Section 14
Borrower Disadvantages for a nonjudicial foreclosure
A fast, efficient process = losing the property sooner than with other forms of foreclosure. If judicial review is desired, the borrower must incur the costs of filing a lawsuit. Some states, like Georgia, eliminate statutory redemption in conjunction with power of sale foreclosures. Some states allow the lender to get away with relatively little by way of notice regarding the default and subsequent sale.
Similarities of mortgage, trust deed and security deeds:
A pledge of the property to secure the promissory note Provisions or remedies for default of the loan by the borrower The opportunity to record the lender's interest in the property
Promissory notes vary greatly from one note to the next in terms of what information they contain. True or False
False
The only type of default that leads to foreclosure is payment default. True or False
False
Security Deeds in GA
GA is a title theory state that uses a security instrument called the security deed over a mortgage Mortgages are legal in GA, but not often used These don't have a 3rd party just the borrower (grantor) and the lender (grantee)- no 3rd party with a security deed
Security Instrument in Georgia
Georgia is a title theory state, but the predominantly used security instrument is NOT a trust deed but rather a security deed.
lock-in clause
If a lender is intent on prohibiting prepayment altogether, they will include a lock-in clause that stipulates that the borrower pay exactly what is due each month without variance. FHA and VA loans do not allow prepayment penalties.
sheriff's deed
If the high bidder is someone other than the lender, they are awarded this type of deed, which conveys the title to them, unless the state has a statutory right of redemption
Hypothecation
It involves the pledging of an asset as collateral to secure a loan for the purchase of that asset, even while allowing the purchaser of the asset to enjoy all the benefits of ownership as they work to pay for the asset over the timeframe of the loan.
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.
Does Georgia recognize statutory redemption?
No
What clause in a nonjudicial foreclosure pre-authorizes the lender to foreclose and sell the property without court oversight or having to file a lawsuit?
Power of sale clause
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
Clause that comes into play after a foreclosure sale
Subordination clases
Every security deed in Georgia will include provisions containing the following declarations:
That this instrument secures the specific loan That, in the event of default, the lender is authorized to sell the property via a nonjudicial foreclosure process that conforms to state regulations That the lender will cancel the deed upon satisfaction of the loan
Statutory Right of Redemption
The right of a defaulted property owner to recover the property after its sale by paying the appropriate fees and charges.
Release Clause
This clause allows for the partial release of the property from the mortgage loan agreement in proportion to the amount paid off by the borrower. typically shows up in a blanket mortgage, neighborhood developers often have this clause included in their mortgage contract.
Escalation Clause
This clause gives the lender the right to raise interest rates under certain circumstances. generally associated with ARMS that tie interest rates and market indexes
Exculpatory Clause
This clause protects the borrower in the event of default and foreclosure, stipulating that the property serving as collateral for the loan is, in fact, the only security on the note. The effect of this clause is the barring of the lender's ability to pursue a deficiency judgment against the borrower.
Condemnation Clause
This clause protects the lender by stipulating that if the government were to force a sale of the property via its power of eminent domain, the borrower would be required to apply the funds from that sale towards the satisfaction of the loan.
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, lien theory state- clause pledges the property as security for the loan by placing the lien on the property title theory state- clause pledges the title to the lender or trustee until the satisfaction of the loan
Subordination Clause
This clause will appear in a mortgage loan agreement when the lender is amenable to subordination. there might be times when a lender would be willing to subordinate their lien's debt priority to another existing or anticipated lien — particularly when it serves to strengthen the likelihood of repayment of their loan or increases the value of the property securing their loan.
A lien is simply a claim of debt. True or False
True
A secured promissory note is going to have a much lower interest rate than an unsecured note. True or False
True
When a title is held by a third-party trustee, it is said to be a naked title, which is a colorful way of saying that the trustee is given the "bare" essentials of rights needed to carry out the terms of the trust. True or False
True
Georgia, being a title theory state, employs a nonjudicial path. True or False
True Note: If a nonjudicial foreclosure is contested, you'll see it quickly morph into a judicial path with at least one of the parties seeking court intervention.
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 only requires payment of the past due amount.
Differences of mortgage, trust deed and security deeds:
Who holds title to the property during the loan Number of parties involved Ease and expense of foreclosure
Which of the following have to be in place in order to pursue a deficiency judgment?
a judge has to review, approve and award it state law has to allow for its use the mortgage agreement cannot contain an exculpatory clause
Constructive notice
a legal term that says that information placed in the public record is assumed to have been accessed by those who have desire, motivation, or need to know it. the onus of knowing is on you
When a Mortgage Is Paid in Full
a mortgage satisfaction is issued and recorded to clear the title of the lien.
A promissory note
a negotiable finance instrument used in a typical mortgage agreement. It is evidence of a debt and a promise to pay that debt. can be secured or unsecured
What is one of the biggest differences between judicial foreclosure and strict foreclosure?
a strict foreclosure does not involve a sale
strict foreclosure (rarely used)
a type of judicial foreclosure, sometimes called the third type (with judicial and non-judicial being the other two) it does not involve a foreclosure sale 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 typically comes into play when the debt far exceeds the property value, making a foreclosure sale an unnecessary expense
Lis Pendens
a written notice of a pending legal action. It is generally required as a step in a judicial path to real estate foreclosure, wherein the lender provides notice that a lawsuit has been filed regarding the title and/or ownership interest of the property. This notice is typically filed and recorded in the county in which the property is located.
if borrower cannot make full payment per this clause, the lender may initiate foreclosure
acceleration clause
is triggered by default of any of the terms of the agreement
acceleration clause
lacking this, a lender would have to sue borrower for each missed payment individually
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 clause is that?
alienation clause/due on sale clause
Nonjudicial Foreclosure (Power of Sale)
also called a "sale by advertisement" requires the presence of a power of sale clause in the security agreement at the time of signing. The clause pre-authorizes the lender to foreclose and sell the property without court oversight or a lawsuit common in 1/2 the states including GA
If you are late with the payment, how is the fee applied?
applies to the late fee first the earnest interest second the remainder, if any, is applied to the principal
Who are three parties involved in the loan agreement of a title theory state?
borrower (trustor) trustee (3rd party) lender (beneficiary)
The collection of common clauses in a mortgage agreement having to do with the responsibility of a mortgagor to protect the interests of the lender by caring for the collateralized property and addressing the obligations attached to it are collectively referred to as:
borrower's covenants
How can a statutory redemption hurt the borrower?
by lowering property value and increasing the likelihood of a deficiency judgement against the borrow
Power of Sale Clause
clause in which the borrower pre-authorizes the sale of the property via a nonjudicial foreclosure in the event of a default. Funds from the sale would be applied to the unpaid balance on the loan. Georgia, as a title theory state, employs the power of sale in the security deed.
Right to Reinstate Clause
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, making regular monthly payments under the original terms of the contract. Georgia does NOT recognize statutory redemption, so this right to reinstate is only available in the state prior to the foreclosure sale.
Clause that results in the removal of the lender's lien or the conveyance of the title to the borrower
defeasance/satisfaction of mortgage clause
acknowledges full ownership rights of borrower have been achieved
defeasance/satisfaction of mortgage clause
is not triggered until full repayment of loan is made by the borrower
defeasance/satisfaction of mortgage clause
official lender declaration that the terms of the loan agreement have been met
defeasance/satisfaction of mortgage clause
What does the security instrument do?
designates the property as collateral on a loan
clause not allowed in FHA and VA loans
due on sale/alienation clause
if lender approves assumption, they can also raise the interest rate
due on sale/alienation clause
is triggered by attempt to sell or convey the property
due on sale/alienation clause
type of foreclosure that requires complete agreement by the borrower to the process
entry and possession
type of foreclosure where the lender access and occupancy of the property with permission of the borrower
entry and possession
type of foreclosure where witnesses are required
entry and possession
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 very rare, only one state
More than anything else, a state's theory and its choice of security instrument are reflective of that state's attitude about:
foreclosure
Right to Reinstate
grants the borrower the opportunity to bring current the delinquent loan — including interest, fees, and expenses — in one payment in order to resume paying the loan going forward as would have been the case in the loan's pre-accelerated form. (only past due amount)
Why is a title search undertaken as an early step in judicial foreclosure?
in order to identify all parties that might have a lien or other interest in the property subject to foreclosure.
Deficiency Judgment
is the right that a foreclosing party has to pursue a personal judgment against a borrower for the amount of the deficiency. When a foreclosure sale takes place, and the funds from that sale do not cover the loan amount, the resulting shortfall is known as deficiency. If a court confirms the sale, Georgia does allow a lender to pursue a deficiency judgment.
In what way does hypothecation benefit borrowers in the financing of a home purchase?
it allows lenders to offer lower rates since the loan is secured through the use of the property as collateral
What are the two categories of foreclosure?
judicial and nonjudicial
a type of foreclosure where a surplus money action may be filed by junior lien holders
judicial foreclosure
the more complex form of foreclosure involving the courts
judicial foreclosure
type of foreclosure that involves both a lawsuit and a sale
judicial foreclosure
type of foreclosure that starts with a lis pendens
judicial foreclosure
The two "theories" that most states fall under are:
lien theory and title theory
Acceleration Clause
makes the entire loan amount due immediately upon default — which might explain why it's also known as a due-on-default clause
Lien theory states tend to favor what?
mortgages
Which of the following are some of the statistics given in the study of homeowners at risk of foreclosure?
most have no family financial net 32% suffered a loss of income 25% experienced a major medical event
defeasible title
on a security deed, once the borrower has paid the loan in full, they can get the title conveyed to them at that time
credit bid
on the day of the sale, the lender will make a bid in or close to the amount of the outstanding debt. If they are the highest bidder, they don't have to pay, instead they get a credit on the debt owed. The lender is then awarded the title and has to figure out what to do with their new REO
nonjudicial form of foreclosure predominantly used in more than half of the states in the nation
power of sale
Liens that are or can be exempt from debt priority include:
property taxes, some mechanics liens and subordination agreements
What are three exceptions to debt priority?
property taxes- take top billing mechanics liens- take effect based on dated the materials were supplied to the borrower subordination agreements- when a lien holder takes a back seat
Borrower's Covenants
provisions that I want to share with you all have to do with the responsibility a mortgagor has to protect the interests of the lender by caring for the collateralized property covenant to pay indebtness covenant to pay taxes covenant to pay insurance covenant of good repair covenant against removal
Equitable redemption or equity of redemption
refers to a borrower's right to redeem a loan in default by paying the debt in full, including interest, fees, and expenses. The window of opportunity to do this comes after acceleration (remember that clause?) is initiated but before the foreclosure sale. This common law right is available to all borrowers in all states.
Due on Sale/Alienation Clause
refers to a provision in the mortgage contract that triggers the right of the lender to demand payment in full of the loan upon the sale or conveyance of the property. primary purpose is to prohibit a new buyer from being able to assume the terms of the original loan without the lender's approval and involvement Under this clause, the lender can approve or reject someone from assuming the current loan, prohibit the loan altogether, or increase the interest rate upon assumption. It should be noted that FHA and VA loans do not allow alienation clauses in their loan contracts,
Statutory Redemption
refers to the right that some states give borrowers to redeem a property within a certain timeframe after a foreclosure sale has taken place. Again, this redemption is accomplished by paying off the loan in full, including interest, fees, and expenses.
some controversy regarding whether this should be categorized as a judicial foreclosure
strict foreclosure
type of foreclosure often used when the debt far exceeds the value of the property
strict foreclosure
agreed to by a lender if they feel it increases likelihood of repayment of their loan
subordination clause
agreed to by a lender if they feel it increases value of collateralized property
subordination clause
has an affect on debt priority
subordination clause
What most people think of as a mortgage loan is made up of two documents: a promissory note and a security instrument. Which of the following is addressed by either of those documents?
terms of repayment and the consequences of failure to meet those terms the designation of the property as collateral to secure the debt the borrower's acknowledgement of debt and promise to pay that debt
Which of the following are the differences between a mortgage and a trust deed?
the # of parties involved ease and expense of foreclosure who holds the title to the property during the load
When a Deed of Trust Is Paid in Full
the lender authorizes the trustee to execute what is known as a deed of reconveyance or deed of release. As with all security instruments, this needs to be recorded to clear the title.
When a Security Deed Is Paid in Full
the lender executes a reconveyance or deed of release. As with all security instruments, this needs to be recorded to clear the title.
The recording of a lien protects:
the lenders interest
actual notice
the literal notice that is given directly to an individual. When someone is served notice that they are a defendant in a lawsuit, they are considered to have received actual notice.
Secured Promissory Note
the mortgage agreement containing a promissory note will also feature a security instrument- usually a mortgage or a deed of trust that pledges the property as collateral for the note
Negotiable Instrument
the note is transferrable and assignable eg. a new mortgage company takes over the loan- they are being informed that the promissory note has been transferred
What are the two documents that make up the mortgage loan?
the promissory note and the security instrument
Defeasance/Satisfaction of Mortgage Clause
these clauses address what is done when the terms of the loan agreement are met in full by the borrower.
Title theory states tend to favor what?
trust deeds (deed of trust)
Deficiency Judgment
when there is not enough proceeds to satisfy the debt, the lender has the option of initiating this type of judgement
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