Finance

Question 1

What is a deed of trust or a mortgage?

Answer 1

It is a security agreement (contract) that makes real property collateral for a loan. It is security for the promissory note.

Question 2

What happens once a mortgage or deed of trust is recorded?

Answer 2

A lien is created.

Question 3

T/F Interest on the majority of home loans is compounded.

Answer 3

False. Interest on the majority of home loans is SIMPLE. This means that what you pay in interest is pre-determined. You don’t pay interest on top of interest.

Question 4

How many parties are involved in a mortgage?

Answer 4

2 parties: Borrower & Lender

Question 5

How many parties are involved in a deed of trust?

Answer 5

3 parties: Borrower, Lender, & Trustee

Question 6

Besides the number of parties, what is another difference between a mortgage and a deed of trust?

Answer 6

The foreclosure process is different. With a mortgage, the foreclosure goes through the courts (judicial foreclosure). A foreclosure on a deed of trust does not go through the courts and is conducted by the trustee.

Question 7

What is an acceleration clause?

Answer 7

If the borrower defaults, the mortgagee may demand full payment of the loan immediately.

Question 8

What is the due on sale clause?

Answer 8

The borrower is required to pay the entire loan balance if the property is being sold.

Question 9

What is another name for the due on sale clause?

Answer 9

Alienation Clause

Question 10

What is the prepayment clause?

Answer 10

It sets the terms for how and when the borrower can pay off the loan.

Question 11

Who is protected by the prepayment clause?

Answer 11

The lender. The lender will be compensated for the interest income lost over the life of the loan.

Question 12

What is a subordination clause?

Answer 12

It permits a later mortgage to have higher lien priority than the one containing the clause.

Question 13

What is a release clause?

Answer 13

This clause is part of blanket mortgages.

It allows for an individual property to be released when a proportional amount of the loan has been paid.

Question 14

What is loan-to-value (LTV) ratio?

Answer 14

The relationship between the loan amount and either the sales price or the appraised value of the property.

Question 15

What is another name for loan-to-value ratio?

Answer 15

Mortgage ratio

Question 16

T/F The lower your LTV, the less risky your loan application looks to lenders.

Answer 16

True

Question 17

What is equity?

Answer 17

Market value today - total debt today = equity

Question 18

What is leverage?

Answer 18

Using borrowed money to finance an investment.

Question 19

T/F The higher the LTV, the lower the leverage.

Answer 19

False. The higher the LTV, the higher the leverage.

Question 20

What are discount points?

Answer 20

Fees paid directly to the lender at the closing in exchange for a reduced interest rate.

Question 21

What does 1 discount point equal?

Answer 21

1% of the loan amount

Question 22

What is usury?

Answer 22

Charging an interest in excess of what is permitted by law.

Question 23

What is a foreclosure?

Answer 23

A procedure whereby title to property used as security for a debt is taken by a creditor/lendor and sold to satisfy the debt.

Question 24

T/F All liens on a property are still present during the foreclosure process.

Answer 24

False. All liens on a property are REMOVED during the foreclosure process.

Question 25

Who governs foreclosures?

Answer 25

The state.

Question 26

What are the 2 types of foreclosures?

Answer 26

1) Judicial foreclosure

2) Nonjudicial foreclosure

Question 27

What does the lender have if they can do a nonjudicial foreclosure?

Answer 27

A power of sale clause.

Question 28

What is filed with the county recorder during a judicial foreclosure?

Answer 28

Lis pendens, an official notice that there is a lawsuit over the claim of a property.

Question 29

What is the 4 step foreclosure process?

Answer 29

1) Equitable Redemption Period
2) Foreclosure Sale
3) Statutory Redemption Period
4) Lender sells the property

Question 30

If a borrower wants to stop the foreclosure process, what must they do during the Equitable Redemption Period?

Answer 30

Pay all missed payments plus interest and penalties.

Question 31

How long is the Equitable Redemption Period?

Answer 31

From when the lender declares default until the sale is set by state law.

Question 32

Can a borrower stop the foreclosure process during the Statutory Redemption Period?

Answer 32

No, the borrower can stop the foreclosure at the beginning, at the Equitable Redemption Period. During the Statutory Redemption Period, the borrower can buy back their property but the process as already begun.

Question 33

What happens if the foreclosed property sells for less than the amount owed?

Answer 33

This would be an insufficient sale and it may result in the lender filing a deficiency or personal judgment on the borrower.

Question 34

What are the two alternatives to a foreclosure?

Answer 34

1) Deed in lieu of foreclosure

2) Short Sale

Question 35

What is a deed in lieu of foreclosure?

Answer 35

Is an arrangement where you, the borrower, give the deed to your home to the lender.

Question 36

T/F In a deed in lieu of foreclosure, all liens are wiped out.

Answer 36

False. In a deed in lieu of foreclosure, secondary liens are still present.

Question 37

What is a short sale?

Answer 37

The borrower is selling but the loan balance is greater than the market value of the property.

Question 38

In a short sale, if the offer is accepted what may the lender require?

Answer 38

The borrower/seller needs to pay any deficiencies and depending on state law, there may be tax consequences..