Unit 12- Financing

Question 1

Promissory note

Answer 1

The document you sign

Primary evidence of debt

Syn:

Note
Financing instrument

Question 2

Interest

Answer 2

Rent on money.

Paid after you’ve used it

Paid in arrears

Question 3

Usury

Answer 3

Limits interest charged on loans

Doesn’t apply on federal level

Illegal on state level

Question 4

Loan origination fees

Answer 4

Covers expense for originated the loan

Could be part of closing cost

Question 5

Discount points

Answer 5

type of prepaid interest

Each point is 1% of the amount being loan

Tax deductible

Paid at inception of loan

Each point you buy, bring down interest by .25%

Question 6

Pre payment penalties

Answer 6

Fees charged of u pay the loan off early

Question 7

Hypothecation

Answer 7

Mortgage

Deed of trust

Question 8

Mortgage law

Answer 8

Mortgagee- lender

Mortgageor- bowerer

Question 9

Satisfaction of mortgage

Answer 9

Fills out after loan is paid off at courthouse

Question 10

Lien Theory

Answer 10

Mortgagor retains legal and equitable title (me). Mortgagee has Lien on property to secure debt(bank)

Bank had to get a judgement for title in case of defaulted payments JUDICIAL FORECLOSURE

Question 11

Title theory

Answer 11

The mortgagor give legal title to bank(me), and mortgagee gives you equitable title (bank)

When you default, bank immediately take possession of property, no courts needed

Question 12

Intermediate theory

Answer 12

Title theory that need judicial foreclosure to take possession of property

Question 13

Deed of trust

Answer 13

Trustor - you
Trustee - bank assigned person
Beneficiary - bank

Question 14

Acceleration clause

Answer 14

If you default, you owe the entire balance at once

Accelerates the term of the loan

Due on sale clause

Question 15

Assignment

Answer 15

Loan can be sold to a third party

Question 16

Release

Answer 16

When all loan payments have been made the lender is required by the provisions of a defeasance clause to excite satisfaction of loan record. Otherwise known as a release

Question 17

Release deed

Answer 17

Same as satisfaction but in a deed of trust state

Question 18

Defeasance clause

Answer 18

Clause that states that a release has to be given upon payoff

Question 19

Tax and insurance reserve

Answer 19

Escrow account/ impound account

Question 20

Assumption

Answer 20

New buyer pays off current debt on property

Aka assignment

Question 21

Alienation clause

Answer 21

If someone assumes your loan, you have to pay it all off at once

Not by default of payment but by assignment

Syn
Resale clause
Due on sale clause
Call clause

Question 22

Straight loans

Answer 22

Makes payments of interest only, followed by principal payments

Separate payments- interest vs principal

Syn
Term loan

Question 23

Interest only loan

Answer 23

Only pay the interest

Question 24

Amortized loan

Answer 24

Equal payments over time

Question 25

Adjustable rate loan

Answer 25

ARMs

Loan interest rate changes over time

There’s 
Interest
Index rate
Margin
Adjustment period

Question 26

Growing equity mortgage

Answer 26

GEMs

Payments go up over time

Question 27

Balloon loan

Answer 27

Partially amortized

Question 28

Reverse-annuity mortgage

Answer 28

RAMs

Lender makes payments to borrower

Question 29

Foreclosure

Answer 29

Strict- conversion of loan to a real estate asset of the bank

Judicial- sale of house via court

Trustee- trustee sells property

Deed in lieu of foreclosure - giving deed away to not foreclose

Question 30

Redemption

Answer 30

Equitable- before sale, give default borrowers chance to redeem

Statutory- after sale

Question 31

Deed to purchaser at sale

Answer 31

No redemption and state law doesn’t allow you to redeem

Conveys title free from former debt

Question 32

Deficiency judgment

Answer 32

Property sold and the borrow still owes money

Question 33

Short sale

Answer 33

Bank agreement to sell a house with a mortgage still on it