Module 2- Financing Documents (Session 4)

Acceleration Clause

A clause in loan documents that allows the lender to call the note all due and payable if the borrower breaches the terms.

Alienation Clause

A clause used in a mortgage allowing the lender to demand the full and immediate payment of the mortgage because the owner transferred ownership of the property. Also called: Due on Sale Clause

Estoppel Certificate

A legal instrument used by a lender so that beyond a certain date, the borrower agrees that the loan balance is correct if no dispute is made, and thus there is no defense to challenge it. Also called: Certificate of No Defense or Certificate of No Set-Off.

Balloon Payment

A lump sum payment that is due at the end of a note term, because the note used paid only part of the principal and/or interest. Also called: Partially Amortized Mortgage

Budget Mortgage

A mortgage agreement where payments include principal and interest on the loan, plus 1/12 of the year's property taxes and hazard insurance premiums.

Blanket Mortgage

A single mortgage loan where two or more different parcels of property are offered as security for the loan.

Negative Amortization

An increase in the balance of a loan when payments are not enough to cover the interest.

Promissory Note

An instrument that evidences a promise to pay a specific amount of money to a specific person within a specific time frame. A written, legally binding promise to repay a debt.

Naked Title

An interest in real property that lacks the usual rights and privileges enjoyed by an owner, for example, that which is held by a trustee in a deed of trust, also called bare legal title

Amortization

Payment of debt in regular, periodic installments of principal and interest (as opposed to interest-only payments).

Graduated Payment Mortgage

Payment structure that allows the borrower to make smaller payments in the early years of the mortgage, with payments increasing on a scheduled basis at a predetermined point until they are sufficient to fully amortize the loan over the remainder of its term.

The financing instrument that creates the personal obligation for the debt is the _______________

Promissory note

Collateral

Property pledged as security for a debt.

Collateral Lien Document

The interest a creditor may acquire in the debtor's property to ensure that the debt will be paid. Also called: Security Instrument

Hypothecation

The pledging of the property to be the security for a loan without giving up possession of it (as with a mortgage or deed of trust)

The ____________ clause allows the lender to demand immediate repayment of the entire loan balance

acceleration

The _____________ clause prevents a buyer from assuming the existing loan

alienation

The loan which covers more than a parcel of property is a ______________

blanket loan

Payments on a(n) _______________loan include principal, interest, taxes and insurance

budget

A(n) ___________ loan is a possible choice for borrowers who know that their income will increase significantly in the next few years.

graduated payment

A loan based on the equity in the home is a ________________

home equity loan, HELOC, or reverse mortgage

With a(n) ____________ loan, the borrower owes the exact amount borrowed on the maturity date

interest-only

A(n) ______________ is a permanent loan that will pay off a construction loan and possibly a lot loan

takeout loan

What clause gives a lender the right to declare the entire loan balance due immediately because of borrower default or for violation of other contract provisions? 1. Acceleration clause 2. Alienation clause 3. Defeasance clause 4. Prepayment clause

1. Acceleration clause! An acceleration clause gives the lender the right to declare the entire loan balance due immediately because of borrower default or for violation of other contract provisions. This is sometimes referred to as "calling the note."

Defeasance Clause

A clause used to defeat or cancel a certain right upon the occurrence of a specific event, for example, requiring a lender to give a borrower a release of the lien once the loan is repaid. 2. Clause used to give a borrower the right to redeem real estate after default on a note by paying the full amount due plus fees and court costs.

Adjustable Rate Mortgage (ARM)

A mortgage loan that has an interest rate on the note that periodically adjusts based on an index that reflects the cost to the lender. Also called: Variable Rate Mortgage

A loan in which total payments over the life of the loan pay off the entire balance of principal and interest due at the end of the term is referred to as 1. Amortizing 2. Annualized 3. Compound 4. Diminishing

1. Amortizing! A loan that is fully amortized means the total payments over the life of the loan will pay off the entire balance of principal and interest due at the end of the term.

A mortgage that includes more than one parcel of land is called a 1. Blanket mortgage 2. Package mortgage 3. Purchase money mortgage 4. Wraparound mortgage

1. Blanket Mortgage! A blanket mortgage covers more than one parcel of land.

Victoria gets a 10-year straight loan for $60,000 at an interest rate of 4% to finance the purchase of a vacation cottage in the hills. Every month, she pays the lender $200. In 10 years, how much will she owe the lender? 1. $0 2. $24,000 3. $60,000 4. $84,000

3. $60,000 A straight loan is interest only. At the end of the loan term, Victoria would have a balloon payment for the principal of $60,000

With a trust deed, who is considered the beneficiary? 1. The borrower 2. The independent third party 3. The lender 4. The witness

3. The lender! With a trust deed, the lender is called the beneficiary, and the borrower is called the trustor. There is also an independent third party, called the trustee, who holds the trust deed.

Deed of Trust

A three-party security instrument that conveys naked title to a trustee. The borrower, called the trustor, has equitable title. The lender is the beneficiary. In AZ, a is more common than a mortgage because a deed of trust allows the trustee to sell the property if the trustor defaults, thereby bypassing the judicial foreclosure procedure (a power of sale clause). Once the note is repaid, the trustee conveys legal title to the trustor. Also called: Trust Deed.