Texas Contract Law 18+

What does the FHA expect a lender to do at the foreclosure sale for an FHA-insured property if the bids are less than the loan balance?

FHA expects the lender to bid on the debt, take the title, and present it to the FHA along with a claim for insurance.

In a non-judicial foreclosure sale, the new purchaser will receive a trustee's deed to the property. But what potential problem exists?

There is no guarantee that the title is clear. There may be some outstanding liens still in effect, such as a federal tax lien, real property taxes or assessments, or a valid mechanic's lien.

There are estimates that one single foreclosure can reduce neighborhood property values and home equity by as much as

$220,000

Regulation Z applies to which of these situations?

$85,000 condominium loan

List the three theories regarding who holds legal title to a mortgaged property

. The title theory title to the security interest rests with the mortgagee. 2. The lien theory under which the legal title remains with the mortgagor unless there is foreclosure. 3. Thee intermediate theory applies the lien theory until there is a default on the mortgage whereupon the title theory applies.

How much time does the lender have to inform an applicant who was rejected of the reasons for the denial?

30 days

How many days does a lender have to deliver a Form 2068 Notice of Default to the local FHA administrative office?

60 days

- Often, mortgage lenders will not even consider a credit score below

600

Which statement is true?

A borrower can request the cancellation of PMI payments when the equity reaches 20% of the purchase price.

1. Greg and Joyce purchased a home from the builder who offered to pay $5,000 at closing as an incentive to get them to buy. What kind of mortgage will they get?

A buydown mortgage

What is a deed of trust?

A deed of trust is a legal document which transfers title to a property to a third-party trustee as security for an obligation owed by the trustor (the borrower) to the beneficiary (the lender).

What is the difference between a short sale and a foreclosure?

A foreclosure occurs when the lender takes back a house because the homeowner has not made mortgage payments. A short sale happens before a foreclosure takes place. Thus, the lender agrees to accept the short sale price (less than what is actually owed) to avoid the foreclosure process.

Who is a good short-sale candidate?

A homeowner who is late, or will soon be late, on their mortgage payments, and can document their inability to make payments.

What is a judgment lien?

A judgment lien attaches to real and personal property as a result of a money judgment issued by a court in favor of a creditor.

What are the four legal features of a lien?

A lien does not convey ownership, with one exception. A lien attaches to the property. A property may be subject to multiple liens. A lien terminates on payment of the debt and recording of documents.

What is a balloon mortgage?

A loan that has one large final payment due when the loan matures

What is an index?

A measure of economic conditions

List two differences between a mortgage and a deed of trust? (See other correct answers on screen 20.)

A mortgage is a lien on the property being given as collateral, with the legal title remaining in the name of the borrower. In a deed of trust, the borrower conveys the property to the trustee, who holds the title to the collateral on behalf of the lender until the loan terms have been satisfied. A mortgage may be discharged by a simple acknowledgement that the loan terms have been satisfied. A deed of trust is discharged using a reconveyance of title form.

What is a payment cap?

A set monthly payment that remains the same although the actual interest rate may fluctuate throughout the year

List two reasons that lenders prefer to use the deed of trust when making loans. (See other correct answers on screen 17.)

A trustee may be given the power to sell property after default without going through the time-consuming judicial foreclosure process. A deed of trust can be used to secure more than one note.

What is a lock-in clause?

A very drastic form of a prepayment clause which actually prohibits the borrower from paying the mortgage loan in full before a specific date.

What is the main advantage and what is the main disadvantage to a borrower to purchase a property "subject to" the mortgage?

Advantage: He cannot be held personally liable for the amount of the debt he assumed. The original owners are still personally and legally responsible for the loan and they may be held liable for any deficiency judgment that could be the result of a foreclosure sale. Disadvantage: They risk losing all the equity they have in the property.

Who does Regulation Z apply to?

All media including websites, billboards, radio, TV and direct mailing

List and describe three provisions that are common to most notes. (See other correct answers on screen 5.)

Amount borrowed- This is the face amount of the note that is advanced when the note is executed. Interest rate - The rate can be either fixed or adjustable. If it's adjustable, the note should specify how the rate will change. Amount of payments - The amount of the payments will be determined by the face amount of the loan, the length of the loan and the interest rate.

Describe and define the two classifications of encumbrances.

An encumbrance that affects the physical condition of the property, such as restrictions, encroachments and easements. An encumbrance that affects the title, such as judgments, mortgages, mechanics' liens and other liens.

What is a deficiency judgment?

Any outstanding debt remaining after foreclosure and sale of a property.

What is the latest date that a settlement agent is allowed to provide the seller with the Closing Disclosure?

At consummation of the transaction

How can an owner prevent involuntary alienation by adverse possession?

By periodically inspecting the property within statutory deadlines and evicting any trespassers found

Who are the three major credit reporting agencies?

Equifax Experian Trans Union

Define the process of Escheat?

Escheat is an involuntary alienation common law doctrine which transfers the property of a person who dies without heirs to the state. It serves to ensure that property is not left in "limbo" without recognized ownership.

Define Estoppel.

Estoppel prevents a person from claiming a right or interest that is inconsistent with the person's previous statements or acts.

What type of clause prevents the lender from seeking a deficiency judgment above the actual mortgaged property?

Exculpatory Clause

What are the disadvantages of a land contract for the buyer and the seller?

From the buyer's perspective: The buyer has the risk of making payments before the Seller delivers title. The buyer may have some trouble getting the seller to deed the property at the end of the term. During the life of the contract, liens could have arisen against the seller that would cloud the title. The seller may not be paying the existing mortgage with the buyer's monthly payments. From the seller's perspective: If the buyer defaults, the process of clearing the title could be time consuming and expensive Since the land contract is indeed a contract, it is subject to differing interpretations, which allows for the prospect of disputes and lawsuits.

What is important to know about a full covenant and warranty deed?

It is the deed most used in real estate transfers and offers the greatest protection of any deed. With this type of deed the grantor gives certain covenants or warranties that promise the grantee will have ownership of the property that is unchallenged.

Which foreclosure occurs in states that use a two-party mortgage document that does not contain a "power of sale" provision?

Judicial foreclosure

2. Who is involved in a primary mortgage market?

Lenders who originate loans

What basically happens in a foreclosure?

Lienors force a property owner to give up title through court action. This may involve either the lienors' forcing the owner to sell and pay off the creditors, or taking title directly.

Mortgages are also known as what?

Liens against property or claims on property

According to the terms of the deed of trust, a borrower must pay all of the following except which?

Life insurance

What type of clause would limit the repayment of a mortgage ahead of schedule?

Lock-In Clause

An investor that lends money secured by a mortgage on real estate is known as a what?

Mortgage Lender

Once the mortgagor has paid off the mortgage in full, the lender will execute and record a document indicating that the loan terms have been met. What is the name of the document?

Mortgage Release

Most conventional loans require the borrower to make how much of a down payment?

Most conventional loans require the borrower to make a down payment of 20% or more, making the loan 80% or less of the property's sale price.

Who regulates federally-chartered savings institutions?

Office of Thrift Supervision

ECOA prohibits lenders from discriminating against applicants on what basis?

On the basis of Race Color Religion National origin Sex Marital status Age Dependency on public assistance

List two advantages of conventional loans over government-backed loans. (See other correct answers on screen.)

Processing a conventional loan usually takes less time. Loan approval from a conventional lender can take 30 days or less, while approval on a government-backed loan seldom, if ever, can be done in less than 30 days. There is usually no legal limit on loan amounts with conventional loans; however, government-backed loans have dollar limits that vary by agency.

According to RESPA, a real estate firm may offer a computerized loan origination system (CLO) that does what?

Provides a prospective borrower information about mortgage loan products Prequalifies a borrower Initiates a loan application process for a fee

- In which of the following types of loans is the payment allocated only to interest?

Straight

What are the most common types of repayment plans?

Straight (interest only) Amortized Balloon payment Adjustable rate

What is Texas' position regarding late payments on a loan?

Texas has no restrictions on late fees. The customary fee is the Fannie Mae standard of 5% after 15 days.

According to Texas law, what is true about prepayment penalties?

Texas law prohibits prepayment penalties on residential mortgage loans secured by the homestead of the borrower if the interest rate on the loan is greater than 12% unless the charge or penalty is required by an agency created by federal law.

What does RESPA require that is a benefit to consumers during the settlement process?

That the parties to certain transactions receive the correct figures pertaining to their closing costs

What is the negative aspect of a bargain and sale deed with covenants?

The deed does not protect the grantee against claims that predate the owner's period of ownership.

What are the two distinct features of fixed-rate fully amortized loans?

The interest rate remains fixed for the life of the loan. The payments remain level for the life of the loan and are structured to repay the loan at the end of the loan term.

What does the Truth in Lending Act require lenders to disclose to buyers?

The true cost of obtaining credit so that borrowers can compare the costs of various lenders

Which clause in a mortgage allows the mortgagee to declare that the entire mortgage debt is due and must be paid immediately?

This is accomplished through an acceleration clause in the mortgage.

TRID gives the buyer the right to review the completed Closing Disclosure form how long before closing?

Three business days

What is the primary function of a commercial bank?

To act as a depository for funds and as a lender for commercial activities

Why does a borrower retain a mortgage broker?

To help obtain financing for a specific commercial property

Why was the Community Reinvestment Act passed?

To prevent redlining

What is the primary function of a savings and loan association?

To promote thrift and home ownership

What is a VOD form?

Verification of deposit

What is voluntary alienation?

Voluntary alienation is an unforced transfer of title by sale or gift from an owner to another party.

Define a purchase money mortgage.

With a purchase money mortgage, the buyer borrows from the seller in addition to the lender. This is sometimes done when a buyer cannot qualify for a bank loan for the full amount, so the seller "takes back" a portion of the purchase price as a second mortgage.

What is a quitclaim deed and what is probably its most common use?

With a quitclaim deed, the grantor makes no claim to any interest in the property being conveyed and offers no warrants to protect the grantee. It is often used in divorce settlements.

Describe a reverse annuity mortgage.

With this type of mortgage, the lender makes payments to the borrower. This system allows older property owners to receive regular monthly payments from the equity in their paid-off property without having to sell.

Junior liens also know by the name

inferior liens

What is a land contract?

is a complete financing contract executed between a seller and a buyer, in which the seller pledges to convey the title to the property at the time when the buyer completes whatever obligations the contract stipulates. Under the terms of the land contract, the buyer gets possession of the property and equitable title, while the seller holds legal title to the property and continues to be primarily liable for payment of any existing mortgage

Obtaining transaction documents after closing

is a poor practice.

What is a short sale?

is the sale of a secured real property that produces less money than what is owed to the lender. The lender releases the mortgage or trust deed so that the property can be sold free and clear to a new purchaser by agreeing to a negotiated sale.

- A popular way to avoid having to pay private mortgage insurance

is through the use of what's known as 80-10-10 financing.

A popular way to avoid having to pay private mortgage insurance

is through the use of what's known as 80-10-10 financing.

What three types of foreclosure processes enforce mortgage liens?

judicial foreclosure non-judicial foreclosure strict foreclosure

Under the title theory, regarding title to mortgaged property, the security interests rest with the

mortgagee.

A real estate transaction checklist is

not a set of step-by-step instructions.

What two factors primarily determine lien priority?

the lien's categorization as superior or junior the date of recordation of the lien

Mary's mortgage is to be paid in full on 4/30/2040. This date is known as

the maturity date.

What two automated underwriting systems are available for users under Fannie Mae?

Desktop Underwriter Desktop Originator

Who is not a major player in the secondary mortgage market?

Fannie Mac

What does federal law say about the termination of private mortgage insurance?

Federal law requires that any loans originated after July of 1999 must have the PMI terminated after the borrower has accumulated 22% of equity in the property (loan-to-value ratio is 78%) and is current with all loan payments. However, the law also states that a borrower whose equity equals 20% of the purchase price or appraised value may request that the lender cancel the PMI.

Define acceleration.

If the borrower violates any of the covenants of the contract, the beneficiary may call for payment of the loan in full and the trustee may sell the property after he or she has filed all the proper notices.

What creates the forbearance period?

In addition to any monetary penalties, the lender can specify a grace period during which a borrower can make a late payment without the lender asserting that the borrower is in default.

Broker Bob is the listing broker for Seller Sam. A buyer's broker brings and offer to Bob and requests a split of the commission if the offer is accepted and the deal closes. Bob agrees and the transaction closes. Has Bob acted properly?

No, Bob did not get the seller's permission.

How can a short sale be a win-win-win-win for all parties involved?

The lender wins because they are getting back as much of the non-performing loan as they can without the additional time and expense of the foreclosure process. The borrower wins because a portion of the money owed is going to be forgiven and their credit is less affected. The buyer wins because they have purchased a house that is priced right. The licensee wins because the short sale is an opportunity for more listings, to earn more commission dollars and add more value to our services.

What is adverse possession?

The process by which an owner can lose title to his or her property because an adverse possessor entered, occupied, and used the property without the knowledge or consent of the owner, or with the knowledge of the owner who failed to take any action over a statutory period of time.

With a judicial foreclosure, when is the Deed of Conveyance issued and who issues it?

The sheriff will issue a Deed of Conveyance if the debtor does not redeem the property within the redemption period.

2. What is a release clause and in what type of mortgage would you find this clause?

This clause, found in a blanket mortgage, allows the borrower to obtain a release of any individual lot from the lien by repaying a certain part of the loan. The lender will issue the partial release for the one lot, with the provision that the mortgage will continue to cover the remaining lots.

What is a lien?

A lien is a creditor's claim against personal or real property as security for a debt of the property owner.