Section 3: Unit 6: Note and Mortgage Provisions

The trustee, in a Deed of Trust, holds, _______________________(one without possessory rights), and can claim the property without going through the courts.

"Naked Legal Title"

An Assumption can be accomplished in one of two ways:

1. Subject to an existing Mortgage or Deed of Trust clause is the clause in the deed that states the buyers are purchasing the property "subject to the existing loan," the buyers acknowledge the existing loan, and promise to pay the obligation. If the buyer does not pay, the original borrower will be held responsible. If the original borrower (grantor) does not pay, the buyer (grantee) will lose the property, and thus his or her equity, in a foreclosure sale. 2. Assumption clause is when the purchaser is accepting the debt and is, therefore, personally liable for the entire debt. The bank could require the original seller to remain secondarily liable if the new borrower does not pay. The seller would no longer be liable if the lender will consider a novation*.

___________________ is defined as a long-term note that is not secured by a specific property.

A DEBENTURE

Define a mortgage and list the two parts of a mortgage.

A mortgage is a financing instrument that creates a lien against a property. The two parts of a mortgage are the pledge or promise to pay and the collateral.

What is a rider on a mortgage?

Additional documents added to original mortgages that provide full disclosure of any special requirements, restrictions, or liabilities on or by the borrower.

Loan products and situations that might require special riders include:

Adjustable-Rate Mortgages Condominium purchases Affordable-Housing products with special requirements Tax liability for bond issue funding Rehabilitation loans Purchase of one-to-four-unit properties with rent provisions Restrictions on resale

4 of 10 - What is another term used to describe a promissory note? Attachment Covenant Bond Bill

Bond

What is the order of payment in a foreclosure?

Cost of the sale Special assessment taxes and ad valorem taxes The first mortgage Whatever is recorded next

Non-Judicial foreclosure is required to foreclose on a _______________________. The lender does not have to go through the courts to foreclose; and it is therefore, a quicker process.

Deed of Trust

8 of 10 - This clause states that if the borrower repays the debt when due, the words of grant are void, the mortgage is canceled, and the title is given back to the borrower. Satisfaction piece clause Defeasance clause Acceleration clause Alienation clause

Defeasance clause

Borrower's Right to Reinstate after Acceleration:

If the buyer is in default (has not made his payments), the buyer is entitled to the opportunity to reinstate his loan after the bank has issued notice to him of his default. Generally, five days before the sale of the property on the courthouse steps, the buyer has the opportunity to make up all past due payments, along with any penalty fees to bring the loan current. The loan will then proceed normally.

What is a mortgage contingency clause?

It is a clause in the property purchase agreement that makes the sale contingent on whether or not the buyers can obtain financing to complete the purchase.

3 of 10 - Which is true about a promissory note? It may not be executed in connection with a loan on real property. It is an agreement to do or not to do a certain thing. It is the primary evidence of a loan. It is the term used for a note that is guaranteed or insured by a governmental agency.

It is the primary evidence of a loan.

5 of 10 - In the event of default by the purchaser, the lender has the right to bring legal action through the courts to satisfy the debt. This is called by what name? Judicial Foreclosure Mortgage Foreclosure Short-Sale Foreclosure Lien Foreclosure

Judicial Foreclosure

What are the duties of the borrower in a mortgage?

Pay the debt according to the terms of the note Pay real estate taxes on the property Maintain adequate insurance Maintain the property in good repair Obtain lender authorization prior to making major alterations to the property

Briefly explain points on a mortgage loan and why they might be added.

Points are based on a percent of the loan amount and are typically added at the time of loan closing to give the lender a greater return than just the interest rate paid.

List the seven components to a mortgage loan.

Principal Interest and interest rate Points Term Payments Taxes Insurance

7 of 10 - What do we call the right to reclaim a property that has been foreclosed by paying off amounts owed to creditors, including interest and costs? Right of Redemption Right to Rescind Right to Deed Access Right of Remainder

Right of Redemption

What does the acceleration clause outline?

The acceleration clause outlines what will happen if the borrower fails to pay the mortgage, maintain the property, or perform any other agreement, stipulation, or condition contained in the mortgage.

What is a promissory note and what is it called if there is no collateral?

The note is the promise to pay or the IOU; it is the evidence that there is a loan between the lender and the borrower. Without collateral, it is called a debenture.

Briefly explain a subordination clause.

This clause determines which mortgage takes priority.

Escalation Clause:

This clause is found in an adjustable rate mortgage and in some leases. In a mortgage, it allows the interest rate to adjust over the life of the loan. In a lease, it allows the lease payment to adjust over the life of the lease.

Briefly explain a defeasance clause.

This clause states that if the borrower repays the debt when due, the words of grant are void, the mortgage is canceled, and the title is given to the borrower. It provides for a satisfaction piece to be issued when the mortgage has been paid in full.

Due-On-Sale Clause -

This is a form of acceleration clause that requires the borrower to pay off the entire mortgage debt when the property is sold. The clause is also known as an alienation clause, a non-assumption clause, a call clause, or a right-to-sell clause. This clause has the effect of eliminating the possibility that a new buyer can assume the existing loan unless the lender permits it.

What is the purpose of provisions in a mortgage contract?

To protect the interests of one or both parties in a contract.

A Subordination clause is

a clause in a Mortgage or Deed of Trust wherein a subsequent mortgage or deed of trust takes priority. Example, the first deed or mortgage holder becomes the second deed or mortgage holder in the order they were recorded in priority - the second becomes the first. This clause is further defined as a "change in priority positions between holders of liens on a Mortgage or Deed of Trust in case of foreclosure."

Most real estate loans are ___________________ loans. The lender wants the security to know that, if the borrower does not pay the promise made in the note, they can foreclose on the property.

collateralized

10 of 10 - An alienation clause is also known as a prepayment penalty clause. escalation clause. due-on-sale clause. borrower's right to reinstate after acceleration.

due-on-sale clause.

6 of 10 - Wesley wants to sells his house to Maria. Maria would like to assume Wesley's mortgage loan. Wesley's lender demands full and immediate repayment of the loan if Wesley completes the sale. The lender can make this demand if the mortgage contains a defeasance clause. release clause. due-on-sale clause. redemption clause.

due-on-sale clause.

A borrower who executes a promissory note is the _________________ of the note. The lender is the _____________.

maker or payer, payee

1 of 10 - Tom, the borrower, gave Joe, the lender, his mortgage as security for his loan. Under the terms of the mortgage, Tom is identified as the mortgagor. mortgagee. trustee. trustor.

mortgagor.

Does Indiana have usury laws?

no, there is no legal limit on the amount of interest a lender can charge a borrower when the loan is secured by property.

2 of 10 - The document that commits a mortgage loan borrower to repay the loan is the deed. promissory note. mortgagor's lien. hypothecary.

promissory note.

Unconventional financing arrangements often require additional documents to be added to the original financing instruments and these are called

riders

9 of 10 - A mortgage clause used in refinancing the first mortgage which allows the second mortgage to take the first place is called acceleration. subordination. refinance. priority.

subordination.

The note sets forth:

the loan amount the term of the loan the method and timing of repayment the interest rate to be paid the borrower's promise to pay

An assumption is

when the buyer takes over the original payment, the original loan, and the original interest rate of the seller's existing loan.