loan and is the lender?
Mortgagee
Who is the borrower or person taking out the loan?
Mortgagor
Andrew's home is in default. He recently lost his job, and knows that he doesn't have the cash to reinstate or redeem the loan, and he wants to try and do a deed in lieu of foreclosure to try and salvage his credit rating. The home is worth just a few thousand dollars more than he owes his primary lender. He also has a second mortgage and a tax lien. Is his lender likely to go for a deed in lieu of foreclosure? Why or why not?
No, because he has many other liens they would have to satisfy.
Where is strict foreclosure allowerd?
ONLY in Connecticut and Vermont
What are 2-1 buydowns?
Only lasts 2 years. 2% lower in year one, 1% lower in year two.
What are fees charged by a lender for originating/processing a borrower's loan?
Origination fees
Which clause under Blanket Mortgages specifies how much needs to be paid back for each parcel to be released and other conditions to the loan?
Partial release clause
What are 2 phases of judicial foreclosure:
Phase 1: Lis Pendens/Title Search/Lawsuit/Notice of Sale Phase 2: Equity of Redemption/Right to Reinstate/Surplus Money Action Phase 3: Sale/Statutory Redemption/Deficiency Judgment
Which clause allows the borrower pre-authorize the sale of the property via a nonjudicial foreclosure in the event of a default?
Power of Sale Clause
Which clause addresses the right of the borrower to pay all or part of the loan early with or without penalty?
Prepayment clause
What fee can the lender charge the borrower for the right to pay off the loan early?
Prepayment penalty
What happens when the original lender sells a promissory note on the secondary mortgage market?
Promissory notes are negotiable instruments, meaning that they can be sold or transferred, with the new note holder having all the rights of enforcement of the original terms and conditions of the note
Which clause allows for the partial release of the property from the mortgage loan agreement in proportion to the amount paid off by the borrower?
Release clause
What clause provides the borrower a way to get back on track by bringing current any delinquent payments so that they can proceed forward in a pre-acceleration environment?
Right to Reinstate Clause
What grants the borrower the opportunity to bring current the delinquent loan?
Right to reinstate
Which clause can halt the foreclosure process that was initiated after acceleration?
Right to reinstate clause
What contract identifies and pledges the property or asset that will serve as collateral to secure the loan (promissory note)?
Security instrument
`What properties are worth less than the outstanding balance on the loan? the lender approves a sale for less than the loan balance.
Short sale
Which of the following does have to be in place in order to pursue a deficiency judgment?
State law has to allow for its use. The mortgage agreement cannot contain an exculpatory clause. A judge has to review, approve, and award it.
What refers to the right that some states give borrowers to redeem a property within a certain timeframe after a foreclosure sale has taken place?
Statutory redemption
What is one of the biggest differences between judicial foreclosure and strict foreclosure?
Strict foreclosure does NOT involve a sale.
Which clause when a lender would be willing to subordinate their lien's debt priority to another existing or anticipated lien
Subordination Clause
comes into play after a foreclosure sale
Subordination clause
What is the extra money after foreclosure sale that goes to the borrower?
Surplus
What does the Federal Housing Administration do?
The FHA was created by the National Housing Act of 1934 to provide mortgage insurance on loans made by FHA-approved lenders throughout the United States.
What do the 2 documents in a mortgage address?
The borrower's acknowledgment of debt and promise to pay that debt (both the loan amount and earned interest) The designation of the property as collateral to secure the debt The terms of repayment and the consequences of failure to meet those terms The obligations of the borrower to protect the lender's interest in the property during the life of the loan
What does the estoppel certificate verify?
The current balance on the note The interest rate How much interest was paid before the assignment happened
How do lenders recover their money when borrowers do not pay their mortgage?
The lender can foreclose, take title to the property, and sell it to recover as much money as possible.
Contract for Deed Details
The purchase price is paid over a specified time period in regular payments. The seller keeps the title. The buyer gets possession and a contract for deed, giving them something called equitable title. When all payments are paid, the buyer gets the legal title. The seller is responsible for any original loan payments. If the seller does not pay the original mortgage, the buyer has no rights. The lender will then foreclose and the buyer will be evicted. The seller can take out additional liens against the property. The buyer may use, possess, or profit from the property. The buyer must make timely payments and maintain the property. If the buyer defaults, the seller has to go through regular foreclosure proceedings.
Protecting the Lender's Itnerest
The recording of the security instrument protects the lender's interest, establishing the lien as the SENIOR MORTGAGE and requiring that it be satisfied first in any future sale of the property before the homeowner or any subsequent liens, a.k.a. JUNIOR MORTGAGE, could expect to see any funds.
How is a short sale similar to a deed in lieu of foreclosure?
They are both mutually agreed-upon alternatives to foreclosure.
What is the mortgaging/granting clause?
This clause refers to the concept of hypothecation — the use of a property as collateral to secure the loan created to purchase the property — which is common to secured loan agreements, whether they use mortgages (in lien theory states) or deed trusts (in title theory states).
Which of the following describes one way the right of equitable redemption and the right to reinstate differ?
Unlike equitable redemption, which requires payment in full, the right to reinstate requires only payment of the amount past due.
How similar can you reasonably expect one promissory note to be to another one?
Very similar: most promissory notes are pretty much the same
How does the lender provide notice that a lawsuit has been filed regarding the title and/or ownership interest of the property?
Via a Lis Pendens
When is a DEED OF RECONVEYANCE/DEED OF RELEASE executed?
When a deed of trust and the note is paid in full
When is a MORTGAGE SATISFACTION issued and recorded to clear the title of the lien?
When a mortgage is used to secure a note and the note is paid in full
A mortgage and trust deed differ in regards to:
Who holds title to the property during the loan Number of parties involved Ease and expense of foreclosure
What is the amount of money a lender makes form a loan?
Yield
A takeout commitment is likely to help a builder get:
a construction loan
What two documents make up what is commonly referred to as a mortgage loan?
a promissory note and a security instrument
is triggered by default of any of the terms of the agreement
acceleration clause
makes entire loan due immediately
acceleration clause
Whereas an acceleration clause demands payment in full of the loan due to payment default, another clause demands payment in full of the loan upon the sale or conveyance of the property. What
alienation clause/due-on-sale clause
partial release clause spells out how collateralized lots can be released by partial repayment
blanket mortgage
uses lots in a development as collateral for a loan
blanket mortgage
The Industrial Revolution changed American real estate by:
bringing more people into the cities, requiring the construction of more residential housing
What financing technique do sellers (builders/developers) use to make homes more attractive to buyers?
buydown (aka builder buydowns)
also called an installment sales contract
contract for deed
seller retains legal title and buyer gets equitable title until loan is paid off
contract for deed
property must be kept in good condition
covenant of good repair
way to default: fail to repair crack in foundation
covenant of good repair
requires borrower to pay mortgage principal, interest, and fees
covenant to pay indebtedness
way to default: miss a mortgage payment
covenant to pay indebtedness
requires borrower to keep adequate insurance on the property
covenant to pay insurance
way to default: borrower in flood zone fails to get flood insurance
covenant to pay insurance
requires borrower to pay property taxes, assessments, and HOA dues
covenant to pay taxes
way to default: forget to pay property taxes one year
covenant to pay taxes
is not triggered until full repayment of loan is made by the borrower
defeasance/satisfaction of mortgage clause
acknowledges full ownership rights of borrower have been achieved
defeasance/satisfaction of the mortgage clause
Gene is selling his home. He's found a buyer with an offer he likes, unfortunately, the buyer could not qualify for a large enough loan to complete the transaction. "No worries," says Gene. "Just take over my mortgage and give me the difference in cash." Instead of allowing the loan transfer, Gene's lender demanded he pay the balance of the loan. What part of his mortgage contract most likely allowed this?
due on sale clause
is intended to prohibit assumption of loan without lender approval
due on sale/alienation clause
is triggered by an attempt to sell or convey the property
due on sale/alienation clause
Which nonjudicial form of foreclosure depends on the borrower's willingness to grant the lender access and occupancy of the property subject to foreclosure?
entry and possession
requires complete agreement by the borrower to the process
entry and possession
the lender accesses and occupies the property with permission of the borrower
entry and possession
In a contract for deed, a buyer's ownership while they are still making payments to the seller is conveyed through a(n):
equitable title
When Cari's mortgage was transferred to a new owner, what was given to the new owner to verify the interest rate, remaining balance, and interest paid to date?
estoppel certificate
More than anything else, a state's theory and its choice of security instrument are reflective of that state's attitude about:
foreclosure
All of these describe the typical early mortgage:
interest-only loans, shorter terms, and originated by a local lender
involves both a lawsuit and a sale
judicial foreclosure
starts with a lis pendens
judicial foreclosure
The recording of a lien protects the:
lender's interest
The two "theories" that most states fall under are:
lien theory and title theory
buyer takes over the seller's loan with the bank's okay
loan assumption
prevented by a due on sale clause
loan assumption
What is the paperwork and record keeping that goes along with holding a loan?
loan servicing
a person who takes out a secured home loan
morgagor
a form of security instrument
mortgage
financial instrument that secures a loan with collateral
mortgage
the initial holder of the note
mortgagee
the lender
mortgagee
the person who will have to pay the mortgage loan
mortgagor
nonjudicial form of foreclosure predominantly used in more than half of the states in the nation
power of sale
the clause pre-authorizing the sale without court oversight must be in the security instrument from the beginning
power of sale
What clause pre-authorizes the lender to foreclose and sell the property without court oversight or having to file a lawsuit in a nonjudicial foreclosure?
power of sale clause
What is a negotiable financial instrument and functions as legal evidence of a debt plus a promise to pay that debt?
promissory note
can be secured or unsecured
promissory note
states the terms of the loan
promissory note
What are the 2 documents of one mortgage loan agreement?
promissory note and security instrument
What are exemptions from recordation debt priority?
property taxes mechanic liens subordination agreements
What is LTV?
ratio of debt to value of the property
What's the purpose of the Home Owner's Loan Corporation (HOLC)?
refinance home mortgages currently in default to prevent foreclosure
While an acceleration clause demands immediate payment in full of a loan due to payment default, another clause provides the borrower with a way of addressing those consequences and returning to a pre-acceleration environment. What clause is that?
right to reinstate clause
A builder might offer a buydown on a home in a new development in order to:
sell the house more quickly
less commonly used form of judicial foreclosure
strict foreclosure
no sale with this form of judicial foreclosure
strict foreclosure
Sara is selling her home to Tasha. Tasha wants to take over Sara's loan, because the interest rate Tasha's bank is offering her is much higher than the interest rate on Sara's loan. Sara is behind on her mortgage payments and needs to sell fast. So Sara and Tasha agree not to tell Sara's lender, but to transfer the title to Tasha. Tasha will then pay the mortgage to Sara, who will pay it to the lender. What kind of arrangement do they have?
subject to mortgage
buyer takes title to the property while paying the seller's loan
subject to mortgage
made without the lender's consent
subject to mortgage
has an affect on debt priority
subordination clause
What is a pledge (in writing) from a financial institution promising to be the permanent lender for a construction project?
takeout commitment
A home is being sold at a foreclosure auction. It has the following liens: A mechanic's lien, created in April 2013 The primary mortgage, created in October 2009 A secondary mortgage, created in January 2014 A property tax lien, created July 2017 Which lien will be paid first?
tax lien
What goes in an escrow account?
taxes and insurance
Liens that are or can be exempt from debt priority include:
taxes, some mechanic liens, and subordination agreements
Biggest difference between judicial foreclosure and strict foreclosure is?
that strict foreclosure does NOT involve a foreclosure sale.
What are non-amortized loans?
the borrower will be paying interest only throughout the life of the loan.
The higher the interest rate...
the higher the yield
What happens in a strict foreclosure?
the lender files suit, asking the court to set a timeframe in which the borrower has to satisfy the debt through the exercise of their equitable right of redemption
Which of the following provides the best definition of hypothecation?
the pledging of an asset as collateral to secure a loan without delivery of title, possession, or other ownership rights
Gerard's house has been foreclosed on. He had a property tax lien, a mortgage, a judgment lien, and a mechanic's lien on the property. Which is MOST likely to be the senior lien?
the property tax lien
Why is a title search undertaken as an early step in judicial foreclosure?
to identify all parties that might have a lien or other interest in the property
Katie recently bought a house. The title was conveyed via a deed of trust. Katie has placed the title with a trustee who will hold it until released by the lender. In this arrangement, Katie is the:
trustor
What is one of the larger factors for lenders in determining the risk of a loan request?
whether or not the loan will be secured by collateral
