Chapter 8d

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

1. 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.

Lenders may have the right to file foreclosure actions in as little as ___________ after the missed payment date.

120 days

construction loans last how long?

3 to 12 months

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 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 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 lien?

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

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 Municipal utility lien?

A municipality may place a utility lien against a resident's real property for failure to pay utility bills.

What the most popular way to avoid pmi?

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 this means is that the institutional lender provides the traditional 80-percent first mortgage. Then the borrower gets a 10-percent second mortgage and makes a 10-percent cash down payment. For example:

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.

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 a credit union?

Credit unions are nonprofit financial institutions into which members place their money, usually through direct deposit.

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.

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.

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 a TWC Wage Lien?

If an employer owes back wages to an employee, a TWC wage lien can be set against all real and personal property of the employer.

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.

When is a lien attached to a property?

If the property is transferred, the new owner acquires the lien securing the payment of the debt

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.

The two main types of foreclosure options for lenders in Texas are __________________________.

Judicial Foreclosure Non-Judicial Foreclosure

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

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.

What are the basic legal documents that are used to finance real estate?

Note and mortgage Note and deed of trust Land contract

List two advantages of conventional loans over government-backed loans.

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.

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 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.

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.

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.

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.

What does a negative amortization cap do?

This cap limits the amount of unpaid interest that the lender can actually add to the principal balance.

What is the Subordination clause?

This clause is an agreement to reduce the priority of an existing loan to a new loan that will be recorded in the future.

What is the exculpatory clause?

This clause is inserted in a financing document when the lender agrees to waive the right to a deficiency judgment.

What is the Release Clause?

This clause is often used when two or more properties are pledged as collateral for a single loan.

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 the due on sale clause?

This is a form of acceleration clause that requires the borrower to pay off the entire mortgage debt when the property is sold.

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.

What is a straight note?

This is an interest-only note, whereby the borrower agrees to pay the interest periodically and to pay the entire principal when the note comes due.

What is a installment note?

This note requires the periodic payment of both interest and principal and is the most common note.

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

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

To promote thrift and home ownership

manufactured housing loans can last how long?

Usually run ten years, or sometimes longer, depending on how permanently the home is attached to the property.

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.

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.

What is strict forclosure?

a court proceeding that gives the lender title directly, by court order, instead of giving cash proceeds from a public sale.

What is foreclosure?

a procedure in which a borrower gives up rights to a property due to the inability to repay the loan

what is a Surety Bail Bond Lien?

a real estate owner may put up real estate instead of cash to pay bail if he or she has been charged with a crime.

What is another name for a deed of trust?

a trust deed

What is a voluntary lien?

a voluntary lien is created by the lienee's or borrower's actions, such as taking out a mortgage or home improvement loan.

What is judicial foreclose?

allows a property to be sold by court order after sufficient public notice.

What is a vendors lien?

also called a seller's lien, secures a purchase money mortgage, a seller's loan to a buyer to finance the sale of a property.

What is an ARMs?

an adjustable-rate mortgage

What is a specific lien?

attaches to a single item of real or personal property, and does not affect other property owned by the debtor.

What is 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 is 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.

home improvement loans last how long?

can extend to 5 years

A Judicial Foreclosure typically goes through the __________ while a Non-Judicial Foreclosure action is held _______________.

court system, outside of a courtroom

The primary security instruments used by lenders and secured by properties include a ______________. There is not usually a right of redemption allowed and deficiency judgments may be allowed should the lender lose more money that the current value of the subject property that was foreclosed upon.

deed of trust mortgage

This right to redeem property between the time of the default and the foreclosure sale is called what?

equity of redemption right.

What is lis pendens?

gives public notice that the mortgaged property may soon have a judgment issued against it. This notice enables other lienholders to join in the suit against the defendant.

What does a payment cap do?

insures a set monthly payment that remains the same although the actual interest rate may fluctuate throughout the year.

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.

What is a commercial bank?

is a financial institution that is designed to act as a depository for funds and as a lender for commercial activities - usually short-term loans

What is a A savings and loan association?

is a financial institution whose primary function is to promote thrift and home ownership. Also known as "savings banks" or "thrifts," these institutions often offer their depositors a higher rate of interest on their deposits than commercial banks offer.

What is 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 pledge account mortgage?

is a type of graduated payment mortgage under which the owner/borrower contributes a sum of money into an account that is pledged to the lender.

What is a buydown?

is a variation of the PAM described above. In a buydown, the lump sum payment that is made to the lender at closing usually comes from a builder as an incentive to the buyer or from a family member trying to help out.

What is a mortgage lender?

is an investor that lends money secured by a mortgage on real estate.

What is Mortgage Power of Sale?

is essentially the same as the process used to foreclose on a deed of trust. The one difference is that in most states, the lender cannot bid on the sale.

What is a general lien?

is one placed against any and all real and personal property owned by a particular debtor.

What is an involuntary lien?

is one that a legal process places against a property, regardless of the owner's desires.

What is a mortgager?

is the borrower in a mortgage—he owes the obligation secured by the mortgage.

What is a short sale?

is the sale of a secured real property that produces less money than what is owed to the lender.

What does a mortgage involve?

it involves the transfer of an interest in land as security for a loan or other obligation

What are the three types of foreclosure processes?

judicial foreclosure non-judicial foreclosure strict foreclosure

the debtor who owns the property is the?

lienee

The creditor who places a lien on a property is called?

lienor

What is a blanket loan?

loan covers more than one piece of property

What is the primary method of foreclosure in texas?

non-judicial foreclosure

When does a short sale occur?

occurs when a lender allows a borrower in default on mortgage loan payments to sell the mortgaged property for less money than necessary to satisfy the loan in order to avoid the delay and expense of a foreclosure sale.

What is an open-end loan?

s an expandable loan which gives a borrower a limit up to which he or she may borrow.

Once the foreclosure sale has taken place, any right to redeem the property must be created by a state statute. this statute is called what?

statutory redemption

What are the two types of promissory notes?

straight note installment note

What are the two factors that primarily determine lien priority?

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

What are the types of liens?

voluntary or involuntary, general or specific, and superior or inferior