real estate chapter 9

What is foreclosure in basic terms?

A borrower defaults on a loan, causing the lender to force the sale of the property to free up its investment.

Alienation Clause

A clause in a contract giving the lender certain rights in the event of a sale or other transfer of a mortgaged property.

Government National Mortgage Association (GNMA) (Ginnie Mae)

A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD) that guarantees securities backed by mortgages that are insured or guaranteed by other government agencies. Popularly known as "Ginnie Mae".

Amortized Loan

A loan to be repaid, interest and principal, by a series of regular payments that are equal or nearly equal, without any special balloon payment prior to maturity.

What's the difference in a home loan and mortgage?

A mortgage is the legal process, while a home loan is the financing for it.

Interest Only Loan

A straight, non-amortizing loan in which the lender receives only interest during the term of the loan and principal is repaid in a lump sum at maturity.

Roger is selling his home and has $50,000 worth of equity. What happens to this value?

After the home loan is paid off, the remaining sale value is paid to Roger.

Subordination Agreement

An agreement by the holder of an encumbrance against real property to permit that claim to take an inferior position to other encumbrances against the property.

Federal Home Loan Mortgage Corporation (FHLMC) (Freddie Mac)

An independent stock company which creates a secondary market in conventional residential loans and in FHA and VA loans by purchasing mortgages.

Mortgage

An instrument recognized by law by which property is hypothecated to secure the payment of a debt or obligation.

Tim lost his home in a foreclosure and received a deficiency judgment. What is it?

An obligation to pay the remaining owed debt after the home is sold but is sold for less than the loan owed.

How many missed payments does it take for the lender to send a notice of default?

As few as one, but this depends on the state's laws.

What is the average amount of loan origination fees?

Between 0.5 and 1 percent of the borrowed funds.

Redemption

Buying back one's property after a judicial sale.

Failure to fulfill a duty or promise or to discharge an obligation is known as...?

Default

Sally wants to do whatever it takes to avoid foreclosure. What can you tell her?

Ensure you are well qualified for the loan before entering into it.

Default

Failure to fulfill a duty or promise or to discharge an obligation.

When the Federal Reserve reduces interest rates, it impacts the real estate market. How so?

Homebuyers may qualify for lower rates, impacting the number of people who want to buy and the amount they can afford to spend to buy a home.

What's the most common cause of default by homeowners?

Not making on-time payments.

Usury

On a loan, claiming a rate of interest greater than that permitted by law.

Mortgagor

One who gives a mortgage on his or her property to secure a loan or assure performance of an obligation; a borrower.

Zach needs to lower his monthly payment to feel comfortable buying a home. How can discount points help?

Paying interest upfront in the form of points will reduce the monthly payment.

A home buyer's purchase goes through, but he or she finds their loan was sold to another lender, and now they have another bank servicing their loan. Where was their loan sold?

Secondary mortgage market

Bob wants to buy a home, but plans to pay it off early. Can he do so without risk?

Sometimes, but some loans have prepayment clauses that can create a fee.

Who decides if a mortgage is a judicial or non-judicial foreclosure?

State laws dictate this. It's outlined in the mortgage documents.

The foreclosure on a debt shouldn't be a surprise to the homeowner. Why?

The borrower agreed to the terms and conditions of the loan at the time of buying the home.

James hates "big banks" and thinks they are out to get him. Who's fault is it when a default occurs?

The borrower who failed to make payments.

What does a non-judicial foreclosure involve?

The borrower, lender, and trustee without the court system.

Interest

The charge in dollars for the use of money for a period of time. In a sense, the "rent" paid for the use of money.

Prepayment Penalty

The charge payable to a lender by a borrower under the terms of the loan agreement if the borrower pays off the outstanding principal balance of the loan prior to its maturity.

Defeasance Clause

The clause in a mortgage that gives the mortgagor the right to redeem the mortgagor's property upon the payment of the mortgagor's obligations to the mortgagee.

What does a judicial foreclosure involve?

The court system

Amortization

The liquidation of a financial obligation on an installment basis

Secondary Mortgage Market

The market where lenders sell their loans to the large secondary marketing agencies (FNMA, FHLMC, and GNMA) or to other investors.

Primary Mortgage Market

The marketplace whereby loans are originated

What happens during underwriting?

The mortgage lenders take a close look to make sure they can loan the funds to buy the home.

Priority of Lien

The order in which liens are given legal precedence or preference.

Trustee

The third party under a deed of trust.

Hypothecate

To pledge a thing as security without the necessity of giving up possession of it.

Oscar isn't planning to live in his home for long before he moves. Is a straight loan a good option?

Yes, he will pay less in the early term and can sell the home to pay off the remaining amount later.

What is a secured loan?

loan backed by some type of collateral, usually the value of the home itself.

Acceleration Clause

A condition in a real estate finance instrument giving the lender the power to declare all sums owing the lender immediately due and payable upon the happening of an event, such as sale of the property, or a delinquency in the repayment of the note.

Deed in Lieu of Foreclosure

A deed to real property accepted by a lender from a defaulting borrower to avoid the necessity of foreclosure proceedings by the lender.

Deficiency Judgment

A judgment given by a court when the value of security pledged for a loan is insufficient to pay off the debt of the defaulting borrower.

Assignment of Rents

A provision in a mortgage or deed of trust under which the lender may, upon default by the trustor, take possession of the property, collect income from the property and apply it to the loan balance and the costs incurred by the lender.

Short Sale

A seller's attempt to sell the real estate whereby the liens are greater than the value of the property.

What is the alienation clause in a mortgage?

It gives the lender the right to payment in full when the property is sold.

Alexia wants to catch up on her loan payments to avoid foreclosure. Will this be enough?

Not always, sometimes lenders fees must be paid if it is possible to get caught up.

Foreclosure

Procedure whereby property pledged as security for a debt is sold to pay the debt in event of default in payments or terms.

What is a federally backed loan program?

Programs like FHA and VA loans, which help borrowers avoid default and help them get into low-interest loans.

Who is the trustor in a deed of trust?

The home buyer.

Laurel buys a home with a deed of trust. What does she use as collateral?

The home is the collateral backing the loan.

Beneficiary

The lender on the security of a note and deed of trust.

Subordinate

The make subject to, or junior or inferior to.

Recording

The process of placing a document on file with a designated public official for public notice.

Iris wants to find the record of her deed and title. Where does she go?

The registrar of deeds or county recorder.

Escalation

The right reserved by the lender to increase the amount of the payments and/or interest upon the happening of a certain event.

What will happen to a homeowner in the event of a non-judicial foreclosure?

The trustee involved will sell the home at an auction. The home may revert back to the lender if no buyer is found.

Danielle says she is using an unsecured loan to buy a home. Is she wrong?

Yes, nearly all home loans are secured loans.

Junior Mortgage.

A mortgage recorded subsequently to another mortgage on the same property or made subordinate by agreement to a later- recorded mortgage.

Discount Points

The amount of money the borrower or seller must pay the lender to get a mortgage at a stated interest rate

Satisfaction of Mortgage (Release of Mortgage)

The discharge of a mortgage from the records upon payment of the debt.

Federal Reserve System

The federal banking system of the United States under the control of central board of governors (Federal Reserve Board) involving a central bank in each of twelve geographical districts with broad powers in controlling credit and the amount of money in circulation.

April is worried about facing foreclosure. What's the first sign the lender is taking action?

The lender will send a notice to the borrower informing them of their intent to foreclose.

Julie lost her home in foreclosure. Who has priority over the value of the home?

This is outlined in the priority of liens component of the mortgage and recording.

Straight Note

A note in which a borrower repays the principal in a lump sum at maturity while interest is paid in installments or at maturity.

Promissory Note

Following a loan commitment from the lender, the borrower signs a note, promising to repay the loan under stipulated terms. The promissory note establishes personal liability for its payment. The evidence of the debt.

Peter wants to sell his home instead of losing it in foreclosure. How can he do so?

He can list the home for sale, but should also get court approval to have this right to sell if the foreclosure process is underway.

Is the court involved in non-judicial foreclosure?

No, it is handled outside of the court system.

Cameron believes a non-judicial foreclosure is best for her as a homeowner. Is that the case?

Non-judicial foreclosures favor the lender because of how inexpensive and fast they are.

Mortgagee

One to whom a mortgagor gives a mortgage to secure a loan or performance of an obligation; a lender or creditor.

John visits your office, inquiring about purchasing a home. He says he's employed, making $60,000 a year, has good credit, and wants to own a moderately priced home. He's even found a few on the market he's interested in. He wants you to help him close the deal. But, he doesn't have a loan set up. He wants you, his real estate agent, to tell him what the most important factor is when selecting a loan. What do you answer

The interest rate of the loan.

Pat receives an Acceleration Clause document. What does it mean?

The lender is requiring the owed principal to be paid in full by the date listed.

Assumption of Mortgage

The taking of a title to property by a grantee wherein the grantee assumes liability for payment of an existing note secured by a mortgage or deed of trust against a property, becoming a co-guarantor for the payment of a mortgage or deed of trust note.

Stan has not maintained his home. The city is after him. Will his lender care?

Yes, the mortgagor must maintain the quality and value of the home to maintain the loan.

Federal National Mortgage Association (FNMA) (Fannie Mae)

A New York stock exchange company. It is a public company that operates under a federal charter and is the nation's largest source of financing for home mortgages. Fannie Mae does not lend money directly to consumers, but instead works to ensure that mortgage funds are available and affordable, by purchasing mortgage loans from institutions that lend directly to consumers.

What is amortization?

It's the mathematical calculation of the amount of interest the buyer will pay on the loan.

Trustor

One who borrows money from a trust deed lender, then deeds the real property securing the loan to a trustee to be held as security until the trustor has performed the obligation to the lender under terms of a deed of trust.

Linda wants to sell her home to avoid foreclosure, but can't get enough on the market to do so. Can she still sell?

The lender may approve a short sale, depending on the circumstances.

Assignment

The transfer to another of any property in possession or in action, or of any estate or right therein. A transfer by a person of that person's rights under a contract.

In a non-judicial foreclosure, is there a right to redeem?

This happens only in some states. State law outlines this right.