Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
72 Cards in this Set
- Front
- Back
|
Financing Documents: Title Theory |
The borrower (mortgagor) grants legal title to a trustee |
|
|
Financing Documents: Lien Theory |
The borrower hold both legal and equitable title a) the lender has a specific lien on the property as security for the mortgage debt |
|
|
Financing Documents: Mortgage or Deed of Trust |
Security for the promissory note, pledging the real estate property as collateral for the debt |
|
|
Promissory Note |
Is a legal instrument that provides evidence of the deed a) secures by the mortgage or deed of trust |
|
|
The promissory note is held by the lender until loan is fully ______; not _________. |
Repaid; not recorded |
|
|
Who is required to sign the promissory note? |
Signature of borrower; lender does not sign |
|
|
Acceleration Clause |
If the borrower defaults, the lender can demand immediate payment of entire balance |
|
|
Mortgage or deed of trust |
Instruments that pledge (hypothecate) property as security for a debt |
|
|
Prepayment Clause |
Establishes terms and conditions for early loan payoff |
|
|
Reasons for loan acceleration and foreclosure |
1. Nonpayment of principle and interest 2. Nonpayment of taxes 3. Removal of improvements without lenders permission 4. Insurance coverage lapse 5. Waste 6. Alienation without consent (if there is a due-on-sale clause) |
|
|
Waste |
Would include deferred maintenance that lowers value below what is owed |
|
|
When a mortgage or deed of trust is recorded, what does it create? |
A lien |
|
|
The interest in majority of home loans is __________, not compounded. |
Simple |
|
|
Mortgage: Two way instrument Borrower = ___________ Lender = ___________ |
Mortgagor Mortgagee |
|
|
Deed of Trust: three-party instrument Borrower is the ________ Lender is the __________ ________ in some states, a public official |
Trustor Beneficiary Trustee |
|
|
Mortgage is like most contracts and requires the essential elements and must be in writing and _________ to be valid. |
Signed |
|
|
Defeasance Clause |
When debt is paid (mortgage/deed of trust), lien must be removed a) Mortgagee provides “satisfaction” b) Trustee provides deed of reconveyance |
|
|
Satisfaction or Reconceyance Deed |
Proves payments are in full and are recorded by borrower |
|
|
Due-on-sale Clause is also knows as.... |
Alienation Clause |
|
|
Due-on-sale Clause |
Provides that when the property is sold, the lender may demand immediate payment of the outstanding debt |
|
|
Mortgage or deed of trust |
Instruments that pledge (hypothecate) property as security for a debt |
|
|
Prepayment Clause |
Establishes terms and conditions for early loan payoff |
|
|
Reasons for loan acceleration and foreclosure |
1. Nonpayment of principle and interest 2. Nonpayment of taxes 3. Removal of improvements without lenders permission 4. Insurance coverage lapse 5. Waste 6. Alienation without consent (if there is a due-on-sale clause) |
|
|
Waste |
Would include deferred maintenance that lowers value below what is owed |
|
|
Loan-to-value Ration (LTV) is also known as... |
Mortgage ratio |
|
|
When a mortgage or deed of trust is recorded, what does it create? |
A lien |
|
|
The interest in majority of home loans is __________, not compounded. |
Simple |
|
|
Mortgage: Two way instrument Borrower = ___________ Lender = ___________ |
Mortgagor Mortgagee |
|
|
Deed of Trust: three-party instrument Borrower is the ________ Lender is the __________ ________ in some states, a public official |
Trustor Beneficiary Trustee |
|
|
Mortgage is like most contracts and requires the essential elements and must be in writing and _________ to be valid. |
Signed |
|
|
Defeasance Clause |
When debt is paid (mortgage/deed of trust), lien must be removed a) Mortgagee provides “satisfaction” b) Trustee provides deed of reconveyance |
|
|
Satisfaction or Reconceyance Deed |
Proves payments are in full and are recorded by borrower |
|
|
Due-on-sale Clause is also knows as.... |
Alienation Clause |
|
|
Due-on-sale Clause |
Provides that when the property is sold, the lender may demand immediate payment of the outstanding debt |
|
|
Loan-to-value |
Determine the amount that can be borrowed and if private mortgage insurance will be needed |
|
|
Maximum percentage of value |
Lender will loan to the borrower |
|
|
How is Loan-to-value determined? |
By the sales price or appraised value, whichever is lower |
|
|
Equity |
Market Value today - total debt today = equity |
|
|
Leverage |
Use of borrowed money to finance a purchase a) the higher the LTV, the higher the leverage |
|
|
What is the disadvantage of high leverage? |
The greater risk of default (lower equity = higher risk) |
|
|
What is the advantage of leverage? |
The ability to control a large asset with a relatively small cash investment. |
|
|
Discount Points: One point = 1% of the _________ |
Loan Amount |
|
|
Discount Points: Lender charges points to _____________. |
Increase yield in a loan a) May be used to lower the loan interest rate |
|
|
Loan origination fees |
A charge by the lender to process and issue a loan |
|
|
Insufficient sake proceeds may result in a _____________ judgement against the borrower. |
Deficiency or personal |
|
|
What is a judicial foreclosure? |
Lawsuit to obtain he power to foreclose from a court |
|
|
What is a no judicial foreclosure? |
Trustees and mortgages have the right to foreclose without going to court. Must have power of sale clause |
|
|
Deed in lieu of foreclosure and Short sale |
1. Borrower deeds the property to the lender to avoid foreclosure 2. Does not remove secondary liens 3. Lender may not be willing to accept an encumbered title |
|
|
Short Sale |
Borrower attempts to see an “upside down” property a) market value is less then the debt on the property |
|
|
Term or straight loan |
1. Interest only payments until maturity or at end of term 2. Entire principle paid back in a lump sum balloon payment |
|
|
Partially amortized (ballon) loan |
1. Equal payments of principal and interest 2. Lump sum ballon payment at end of loan term |
|
|
Fully amortized loan - fixed rate |
1. Equal consecutive installments of principal and interest 2. Balance decreases with each payment 3. Balance becomes 0 at maturity |
|
|
Adjustable-rate mortgage (ARM) |
1. Interest rate subject to change based on an economic index or indicator 2. Not recommended for borrowers in a fixed income, such as a retiree |
|
|
Budget mortgage |
1. Payments include debt service plus tax and insurance escrow 2. PITI: Principal, interest, taxes, and insurance |
|
|
Usury |
Charging and interest rate in excess of what is permitted by law |
|
|
Package Mortgage |
Real property plus personal property |
|
|
Blanket mortgage |
1. Typically used by developers 2. A single loan with more than one parcel used as security |
|
|
Reverse mortgage |
1. For seniors 62+ 2. Mortgage pays the Mortgagor a) borrower receives monthly advances from the lender |
|
|
What does HELOC stand for? |
Home Equity Line of Credit Similar to a credit card |
|
|
Subprime loans |
A higher interest rate is charged because the borrower and/or property used as security is a high risk a) often include flexible rate loans or ARMs that may adjust beyond the borrowers ability to pay |
|
|
Predatory lending |
Is an umbrella term for unfair or illegal lending practices |
|
|
Seller Financing: Purchase money mortgage |
Uses a promissory note and deed of trust or mortgage; title transfers to buyer, and seller “takes back” the down payment and a lien at closing; seller becomes a lender Also called a seller second or seller carry back |
|
|
Contract for deed |
Is also known as a land contract or an installment contact The purchase price is paid in installments to the sellers) the seller delivers title via a deed upon receiving the final payment |
|
|
Licensee’s Role |
Ensure the seller and the buyer understand the risks involved in seller financing |
|
|
Subordination |
A clause in a mortgage/deed of trust that allows a subsequent mortgage to take priority a) subordinate mortgage will maintain its original possession |
|
|
Foreclosure |
A procedure whereby property used as security for a debt taken by a creditor/lender and sold to satisfy the debt |
|
|
The foreclosure process removes __________ from the property. |
All liens |
|
|
Judicial Foreclosure |
Lawsuit to obtain the power to foreclose from the court |
|
|
Nojudicial foreclosure |
Trustees and mortgagees have the right to foreclose without going to court |
|
|
Foreclosure sale process: Equitable Redemption Period |
Right to stop foreclosure a) Borrower cures by paying missing payments, plus interest and penalties |
|
|
In a foreclosure sale, who is the property sold to? |
The highest bidder at public auction |
|
|
Foreclosure sale process: When do lenders sell real estate owned (REO) property? |
After the statutory redemption period to satisfy the debt |
