Unit 12

The loan-to-value ratio is 80%. A buyer wants to acquire a property with a purchase price of $116,000. Calculate the required down payment.

$23,200, $116,000 x .20 (because 80% LTV)

The borrower is given ______________ from the date of the notice of acceleration to pay all sums secured by the mortgage instrument. If the borrower fails to pay the debt within the specified time period, the borrower is considered to be in default.

30 days

A home was purchased with a down payment of $50,000 and a loan of $200,000 at 6% interest for 20 years. Monthly payments are $1,432.86. What is the loan-to-value ratio?

80%: $200,000 divided by $250,000 = 80%

In return for the loan, the borrower promises to pay to the lender the amount of the loan, called the principal, plus interest:

Amount of debt

The borrower agrees to pay a late charge if the monthly payments are paid late. The lender also warns the borrower that if the payments are not paid in full each month on the due date, then the borrower will be in default. If the borrower defaults (violates the terms of the mortgage), the lender can call the loan (demand repayment of the entire loan before the end of the term):

Borrower's failure to pay as required

A borrower is getting a loan for $250,000 at 4% interest. The lender is charging 2 points. The borrower will be charged $10,000 for the points. T/F

False, $250,000 loan × .02 points = $5,000 points

A prepayment penalty clause is normally included in all mortgages in Florida. T/F

False. . A *prepayment clause* (not prepayment penalty clause) is normally included in mortgages in Florida, allowing the borrower to pay off part or all of the debt without penalty before loan maturity.

A note requires that the lender be liable for paying the borrower according to the agreed-upon terms of the loan. T/F

False. A note represents the borrower's promise to pay the lender according to the agreed-upon terms of the loan.

When allowing a buyer to assume an existing mortgage, the seller should require the parties to execute a partial release clause to prevent future liability should the buyer default on the assumed mortgage debt. T/F

False. A written novation makes the buyer solely responsible for any default on the mortgage loan. Lenders may want to prevent buyers from assuming an existing mortgage. Most lenders today include a *due-on-sale clause* in conventional mortgage loans. In effect, this clause prevents another party from assuming the mortgage and requires that the mortgage debt be paid in full when the property is sold.

Each discount point lowers the lender's yield. T/F

False. Discount points are a method for increasing a lender's yield.

In lien theory states, the lender retains title to the property. T/F

False. In lien theory states, the borrower retains title to the property.

The defeasance clause prevents a buyer from assuming the mortgage. T/F

False. The defeasance clause in a Florida mortgage releases the mortgage lien once the debt is paid in full.

The lender assigning the mortgage to another company (investor) is the assignee. T/F

False. The statement is false. The lender assigning the mortgage to another company (investor) is the assignor. The assignor signs the assignment of mortgage and delivers it to the assignee.

A title company typically does not order an estoppel certificate when handling the closing of a residential condominium unit. T/F

False. The title company will also order an estoppel certificate from the association if the property that is being purchased or refinanced is in a condominium, cooperative, or homeowners association.

A lender agrees to make a loan at 2% interest plus 3 points. The 3 discount points increase the lender's yield by 3%. T/F

False. Three points increases the lender's yield by 0.375%; or 3 ÷ 8 = 0.375. (The lender's effective yield is 2.375% interest.)

Under a contract for deed, the vendee is granted unilateral title. T/F

False. Under a contract for deed, the vendee (purchaser) is granted equitable title. Because a contract for deed is seller financing, the parties to the agreement are referred to as vendor (seller) and vendee (buyer).

Lender (mortgagee) provides the money; the mortgage instrument, when recorded, creates a lien on the property.

Hint: There are two Es in lender and mortgagee.

Borrower (mortgagor) receives the money to finance the property.

Hint: There are two Os in borrower and mortgagor.

Interest is charged on the unpaid principal until the full amount of the principal has been repaid. Interest rates are stated as yearly (annual) rates:

Interest rate

The amount of the monthly payment and the due date are indicated. The monthly payment consists of principal and interest (also called debt service). The payment is applied to interest before principal:

Repayment method

The right to reinstate is the mortgagor's right to reinstate the original repayment terms in the note after the lender initiated the acceleration clause. T/F

TRUE

The date that the loan ends (has been fully repaid) is called the maturity date:

Term or time period to repay: The amount of the monthly payment and the due date are indicated. The monthly payment consists of principal and interest (also called debt service). The payment is applied to interest before principal.

A buyer agrees to purchase a property with an existing mortgage lien. In which situation is the new buyer the only party responsible for the debt?

The answer is novation. A novation agreement makes the buyer solely responsible for any default on the mortgage loan.

A lender is charging an origination fee of 1.5% on a new mortgage loan of $300,000. The cost of the loan origination fee is $4,500. T/F

True

A mortgage that is recorded after an earlier recorded mortgage is a second mortgage unless a subordination agreement allows the mortgage recorded at the later date to be in higher priority than the earlier recorded mortgage. T/F

True

The current market value of a home is $300,000. There is a mortgage loan on the property of $240,000. The homeowners have $60,000 equity in their home. T/F

True

The loan-to-value ratio is 90%. A buyer wants to acquire a property with a purchase price of $350,000. The buyer's down payment is $35,000. T/F

True

The pledging of property as security for repayment of debt is called hypothecation. T/F

True

When default occurs, the lender has the right under the mortgage contract to pursue legal action against the borrower for payment of the debt. T/F

True, When default occurs, the lender has the right under the mortgage contract to pursue legal action against the borrower for payment of the debt.

A lis pendens is a type of constructive notice indicating that the property is involved in pending legal action. T/F

True, it is a constructive notice indicating that the property is involved in pending legal action.

A deed in lieu of foreclosure is a nonjudicial procedure. T/F

True, it is a nonjudicial process.

An assignment is when ownership of a mortgage is transferred from one company to another company. T/F

True.

An estoppel certificate verifies the unpaid balance and interest rate before the assignment of a mortgage instrument. T/F

True. The purpose of an estoppel certificate is to stop a claim that the amount owed is different from the actual unpaid balance or that the interest rate is an amount other than the contracted rate.

When a property is sold subject to the mortgage, the buyer is NOT personally obligated to pay the debt in full. T/F

True. When a property is sold subject to the mortgage, the buyer is not personally obligated to pay the debt in full.

Mortgagor

a borrower who gives a mortgage on the borrower's property in order to obtain a loan from a lender.

Subject to

a buyer makes regular periodic payments on the mortgage but does not assume responsibility for the mortgage.

Subordination agreement

a buyer makes regular periodic payments on the mortgage but does not assume responsibility for the mortgage.

Satisfaction of mortgage

a certificate issued by the lender when the debt obligation is paid in full.

Loan origination fee

a charge by a lender for taking a mortgage in exchange for a loan.

Buydown

a financing technique in which points are paid to the lender the seller or the builder that lowers (buys down) the effective interest rate paid by the buyer/borrower, thus reducing the amount of the monthly payments for a set period of time.

Contract for deed (land contract)

a financing technique wherein the seller agrees to deliver the deed at some future date and the buyer takes possession while paying the agreed amount. Also called an installment sale contract of agreement for deed.

Deed in lieu of foreclosure

a friendly foreclosure (non-judicial procedure) in which the mortgagor gives title to the mortgagee.

Assignment of mortgage

a legal instrument stating that the mortgage assigns (transfers) the mortgage and promissory note to the purchaser.

Foreclosure

a legal procedure whereby property used as security for a debt is sold to satisfy thereby owing to default in payment of the mortgage note or default of other terms in the mortgage document.

Mortgagee

a lender who holds a mortgage on specific property as security for the money loaned to the borrower.

Discount points

a method for increasing a lender's yield. See also mortgage discount point.

Right to reinstate

a mortgage clause based on the equity of redemption. The mortgagor's right to reinstate the original repayment terms in the note after the mortgagee has initiated the acceleration clause.

First mortgage

a mortgage on property that is superior in right to any other mortgage.

Lis pendens

a pending legal action.

If a mortgagee does NOT want the mortgage to be paid ahead of schedule, the mortgage will normally contain

a prepayment penalty clause

Due-on-sale clause

a provision in a conventional mortgage that entitles the lender to require the entire loan balance to be paid in full if the property is sold.

Prepayment clause

a provision in a mortgage that allows the mortgagor to pay the mortgage debt ahead of schedule without penalty.

Defeasance clause

a provision in a mortgage that specifies the terms and conditions to be met in order to avoid default and thereby defeat the mortgage.

Receivership clause

a provision in a mortgage, related to income-producing property, that is designed to require that income derived be used to make mortgage payments in the event the mortgagor (borrower) defaults.

Short sale

a sale of secured real property that produces less money than is owed the lender. The lender releases its mortgage so that the property can be sold free and clear to the new purchaser.

Mortgage

a written agreement that pledges property as security for payment of a debt.

Takeout commitment

a written commitment from a financial institution certifying that permanent financing will be provided when the project is completed.

Estoppel Certificate

a written statement that bars the signer from making a claim inconsistent with the instrument (commonly used with a mortgage assumption).

A lender declares all the unpaid balance due and payable as a result of default. The lender is exercising the

acceleration clause

Loan servicing

an additional source of income for lenders. Servicing fees typically range from ⅜ to ¾ of 1% of the unpaid balance of loans serviced.

Escrow

an impound account required by most lenders that require borrowers to pay in advance monthly installments for property taxes and insurance. The monthly escrow payment is one-twelfth of the estimated annual expense for property taxes and the hazard insurance premium.

When a property is sold "subject to the mortgage," the

buyer is not responsible for the note.

A type of seller financing in which the vendor holds legal title to the property until the buyer has repaid the debt is a

contract for deed

In title theory states, the mortgage clause that provides that the conveyance of title to the lender is defeated when all the terms of the agreement have been fulfilled is the

defeasance clause

Default

failure to comply with the terms of an agreement or to meet an obligation when due.

Land development loan

financing instrument for the installation of on- and offsite improvements to the land, including sewers, streets, and utilities.

Most lenders require borrowers to pay, _______________, monthly installments for property taxes and hazard insurance.

in advance

Payments made at the end of a payment period are called payments _______________.

in arrears

Lien theory

legal concept that regards a mortgage as a just claim on specific property pledged as security for a mortgage debt.

Title theory

legal concept that vests title to mortgaged property in the mortgagee (lender) or a third party.

Note

legal evidence of a debt that must accompany a mortgage in Florida; a legally executed pledge to pay a stipulated sum of money. See also promissory note.

he person who borrows money to help pay for the purchase of real property is called at various times the

mortgagor

In a mortgage transaction in Florida, the legal evidence of the personal debt is the

note

Blanket mortgage

one debt instrument covering two or more parcels.

Payments may also be made at the beginning of each period and are called ________________________________.

payments in advance

PITI

principal, interest, taxes, and insurance payment on a mortgage loan.

Loan-to-value ration (LTV)

relationship between amount borrowed and appraised value (or sale price) of a property.

A couple has just made the final mortgage payment on their home. What document must the mortgagee file on their behalf?

satisfaction of mortgage

Partial release clause

stipulates the conditions under which the mortgagee will grant freeing building lots from a mortgage lien upon payment of a certain amount of money.

Acceleration clause

stipulation in a mortgage that the entire unpaid balance of the debt may become due and payable if a default of expressed conditions should occur.

A home was purchased for $406,250. The buyer received a mortgage loan for $325,000. The LTV is 80%. T/F

tRUE

Prepayment penalty

the amount set by the creditor that the debtor is charged for retiring the debt early.

Assumption

the buyer of real property that is already mortgaged assumes liability for the mortgage payments of the original loan that remains on the property.

A borrower who is in default on a mortgage is allowed to prevent the lender from foreclosing on the property by paying the mortgagee the delinquent principal and interest, plus any expenses the mortgagee has incurred in attempting to collect the payments. This right is called:

the equity of redemption

Equity

the market value of a property less any debt against it; in a business entity, assets minus liabilities equals capital (owner's equity); a system of legal rules administered by a court of chancery.

Interest

the price paid for the use of borrowed money; estate.

Equity of redemption

the right of a mortgagor, before a foreclosure sale, to reclaim forfeited property by paying the entire indebtedness.

Novation

the substitution of a new party and/or new terms to an existing obligation.

Hypothecation

to pledge real or personal property as security for a debt or obligation without giving up possession of the property.