Chapter 23 - Real Estate Finance Options

Question 1

Acceleration Clause

Answer 1

Contract clause giving the lender the right to declare the entire loan balance due immediately because of default, or other reasons stated in the contract

Question 2

Adjustable Rate Mortgage (ARM)

Answer 2

A type of mortgage structure that permits the lender to periodically change or vary the interest rate charged, based on a standard index.

Question 3

Alienation Clause

Answer 3

A contract clause that gives the lender certain stated rights when there is a transfer of ownership in property

Question 4

Amortization

Answer 4

When a loan balance decreases because of periodic installments paid on the principal and interest

Question 5

Balloon Payment

Answer 5

A final payment at the end of a loan term to pay off the entire remaining balance of principal and interest not covered by payments during the loan term

Question 6

Construction Loan

Answer 6

A temporary loan used to finance the construction of improvements and building on land.

Question 7

Conventional Loan

Answer 7

A loan that is not insured or guaranteed by the federal government

Question 8

Equitable Right of Redemption

Answer 8

The right to redeem the property prior to the sale

Question 9

Equitable Title

Answer 9

An interest created in property upon the execution of a valid sales contract, whereby actual title will be transferred by deed at a future date (closing). Also the vendee’s (buyers) interest in the property under a land contract

Question 10

Fixed Rate Loan

Answer 10

A loan where the interest rate remains consistent for the duration of the loan.

Question 11

Forclosure

Answer 11

When a lien holder causes property to be sold, so that the unpaid debt secured by the lien can be satisfied from the sale proceeds.

Question 12

Hypothecate

Answer 12

To hypothecate property means that a debtor can pledge property as a security without giving up possession of it.

Question 13

Judicial Foreclosure

Answer 13

When a borrower is in default the court allows the lender to sell the property to satisfy the debit.

Question 14

Jumbo Loan

Answer 14

Loans that exceed the maximum loan amount that Fannie Mae/Freddie Mac will buy, which makes them nonconforming

Question 15

Land Contract

Answer 15

A real estate installment agreement where a buyer makes payment to a seller in exchange for the right to occupy and use property, but no deed or title transfers until all, or a specified portion of, payments have been made

Question 16

Lease/Option

Answer 16

When a seller leases property to someone for a specific term, with an option to buy the property at a predetermined price during the lease term, usually with a portion of the lease payments applied to the purchase price

Question 17

Lease/Purchase

Answer 17

When a seller leases property to someone for a specific term, with the tenant agreeing to buy the property at a set price during or following the lease terms

Question 18

Lis Pendens

Answer 18

A recorded notice that a lawsuit concerning real estate has been filed.

Question 19

Loan-to-Value Ration (LVR)

Answer 19

The relationship between the unpaid principal balance of the mortgage and the appraised value (or sales price if it is lower) of the property

Question 20

Mortgage

Answer 20

An instrument that creates a volunatry lien on real property to secure repayment of a debt. The parties to a mortgage are the morgagor (borrower) and the morgagee (lender)

Question 21

Negative Amortization

Answer 21

The effect when a loan balance grows because of deferred interest when payments are not covering the interest portion of the loan.

Question 22

Negotiable Instrument

Answer 22

Documents that may be legally transferred from one party to another party by assignment; such as stocks, bonds checks, or freely transferable promissory notes.

Question 23

Non-Judicial Foreclosure

Answer 23

The creditor is authorized by a power of sale clause in the mortgage or deed of trust to sell the property after proper notice to defaulting borrower but without court supervision. Non-judicial foreclosure is not permitted in illinios

Question 24

Note Rate

Answer 24

The interest rate stated in a note

Question 25

Private Mortgage Insurance (PMI)

Answer 25

Insurance offered by private companies to insure a lender against default on a loan by a borrower.

Question 26

Promissory Note

Answer 26

This is the basic evidence of debt, showing in writing who owes how much to whom.

Question 27

Security Instrument

Answer 27

An instrument that gives a creditor the right to have the collateral sold to satisfy the debt if the debtor fails to pay according to the terms of the agreement

Question 28

Short Sale

Answer 28

Strategy to sell foreclosed property at less than the balance owed so that the lender can sell more quickly and get the property off its books

Question 29

Statutory Right of Redemption

Answer 29

Debtors may redeem the property after the foreclosure sale

Question 30

Strict Foreclosure

Answer 30

The court establishes a date by which the borrower must pay the balance in full. If the deadline passes, the lender is simply awarded title to the property.

Question 31

Subordination Agreement

Answer 31

An agreement that gives the mortgage recorded at a later date the right to take priority over an earlier recorded mortgage

Question 32

Subprime Loan

Answer 32

A loan with higher interest rates and fees to compensate for increased risk of the borrower with a poor credit history

Question 33

Teaser Rate

Answer 33

A low initial rate on an adjustable rate mortgage. The rate usually returns to normal at the first adjustment date.

Question 34

Trust Deed (or Deed of Trust)

Answer 34

In Illinois, a deed of trust functions the same as a mortgage