Mortgages

Question 1

Mortgage

Answer 1

Security for some other obligation that typically places an encumbrance on real property.
–A mortgage provides that, if the borrower defaults, the mortgagee may sell the mortgaged property and use the proceeds of the sale to satisfy the debt

Question 2

Mortgagor

Answer 2

*Person taking the mortgage (i.e., the borrower).
*Remember Mortgagor is the Borrower

Question 3

Mortgagee

Answer 3

-Entity providing the mortgage (i.e., the lender).
-Remember the Mortgagee is the Lender

Question 4

Obligation

Answer 4

The borrower’s duty to repay a loan evidenced by a written promissory note.

Question 5

Promissory Note

Answer 5

A specialized type of contract between the borrower and lender by which the borrower agrees to repay the loan on certain terms and conditions

Question 6

To borrow money from a lender, the mortgagor must…

Answer 6

give the lender both a promissory note and a mortgage

Question 7

Down Payment

Answer 7

A down payment is the money a home buyer pays at closing toward the cost of the home. It’s the difference between the mortgage amount and the purchase price.

Question 8

Equity

Answer 8

Mortgagor’s current interest in the property—home value minus amount owed on mortgage (mortgagor’s want this to get bigger over time)

Question 9

Principal

Answer 9

The amount of debt, excluding interest, left on the loan (mortgagor’s want this to get smaller over time)

Question 10

Adjustable-Rate Mortgage (ARM)

Answer 10

A home loan in which the interest rate changes periodically based on a standard financial index

Question 11

Fixed-Rate Mortgage

Answer 11

A home loan in which the interest rate will remain the same throughout the life of the loan, most often 15 or 30 years

Question 12

Purchase-Money Mortgage

Answer 12

-The buyer borrows money for the purchase price of a home from the seller and pays the entire purchase price in a lump sum.
–Title is typically transferred to buyer and the seller/lender holds a mortgage on the property.
–Also known a seller or owner financing, this is usually done in situations where the buyer cannot qualify for a mortgage through traditional lending channels

Question 13

Purchase-Money Mortgage

Answer 13

–Note that purchase money mortgages usually have priority over subsequent recorded liens on the property.
–However, the priority of a purchase money mortgage can be lost if the mortgage is either recorded incorrectly or not recorded at all.

Question 14

Loan-to-Value Ratio

Answer 14

Ratio of amount borrowed to the appraised value of the house

Question 15

Prepayment Penalty

Answer 15

Fee charged to borrowers who pay a loan off faster than the prescribed payment schedule

Question 16

Acceleration Clause

Answer 16

Allows the lender to demand payment of the entire loan if the borrowers miss even one monthly payment. This is valid in all states

Question 17

Due-on-Sale Clause

Answer 17

This gives the lender the option to demand payment of the entire loan if the borrowers sell the property or any part of it

Question 18

What is the equity of redemption?

Answer 18

-Courts of equity recognized and protected the Equity of Redemption: the borrower’s right to repay the debt, even after the payment due date.
-It is a fundamental principle that courts will not allow clogging of the equity of redemption by allowing lenders to obtain title without foreclosure
-The modern foreclosure sale ends the borrower’s equity of redemption

Question 19

What is an equitable mortgage?

Answer 19

If the parties disguise a mortgage transaction as a sale, the court will construe it as an equitable mortgage and provide the “seller”with the rights of a borrower

Question 20

What is the difference between assuming the mortgage and taking subject to the mortgage?

Answer 20

Assuming: If the agreement provides that Buyer will assume the loan, then he is personally liable to repay it, together with the borrowers
Taking subject to: If the agreement provides thatBuyer will take title subject to the loan, then he is not personally liable

Question 21

What are the borrower’s rights before the foreclosure sale?

Answer 21

Reinstatement:
-As a general rule, a borrower can avoid foreclosure by paying the missed payments before the lender accelerates the loan. Some states also allow the borrower to reinstate for a limited period after acceleration occurs.
Equitable Redemption:
-All states allow the borrower to avoid foreclosure by paying the loan in full (plus any incurred costs) after default but before the sale occurs.

Question 22

What is foreclosure?

Answer 22

The legal process by which a homeowner in default on a mortgage is deprived of interest in the property.

Question 23

What are the two types of foreclosure?

Answer 23

Judicial Foreclosure:
-A specialized form of litigation in which the lender brings a complaint against the necessary parties including:
*the borrower,
*any junior lienors, and
*anyone else holding interest in the property that are junior in priority to the mortgage
Nonjudicial Foreclosure (also called power of sale foreclosure):
-Similar to a judicial foreclosure except it takes place with no court involvement.
*This is the dominant method for collecting on a secured loan after the borrower’s default.
*The mortgage has to expressly provide for this type of foreclosure and if it does, it is called a mortgage with power of sale

Question 24

Regarding the results of the foreclosure sale, what is Principle 1?

Answer 24

Foreclosure eliminates or “wipes out”the mortgage being foreclosed and all junior interests, but does not affect senior interests

Question 25

Regarding the results of the foreclosure sale, what is Principle 2?

Answer 25

Foreclosure sales proceeds are distributed first to the foreclosing lender, and then to junior interests in order of priority; any surplus proceeds go to the borrower

Question 26

What is a deficiency judgment?

Answer 26

-If the foreclosure sale proceeds do not fully repay the loan, the lender can usually sue the borrower for breach of contract and obtain a deficiency judgment for the remaining balance.
–Note that legislation in some states prohibits deficiency judgments altogether in certain situations, most commonly after nonjudicial foreclosure or foreclosure on a purchase money mortgage.
–Note also that a number of courts have invalidated deficiency judgments based on inadequacy of the sales price or unfairness in the foreclosure process

Question 27

What are the borrowers rights after the foreclosure sale?

Answer 27

-Statutory right of redemption: In about half the states, a borrower may regain title by redeeming the property from the successful bidder—i.e., paying the sales price plus interests and costs—within a set period of time (ranging from 3 months to 2 years).
–Setting aside the sale: The borrower may be able to set aside the foreclosure sale. In most jurisdictions, a foreclosure sale will be set aside if the sales price is so inadequate as to “shock the conscience” of the court or is “grossly inadequate.”

Question 28

What are two mortgage alternatives?

Answer 28

-Deed of Trust
-Installment Land Contract (also known as land sale contract or contract for deed)
come back to this

Question 29

What are subprime loans?

Answer 29

made to borrowers who generally would not qualify for traditional loans offered at the generally prevailing rate of interest for conventional mortgages

Question 30

What are Alt-A loans?

Answer 30

made to borrowers who are close to being eligible for a prime loan but who do not quite qualify

Question 31

Typically both subprime and Alt-A loans would begin with a low, fixed interest rate for the first few years (called a “teaser rate”) and then would reset to an adjustable rate for the duration of the loan

Answer 31

yup

Question 32

subprime mortgage crisis

Answer 32

yes