Unit 6: Diving into the Finance Instruments

Encumbrances

- A defect on a title that can be monetary or physical, such as a lien from an unpaid tax bill, a neighbor's fence that crosses the property line, or a power company easement -Can make a property unmarketable.

General vs. Specific

- A general lien (unpaid income or estate tax) is attached to all property someone owns - A specific lien (mortgage loan or unpaid property taxes) is just attached to the property

Mortgage

- Two parties involved - lender and borrower - Security instrument used to pledge property as collateral for a loan - Mortgagor holds title. - Judicial foreclosure (a court action is required) - Creates a voluntary lien against the property so that the lender can foreclose if the borrower doesn't meet the terms of repayment identified in the promissory note.

Promissory Note

- Used with both mortgage and deed of trust. - Is a contractual promise to repay that requires certain features to be valid. -Describes who owes money to whom, how much, and how it will be repaid. - Must refer to the security instrument (mortgage or deed of trust).

Voluntary vs. Involuntary

- Voluntary lien - created by property owner (mortgage) - Involuntary - created by unpaid taxes or debt related to the property (unpaid real estate, property, or estate taxes)

Fannie Mae's multi-state note includes a due-on-sale clause, also known as a(n) ______ clause.

Alienation

In a deed of trust, who is the trustor?

Borrower

In a deed of trust, who is the trustee?

A neutral third party

Who's the mortgagor in a mortgage?

Borrower

The signature lines on the multi-state Fannie Mae promissory note are set up for ______ to sign.

The borrower

Lien Types

- Voluntary or involuntary, depending on who creates the lien - General or specific, depending on whether the lien is attached to a specific property or all property someone owns

Instruments Used in Real Estate Finance

A mortgage, deed of trust, and a promissory note are separate documents with separate functions.

Which of the following clauses is included in Fannie Mae's multi-state note? Late charge Lock-in Prepayment penalty Subordination

Late charge

The ______ clause in a deed of trust allows the lender to foreclose non-judicially.

Power of sale

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

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

Mortgages/deeds of trust

- Mortgage clauses (assumption, due-on-sale, alienation, acceleration, prepayment, release) - Lien theory versus title theory -- Lien theory - the borrower holds legal and equitable title; the lender holds a lien against the property -- Title theory - the lender (or a trustee) holds the legal title; the borrower holds equitable title - Mortgage/deeds of trust and note as separate documents

Deed of Trust

- Three parties involved - lender, borrower, and trustee - Security instrument used to pledge property as collateral for a loan - Trustee holds legal title. - Non-judicial foreclosure (a court action is not required)

In a deed of trust, who is the beneficiary?

Lender

Who's the mortgagee in a mortgage?

The lender

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