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Florida RE exam > Chapter 12 > Flashcards

Chapter 12 Flashcards

1
Q

What is Lien theory?

A

Florida is a lien theory state
Mortgage theory in which the borrower retains ownership of the home during the loan period

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2
Q

What is title theory?

A

Mortgage theory where only the temporary ownership is conveyed to the borrower during the loan period

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3
Q

What is a mortgage?

A

A document recorded by the lender that creates a lien against a property

Secures the promissory note

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4
Q

What is a Deed of Trust?

A

Document used to convey temporary ownership in a title theory state

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5
Q

Who owns the real estate property in a lien theory state?

A

The mortgagor (borrower)

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6
Q

Who owns the real estate property in a title theory state?

A

The lender (mortgagee)

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7
Q

What happens when a borrower defaults on the loan in a title theory state?

A

The lender can take possession of the property

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8
Q

What happens when a borrower defaults on the loan in a lien theory state?

A

The lender can foreclose on the borrower’s property through a judicial process

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9
Q

What is a promissory note?

A

Legal document that includes the borrower’s promise to pay according to the terms

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10
Q

What is Hypothecation?

A

borrower put house as collateral as security for the loan

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11
Q

Who is the mortgagor?

A

The borrower

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12
Q

Who is the mortgagee?

A

The lender

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13
Q

What are the requirements for a valid mortgage?

A

Must be in writing
Must be signed by the mortgagor
Must be for a valid contract
Must contain a legal description of the property
Must be witnessed by 2 people

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14
Q

What does the mortgagor receive when their loan is paid in full in a lien theory state?

A

Letter of Satisfaction

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15
Q

What is a defeasance clause?

A

Mortgage clause stating that if the borrower is performing as required (making payments on time), the lender cannot foreclose on the home

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16
Q

What is a prepayment clause?

A

Mortgage clause that allows the borrower to pay the loan off early, avoiding interest that would have been paid

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17
Q

What is the acceleration clause?

A

Mortgage clause that allows the lender to declare the outstanding loan balance immediately due whenever a default occurs

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18
Q

What is the alienation clause? or due-on-sale clause

A

Mortgage clause that requires the borrower to pay off the entire loan balance whenever the property is sold

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19
Q

What is an open-end clause?

A

Mortgage clause that permits the borrower to borrow additional funds based on the original mortgage after the loan balance is paid down, similar to a HELOC

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20
Q

What is an escalator clause? or escalation clause?

A

Mortgage clause that allows the lender to increase the interest rate based on change in the use of the property, or consistently late payments

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21
Q

What is a subordination clause?

A

Mortgage clause where a lender voluntarily agrees to allow a new mortgage to be placed in a superior lien position to a mortgage recorded earlier

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22
Q

When is a subordination clause typically used?

A

Commonly used to finance vacant land when development is planned so the developer can obtain a construction loan to complete the project

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23
Q

What is the receivership clause?

A

Mortgage clause used with income-producing properties where a trustee is appointed to manage the property and collect rents if the investor defaults

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24
Q

What is the exculpatory clause?

A

Mortgage clause that limits the lender’s rights in a foreclosure to the amount received from the sale of the foreclosed property. Meaning, they can’t go after the borrower for the remaining portion.

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25
Q

What is a release clause?

A

Mortgage clause for a loan covering more than one parcel of land, allowing individual parcels to be released from the original mortgage for a specified amount of money

26
Q

What is a right-to-reinstate clause?

A

Mortgage clause that gives a borrower the right to cure a loan that is in default by paying missed loan payments, accrued interest, and any fees

27
Q

What is the maintenance clause?

A

Mortgage clause that requires the borrower to maintain the property during the term of the loan to protect the property’s value

28
Q

What is equity?

A

Difference between market value of a property and the amount the owner still owes on the mortgage

29
Q

What is an escrow account? (in a mortgage)

A

Lender’s account for reserving funds collected from the borrower to pay insurance and property taxes

30
Q

What is PITI?

A

Principal, interest, taxes, insurance
Monthly payment collected by the lender that includes the insurance and real estate tac in addition to the mortgage payment

31
Q

What is a loan origination fee?

A

One time administrative fee charged by the lender to cover the administrative costs of processing the loan

32
Q

What is the value of one point in a loan?

A

1% of the loan amount

33
Q

What are discount points?

A

Points paid by the borrower in exchange for a lower interest rate (1/

34
Q

What is the effective yield? in a mortgage

A

The rate the lender receives considering the cumulative effect of points paid, the amount of any discount, and the length of time the borrower keeps the loan

35
Q

What is mortgage underwriting?

A

Lender’s process of risk evaluation to qualify the applicant and the property for a loan

36
Q

What is the Federal Equal Credit Opportunity Act (ECOA)?

A

Requires lenders to qualify every loan applicant on their own merit without discrimination based on race, color, religion, national origin, sex, marital status, age, or income from public programs

37
Q

What is a property appraisal? (for a mortgage)

A

Method by which property is evaluated to determine if there is sufficient value to support it being a collateral for the loan

38
Q

What is redlining?

A

Illegal practice of refusing to loan based on racial or economic factors of a certain neighborhood

39
Q

What is the criteria used by a lender when qualifying an applicant for a loan?

A

Credit history
Income
Assets

40
Q

What income ratios are used to evaluate a borrower’s ability to repay the loan?

A

Housing expense ratio
Total obligations ratio

41
Q

How do you calculate Housing expense ratio?

A

Monthly PITI / Monthly gross income

42
Q

How do you calculate total obligations ratio?

A

(Monthly PITI + other obligations) / Monthly gross income

43
Q

What are the maximum allowed expense ratios for a conventional loan?

A

28% housing expense
36% total obligations

44
Q

What are the maximum allowed expense ratios for an FHA loan?

A

31% housing expense
43% total obligations

45
Q

What are the maximum allowed expense ratios for a VA loan?

A

no max for housing (not calculated)
41% total obligations

46
Q

What is loan-to-value ratio used for?

A

To determine the lender’s risk of loss
The higher the LTV, the higher the risk to the lender

47
Q

How do you calculate the Loan to Value ratio?

A

Loan amount / purchase price (or appraised value)

48
Q

What is Novation?

A

Substituting the sellers name with the borrower’s name on an assumed loan

49
Q

Who is responsible for repayment of an assumed mortgage without novation?

A

Primary responsibility: the buyer that assumed it
Secondary: the seller that was the OG borrower

50
Q

Who is responsible for repayment of an assumed mortgage with novation?

A

The buyer

51
Q

Who is responsible for repayment of a mortgaged property that is sold subject to the mortgage?

A

The original borrower remains responsible for their loan

52
Q

What is an Estoppel certificate? or estoppel letter

A

Document obtained from the lender that verifies the current loan balance

53
Q

What is Default?

A

When a borrower fails to perform as agreed in the promissory note

54
Q

What is equity of redemption?

A

Right of a borrower to reinstate a loan by bringing the past due balance current before foreclosure

55
Q

What is statutory right of redemption?

A

Right of a borrower to reinstate a loan for up to 1 year after foreclosure
Not recognized in Florida

56
Q

What is a foreclosure?

A

Enforcement of a mortgage by a lender
Judicial process available to a lender when the borrower is in default

57
Q

What is Lis Pendens?

A

Court filing that gives notice that the property specified is the subject of litigation

58
Q

What is writ of execution?

A

Final order of the court in a foreclosure process

59
Q

What is a deficiency jugement?

A

Court filing available to lien holders who were not paid from the proceeds of the foreclosure sale

60
Q

What are the types of foreclosures?

A

Strict Foreclosure - nor used in FL
Judicial Foreclosure
Deed in lieu of foreclosure

61
Q

What is deed in lieu of foreclosure

A

Borrower in default voluntarily deeds a property to a lien holder in lieu of payment

Florida RE exam (18 decks)

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