RE Finance - Unit 6: Instruments of Real Estate Finance

What are true statements about a Contract for Deed?

- Under a contract for deed, the seller remains the legal fee owner of the property. - A contract for deed is also known as an agreement for deed, a contract for sale, and an installment sale. - A contract for deed is a single, complete financing and sales agreement executed between a buyer and a seller. - To protect the seller/lender's rights to the property, a contract for deed must be recorded.

Mortgagor

A borrower in a mortgage loan transaction.

Lifting clause

A clause which gives the borrower the ability to replace the primary instrument with another without affecting the subordinate instrument's position.

Mortgagee

A lender in a mortgage loan transaction.

Second Mortgage

A mortgage that has a lien position subordinate to the first mortgage.

Corss-defaulting clause

A provision in a mortgage that triggers a default on a second mortgage if there is a default on the first mortgage

Prepayment clause

Allows the borrower to pay off all or part of the loan before it is due. Creates an open mortgage.

First lien

Claim with highest priority against property; also known as a superior to the rights of subsequent lenders. (Recorded first)

What are examples of Liens?

Contract for deeds deed of trust mortgage loan overdue property taxes

What are examples of encumbrances?

Encroachment Homeowners association private restriction Utility easement

Defeasance clause

Lenders interest in the collateral is cancelled when the debt is paid in full

Exculpatory clause

Limits the borrowers liability to the collateral property described in the loan agreement

Some second lien lenders will impose a prepayment penalty if a mortgage is paid off within six months after closing. This would be an example of what type of prepayment penalty?

Lock-in clause

Equity loan

Money borrowed on accumulated equity.

Which of the following is an example of a voluntary lien?

Mortgage lien of $180,000

Acceleration Clause

Stipulation in a mortgage that the entire unpaid balance of the debt may become due and payable if a default of expressed conditions should occur.

Which of the following liens would have priority in the event of a foreclosure sale?

Tax lien for nonpayment of county property tax

Carryback loan

The seller holds a portion of the sales price as a junior encumbrance.

When a buyer purchases a property and the seller retains title to the property, they have executed a

contract for deed.

Which of these is a lending instrument in which foreclosure is quicker and easier for a lender?

deed of trust

An older couple has just paid off their mortgage. They will now receive full free and clear title to their property as specified by the

defeasance clause.

The property at 1100 Main Street has gone into default. After six months, the property is sold at a foreclosure auction. The lender was allowed to take possession of the property before the foreclosure sale, but will not receive clear title until after the expiration of the statutory redemption period prescribed by state law. This is an example of

intermediate theory.

The BEST answer for why a lender may include a prepayment penalty on a high-interest loan is that the lender will

lose the opportunity for high earnings.

A borrower was surprised when he attempted to pay off his current loan and was told that he must pay 2% of the loan balance in addition to the balance due. His loan must have included

prepayment penalty clause.

Certain other interests in real property can be owned independently from the land itself and can be pledged as collateral for a loan. Examples include all of the following EXCEPT

rights to hunt on the property.

There are two ways for a buyer to purchase a property arranging responsibility for an existing loan. The loan can be assumed, or the property can be purchased subject to any existing encumbrance. If the loan is assumed, then

the buyer, along with the original borrower and any subsequent assumers, becomes personally liable to the lender for full repayment.

Under a contract for deed, the seller remains the legal fee owner of the property and is referred to as

the vendor.