Unit 9: Real Estate Finance: Loans
Negotiable Instrument
A (blank) is a written unconditional promise or order to pay a certain amount of money at a definite time or on demand. A (blank) is easily transferable from one person to another meaning it can be bought and sold. The most common type of negotiable instrument is an ordinary bank check.
Hard Money Loan
A deficiency judgment is allowed on (Blank). A hard money loanis one made in exchange for cash, as opposed to a loan made to finance the purchase of a home. Typically, a (blank) refers to junior loans used to take money out for consumer purchases, home equity loans, debt consolidation, and even a refinance
Equity Line of Credit
A home equity line is a form of revolving credit in which a borrower's home serves as collateral. Because the home is likely to be a consumer's largest asset, many homeowners use their credit lines only for major items, such as educa-tion, home improvements, or medical bills and not for day-to-day expenses. Home equity plans typically involve variable interest rates rather than fixed rates.
Endorsement (signature)
A promissory note is the same thing. It can be transferred by (blank) , just like a check. If correctly prepared, it is considered the same as cash
2 Ways of Foreclosure
By Trustee's sale and by judicial process.
Points
Interest rates are determined by mutual agreement between the borrower and the lender—they are not set by the Federal Reserve Board. Sometimes a borrower will pay (blank) to the lender to increase the lender's yield and compensate the lender for the difference between FHA interest rates (which tend to be low) and conventional interest rates. (Blank) are a percentage of the loan amount paid to the lender when negotiating a loan.
VA LOAN
It guarantees loans made by an approved institutional lender, much like the FHA. Both programs were created to assist people in buying homes when conventional loan programs did not fit their needs. There are two main differences between the two government programs: (1) only an eligible veteran may obtain a VA loan, and (2) the VA does not require a down payment up to a certain loan amount, which means qualified veterans, could get 100% financing
Effective Interest Rate
The (blank) is the rate the borrower is actually paying, commonly called the annual percentage rate (APR).
Hypothecation
The borrower (TRUSTOR) has possession of the property but transfers naked legal title of the property to a third party to hold as security for the lender in case of default on the loan. This process, known as (BLANK), allows a borrower to remain in possession of the property while using it to secure the loan. If the borrower does not make payments according to the terms of the agreement, he or she then loses the rights of possession and ownership.
Qualifying Rate
The initial interest rate, or (blank), is determined by the current rate of the chosen index. Then, a margin, which might be anywhere from one-to-three percentage points, is added to the initial interest rate to determine the actual beginning rate the borrower will pay. The margin is maintained for the life of the loan and does not change.
Simple Interest
The interest charged on most real estate loans is (blank)—interest paid only on the principal owed
Nominal (Named Rate)
The interest rate stated in the note is called the (blank)
Mutual Mortgage Insurance (MMI)
The lender is protected, in case of foreclosure, by charging the borrower a fee for an insurance policy called (blank). The insurance requirement is how the FHA finances its program. The premium may be financed as part of the loan or paid in cash at the close of escrow.
Certificate of Reasonable Value (CRV)
The lender will request the VA to assign a licensed appraiser to determine the reasonable value for the property. A (blank) will be issued. A loan may not exceed the value established by the CRV appraisal. Once the loan has closed, it is sent to the VA for guaranty. The Certificate of Eligibility is annotated to show how much of the entitlement has been used and will be returned to the veteran.
Prepayment Clause
The note usually includes a prepayment clause. A (blank) allows a borrower to pay off a loan early or make higher payments without paying a prepayment penalty. The prepayment is applied first to any accrued or unpaid interest and then to principal.
Substitution of Liability (Novation)
The original borrower (seller) can avoid any responsibility for the loan by asking the lender for a (blank), relieving the seller of all liability for repayment of the loan. In most cases, a buyer assumes an existing loan with the approval of the underlying lender. However, an ALIENATION CLAUSE in the note would prevent a buyer from assuming the loan.
Fictitious Trust Deed
The trust deed is recorded at the close of escrow. A (blank) is a recorded trust deed containing details that apply to later loan documents.
First Trust Deed
The trust deed recorded first against a property is called a (blank)
Trustee's Deed
The trustee holds the sale and issues a (blank) to the highest bidder. A trustor has no right of redemption after the trustee sale.
Partially amortized Installment Note
This type of repayment schedule is used to create lower payments. The (blank) calls for regular, level payments on the principal and interest during the term of the loan.
Contract of Sale
Upon application for a CalVet loan and approval of the borrower and property, the Department of Veterans Affairs purchases the property from the seller, takes title to the property, and sells it to the veteran on a (blank). The Department holds legal title, with the veteran holding equitable title, until the loan is paid off and all the terms of the contract are met.
Promissory Note
When a loan is made, the borrower signs a (blank), or note—as it is called, which states that a certain amount of money has been borrowed. The promissory note, then, is the evidence of the debt
Deed of Reconveyance
When the debt is repaid in full, the beneficiary signs a Request for Full Reconveyance and sends it to the trustee requesting the trustee to reconvey title to the borrower. The trustee signs and records a (blank) to show the debt has been repaid and to clear the lien from the property. The trust deed is recorded at the close of escrow.
The 3 Parties to a Trust Deed
the borrower (TRUSTOR), lender (BENEFICIARY), and a neutral third party called a TRUSTEE.
Notes, Trust Deeds, and Mortgages
• A note is the evidence of a debt. • A trust deed or mortgage, even though it is the security for the debt, is still only an incident of the debt. • A trust deed or mortgage must have a note to secure, but a note does not need a trust deed or mortgage to stand alone. • If there is a conflict in the terms of a note and the trust deed or mortgage used to secure it, the provisions of the note will control. • If a note is unenforceable, the presence of a trust deed will not make it valid.
Interests Held under Equitable Title
• Trustor under a trust deed • Vendee under a contract for deed • Buyer of real property from the time the sales contract is signed, and earnest money is paid until the closing
Amortization
(Blank) is described as the liquidation of a financial obligation. With amortization, regular, periodic payments to include both interest and principal are made, which pay off the debt completely by the end of the term. During the early amortization period, a large percentage of the monthly payment is used to pay the interest. As the loan is paid down, more of the monthly payment is applied to principal.
Equitable Title
(Blank) is the interest held by the trustor under a trust deed and gives the borrower the equitable right to obtain absolute ownership to the property when the terms of the trust deed are met.
Foreclosure
(Blank) is the legal procedure used by lenders to terminate al rights, title, and interest of the truster or mortgagor in real property by selling the property an using the sale proceeds to satisfy the liens of creditors.
Priority
(Blank) is the order in which documents are recorded and is determined by the date stamped in the upper right-hand corner of the document by the county recorder. If there are several trust deeds recorded against a property, no mention will be made about which one is the first, second, third, or fourth trust deed. A person inquiring about the priority of the deeds should look at the time and date the deed was recorded.
Private Mortgage Insurance (PMI)
(Blank) protects the lender against financial loss if a homeowner stops making mortgage payments. When the loan exceeds 80% of the value of the property, lenders usually require private mortgage insurance on conventional loans. Usually borrowers pay for this insurance as part of the monthly payment.
Equity
(blank) is defined as the difference between the value of the property and any outstanding loans or the initial down payment. Assuming there is enough equity, a homeowner can apply for a cash loan for any purpose. Being a homeowner can be advantageous, especially if there is built up equity in a house, townhouse, duplex, or condominium. The equity can pay for home improvements, bill consolidation, or college tuition. Typical junior loans include home equity loans, home equity lines of credit, and seller financing.
Usury
(blank) is the charging of interest that is unreasonably high or beyond the legal limit set by the state. The California Usury Law makes a distinction between loans that are exempt from or covered by the law. Exempt loans include loans made by banks, savings and loans, and credit unions; real estate loans made directly or arranged by a mortgage loan broker; and seller carry back loans. Under the California Usury Law, the interest rate on a loan made primarily for personal, family, or household purposes cannot exceed 10% per year. However, a loan used for home improvement or home purchase and all other loans made by a nonexempt lender are limited to the higher of 10% or 5% plus the discount rate charged by the San Francisco Federal Reserve Bank.
Types of Repayment Plans
1) a single payment of principal and interest at the end of the loan term, (2) interest-only payments, (3) partially amortized with a balloon payment, and (4) fully amortized payments.
Trust Deed
1. Number of Parties (3) TRUSTOR: Borrower who conveys title to trustee who holds as a security for debt. Beneficiary: Lender who holds original note and trust deed during life of the debt. Trustee: Receiver of naked legal title who conveys it when debt is paid or will sell if foreclosure is necessary. 2. TITLE: Conveyed to trust with trustor retaining equitable possession of the property. 3. STATUTE OF LIMITATIONS: The security for debt is held by trustee, rights of creditor are not ended when statute runs out on the note. 4. REMEDY FOR DEFAULT: Foreclosure can be instituted through trustee's sale or court foreclosure. (Court foreclosure follows mortgage foreclosure procedure #7.) 5. RIGHT of REDEMPTION: When the title has been sold by trustee at trustee's sale no right or statutory redemption exists. 6. SATISFACTION: The beneficiary sends a request for full reconveyance to the trustee with the original note and trust deed. Upon payment of fees, the trustee issues a reconveyance deed which must be recorded. 7. FORECLOSURE BY TRUSTEE'S SALE: Beneficiary notifies the trustee of default. The trustee notifies the trustor and records the notice. Anyone who has recorded the Request for Notice for Default must also be notified.The trustee waits at least three (3) months. During the three (3) month period, the trustor can reinstate the loan. Then the trustee advertises a notice of sale once a week for three weeks (21 days) and posts a notice on the property.Trustor can now invade the three (3) week advertising period and can reinstate the loan up to five (5) business days prior to the trustee's sale.The trustee conducts the sale and issues a trustee's deed to the highest bidder. 8. DEFICIENCY JUDFMENT: No deficiency judgment is available if the foreclosure is by trustee's sale.
Fully Amortized Fixed-Rate Note
A (blank) describes a loan with an interest rate that is fixed and payments that are level for the life of the loan. This type of note is the most common type with institutional lenders. It is characterized by regular, periodic payments of fixed amounts, to include both interest and principal, which pay off the debt completely by the end of the term.
Renegotiable Rate Mortgage
A (blank) is a loan in which the interest rate is renegotiated periodically. The loan may be either a long-term loan with periodic interest rate adjustments, or a short-term loan that is renewed periodically at new interest rates, but based on a long-term mortgage. There is a maximum interest rate fluctuation of 5% over the term of the loan. [CC §1916.8].
Pledged Account Mortgage (PAM)
A (blank) is a loan made against security, such as money held in a savings account or a certificate of deposit. When a borrower has a large amount of money in a savings or thrift account, one way he or she can use that to an advantage is to pledge the account as security for a lender. Another version enables the borrower to get 100% financing if a relative (or more than one relative) agrees to pledge a savings account or Certificate of Deposit as collateral for the loan. A benefit of this loan program is that the person who pledges the money continues to earn interest. When the borrower has sufficient equity in the property, the pledge money is returned
High-Cost Mortgages
A (blank) is a mortgage that has interest rates or costs that exceed a certain level
Deficiency Judgment
A (blank) is a personal judgment against a borrower for the balance of a debt owed when the security for the loan is not sufficient to pay the debt. However, the noteholder cannot obtain a (blank) against the trustor under a trustee sale.
Conventional Loan
A (blank) is any loan made by lenders without any governmental guarantees. The basic protection for a lender making conventional loans is the borrower's equity in the property. A low down payment will mean greater risk for the lender and a higher interest charged to the borrower. Conventional loans may be conforming or non-conforming.
Junior Trust Deed
A (blank) is any loan recorded after the first trust deed, secured by a second, third or subsequent trust deed
Lock-In Clause
A (blank) prohibits borrowers from paying off a loan in advance. It is not allowed on residential units of less than four units. In a land contract to purchase a home a (blank) may be ignored by the vendee (buyer).
Promissory Note
A (blank) serves as evidence of the debt and is a written agreement between a lender and a borrower to document a loan. It is a promise to pay back a certain sum of money (the principal) at specified terms at an agreed-upon time.
Subject To
A buyer may also purchase a property subject to the existing loan. A (blank) clause allows a buyer to take over a loan, making the payments without the knowledge or approval of the lender. The original borrower remains responsible for the loan, even though the buyer takes title and makes the payments
Conditional commitment
A buyer who would like to purchase a home with FHA financing would apply to an FHA-approved mortgagee (lender) who would then request a (blank) from FHA. Once the lender determines that the borrower and site qualify for the program, the lender submits a firm commit-ment request to the FHA
Package Loan
A loan on real property secured by more than the land and structure is known as a (blank). It includes fixtures attached to the building (appliances, carpeting, drapes, air conditioning) and other personal property
Section 203(k) Rehabilitation Loan
A purchase rehabilitation loan (purchase rehab) is a great option for buyers who are looking to improve their property immediately upon purchase. This mortgage loan provides the funds to purchase your home and the funds to complete your improvement project all in one loan, one application, one set of fees, one closing, and one convenient monthly payment.A purchase rehab loan could be used for a variety of improvements, such as: adding a family room or bedroom, remodeling a kitchen or bathroom, performing general upgrades to an older property, or even completing a total tear-down and rebuild
Blanket Loan
A trust deed or mortgage that covers more than one parcel of property may be secured by a (Blank) loan. It usually contains a partial release clausethat provides for the release of any particular parcel upon the repayment of a specified part of the loan. Commonly, it is used in connection with housing tracts, or construction loans. When a house is sold in a subdivision, the partial release clause is signed releasing that parcel from the blanket construction loan. A deed of partial reconveyance is recorded to show that the obligation has been met
Certificate of Eligibility
A veteran must possess a (blank), which is available from the Veteran Administration, before applying for a VA loan. The certificate will show the veteran's entitlement or right to obtain the loan. When a veteran finds a house he or she wants to purchase, a VA-approved conventional lender will take the loan application, and the veteran's Certificate of Eligibility and process the loan according to VA guidelines.
Sheriff's Deed
After a court foreclosure sale on a mortgage, the mortgagor (borrower) gets to keep possession of the property and has one year to redeem the property by satisfying the loan in full including court costs and any interest unless the proceeds of the sale are sufficient to satisfy the secured indebtedness, then the redemption period is only 3 months. [CCP §729.030]. This is called statutory redemption. If after one year (or 3 months), the mortgagor does not redeem the property, a (blank) is issued to the new buyer.
Fees and Closing Costs
Although a veteran can get 100% financing, he or she will be required to pay a funding fee for a first-time use. The lender may charge reasonable closing costs that may not be included in the loan. The closing costs may be paid by the buyer (veteran) or the seller. Typical closing costs include Certificate of Reasonable Value, credit report, loan origination fee, discount points, title insurance, and recording fees. The VA allows the veteran to pay reasonable discount points on a refinance or a purchase. No commissions, brokerage fees, or buyer broker fees may be charged to the veteran.
Assumption Clause
An (blank) allows a buyer to assume responsibility for the full payment of the loan with the lender's knowledge and consent. When a property is sold, a buyer may assume the existing loan. Usually with the approval of the lender, the buyer takes over primary liability for the loan, with the original borrower secondarily liable if there is a default. What that means is that even though the original borrower is secondarily responsible, according to the loan assumption agreement, no actual repayment of the loan may be required of that person
Acceleration Clause
An (blank) allows a noteholder to call the entire note due, on occurrence of a specific event, such as default in payment, taxes or insurance, or sale of the property. A noteholder may use the (blank) to call the entire note due if the borrower does not pay the loan payments, the real property taxes or insurance premiums, or if the borrower sells the property.
Open-end Loan
An (blank) is essentially a revolving line of credit. An additional amount of money may be loaned to a borrower in the future under the same trust deed. The effect is to preserve the original loan's priority claim against the property with this (blank)
Adjustable-rate mortgage (ARM)
An (blank)is one whose interest rate is tied to a movable economic index. The interest rate in the note varies upward or downward over the term of the loan, depending on the agreed-upon index. To protect the borrower from wild swings in interest rates there is usually a limit on how much the interest rate can change on an annual basis, as well as a lifetime cap, or limit, on changes in interest rate.
Interest-only Loan ( straight loan/ term loan)
An interest-only loanoffers consumers greater purchasing power, increased cash flow, and is a very popular alternative to traditional fixed-rate loans. The (blank) loan is also called a straight loan or term loan. It calls for regular interest payments during the term of the note. The interest rateis generally higher on a straight note and the principal does not decrease. A large payment is made at the end of the term to repay the principal and any remaining interest. This type of loan works well for people who only want to stay in a home for just a few years. If the borrower plans to live in the house for only three to five years, an interest-only loan may be the right choice.
Seller Financing - 2nd Trust Deed
Another common source for secondary financing of a sale is the seller. If the seller is going to be the lender, he or she agrees to carry back, or act as a banker, and make a loan to the buyer for the needed amount. That loan is secured by a trust deed, in favor of the seller, recorded after the first trust deed. In a seller carryback loan, the seller acts as the beneficiary and the buyer is the trustor. When a seller carries the paper on the sale of his or her home, it is also called a purchase-money loan, just like the loan made by an outside lender. If a seller receives a substantial amount from the proceeds of a first loan, plus the buyer's down payment, it may be in the seller's interest to carry a second trust deed—possibly for income or to reduce tax liability by accepting installment payments. Example: Sam made an offer on a house owned by Gary, who accepted an offer of $375,000 with $37,500 as the down payment. The buyer qualified for a new first loan in the amount of $318,750, and asked Gary to carry a second loan in the amount of $18,750 to complete the purchase price
Purchase- Money Loan
Any loan made at the time of a sale, as part of that sale, is known as a (Blank). This includes first trust deeds, junior loans used to purchase the property, and seller carry-back financing. A seller is said to CARRY BACK when the seller extends credit to a buyer by taking a promissory note executed by the buyer and secured by a trust deed on the property being purchased as a part of the purchase price.
Higher Priced Mortgage Loan
As defined by the Truth in Lending Act, Section 226.35, a (blank) is a closed-end mortgage loan secured by the consumer's principal dwelling with an APR that exceeds the average prime offer rate for a comparable transaction. This definition pertains to home purchase loans—not to construction loans, bridge loans with a term of 12 months or less, reverse mortgage, or home equity lines of credit.
Reinstate (bring current)
As you can see the minimum time between recording the notice of default and the trustee sale is three months and 21 days. During this time the trustor may (blank) the loan up to five business days prior to the trustee's sale
Discounting a Note (2nd trust deed)
If a trust deed held by the seller is sold to an outside party, usually a mortgage broker, the note and trust deed will be discounted. (Blank) is selling a note for less than the face amount or the current balance. Even though the seller receives a reduction in value by the mortgage broker, it is one way a seller can get cash out of a trust deed that was carried back. Example: Bob and Todd owned a house together as investors. After several years, they put the house on the market for $550,000 and hoped to get a full-price offer so they could go their separate ways with the profit from the house. After a short time, they did get a full-price offer. The buyer offered to put $110,000 down, get a $385,000 new first loan and asked Bob and Todd to carry $55,000 for five years, as a second trust deed. Bob and Todd would have turned the offer down if their agent had not suggested they accept and sell the second trust deed after the close of escrow. Even though it would be discounted, it was one way they could get most of the cash out of their investment. If the second trust deed was sold at a discounted 20%, or $11,000, Bob and Todd would end up with $55,000, less $11,000, or $44,000. In that way they would get the cash out of the sale, though they would be netting less than they originally planned because of the discount. They followed their agent's suggestion, and were satisfied with the result
Jumbo Loans
Loans that exceed the maximum loan limit set by Fannie Mae and Freddie Mac are called (blank). Because jumbo loans are not funded by these government-sponsored entities, they usually carry a higher interest rate and some additional underwriting requirements
Higher-Priced Mortgage Loans
REPAYMENT ABILITY. The loan cannot be based solely on the value of the property without regard to the borrower's repayment ability. PREPAYMENT PENALTIES. A loan may not include a prepayment penalty unless it is limited to the first two years of the loan. ESCROW ACCOUNTS. Lenders must establish an escrow account for payment of property taxes and premiums for mortgage-related insurance required by the creditor (i.e., hazard, liability, or mortgage insurance) when the loan is a first lien that secures the borrower's principal dwelling. Condominium units and cooperatives are exempt from this requirement if the homeowners' association maintains a master policy to insure all units.
Unsecured Loan
Some consumers, who need a small loan to fix the car, buy a new appliance, or take a trip are choosing a closed-end, (blank) instead of using their credit cards or getting a home equity loan. An (blank) is one in which the lender receives a promissory note from the borrower, without any security for payment of the debt, such as a trust deed or mortgage. The only recourse is a lengthy court action to force payment. This is truly the traditional IOU
Fixed Interest Rate
Some promissory notes have a (blank), in which the interest rate and term do not change over the life of the loan. Others may include a fluctuating interest rate as well as changes in the payment over the life of the loan. Based on this, some loans are called fixed-rate loans and others adjustable rate loans.
Non-Conforming Loans
Sometimes either the borrower's creditworthiness or the size of the loan does not meet conventional lending standards. These are called (blank) and include jumbo loans and subprime loans
Rollover Mortgage (ROM)
The (blank) is a loan in which the unpaid balance is refinanced typically every five years at then current rates. This is good for the borrower and bad for the lender if interest rates are falling, and bad for the borrower and good for the lender if interest rates are rising
ALL-INCLUSIVE TRUST DEED (AITD) or Wraparound Mortgage
The (blank) is a type of seller financing. In general, only assumable loans ( FHA and VA loans) can be part of an AITD. An AITD (wraparound mortgage) wraps an existing loan with a new loan, and the borrower makes one payment for both. In other words, the new trust deed (the AITD) includes the present encumbrances, such as first, second, third, or more trust deeds, plus the amount to be financed by the seller.
Contract of Sale
The (blank) is the financing instrument with many names. It may be called an installment sales contract, a contract of sale, an agreement of sale, a conditional sales contract, a contract for deed, or a land sales contract.This is a contract in which the seller (vendor) becomes the lender to the buyer (vendee). The vendor pays off the original financing while receiving payments from the vendee on the contract of sale. The vendor and vendee's relationship is like that of a beneficiary and a trustor in a trust deed.
Maker
The (blank) is the person borrowing the money, or making the note. The note is a personal obligation of the borrower and a complete contract in itself, between the borrower and lender.
Holder
The (blank) is the person loaning the money, or the one holding the note. A subsequent owner of the note is a HOLDER IN DUE COURSE and is called the noteholder.
California Veteran Loans (CalVet)
The California Department of Veterans Affairs administers the (blank) loan program to assist California veterans in buying a home or farm. Unlike other government financing, the CalVet program funds and services its own loans. Funds are obtained through the sale of State General Obligation Bonds and Revenue Bonds.
Energy Efficient Mortgage
The Energy Efficient Mortgages Program (EEM) helps homebuyers or homeowners save money on utility bills by enabling them to finance the cost of adding energy-efficiency features to new or existing housing. The program provides mortgage insurance for the purchase or refinance of a principal residence that incorporates the cost of energy efficient improvements into the loan. Due to the anticipated energy conservation savings, lenders can be more flexible with underwriting guidelines.
(FHA LOANS) Section 203(b) Residential Loan
The FHA 203(b) loan offers financing on the purchase or construction of owner-occupied residences of one-to-four units. This program offers 30 year, fixed-rate, fully amortized, mortgages with a down payment requirement as low as 3.5%, allowing financing of up to 96.5% of the value of the home. FHA has mortgage limits that vary from county to county.
FHA 251 Adjustable-Rate Mortgage
The FHA adjustable-rate mortgage provides a viable alternative to the Fannie Mae/Freddie Mac ARMs. The FHA administers a number of programs, based on FHA Section 203(b) loans, with special loan features. One of these programs, Section 251, insures ARMs. This type of program enables borrowers to obtain home loan financing that is more affordable because of its lower interest rate. The interest rate is adjusted annually based on market indices approved by FHA, and therefore, may increase or decrease over the term of the loan. For adjustable-rate mortgages, the only index acceptable to the FHA is the 1-year Treasury bill interest rate. Annual increases are capped at 1% and the maximum interest rate can be no more than 5% greater than the original interest rate
Federal Housing Administration ( FHA )
The FHA program, a part of HUD (U.S. Department of Housing and Urban Development) since 1934, has caused the greatest change in home mortgage lending in the history of real estate finance. The FHA was established to improve the construction and financing of housing. The main purpose of the FHA program has been to promote homeownership. Secondary results include setting minimum property requirements and systemizing appraisals. The FHA does not make loans; rather, it insures lenders against loss. As long as FHS guidelines are used in funding the loan, the FHA, upon default by the borrower, insures the lender against loss. If the borrower does default, the lender may foreclose and the FHA will pay cash up to the established limit of the insurance
Alienation (Due-on-sale Clause)
The alienation or due-on-sale clause is a type of acceleration clause. A lender or noteholder may call the entire note due if the original borrower transfers (alienates) ownership of the property to someone else. If the note contains an ACCELERATION CLAUSE (due on sale), the trust deed must mention this clause in order to enforce the contract. This clause protects the lender from an unqualified, unapproved buyer taking over a loan. Justifiably, the lender fears possible default, with no control over who is making the payments
Section 32 Mortgages
There are certain requirements for high-cost mortgages. Since the rules for these loans are contained in Section 32 of Regulation Z, they are called (blank). The rules do not cover loans to buy or build a home, reverse mortgages, or home equity lines of credit (which are similar to revolving credit accounts).
Takeout Loan
Upon completion of the construction, the borrower must obtain permanent financing or pay the construction loan in full. The permanent loan that pays off a construction loan is called a takeout loan. Interim construction loans are usually made by commercial banks, whereas standby commitments and takeout loans are arranged by mortgage companies for large investors, such as insurance companies.Do not confuse a takeout loan with a forward-takeout commitment (also called a standby commitment). A Forward-Takeout Commitment is just a very expensive letter that promises to deliver a takeout loan in the future if the property is built according to plans and specifications and leased at the target rental rate. Typically, a forward-takeout commitment costs a developer one-to-two points, plus at least one additional point if the loan eventually funds. However, the borrower does not have to take the loan.
Collateral
When money is loaned for financing real property, some kind of (blank), or security, is usually required of the borrower, as well as the promise to repay the loan. That means the lender wants some concrete assurance of getting the money back beyond the borrower's written promise to pay. The property being bought or borrowed against is used as the security, or collateral, for the debt. The lender feels more secure about making the loan if assured of the property ownership in case of default, or nonpayment, of the loan. Then the lender can sell it to get the loan money back
Seller Financing Disclosure Statement
Whenever there is seller financing in a real estate transaction, the law requires the buyer and seller to complete a (blank). It gives both the seller and buyer all the information needed to make an informed decision about using seller financing to complete the sale
Security Instrument
a (blank) is a legal document given by the borrower to hypoth-ecate the property to the lender as collateral for a loan, creating a security interest. The security interest allows certain assets of a borrower to be set aside so that a creditor can sell them if the borrower defaults on the loan. (Blank) are used to secure promissory notes.
Shared Appreciation Mortgage (SAM)
a (blank) is a loan in which the lender offers a below-market interest rate in return for a portion of the profits made by the homeowner when the property is sold. The holding period (usually three to five years) and the percentage of shared equity are spelled out in the loan agreements.
Deficiency Judgments
a (blank) is a personal judgment against a borrower for the difference between the unpaid amount of the loan, plus interest, costs and fees of the sale, and the amount of the actual proceeds of the foreclosure sale. This means if the property sells for less than what is owed to the noteholder, the borrower will be personally responsible for repayment after the deficiency judgment is filed.
Swing Loan (Interim or Bridge Loan)
a (blank) is a temporary loan made on a borrower's equity in his or her home. It is usually a short-term loan that is due in six (6) months or when the borrower's home sells, whichever occurs sooner. It is used when the borrower has purchased another property, with the present home unsold, and needs the cash to close the sale of the new home. The new loan is secured by a trust deed or mortgage against the borrower's home. Usually there are no payments, with interest accruing during the term of the loan. When the borrower's home sells, the swing loan plus interest is repaid, through escrow, from the proceeds of the sale
Subordination Clause
a (blank) is used to change the priority of a financial instrument. A lender agrees to give up priority to later loans. Remember, the priority of a trust deed is fixed by the date it is recorded: the earlier the date, the greater the advantage. When a note and trust deed includes a subordination clause, a new, later loan may be recorded, and because of the subordination clause, assume a higher priority. This clause is used mainly when land is purchased for future purposes of construction that will require financing.
Two Parties in a Mortgage
a mortgagor (borrower) and a mortgagee (lender). The mortgagor receives loan funds from a mortgagee and signs a promissory note and mortgage. Once signed by the borrower, both the note and mortgage are held by the lender until the loan is paid. Unlike a trust deed, under a mortgage both title and possession remain with the borrower.
Banned Features on High-Cost Mortgages
• Balloon payments unless permitted by law • Negative amortization• Financing points and fees • Most prepayment penalties
Home Equity Conversion Mortgages (HECM)
(Blank) are a type of reverse annuity mortgages. It is a program for homeowners who are 62 and older who have paid off their mortgages or have only small mortgage balances remaining. The program has three options for homeowners: (1) borrow against the equity in their homes in a lump sum, (2) borrow on a monthly basis for a fixed term or for as long as they live in the home, or (3) borrow as a line of credit.
Conforming Loans
(Blank) have terms and conditions that follow the guidelines set forth by Fannie Mae and Freddie Mac. These loans are called "A" paper loans, or prime loans, and can be made to purchase or refinance homes (one-to-four residential units). Fannie Mae and Freddie Mac guidelines establish the maximum loan amount, borrower credit and income requirements, down payment, and suitable properties.
Secondary Financing (Junior Loan)
(Blank) is a loan secured by a trust deed or mortgage on a property, other than first-trust deed. One way to get the needed financing is for the buyer to obtain a secondary loan through an outside source, such as a mortgage lender, private investor or even the seller of the property. Junior loans take advantage of built-up equity in a property
Two Feature of Fixed-Rate Fully Amortized Loans
1. Interest rate remains fixed for the life of the loan. 2. Payments remain level for the life of the loan and are structured to repay the loan at the end of the loan term.
Mortgage Contract
1. Number of Parties (2) MORTGAGOR: Borrower retains title but gives lender a lien on the property as security. MORTGAGEE: Lender who holds the mortgage. 2. TITLE: Held by mortgagor together with possession. 3. STATUTE of LIMITATIONS: Foreclosure is barred if no action is taken within four (4) years of delinquency on the note. 4. REMEDY FOR DEFAULT: Court foreclosure is usually the only remedy. 5. RIGHT OF REDEMPTION: Mortgagor has up to one (1) year to redeem the property after court foreclosure called statutory redemption. 6. SATISFACTION: Upon final payment and on demand, the mortgagee signs the certificate that the debt is satisfied. Then the certificate or release is recorded. 7. FORECLOSURE BY COURT: Court action is commenced by the mortgagee. The court issues a decree of foreclosure and an order of sale. A court appointed commissioner sells to the highest bidder after the publication and posting of the sale notice.The certificate of sale is issued. Mortgagor has one (1) year to redeem the property and remains in possession for that year. If sale proceeds satisfy the debt, court costs, and interest then the mortgagor has only three (3) months to redeem the property.If a trust deed is foreclosed in court, it is treated like a mortgage contract, and trustor remains in possession during the redemption period.A sheriff's deed is issued after one (1) year 8. DEFICIENCY JUDFMENT: A deficiency judgment is available in a court foreclosure.
Order Proceeds from Sale of Property are Paid
1. Trustee's fees, costs, and expenses of the sale 2. Any tax and assessment liens that are due and owing 3. Trust deeds, mortgages, and mechanic's liens in their order of priority 4. Defaulting borrower
Prepayment Penalty
A (blank) allows a lender to collect a certain percentage of a loan as a penalty for early payoff. When lenders make loans, they calculate their return over the term of the loan. If a loan is paid off early, the lender receives less interest and the return on investment is lower than planned. The lender charges a (blank) to offset lost revenues resulting from early payoff. (Blank) are not allowed on conforming, FHA, and VA loans.
Or More Clause
An "(blank)" allows a borrower to pay off a loan early, or make higher payments without penalty.
Power-of-sale clause
Any trust deed or mortgage with a (blank) clause may be foreclosed non-judicially by a trustee's sale or judicially by a court procedure. Without the (blank), the only remedy a lender has is a judicial foreclosure by a court proceeding.
Foreclosure on Trust Deed by Trustee's Sale (non-judicial)
First, the beneficiary (lender) notifies the trustor (borrower) of default and requests the trustee to record a NOTICE OF DEFUALT. Anyone who has recorded a REQUEST FOR NOTICE must be notified of the default. The trustee must wait at least three months after recording the notice of default before advertising the trustee sale. Then the trustee advertises a Notice of Sale once a week for three weeks (21 days) and posts a notice of sale on the property.
Pledge
Hypothecation differs from a (blank) because actual possession of pledged property is given to the lender. For example, in a pledge, personal property—such as stock certificates—is delivered to a lender, or jewelry is delivered to a pawnbroker. Once the loan is repaid, the personal property is returned to the borrower
Deed of Trust (Trust Deed)
In California, the (blank) is the most commonly used security instrument in real estate finance. A (blank) is a security instrument that conveys title of real property from a trustor to a trustee to be held as security for the beneficiary for payment of a deb
Home Equity Loan
In a (blank), the borrower gets the entire loan balance at one time. It is a fixed-rate second mortgage with principal and interest payments remaining the same over the life of the loan.A lender uses strict standards about the amount of equity required in a property before loaning money, and particularly for a junior loan. The reason is simple. All a lender wants is to get his or her money back in a timely manner, along with the calculated return on the investment. Example: Michael's home was appraised at $400,000, with a $250,000 first trust deed recorded against it. Michael wants a $65,000 home equity loan. To determine whether to make the loan, the lender adds the amount owed to the amount desired in the loan to determine the percentage that would be encumbered by the existing first trust deed, and the desired second trust deed. If the lender would only loan up to 80% of the appraised value of the property, would Michael get his loan? (Of course, Michael does get his loan because he has enough equity in the property to qualify).
Nontraditional Mortgage
In an attempt to offer alternatives to consumers, lenders have developed (blank) products. A (blank) product is any loan other than a fixed-rate, 30-year, fully amortized loan.
Late Payments
Lenders may not impose a late charge on a payment until after the payment is 10 to 15 days late depending on the terms of the note.
Subprime Loans
Loans that do not meet the borrower credit requirements of Fannie Mae and Freddie Mac are called (blank) or "B" and "C" paper loans as opposed to "A" paper conforming loans. Subprime loans are offered to borrowers that may have recently filed for bankruptcy or foreclosure, or have had late payments on their credit reports.
Balloon Payment
Since the loan does not fully amortize over the original term, there is still a remaining principal loan balance. The last installment, called a (blank), is much larger than any of the other payments because it includes all of the remaining principal and interest. (Blank) can have extra risks because the borrower may need to refinance the property—possibly at higher interest rates.
Single Payment of Principal and Interest
Some loans have no regular payments of interest and/or principal. Instead, the loan is paid off all at once, at a specified future date. This payment includes the entire principal amount and the accrued interest.
How will the Borrower Repay the Home Equity Plan?
Some plans set minimum payments that cover a portion of the principal (the amount borrowed) plus accrued interest. But, unlike the typical installment loan, the portion that goes toward principal may not be enough to repay the debt by the end of the term. Other plans may allow payments of interest alone during the life of the plan, which means that the borrower pays nothing toward the principal. If the homeowner borrows $10,000, he or she will owe that entire sum when the plan ends.
Request for Full Reconveyance
The trustee, who has bare legal title, acts as an agent for the beneficiary and has only two obligations. The first is to foreclose on the property if there is a default on the loan, and the second is to reconvey the title to the borrower when the debt is repaid in full. When the debt is repaid in full, the beneficiary signs a (blank) and sends it to the trustee requesting the trustee to reconvey title to the borrower.
Naked Legal Title
The trustor (borrower) signs the promissory note and the trust deed and gives them to the beneficiary (lender) who holds them for the term of the loan. Under the trust deed, the trustor has equitable title and the trustee has bare or (blank) to the property
Negative Authorization
There are loans that are not fully amortized. This occurs when the borrower makes lower payments than what should be made on a fully amortized loan. The difference between what should be paid and what is actually paid is added to the principal balance of the loan. This is called (blank) and the principal increases instead of decreases.
Government Participation in Real Estate Finance
There are two federal agencies and one state agency that help make it possible for people to buy homes they would never be able to purchase without government involvement. The two federal agencies that participate in real estate financing are the Federal Housing Administration (FHA) and the Veterans Administration (VA). The California Farm and Home Purchase Program, or CalVet loan, is a state program that helps eligible veterans.
Deregulation
Traditionally, fixed-rate loans were the only choice offered by commercial banks and savings and loans for a home buyer. Over the past few years, lending institutions have been deregulated allowing them to offer consumers new solutions to credit demands. (Blank) is a process in which financial institutions that formerly had been restrained in their lending activities by the law, are allowed to compete freely for profits in the marketplace
Home Equity Line of Credit (HELOC)
With a (blank), the borrower takes money as it is needed—up to the credit limit. It has a low starting interest rate, with a variable monthly rate based on outstanding balance. More and more lenders are offering home equity lines of credit. By using the equity in their home, borrowers may qualify for a sizable amount of credit, available for use when and how they please, at an interest rate that is relatively low. Furthermore, under the California tax law—depending on each borrower's specific situation—he or she may be allowed to deduct the interest because the debt is secured by their home.
Deficiency Judgment NOT ALLOWED
f a lender (beneficiary or mortgagee) chooses to foreclose a trust deed or mortgage with a power of sale using a trustee sale, no deficiency judgment is allowed if the proceeds do not satisfy the debt and all costs. Since trust deeds are used almost exclusively in California to secure loans, the only security for a beneficiary is the property itself. Any other personal assets of the borrower in default are protected from judgment under a trust deed.Additionally a lender cannot get a deficiency judgment against a borrower if the loan is a purchase money loan secured by either a trust deed or a mortgage
Security Instrument
in California, the most common (blank) for the note is a trust deed. After signing the promissory note, the borrower is required to EXECUTE (sign) a trust deed, which is the security guaranteeing loan repayment
Mortgage
the deed of trust virtually replaced the use of a note and (blank) when financing real estate. The promissory note shows the obligation of the debt, and the (blank) is a lien against the described property until the debt is repaid.
Requirements for a Valid Promissory Note
• Unconditional written promise to pay a certain sum of money. • Made by one person to another, both able to legally enter into a contract. • Signed by the maker, or borrower. • Payable on demand or at a definite time. • Paid to bearer or to order. • Voluntarily delivered by the borrower and accepted by the lender.
