EXAMEN 2 FINACE

note and mortgage

, although executed separately, invariably has a copy of the note attached to it, or at least a reference to the note's conditions incorporated into the mortgage form. While a note by itself is legal evidence of a debt, a mortgage always needs a note in order to be a legally enforceable lien against the collateral.

To qualify for the advantages of being a pass-through entity for U.S. corporate income tax, a real estate investment trust must be all of the following EXCEPT

A) be taxable as a domestic corporation. B) be managed by a board of directors or trustees. C) jointly owned by 50 or more persons. D) be structured as a corporation, trust, or association. C

A note generally includes all of the following provisions EXCEPT

A) date signed. B) amount and terms. C) purchase price. D) payment due dates. C

All of the following statements would be true about a contract for deed EXCEPT

A) signatures are required by buyers and sellers. B) it gives more foreclosure power to sellers. C) equal rights are provided to buyers and sellers. D) it directs buyers to take possession of the property. C

A promissory note for the purchase of real estate typically includes all of the following EXCEPT

A) the amount of the loan. B) the terms of repayment. C) a reference to a late-charge penalty. D) a list of items conveying with the property. D

To subordinate a real estate loan is to put it into a higher lien position.

False: second mortgage, or deed of trust, is a lien on real property that is second, or junior, in position behind an existing first lien.

nonrecourse clause

included in the sale's agreement, the seller of the security is not liable if the borrower defaults. The buyer of the security must take action to recover the unpaid balance of the loan from the borrower or foreclose on the collateral. However, if a real estate loan is sold with recourse, the seller of the security is obligated to reimburse the buyer if the borrower defaults.

subordination

involves placing an existing encumbrance or right in a lower-priority position to a new loan secured by the same collateral property.

encumbrance

is a right or interest in a property held by one who is not the legal owner of the property.

novation

is a technique whereby the seller of a property can end personal legal liability as the originator of a real estate loan when the loan is being assumed.

real estate investment trust (REIT)

is sold like stock on the major exchanges. Some REITs may invest in a particular type of property (such as a shopping mall); others may concentrate on a specific area of the country. There are three types of REITs: Equity REIT: invests in real estate; income derived from rents or sale of property Mortgage REIT: lends money for mortgages or purchases mortgages or mortgage-backed securities; income derived from interest earned Hybrid REIT: combines equity REITs and mortgage REITs by investing in both property and mortgage

revenue bond

issued to fund a specific community improvement project. These bonds will be repaid from the revenues generated by the improvements. For example, a toll bridge could be constructed using the money raised from the sale of revenue bonds, and the repayment of the bonds would be designed to match the revenue secured from the tolls collected.

mortgage brokers

join borrowers with lenders for real estate loans. The successful completion of the loan entitles the mortgage broker to earn a placement fee.

mortgagee

lender

In MOST cases, the trustee named in a deed of trust is selected by the

lender (beneficiary of the trust

industrial development bonds

llow private investors an opportunity to finance apartment and commercial developments by using tax-exempt, and thus relatively inexpensive, funds. T

All savings banks

must be chartered, either by the OCC or by the state in which they are located.

power of sale

n the event of a default under a note for a deed of trust, borrowers have assigned their defenses to the automatic action of the laws governing foreclosure of the debt instrument, known as Under a deed of trust, the trustee may proceed with the sale of the collateral property after default without any court procedure as provided for in the

credit unions are established as

non profit financial organizations

origination fee

o cover the cost of creating the new loan—for the loan officer, processing, underwriting, closing, and all materials needed.

subject to

o format, a buyer may simply walk away from the property, forfeit any equity that has accumulated, and avoid any future responsibility in the transaction.

mutual saving banks

prefer to make real estate loans on properties located near their home offices to keep better track

A borrower holds a loan in which no prepayment is allowed for a specified time from its inception. Then proportionate amounts of the loan become payable in advance according to an agreed-upon schedule, with some penalty imposed if the loan is repaid after three years but before its regularly scheduled time. This scenario is an example of all of the following EXCEPT

prepayment penalty. B) subordinate clause. C) prepayment privilege. D) lock-in clause. B

credit unions

provide their members with a source of funding for their autos, homes equity loans, home improvement and real estate. competive interest rate

Deeds of trust, mortgages, and contracts for deed will be signed by all appropriate parties, acknowledged by a notary, and usually

recorded

When the purchaser of a real estate loan wants to be protected in the event the loan goes into default, the loan is sold with a(n)

recourse clause- Loans sold with recourse require the seller of the security to reimburse the purchaser of the security if the borrower defaults.

zero-coupon bonds

represent an old approach to bond buying. They are patterned after World War II savings bonds, which were sold for $18.75 and redeemed after 10 years for $25. A buyer writes a check for a bond at a discounted price and holds this bond until maturity or until it is sold, with interest compounding regularly. Interest must be reported each year for tax purposes even though it is not collectible until the bond matures.

Life insurance companies and pension funds are MOST concerned with

safety and stability of their investment. Life insurance companies are less concerned with the liquidity than with the safety and long-term stability of an investment.

vendor

seller/lender

participation financing

serves to expand the life insurance companies' investment portfolios. Life insurance companies also purchase blocks of single-family mortgages or securities from the secondary mortgage market.

Life insurance prefers to lend money out to

shopping centers

voluntary lien

such as financing instruments

lifting clause

that allows a borrower to replace an existing first mortgage without disturbing the status of the junior mortgage.

acceleration clause

that outlines the consequences of failure to pay on the part of the mortgagor. The acceleration clause usually states the following:

equitable right of redemption

the borrower's legal right to redeem property within some reasonable time after default.

assumed

the buyer, along with the original borrower and any intervening buyers who have also assumed the loan, becomes personally liable to the lender for its full repayment.

Real estate investment trusts are designed

to deal in equities.

revenue bonds

to fund a specific community improvement project. These bonds will be repaid from the revenues generated by the improvements. For instance, a toll bridge could be constructed using the money raised from the sale of revenue bonds, and the repayment of the bonds would be designed to match the revenue secured from the tolls collected.

fiduciary responsibility

to obtain maximum yields at low risks, trust departments usually take a conservative approach when making investments with funds left in their control.

When two or more properties are pledged as collateral in one loan, a clause releasing a portion of the collateral is often included.

true-. A release agreement is needed to release part of the property without paying the entire debt at that time.

The doctrine of "first in time, first in right" generally gives the first mortgage lender a priority lien position, with the only exception being

unpaid property taxes

prepayment clause

usually allows a borrower to repay the balance of a loan at any time without any restriction or penalty.

junior financing

where the seller carries back a portion of the equity in the property. arrangements that use a borrower's equity in real property as collateral.

lien theory

which recognizes the rights of lenders in collateral property as equitable rights, while borrowers retain their legal rights in their property. the lien theory allows a defaulted borrower to retain possession, title, and all legal rights in the property until the lender perfects the lien against the collateral property, according to legal foreclosure procedures that recognize the borrower's redemption rights. the lender has equitable rights and the borrower has legal rights

trustor

who grants rights to a trustee

trustee

who holds the property in trust for a beneficiary

The trust must be beneficially owned by at least

100 investors. Real estate trusts are designed to provide vehicles by which real estate investors can enjoy the special income tax benefits already granted to mutual funds and other regulated investment companies.

release clause

In a deed of trust, the borrower (trustor) conveys property as collateral to a trustee that will hold title on behalf of the lender (the beneficiary) until the terms of the loan are satisfied. When the loan is paid in full, the trustee will reconvey the property to the trustor, as directed by the

bearer bonds

Interest is paid to the person possessing the coupon, so these bonds are also called

defeasance clause

It "defeats" foreclosure by stating that the mortgagor will regain full, free, and clear title upon the repayment of the debt.

contract for deed

does not have an accompanying note; it is a single, complete financing and sales agreement executed between a buyer and a seller. A contract for deed should not be considered a mortgage or deed of trust, even though the same basic conditions are incorporated into its form.

For the purchase of real estate, the promissory note is accompanied by

either a mortgage or a deed of trust

real estate mortgage trust (REMT)

financial bases with strong credit at their commercial banks and make mortgage loans on commercial income properties.

mortgage revenue bonds

The bond issue is tax exempt because it is offered by state and local governments through their housing financing agencies. Use for the proceeds of the bond sales is limited to financing segments of the housing markets, such as low-income buyers, first-time buyers, and so on. Other limitations are imposed as well, such as the prices of homes eligible for participation in the bond program and the income of the borrowers.

general obligation bonds

guaranteed by the taxing power and the full faith and credit of the community, governments can raise funds for financing schools, street improvements, sewer installations, park developments, and other civic improvement projects.

coupon bonds

have interest coupons attached, which are removed as they become due and are cashed by the bearer.

title theory

The lender could dispossess the borrower without notice at the first default of the loan agreement. No compensation was made for any monies already paid to the lender. This concept has evolved into the

granting clause

The portion of the mortgage that pledges the mortgagor's rights is called the

thrifts

have the most flexibility in their mortgage lending operations also known as saving banks

correspondents

These intermediaries not only originate new loans but also collect payments, periodically inspect the collateral involved, and supervise a foreclosure, if necessary. Mortgage bankers literally manage real estate loans.

mortgage bankers

These intermediaries not only originate new loans but also collect payments, periodically inspect the collateral involved, and supervise a foreclosure, if necessary. Mortgage bankers literally manage real estate loans.

mortgage loan bonds

These loans are available to eligible persons to help them acquire houses and condominium units. The interest income from these bonds is tax exempt at both the federal and state levels, so their purchasers can buy them at lower rates than would be required on taxable investments.

exculpatory clause

This clause stipulates that the borrower's liability under the loan is limited to the property designated in the legal description. In the event of a default, the lender is limited to the recovery of the collateral property only and cannot pursue any deficiency judgments against the borrower's remaining assets.

debentures

When a company issues bonds that are a claim against its general assets, they are called

deed of trust

When a trust deed is used for financing real estate it is called

industrial revenue bonds (IRBs)

he rental income from the buildings would be adequate to repay the bonds over a long period of time. By this process, new jobs are created, new taxes are generated, and generally an impetus of growth is infused into the community. Additional revenue bonds and other incentives can then be used by these growth-oriented communities to attract more businesses to their industrial parks.

involuntary lien

imposed by law, such as liens for taxes or assessments, mechanic's (construction) liens, and judgment liens.

cross-defaulting clause

included in the junior mortgage provisions, a default on the first mortgage automatically triggers a default on the second mortgage.

usury

a lender can circumvent the restriction by charging points or raising the principal amount to reach a desired effective yield. The imposition of usury limitations on real estate loans is currently obsolete.

second mortgage

a lien on real property that is second, or junior, in position behind an existing first lien.

due-on-sale clause

also known as a call clause or right-to-sell clause. This condition stipulates that a borrower "shall not sell, transfer, encumber, assign, convey, or in any other manner dispose of the collateral property or any part thereof, or turn over the management or operation of any business on the collateral property to any other person, firm, or corporation, without the express prior written consent of the lender."

Secure and Fair Enforcement Mortgage Licensing Act (SAFE Act)

and applies to all mortgage brokers and mortgage bankers. The SAFE Act was designed to provide more consumer protection and reduce fraud by encouraging states to establish minimum standards for the licensing and registration of state-licensed mortgage loan originators (MLOs).

registered bonds

are issued to a specific owner and cannot be transferred without the owner's endorsement. Under this form of bond, interest is paid to the last registered owner.

All federally chartered savings banks

are required to participate in the federal FDIC insurance program.

warehouse of funds

aying the commercial bank's interest requirement until the final funding from the investor satisfies the warehouse commitment.

Based on the doctrine of "first in time, first in right," lenders establish a priority lien position on the date their loan document is recorded, so it is MOST important to the lender that the borrower has not

borrowed money for the down payment

mortgagor

borrower

carryback loan

buyer who has insufficient cash for the entire amount of the required down payment will make an offer to purchase a property based on the condition that the seller carry back a portion of the sales price in the form of a purchase money second mortgage or deed of trust (called a

vendee

buyer/borrower

note

ccompanies a deed of trust includes the borrower's promise to pay the lender a designated sum under the terms and conditions specified. It also refers to the security of a specific deed of trust given to the trustee as collateral for the loan.

demand deposits

commercial banks rely mainly on ____________, better known as checking accounts, for their basic supply of funds.

commerical banks prefer to lend money to

construction

interim financing

construction loans, also known as ______________, home improvement loans, and manufactured housing loans.

Any representations or warranties made by the seller must appear in the

deed of trust

mutual banks are owned by their

depositors

commercial banks are

designed for commercial activities