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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. Foreclosure is defined as a procedure whereby property pledged as security for a debt is sold to pay the debt in the event of default in payments or terms.
What's a usury law?
A law that limits how much interest banks can charge. Usury laws establish the maximum interest rate lenders can charge.
Abby doesn't understand why there's a lien on the home she just bought. What does that mean?
A lien is the legal right to the value of the home if the borrower defaults on the loan. A lien is security for the lender. When Abby gives the lender a mortgage, the lender is allowed to place a mortgage lien on the property.
What is a secured loan?
A loan backed by some type of collateral, usually the value of the home itself. A secured loan includes collateral. An unsecured loan, such as credit card debt, does not include collateral.
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. A mortgage is a legal document that allows the lender to use the house as collateral for the loan. The mortgage allows the lender to foreclose on the property if the borrower defaults on the loan.
Who is responsible for recording the mortgage process?
A title agency will likely handle it, but the responsibility is the lenders. The lender must record the mortgage to ensure the mortgage lien is filed.
When is the mortgage recorded?
After all documents are signed at the closing and the title company transfers the title. The mortgage gets recorded after title is transferred.
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. Any outstanding liens, including a mortgage lien, get paid off first. Anything left over will go to the seller.
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. Deficiency judgement is defined as 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.
What Is Ginnie Mae?
An organization that's government-owned and managed through HUD offering mortgage security guarantees This question refers to the definition of Ginnie Mae (GNMA).
When is a notice of default sent to a homeowner in a non-judicial state?
As soon as 30 days past due, sometimes even sooner. A Notice of Default may be sent after just one missed payment by the borrower.
What is the average amount of loan origination fees?
Between 0.5 and 1 percent of the borrowed funds. Origination fees typically equal 0.5% to 1% of the loan amount.
Failure to fulfill a duty or promise or to discharge an obligation is known as...?
Default This question refers to the definition of default.
Lucy wants to buy a home. What's the first step in getting her a home?
Ensure she has a home loan in place. Lucy should obtain a pre-approval letter from a lender, which states how much the lender is willing to give her to purchase a home.
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. The borrower should only obtain a loan they can afford. They must make their mortgage payments on-time.
A new client, John, wants to buy a foreclosure. He says they are always a deal. Is that true?
Foreclosures can be a good deal, but must be bought with careful consideration to conditions and market value.
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. Peter may sell his house to pay off the loan; however, he most likely will have to do so at a discount to sell the property more quickly.
Michael's trustee in a non-judicial state says he must make payment in full. Does he have recourse?
He may be able to pursue renegotiation of the loan, refinancing the loan, or a sale of the home. Some lenders may allow for catchup payments. The borrower may still work with the lender to come to a resolution as the lender typically wants to avoid foreclosure.
Samantha wants to know if she lives in a deed of trust state. How do you find out?
Her lender will know, but any title company can clarify this. The lender or mortgage broker will know.
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.
When will Shawn have to leave his home after an auction from default?
Immediately. There's little time afforded to the defaulted buyer. Shawn must leave immediately, as he is giving up ownership of the property when the auction is completed.
What role does the Federal Reserve play in the real estate mortgage industry?
It creates rules to govern the industry.
What is the alienation clause in a mortgage?
It gives the lender the right to payment in full when the property is sold.
In simplistic terms, what is a deed of trust?
It's an IOU to the lender to repay the debt. A deed of trust involves a trustor (the borrower), a beneficiary (the lender), and a trustee who holds title to the property.
What is amortization?
It's the mathematical calculation of the amount of interest the buyer will pay on the loan.
Sam heard that buying a home was least expensive if he bought through Fannie Mae. Sam wants to invest in a loan that's least expensive to him, and this government-backed program seems to be a good option. Can Sam borrow from Fannie Mae?
No, Fannie Mae is a publicly traded organization. It does not lend directly.
Sam heard that buying a home was least expensive if he bought through Fannie Mae. Sam wants to invest in a loan that's least expensive to him, and this government-backed program seems to be a good option. Can Sam borrow from Fannie Mae?
No, Fannie Mae is a publicly traded organization. It does not lend directly. Fannie Mae purchases loans from banks. It does not originate loans.
Andrew wants to buy a home but avoid interest. He thinks if he gets a loan and pays it off right away, he'll pay no interest. Is he correct?
No, he'll pay closing costs and prepayment penalties. Andrew may still be subject to a pre-payment penalty. Andrew is also responsible for the loan origination fees.
Does a homeowner always maintain legal title for a home?
No, in title theory states, the trustee maintains it until the debt is paid in full. In a lien theory state, the homeowner holds title to the property. In a title theory state, the trustee holds title.
Is the court involved in non-judicial foreclosure?
No, it is handled outside of the court system. The court is only involved in judicial foreclosure.
Are real estate terms listed in promissory notes?
No, it lists the loan terms only.
Lenders want to foreclose. Is that true?
No, it's costly, long, and rarely profitable. Lenders always want to avoid the foreclosure process.
Does a real estate agent help negotiate the terms of a promissory note?
No, the agent isn't responsible for the financial aspects, but can offer explanations as needed. A real estate agent is not involved in the buyer's loan, as this is out of their expertise.
Courtney can't pay her mortgage. Her friend can just take over on the payments, right?
No, the lender must approve the reassigning of the loan debt to another person. It's not easy to assign a mortgage. Most lenders will not allow it.
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.
What's the most common cause of default by homeowners?
Not making on-time payments. A default typically occurs when the borrower does not make payments on the loan.
Lauren is thinking about renting her home out. Is she allowed to do so?
Only if there is an Assignment of Rent clause and the lender approves. The assignment of rents clause provides that during such default, all rents and incomes from the secured property will be paid to the lender to help reduce the outstanding loan balance.
Sally can't sell her home and thinks she can just live in it without a threat of foreclosure. What will happen?
Sally defaults on the loan and the lender forecloses. If a borrower stops making payments on their loan, the lender can begin the foreclosure process.
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 Loans are originated in the primary mortgage market and then bought and sold in the secondary mortgage market.
Abigail paid off her loan in full. What happens with her title?
She receives the title as a result of the Satisfaction of Mortgage. Her title is free and clear of any mortgage liens.
Olivia loses her home in an auction. But, she's able to catch up now. Can she do so?
Some states allow the homeowner to redeem the foreclosed sale for a limited amount of time after the auction. The lender may allow Olivia to catch up on her payments to avoid the foreclosure process.
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. If a prepayment penalty does not exist, Bob can pay the loan off early without any issues.
Who decides if a mortgage is a judicial or non-judicial foreclosure?
State laws dictate this. It's outlined in the mortgage documents. State laws will dictate if a state is a lien theory state or a title theory state.
When asked why the Fed is raising rates, what is your answer?
The Federal Reserve increases rates to grow profits, but also to control inflation and build the economy.
James bids on a home. His promissory note lists the principal amount. How much is this?
The amount he agrees to borrow to buy the home minus any down payment The principal amount is the amount of the loan, not the purchase price of the property. The principal amount will be less than the purchase price.
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.
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. Since the borrower agreed to the terms of the loan, they are responsible for making loan payments on time.
What does a non-judicial foreclosure involve?
The borrower, lender, and trustee without the court system.
What happens during the closing of a loan?
The buyer signs documentation agreeing to the loan terms. The title switches hands. The closing documents are signed, and the funds are issued to the seller.
What does a judicial foreclosure involve?
The court system The judicial foreclosure process involves a lawsuit and a lengthy legal process.
Interest rates are the cost to borrow money to buy a home. What is the percentage?
The fee charged by the lender to borrow funds.
Who is the trustor in a deed of trust?
The home buyer. A deed of trust involves a trustor (the borrower), a beneficiary (the lender), and a trustee who holds title to the property.
Laurel buys a home with a deed of trust. What does she use as collateral?
The home is the collateral backing the loan. The home is used as collateral. If Laurel defaults on the loan, the lender may foreclose on the property to pay off the loan.
What is a deed in lieu of foreclosure?
The homeowner asks the lender to accept the deed on a home to stop the foreclosure process and walks away from the home. Deed in lieu of foreclosure is defined as a deed to real property accepted by a lender from a defaulting borrower to avoid the necessity of foreclosure proceedings by the lender.
What is a default judgment?
The homeowner failed to catch up on the loan payments, and the court ruled against the homeowner. Once a default judgement is filed, the foreclosure process will proceed without the borrower being able to catch up on their payments.
What is a lien theory state?
The homeowner holds the deed for the property throughout the entire loan. A lien theory state involves a mortgagor and a mortgagee. The mortgagor holds title to the property, while the mortgagee holds a mortgage lien against the property.
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 The terms of the loan, including the interest rate, is important because it directly determines the monthly payment amount.
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.
In a lien theory state, who services as the mortgagee?
The lender The lender serves as the mortgagee, while the borrower serves as the mortgagor.
Steve is struggling to remember to make real estate tax payments. How can the lender help?
The lender can collect taxes and insurance and hold them in escrow for payment. The lender will take a portion of the monthly loan payments and set it aside in an escrow account to be used to pay the property taxes.
Justin is behind on the mortgage in a lien title state. What happens?
The lender can take legal steps to foreclose on the loan. The lender may start the foreclosure process and execute on the mortgage lien. This forces the homeowner to sell their house at foreclosure to repay the loan.
Sue watched her home get sold at auction, but no one bought it. Can she have it back?
The lender takes possession. Sue may be able to obtain a new loan from a new lender to purchase the home. If the property is not sold at auction, the lender takes ownership as an REO.
Who pays for the foreclosure process in a judicial case?
The lender. The lender pays the expenses associated with the foreclosure process.
What happens if Susan doesn't pay according to the terms of her promissory note?
The loan defaults, she can be sued in court, and the home may be sold If a borrower defaults on their loan, the lender may begin the foreclosure process.
Aside from interest rate fees, how do lenders in the primary mortgage market profit from the home buying process?
The loans they create are packaged and sold in bundles as securities. Most banks package the loans they create and sell them in the secondary mortgage market.
What happens during underwriting?
The mortgage lenders take a close look to make sure they can loan the funds to buy the home. The lender qualifies the borrower to ensure they can afford the loan.
Christopher's home was lost in foreclose, but no one bought it. Who gets ownership?
The mortgagee has the right to take possession as a REO. The lender will take ownership of the house as an REO. The lender may eventually try to sell the property through a broker.
Amy says she has an interest rate of 5%. Where is this located in her loan documents?
The promissory note lists the interest rate, or cost to borrow the funds The terms of the loan, including the interest rate, are listed in the promissory note.
Iris wants to find the record of her deed and title. Where does she go?
The registrar of deeds or county recorder. The county clerks office will have a copy of these documents.
What role does a trustee play in a title theory state?
The trustee holds the interest in the home, or the legal title. The trustee is a neutral third party that holds title to a property.
What is the job of a trustee?
The trustee holds the legal title of the property until the debt is paid off. The trustee is a neutral third party that holds title to a property.
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. The trustee will give the title to the lender, which terminates the borrower's ownership in the property.
What happens in a non-judicial foreclosure?
The trustee moves to force the sale of the home due to default on the loan.
A worried client walks into your office with a notice of auction of her home. What does this mean?
The trustee plans to sell the home in a non-judicial foreclosure due to nonpayment.
Who holds the title in a non-judicial foreclosure up until the auction?
The trustee. The trustee, which is a neutral third party, holds title to the property.
In a non-judicial foreclosure, is there a right to redeem?
This happens only in some states. State law outlines this right. If permitted, state laws will dictate the right to redemption process.
Amanda's home equity lender is going through the subordinate process. What does that mean?
This lender wants to take priority over other lenders in the event of a foreclosure The lender will always aim to have their lien take first priority. This may be accomplished through a subordination agreement.
How long does the judicial foreclosure process take?
Three to four months, but it depends on state laws. Judicial foreclosure is often a lengthy legal process since the courts are involved.
Why do you need to sit down with Sara and explain to her how the mortgage market works? After all, she just wants to buy a home, not enter into a financial degree program.
Understanding the mortgage finance market can help Sara to actually find the best loan with the lowest costs. This not only helps her buy the home she wants, but helps you to sell a home that's more valuable. The terms of a loan are very important as it directly impacts the amount the borrower will have to pay on a monthly basis. A borrower should always try to get the best terms possible.
Angel wants you, the real estate agent, to be at the closing. Should you be there?
While not required, it can give the buyer confidence if he or she has questions. The real estate agent should attend the closing to help ensure things move smoothly.
Does the mortgagor do more than promise to pay the monthly payment?
Yes, he must meet all duties outlined in the mortgage document. The homeowner must also take care of the property to ensure it does not lose value.
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. Interest-only loans (also known as a straight loan) are good for the short-term. The borrower will have a lower monthly payment, but they must pay back the entire loan amount when they sell the property.
Sue wants to tear down a portion of her home. Does she need to ask her lender?
Yes, significant changes must be reported to the mortgagee. The homeowner must take care of the property to ensure it does not lose value. A major change to the house will require permission from the lender.
To cut costs, Morgan decides to stop paying his home insurance. Could this lead to foreclosure?
Yes, the lender could force the loan to be paid in full immediately or foreclose. Lenders require homeowner's insurance.
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. The homeowner must also take care of the property to ensure it does not lose value.
