Contingencies, Addenda, and Amendments +Financing Real Estate (Texas Pre-License - Law Of Contracts)
When a homebuyer goes to a lender to make a loan, the consumer is doing business with a secondary lender. FALSE TRUE
False: When a homebuyer goes to a lender to make a loan, the consumer is doing business with a primary lender.
If Michael finds a buyer who will pay less than the amount owed on his home, which of the following statements BEST describes what must happen before he can proceed with the sale? His lender must approve the short sale. A court judge must approve the short sale. His lender must deny the short sale. His attorney must approve the short sale.
His lender must approve the short sale.
Why Choose Seller Financing?
While times have changed somewhat, owner financing is or can be attractive to the owner for a number of reasons: • The interest that they can charge is greater than the interest rate banks will pay them on their deposits. • For federal tax purposes, the seller can spread out the sale over a number of years.
The Real Estate Settlement Procedures Act (RESPA) requires lenders to deliver: an estimate of the seller's closing costs to the buyer after application an estimate of the buyer's closing costs to the buyer after application buyers' applications straight to the seller an estimate of the buyer's closing costs to the seller after application
an estimate of the buyer's closing costs to the buyer after application
Consumer Financial Protection Bureau (CFPB)
an independent agency created under the Dodd-Frank Wall Street Reform Act to supervise financial companies, banks, and credit unions as well as enforce federal consumer financial laws
The SAFE Act regulates the licensure of which type of real estate professionals? title agents real estate attorneys home inspectors mortgage loan originators
mortgage loan originators
statutory redemption
occurs after the foreclosure sale (auction) of the property and allows defaulting debtors to regain possession of the property
equitable redemption
occurs before the foreclosure sale (auction) of the property and allows defaulting debtors to pay the defaulted portion of the debt and prevent foreclosure
Texas law requires school districts to offer a tax exemption on residence homesteads in what amount? $25,000 $10,000 $35,000 $40,000
$40,000
A change to an already agreed-upon contract is an . A change that's generally made before the contract is signed is an .
A change to an already agreed-upon contract is an amendment. A change that's generally made before the contract is signed is an addendum.
Contingency Clauses
A contingency clause is a provision within a contract that makes performance conditional upon the occurrence of a stated event. There are five main types of contingencies: Financing Contingencies- A financing contingency, also called a mortgage contingency, requires that the buyer get approved for a loan before being able to complete the purchase of a home. This contingency is an important form of protection for the buyer. In the event that the buyer cannot secure financing, they can back out of the home purchase and reclaim their earnest money. Appraisal-An appraisal contingency acts as an exit for the buyer in the case of a low appraisal. This way, if the appraised value is less than the agreed-upon price, the buyer can get out of the contract without losing money. An appraisal contingency is a good way to keep the buyer out of a bad situation. Sale of Another Property-With sale of other property contingencies, the purchase is dependent upon the sale and closing of the buyer's existing property. This contingency protects the buyer from owning two homes at once and makes sure the buyer has enough funds for closing. Inspection- Title-A title contingency allows the buyer to verify that a home's title is clear of any liens or other issues before completing the purchase of the home.
A lien is nonconsensual and is created through the power of a court. A foreclosure is a foreclosure that is processed through the court. An example of a foreclosure is a homeowners association (HOA) foreclosure.
A judgment lien is nonconsensual and is created through the power of a court. A judicial foreclosure is a foreclosure that is processed through the court. An example of a judicial foreclosure is a homeowners association (HOA) foreclosure.
Juan is interested in purchasing 1234 Racimo Drive, but there's a lien on the property. What does this mean? A lender has a right to 1234 Racimo Drive if they are not repaid their loan. Another buyer has already made an offer on the property. The property is not level. The seller has accepted an offer from another buyer.
A lender has a right to 1234 Racimo Drive if they are not repaid their loan. A lien on a property signifies that a lender has the right to it if they are not repaid for a loan.
Amendments
After a contract has been fully accepted and agreed upon, any necessary changes should be achieved via amendment(s). The original document with the original effective date should always be kept as is. If the involved parties agree to make a change to the original document, it must be done by using a TREC amendment form. In addition: • All parties must sign an amendment. • Each amendment also has an effective date so the history of the agreement and all of the changes are easy to keep track of. Note: Contracts can have an unlimited number of amendments.
All of the following legislation was designed to protect consumers from unfair lending practices EXCEPT: Truth in Lending Act Equal Credit Opportunity Act Real Estate Settlement Procedures Act Americans with Disabilities Act
Americans with Disabilities Act The Americans with Disabilities Act (ADA) is NOT considered financing legislation. Notable financing legislation includes the Equal Credit Opportunity Act (ECOA), the Truth in Lending Act (TILA), and the Real Estate Settlement Procedures Act (RESPA).
What's an Addendum?
An addendum is a document that's attached to a purchase agreement that includes additional information or requests items not included in the contract. TREC promulgates several types of addenda that license holders can use to customize a basic sales contract for a variety of situations. Language included in an addendum overrides terms in the contract to which it is attached.
Lien Theory States and Title Theory States
Another way that mortgages and deeds of trust are different is that: • Mortgages are used in lien theory states. • Deeds of trust are used in title theory states.
Bob, who has been thinking of buying a new home, learns that his company is planning to lay off several people in his department. How will this affect Bob's plans to buy? Bob will be more likely to buy a new home, but he will likely purchase a cheaper house than he was originally considering. Bob will be less likely to buy a new home. Bob will be less likely to buy a new home, but he will be more likely to start leasing an apartment. Bob will be more likely to buy a new home.
Bob will be less likely to buy a new home. If buyers expect that their income will decrease in the near future; if they expect that the price of housing will decrease in the near future; or, if they expect that the price of housing will decrease at the time they expect to sell their house, then they may be less likely to buy.
Which of the following is an example of a security interest? State law requires deeds of trust to be printed out and kept under lock and key. City Federal Credit Union earns interest on a secure bond. Shane's bank requires him to sign a note before obtaining a loan. City Federal Credit Union seizes Shane's property as collateral because he defaults on his payments.
City Federal Credit Union seizes Shane's property as collateral because he defaults on his payments. City Federal Credit Union can seize Shane's property as collateral if he defaults on his payments. This is an example of a lien or a security interest.
Which of the following can help a borrower get loan approval quickly and automatically? Closing Data System Truth in Lending System a pay-day loan program Computerized Loan Origination System
Computerized Loan Origination System
loans charge an upfront mortgage insurance premium (MIP). loans have no insurance fee, but they have a funding fee. A loan is not guaranteed or insured by any government agency.
FHA loans charge an upfront mortgage insurance premium (MIP). VA loans have no insurance fee, but they have a funding fee. A conventional loan is not guaranteed or insured by any government agency.
Desktop Underwriter is designed to increase the subjective element involved in underwriting loans. TRUE FALSE
False: Desktop Underwriter is designed to reduce the subjective element involved in underwriting loans.
In the case of a Seller Financing Addendum, the seller makes payments to the buyer. TRUE FALSE
False: In the case of a Seller Financing Addendum, the buyer makes payments to the seller.
A business loan is covered by TILA. FALSE TRUE
False: Loans that are to be used primarily for business purposes loans are not covered by TILA. TILA does cover the following if the loan is to be repaid in more than four installments or if a finance charge is made: real estate loans; loans for personal, family, or household purposes; and consumer loans for $25,000 or less.
The Seller Is in Control
If a seller is going to consider financing all or just a part (i.e., second lien) of the transaction, the seller needs to act like a lender and take some or all of the precautions that a lender does when an institutional loan is made. The TREC Seller Financing Addendum enables the seller to do just that under Credit Documentation in Paragraph A of the form. The seller can require the buyer's: • Credit report • Verification of employment (including salary) • Verification of funds on deposit • Current financial statement • Any other requirement that the seller has all within a stated period of time in the paragraph
Seller Financing Addendum
If the seller is going to be the lender for a transaction, they'll need to use the promulgated Seller Financing Addendum. It spells out the terms and conditions of the property's seller becoming the lender and carrying the note. Using this addendum, the buyer will make payments to the seller.
Primary Market
In the primary market, borrowers and mortgage originators come together to negotiate terms and effectuate mortgage transactions. Mortgage brokers, mortgage bankers, credit unions, and banks are all part of the primary mortgage market. Most home purchase loans are made by one of these types of primary lenders: • Savings and loan associations • Commercial banks • Savings banks • Mortgage bankers • Credit unions • Private lenders When a homebuyer goes to a lender to make a loan, the consumer is doing business with a primary lender.
What did the Housing for Older Persons Act of 1995 do? It made it illegal to build a retirement community within a flood zone. It provided incentives for city government officials to create more zoning for the elderly. It allowed planned living communities to discriminate based on age. It required residential home builders to construct more assisted living facilities.
It allowed planned living communities to discriminate based on age.
Radon is one of the most important factors to consider during inspection because: It is an odorless, colorless, life-threatening gas. It drastically increases a home's value. It can be a source of oil, the rights to which the buyer can sell. It affects most houses in Texas.
It is an odorless, colorless, life-threatening gas. Radon is one of the most important factors to consider during inspection because it is odorless, colorless, and can cause serious health problems.
What does redlining do? It is encouraged by the Community Reinvestment Act. It is part of a good, legal, fair housing practice. It limits the number of lenders that can operate within a specific community or city. It limits the number of loans or the loan-to-value ratio in certain areas of a community or city.
It limits the number of loans or the loan-to-value ratio in certain areas of a community or city. Redlining is the practice of limiting the number of loans or the loan-to-value ratio in certain areas of a community or city. It is a violation of both the federal Fair Housing Act and the Community Reinvestment Act.
A lender provides a loan applicant with a booklet entitled "Settlement Costs and You" published by HUD, a truth in lending statement indicating the total credit costs and the APR of the loan, and a good-faith estimate of settlement costs. What else does the lender need to provide? a fair housing statement as provided by RESPA an abstract of title and an original copy of their deed Nothing. The lender has met all of RESPA's requirements. a disclosure of redlining, if the area has historically been redlined
Nothing. The lender has met all of RESPA's requirements.
Civil Rights Act of 1964
On July 2, 1964, the Civil Rights Act of 1964 was enacted. This landmark piece of legislation outlawed discrimination based on race, color, religion, sex, or national origin. Its goal was to end the unequal application of voter registration requirements and racial segregation in schools, the workplace, and public spaces.
Sama is selling her home. 11 days ago, Sama received documentation of creditworthiness from Jordan, the buyer. After reviewing the documents Jordan provided, Sama decides that the risk is too great to continue with a seller financing situation and wants to terminate the contract. What must Sama do at this point? Require a safety deposit and renegotiate the loan with that stipulation. Proceed with the contract. Request that the buyer pursue other means of financing instead. Terminate the contract.
Proceed with the contract. Sellers can request additional documentation from a buyer to deem creditworthiness. Sellers have a 7-day period to review the documents and determine their desire to continue. After 7 days, they lose the right to terminate and are deemed to have approved the buyer's creditworthiness.
Why can't license holders accept payment of any sort for referring clients to a bank? This may lead to the client choosing to work with a different license holder. RESPA prohibits anyone from giving or accepting anything of value in exchange for referrals of settlement service business. Fees and kickbacks are only rarely allowed under RESPA, so most license holders choose not to engage in these practices at all. This may lead to a smaller commission for the license holder.
RESPA prohibits anyone from giving or accepting anything of value in exchange for referrals of settlement service business. RESPA is concerned with reducing unnecessary and ethically dubious charges associated with settlement and closing services. It prohibits anyone from giving or accepting anything of value in exchange for referrals of settlement service business involving a federally related mortgage loan.
There are two types of sale of other property contingencies:
Sale and settlement contingency-As the name implies, a sale and settlement contingency is dependent upon the buyer selling and settling an existing home. This type of contingency is used if the buyer has not yet received and accepted an offer to purchase on their current home. Settlement contingency-A settlement contingency, on the other hand, is used if the buyer has already marketed their property and has a contract in hand and a settlement date on the calendar.
Bob is making an offer on a property, but he wants the offer to be contingent upon his current home closing. What should be added to his contract? Back-Up Addendum Assumption Addendum Sale of Other Property Addendum Third Party Financing Addendum
Sale of Other Property Addendum The TREC promulgated Sale of Other Property Addendum creates a contingency on the contract in case the buyer's existing property does not sell and close as expected.
Seller Financing
Sometimes a seller decides it would be better for them if they become the lender on the property rather than take all the cash out of the property. In fact, the popularity of this practice has grown within the past few years.
TREC Seller Financing Addendum
TREC provides a Seller Financing Addendum. In the case of seller financing, the seller becomes the lender in this addendum to the sales contract. If all the seller's debt has been paid in full, the seller can ask for a larger down payment and then finance the rest. The seller will have a deed of trust and be able to foreclose if necessary
Amendment to Contract
The Amendment to Contract form can be used to change terms that were originally agreed to in the signed contract. Reminder: Once a contract is accepted and executed, the proper way to make any change is with the use of an amendment. An agent should never change the original document after it has been accepted.
The new restaurant down the street has a ramp to provide access to patrons using wheelchairs. Which federal act requires establishments to do this? The Fair Housing Act The Texas Real Estate License Act The Americans with Disabilities Act The Equal Credit Opportunity Act
The Americans with Disabilities Act The Americans with Disabilities Act codified that any buildings built after March 13, 1991 with public access or more than 15 employees, must have features that provide reasonable access for people with protected disabilities. A restaurant falls under the category of a building with public access.
Temporary Residential Leases
The Buyer's Temporary Residential Lease and the Seller's Temporary Residential Lease are to be used for situations where the possession of the property will not occur on the same date as the closing and funding of the sale. They can only be used in situations where the lease will be for less than 90 days. Since they are "temporary," the parties are not subject to the laws that cover other landlord/tenant situations. • Seller's Temporary Residential Lease: used when the seller is going to stay after closing; the seller will be the tenant and the buyer becomes the landlord • Buyer's Temporary Residential Lease: used when the buyer is moving in prior to closing; the buyer will be the tenant and the seller becomes the landlord
The Fair Housing Act of 1968
The Civil Rights Act of 1968, aka the Fair Housing Act, was passed. This federal law prohibits discrimination in housing based upon race, color, religion, or national origin and was later amended to include sex, disability, and familial status. The Department of Housing and Urban Development (HUD) enforces the Fair Housing Act.
Which government agency is responsible for enforcing the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA)? The Housing and Urban Development The Texas Real Estate Commission The Consumer Financial Protection Bureau The Department of Housing and Urban Development
The Consumer Financial Protection Bureau The Consumer Financial Protection Bureau (CFPB) is in charge of enforcing the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA).
Which federal act prohibits unfair and discriminatory practices? The Fair Housing Act The Taft-Hartley Act The Federal Highway Act The New Deal
The Fair Housing Act
Which of the following is the most definitive way for a buyer to know what encumbrances exist on the property being purchased? The buyer should talk to the neighbors. The buyer should review the title commitment. The buyer should review the seller's disclosure form. The buyer should do a visual inspection of the property.
The buyer should review the title commitment. Because of the implications that an encumbrance can have on a purchase, it is vital that a buyer review the title commitment and make sure they know what they are getting into.
Security Interest
The company that is lending money has a duty to its investors to give loans to people who can and will repay them. But if a borrower can't pay a debt, lenders usually have a security interest in the property for the amount of the debt. This means the company can take the property and sell it to get enough to repay the debt to its investors.
What happens if a borrower's loan application is rejected by a CLO? The loan is rejected without further review. The borrower is offered a high-risk high-rate loan. The loan application is diverted to a secondary CLO to verify borrower criteria concerns. The file goes to a live underwriter for review.
The file goes to a live underwriter for review. If the computer rejects the borrower, the file goes to a live underwriter for review. The underwriter reviews the file to see if there is any offsetting information that would enable them to approve the buyer.
What Is a Promissory Note?
The promissory note, also known just as a note, is a document in which the borrower acknowledges their debt and promises to repay the holder of the promissory note.
In the case of a Seller's Temporary Residential Lease: The seller will be the landlord and the buyer will be the roommate. The seller will be the landlord and the buyer will be the lender. The seller will be the lender and the buyer will be the tenant-in-wait. The seller will be the tenant and the buyer will be the landlord.
The seller will be the tenant and the buyer will be the landlord. In the case of a Seller's Temporary Residential Lease, the seller will be the tenant and the buyer becomes the landlord.
What do FHA and VA loans have in common? They feature high down payments. They charge MIPs. They are funded by lenders. They are not assumable.
They are funded by lenders.
Seller financing is not typically used in residential transaction. TRUE FALSE
True: Seller financing is NOT typically used in residential transaction, but is more prevalent in raw land sales and in farm and ranch sales.
A Seller with a Second Lien
Typically, the seller can achieve an interest rate from 1% to 1.5% higher than the interest rate that lenders are offering in loans of similar lengths of time. Sometimes, sellers reluctant to finance the entire mortgage take a second lien position for a short term.
Protected Classes
Under federal fair lending laws, lenders have the same protected classes to respect as real estate brokers (plus three more). In addition to race, color, religion, sex, disability, familial status, and national origin, lenders also cannot discriminate against a borrower for age, marital status, or receipt of public income.
What is a specific lien? a part of a property that is over a neighbor's property line an individual's ability to use a portion of a neighboring landowner's land a claim against all property an individual owns a claim against a particular parcel of real estate
a claim against a particular parcel of real estate Specific liens are claims against particular parcels of real estate and they do not affect any other property. A general lien, on the other hand, is a claim against any property an individual owns.
Equitable redemption occurs before the auction of property and allows: a debtor to take a lender to court over default payments a defaulting debtor to pay the defaulted portion of the debt and prevent foreclosure a debtor to resume normal monthly payments a lender to recast a loan for the defaulting debtor in lieu of foreclosure
a defaulting debtor to pay the defaulted portion of the debt and prevent foreclosure
In which document does a borrower promise to repay their loan? a deed of trust a mortgage note a promissory note a security instrument
a promissory note
To personalize a standard contract to fit many different situations, TREC has promulgated additions that can be added to the contract when the offer is created. These additions are called: amendments addenda codicils affidavits
addenda
The parties to a contract have decided that they want to change the closing date. The agent will need to prepare a(n): amendment addendum affidavit codicil
amendment A closing date can be changed through the use of an amendment. TREC has a promulgated amendment form that must be used when the parties want to make changes to a contract that has already been signed and accepted.
Which of these advertisements violates the Truth in Lending Act? condo for sale: 3 bed, 2 bath, $1,200/month mortgage for sale: 2 bed, 1 bath in a family neighborhood for sale: 2 bed, 1 bath, listed at $256,000 for rent: 2 bed, 1 bath, $1,000/month
condo for sale: 3 bed, 2 bath, $1,200/month mortgage A lender may not advertise terms that are not actually available to the consumer. A mortgage payment varies depending on many factors, such as down payment and interest rate.
Dodd-Frank Wall Street Reform Act
created a new consumer watchdog to prevent mortgage companies and payday lenders from exploiting consumers
The acceleration clause causes the entire balance to become due upon: a lack of maintenance on the property by the seller the inability of either party to pay for repairs a vacating of the property by the owner default of the loan terms by the borrower
default of the loan terms by the borrower
Housing for Older Persons Act
established that a planned living community could require a minimum age for new residents
High inflation is usually accompanied by: high and then low interest rates high interest rates no change in interest rates low interest rates
high interest rates
Americans with Disabilities Act
identified and defined protected disabilities, as well as required all new buildings with employees or public access to provide reasonable access for people with protected disabilities
Which of the following are common types of contingencies? (Select All That Apply) inspection contingency sale of other property contingency financing contingency insurance contingency
inspection contingency sale of other property contingency financing contingency There are five main types of contingencies: title contingency, financing contingency, inspection contingency, sale of other property contingency, and appraisal contingency. Insurance contingencies are NOT included in this list.
Elise, the buyer, is negotiating seller financing and needs to establish her creditworthiness. To do so, the suggested documents she can supply to the seller include any or all of the following except for a: verification of employment current financial statement credit report letter of reference from a friend or family member
letter of reference from a friend or family member Parties can negotiate for the buyer to provide the seller with a variety of items to establish creditworthiness. The items must be delivered to the seller within the limitation of time negotiated and written in the blank in Paragraph A. These documents can include such things as: a credit report, verification of employment, a current financial statement, and the verification of funds on deposit at financial institutions.
Mary has one of her listings under contract. The contract calls for possession at closing. Now the seller asks if she can stay for three days after closing. The buyer orally agrees. What does Mary need to do now? change the terms in the original document under special provisions nothing, as long as the parties have agreed just let the seller know it is okay with the buyer prepare an amendment and add the Seller's Temporary Lease Agreement
prepare an amendment and add the Seller's Temporary Lease Agreement Once a contract is accepted and executed, the proper way to make any change is with the use of an amendment. An agent should never change the original document after it has been accepted.
Martha is selling her home to downsize and live closer to her grandchildren. She has been looking at a property to buy, and while the sellers are eager to close the sale, Martha has made it clear she won't buy until her current property is sold. This is an example of a(n): sale of another property contingency inspection contingency appraisal contingency financing contingency
sale of another property contingency
What type of contingency is meant to protect buyers from owning two homes at once? title contingency sale of other property contingency inspection contingency financing contingency
sale of other property contingency Sale of other property contingencies are meant to protect buyers from owning two homes at once and ensure the buyer has enough funds for closing.
When a lender agrees to allow the borrower to sell the property and accept less than a full pay-off amount, it is referred to as a(n): short sale alternative payoff hardship payoff short payoff
short sale
Which of the following is NOT a common type of mortgage loan? seller-financed loans FHA and VA loans signature loans conventional loans
signature loans
What is foreclosure? the legal process where a lender can accelerate a borrower's payments and require them to pay the full remaining amount the legal process whereby a borrower takes control of a property held by a lender in default and sells it to recover the borrower's losses the legal process where a seller can stay in the house past the closing date the legal process whereby a lender takes control of a property held by a borrower in default and sells it to recover the lender's losses
the legal process whereby a lender takes control of a property held by a borrower in default and sells it to recover the lender's losses
In a seller financing situation, if escrow is not required, what will the buyer need to provide proof of? timely payment of taxes and insurance evidence of current/active insurance policy existence of a bank account with a set amount of money explicitly devoted to resolve overdue payments evidence of rationale for excluding escrow from the financing arrangement
timely payment of taxes and insurance
What is the purpose of the TREC-promulgated form Amendment to Contract? to accept an offer from the buyer to make a change to a term that was originally agreed to in the signed contract to counter an offer to purchase from the buyer to add additional information to the original offer
to make a change to a term that was originally agreed to in the signed contract Once a contract is accepted and executed, the proper way to make any change is with the use of an amendment. An agent should never change the original document after it has been accepted.
Which of the following negatively affects homestead? credit card debt the amount of rooms in a property a taxpayer's age unpaid income tax
unpaid income tax Credit card debt will not affect the homestead. Unpaid income tax, on the other hand, can attach to everything the taxpayer owns, even their homestead property.
A seller sells their property to a buyer. However, the buyer does not pay them the full price. The seller can place a lien on the home and maintain the right to repossess the home until the buyer pays the full price to the seller. What is this kind of lien? tax lien judgement lien mechanic's lien vendor's lien
vendor's lien Let's say that a seller sells their property to a buyer, but the buyer does not pay them the full price. In this case, the seller can place a vendor's lien on the home and can maintain the lien and right to repossess the home until the buyer pays the full price to the seller.
A promissory note includes a promise to pay; the time and place of payments; and the amount of the payments, interest rate, and loan. What other element does it typically include? the license holder's commission rate the loan terms between the seller and lender the written agreement of the buyer's obligation to pay the seller what consequences will result if the borrower fails to make the payments to the lender
what consequences will result if the borrower fails to make the payments to the lender A promissory note typically includes "I promise to pay," the time and place payments should be made, the amount of the payments, interest rate, and of the loan, and what happens if the borrower fails to pay the payments.
When is a borrower most likely to seek a short sale? when the lender increases the borrower's loan amount when the borrower owes more than the current market value of the property when the borrower is finished paying off their loan when the borrower owes less than the current market value of the property
when the borrower owes more than the current market value of the property
Mortgage vs. Deed of Trust
• Both mortgages and deeds of trust are security instruments for the promissory note (or the Promise to Pay). • A mortgage is a two-party instrument: the mortgagor (borrower) and the mortgagee (lender). During the time of the loan, the borrower owns the property and retains both legal and equitable title to the property. • A deed of trust is a three-party instrument: the mortgagor (also called the trustor), the mortgagee (also called beneficiary/lender), and the trustee who holds the property in trust in case of a default. During the time of the loan, the legal title is conveyed to a third party (trustee) who holds onto the legal title on behalf of the lender until the loan is paid.
Primary Uses of Amendments
• Change the price, down payment, or loan amount • Request that the seller perform repairs and/or treatments listed in the addendum • Change the closing date • List an amount of money the seller will pay of the buyer's closing costs • Determine the cost allocation of lender-required repairs between the principals • Extend the option period through an additional payment of option money • Terminate the option period • Extend the period of time the buyer has to terminate the contract under the Third Party Financing Addendum
Elements of a Promissory Note
• Loan amount • Interest rate • Payment beginning date • End date • Frequency of payment • Amount of payment • Right to prepay the loan (FNMA and Freddie Mac loans have no prepayments penalties) • Late charges • Other legal terms
Title Theory State
• Security Instrument: Use deeds of trust. • Borrower Rights: Trustor has equitable right (secondary) to the title. • Lender Rights: Beneficiary has legal title to the property. • Foreclosure: Simpler and faster for a lender (beneficiary) to foreclose on a property.
Lien Theory State
• Security Instrument: Use mortgages as security. \ • Borrower Rights: Mortgagor has the title. • Lender Rights: Mortgagee only has a lien on the property; mortgage is strictly collateral. • Foreclosure: Mortgagee must go through formal foreclosure procedures in order to obtain legal title.
Standard Aspects of a Promissory Note
• States "I promise to pay" • States the time and place payments should be made • States the amount of the payments, interest rate, and amount of the loan • States what happens if the borrower fails to pay the payments as agreed
Two Parts to a Mortgage Loan
• The promissory note: The borrower's personal promise to repay the loan to the lender • The security instrument: A document that states what property the bank can seize if the borrower does not repay the loan If a borrower were to describe the two parts to a loan, they would probably say the following: • The promissory note: "I promise to repay this loan." - Borrower • The security instrument: "If I break my promise, you can take my house." - Borrower