Oregon 30-Hour Real Estate Finance Course Week 4
deficiency judgment
A personal judgment levied against the borrower when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full.
purchase money loan
A trust deed created as evidence of a debt at the time of the sale of real property
negotiable instrument
A written promise or order to pay a specific sum of money that may be transferred by endorsement or delivery. The transferee then has the original payee's right to payment.
Payee
Creditor
Unpaid Estate Tax
General Lien
Changes the rate on the note
Permanant Buydown
Loan Assumption
When a new buyer takes over the seller's existing mortgage loan.
novation
a process that replaces the original borrower with the new borrower as the maker of the note.
The borrower or mortgagor holds the title in a lien theory state. But in a title theory state....
the mortgagee, or lender, holds the title.
Deed
the official document transferring ownership from seller to buyer
equitable title
the right to possess the property based on a financial interest; it also gives the holder the right to obtain legal title.
Non-recourse clause
when included in the sale's agreement, the seller of the security is not liable if the borrower defaults.
Non-disturbance clause
A clause in a mortgage which protects the rights of the lessee if the property should be foreclosed by the lender upon the owner's default.
exculpatory clause
A clause that releases a contractual party from liability in the event of monetary or physical injury, no matter who is at fault.
deed of trust
A deed to real property, which serves the same purpose as a mortgage, involving three parties instead of two. The third party holds naked title for the benefit of the lender. Beneficiary (Lender), Trustor (Borrower), Trustee (Third Party)
Specific Lien
A lien affecting or attaching only to a certain, specific parcel of land or piece of property.
General Lien
A lien that attaches to all property owned by an individual. Real and personal.
junior lien
A loan that creates a lien against a property that already has been pledged as collateral
Acceleration Clause
Allows the lender to make the loan immediately due and payable if the borrower doesn't abide by the terms of the agreement
Alienation Clause
Allows the lender to make the loan immediately due and payable if the property is transferred
security instrument
An instrument that gives a creditor the right to sell collateral to satisfy a debt if the debtor fails to pay according to the terms of the agreement.
Cross-default clause
Automatically puts a borrower in default on all loans if the borrower defaults on any loan where the clause is included
maker
Borrower
Late Charge Provisions
Charges for loan payments that are received after their due date are usually stipulated in the promissory note attached to the security instrument.
You may see a ______ named as a land contract, real estate contract, contract for sale, agreement for deed, or as articles of agreement.
Contract for Deed
When Don reviews the document that says he pledges the property he just purchased as collateral for his loan, he notices the terms "trustor," "beneficiary," and "trustee." What type of security instrument is being used?
Deed of Trust
Reconveyance clause is found in a
Deed of trust
When a promissory note is sold, how is ownership transferred?
Endorsement of the Note
Defeasance Clause/Reconveyance Clause
Ensures that the borrower will regain full title to the property once the loan is fully repaid
What type of lien is placed on a property as a result of a court order?
Equitable
A junior mortgage must be for a lower loan amount than a senior mortgage.
False
Unpaid income tax
General Lien
Wendy is buying a house from Tom. Tom helps Wendy out by paying for a 2-1 buydown. The lender has given Wendy an interest rate of 5%. Which of the following describes what the buydown will do to Wendy's interest rate?
Her rate will be 3% for the first year, 4% the second year, and 5% after that.
Typical when a borrower defaults on a mortgage
Judicial foreclosure
What type of provision is standard with either the mortgage or the deed of trust, but is included in the promissory note rather than the security instrument?
Late Charge
Which of the following clauses is included in Fannie Mae's multi-state note?
Late Charge
A seller is offering a second loan to help the buyer with her down payment via a contract for deed. Why might the buyer's lender have an issue with this?
Lenders don't like a contract for deed arrangements.
A promissory note gives the lender the right to seize and sell the house should the borrower default.
Lien Theory
A deed of trust is often called this
Mortgage
Defeasance clause is found in a
Mortgage
Lock-in clause
Mortgage provision which prevents the loan from being paid off early.
Typical when a borrower defaults on a deed of trust
Non-judicial foreclosure
Victor is selling his property to Sheila. He's acting as the lender, and the property is unencumbered. Which of the following options describes the type or types of financial instruments Victor may use for the loan agreement?
Note with a contract for deed, mortgage, or a note with a deed of trust
power of sale clause
Permits lender to take the property and sell it in the event of a default on the terms of the loan
trustor
Person who creates a trust
The ______ clause in a deed of trust allows the lender to foreclose non-judicially.
Power of sale
Janice is obtaining a loan to buy a home. Her loan agreement includes two documents, and she's careful to review the amount of the principal and how it will be repaid. Which document is Janice reviewing?
Promissory Note
Late charge provision is found in a
Promissory Note
The document that describes the loan amount and the terms for repaying and is attached to a security instrument is called the ______.
Promissory Note
Graduated 3-2-1
Rate increases 1% each year for three years
Graduated 2-1
Rate increases 1% each year for two years
Temporary Buydown
Reduced rate for a specified period of time
Permanant Buydown
Reduced rate for life of loan, reflected on note
Gertrude is buying Sam's house, and Sam has agreed to finance the purchase. Gertrude is aware that a seller-financed transaction creates certain risks for her that a conventional loan wouldn't. Which of the following is an issue that Gertrude is protected from via her loan agreement?
Sam could sell the property to another person at any time, canceling Gertrude's equitable interest in the property and her right to possess it.
Junior Finance Instrument Examples
Second Mortgage and Home Equity Loan
Mortgage loan
Specific Lien
Unpaid Property Tax
Specific Lien
Regina has defaulted on the terms of her mortgage, and now her lender has foreclosed. The property was sold at a sheriff's sale three months ago. Regina suddenly learns that she has inherited a great deal of money. She wants her property back. Under a judicial foreclosure, what right might allow her to buy her property from the winner of the foreclosure auction?
Statutory right of redemption
Partial Release Clause
Stipulates the conditions under which the mortgagee will grant freeing building lots from a mortgage lien upon payment of a certain amount of money.
When a buyer takes over payments on a loan without telling the lender, this is called a purchase ______.
Subject to existing financing
More common type of buydown
Temporary Buydown
Lien Theory
The borrower holds the title and owns the house, but a promissory note signed by the borrower gives the lender the right to seize and sell the house should the borrower default
Mortgagor
The borrower in a mortgage, usually the homeowner.
Title Theory
The borrower receives the deed, but the lender keeps the title and owns the house until the borrower pays off the loan
Carryback loan
The extension of credit from the seller to the buyer to finance the purchase of the property, accepting a deed of trust or mortgage instead of cash. Sometimes called a purchase money loan.
When a borrower has paid off the loan, how is the release handled if the security instrument is a mortgage?
The lender executes and records a satisfaction of mortgage and returns the note to the borrower.
Mortgagee
The lender in a mortgage
beneficiary
The person entitled to the benefit of a trust arrangement
trustee
The person in charge of carrying out the terms of the trust
What is a statutory right of redemption?
The right of a borrower to redeem the property by paying amounts owed plus costs, even after the foreclosure sale
right of redemption
The right of a delinquent homeowner facing foreclosure to pay all amounts owed and cancel the foreclosure
One difference between a judicial foreclosure and a non-judicial foreclosure is that with a non-judicial foreclosure, ______.
There is no statutory right of redemption
Pre-payment clause
This provision allows the borrower to prepay the loan at any time without penalty.
It's much easier for a lender to foreclose.
Title Theory
The lender has legal title and owns the house until the borrower pays off the loan.
Title Theory
Hypothecation
To pledge property as security for an obligation or loan without giving up possession of it.
A buyer who assumes an existing loan may have to meet the lender's qualification standards.
True
A second loan is second in lien position to the first loan.
True
Both the open-end and closed-end home equity loans are junior mortgages.
True
Subordination Clause
a clause allowing a lender to move to or take a lower lien position
mortgage
a legally binding document that creates a lien (or security interest) on a piece of property and gives the lender (or mortgagee) the right to foreclose on property if the borrower (or mortgagor) defaults
Home equity loan
a loan based on the difference between the current market value of a home and the amount the borrower owes on the mortgage
Buydown
a lump sum cash prepayment of interest to the lender at closing to buy an interest rate down.
promissory note
a promise on a part of a borrower to repay a certain sum of money to another party until a certain set of terms
lien
a right to keep possession of property belonging to another person until a debt owed by that person is discharged.
Legal Title
ownership of the property and gives the holder the right to transfer the property
Second Mortgage
A mortgage subordinate to a first mortgage; also referred to as a junior mortgage. (Recorded Second)
In a deed of trust, who is the trustee?
A neutral third party
judicial foreclosure
Foreclosure process requiring court proceedings
A second mortgage is identified with the word "junior" on its face.
False
If a buyer can assume an existing loan, it's always better to do so rather than applying for a new loan.
False
If the existing finance instrument contains an alienation clause, an assumption isn't possible.
False
Junior loans are called junior because the interest rate is low in relation to the senior loan.
False
When a buyer assumes an existing loan, the original borrower is no longer liable if that buyer defaults on the loan.
False
Release of Liability
a written agreement that the lender won't hold the original borrower liable for the loan in case of default
Statutory right of redemption
allows mortgagor a period of time after the property is sold at auction to pay off loan and associated costs and get the property title back
Equitable right of redemption
allows mortgagor to pay off loan in full prior to auction and maintain property ownership
Lifting clause
allows the lien(s) ahead of the junior mortgage to be refinanced without changing their priority in lien positions.
loan modification
an agreement between the borrower and the lender that creates permanent new payment terms. The intent is to make the loan more affordable for the borrower and therefore avoid foreclosure
Junior Mortgage
any mortgage on a property that is subordinate to the first mortgage in priority
