Title Theory of Mortgages
Title theory is the oldest form of mortgaging. What are the characteristics of title theory mortgage?
The borrower temporarily conveyed ownership of property to the lender for the duration of the loan period. If the borrower defaulted, the lender took possession of the property
Lien Theory of Mortgages
What are the characteristics of a lien theory mortgage?
The borrower retains ownership of the property during the loan period; the lender records the mortgage which creates a lien against the property; borrower h as right to cure default instead of simply forfeiting the property
Promissory Note
When is a promissory note required?
When money is borrowed to purchase real estate; borrower signs promissory note aka note or bond
Promissory Note
A promissory note is a ______ instrument that include borrower’s promise to repay a loan according to terms.
legal
Promissory Note
A note is evidence of a __________ _____, and contains the names of the parties, rates of interest, amount borrowed, and the loan terms
personal debt
Mortgage
A mortgage accompanies a note and is security for its repayment. What is a mortgage?
the borrower’s pledge of mortgaged property to secure repayment of the note
Mortgage
What gives a lender the ability to foreclose on property in the event of a default?
the mortgage
Mortgage
True or False
A borrower doesn’t get a mortgage at closing, he/she gives a mortgage to the lender (bank)
True
A mortgage is the borrower’s pledge/promise of mortgaged property to secure repayment of a note; the borrower gives a mortgage and gets a note
Mortgage Requirements
What are the requirements of a mortgage?
Be in writing
Signed by mortgagor (borrower)
Conform to requirements of a valid contract
Contain legal description of property
Witnessed by 2 people
Satisfaction of Mortgage
In a line theory state, when a loan is paid in full, the mortgagor (borrower) should receive a _________ __ ___________ form the mortgagee (lender) within ___ days of the loan payoff.
letter of satisfaction; 60
Essential Elements of a Mortgage
Acceleration Clause
This clause allows a lender to declare outstanding balance due and ______ __________ whenever default occurs.
payable immediately
Essential Elements of a Mortgage
Cognovit Clause
This clause gives a lender the right to foreclose by requiring a borrower to admit ________ default at the time a loan is obtained
future
Essential Elements of a Mortgage
Defeasance Clause
The clause provides protection for the __________ as it requires the _______ to acknowledge performance; it is the only legally necessary clause in a mortgage
borrower; lender
Essential Elements of a Mortgage
Due-on-sale Clause
This clause, present in a loan or promissory note stipulates that full balance may be called due-on-sale upon _________ __ _________ of the property used to secure the note; it prevent the borrower from transferring any interest in mortgaged property w/out permission of the lender
transfer of ownership
Essential Elements of a Mortgage
Escalation Clause
The clause allows a lender to ________ the interest rate based on the occurrence of an event such as change in use of property or consistently late payments
increase
Essential Elements of a Mortgage
Exculpatory Clause
The clause limits the ________ rights in a _________ to the amount received from the sale of the foreclosed property; the lender cannot obtain deficiency judgment for unsatisfied amount
lender’s; foreclosure
Essential Elements of a Mortgage
Insurance Clause (Covenant of Insurance)
The insurance clause is the __________ promise to maintain adequate insurance coverage
borrower’s
Essential Elements of a Mortgage
Maintenance Clause (Covenant if Good Repair)
This clause requires the ________ to maintain the property during term of the loan to protect the property’s value
borrower
Essential Elements of a Mortgage
Open-end Clause
True or False
This clause allows a borrower to borrow additional money based on the same mortgage after the loan balance has been paid down
True
Essential Elements of a Mortgage
Prepayment Clause
True or False
A prepayment clause allows a borrower to pay off a loan early and would include the amount due with interest to be paid at the time of the prepayment
False
A prepayment clause allows a borrower to pay off a loan early, thereby avoiding the interest that would otherwise have to be paid
Essential Elements of a Mortgage
Receivership Clause
This clause is used in mortgages on ________-_______ real estate. If the investor defaults, the lender may ask court to appoint a trustee, referred to as a receiver, to manage the property during foreclosure process.
income-producing
Essential Elements of a Mortgage
Release Clause
A release clause is found in mortgages that cover more than one parcel of land, usually those given by __________ and ___________.
builders, developers
Essential Elements of a Mortgage
Right to Reinstate Clause
True or False
This clause gives a borrower the right to cure a loan in default by paying loan payments in arrears, along with accrued interest, late payment charges, and legal costs before foreclosure is final
True
Essential Elements of a Mortgage
Subordination Clause
This clause allows a ______ recorded earlier to be placed in a secondary position to a new one; commonly used to finance vacant land when development is planned
lien
Essential Elements of a Mortgage
Tax Clause (Covenant to Pay Taxes)
This clause consists of the borrower’s _______ to pay property taxes during the loan period
promise
The Equal Credit Opportunity Act (ECOA)
The Equal Credit Opportunity Act requires lenders to judge every loam applicant on the basis of the applicant’s own _______ _______ and ______.
credit rating; income
The Equal Credit Opportunity Act (ECOA)
True or False
Lenders are not required to consider a spouse’s income, part-time income, alimony, child support, or separate maintenance in the approval process
False
Lenders ARE required to consider a spouse’s income, part-time income, alimony, child support, or separate maintenance in the approval process
The Equal Credit Opportunity Act (ECOA)
Lenders cannot discriminate against a borrower on the basis ______, _______, ________, ________ _______, sex, marital status, age, or receipt of income from public assistance programs
race, color, religion, national origin
Income Ratios
What are the two income ratios used to determine whether a loan will be approved?
Housing expense ratio
Total obligations ratio
Housing Expense Ratio
What is used to determine the housing expense ratio and how is it calculated?
Monthly principal payment, interest, taxes and insurance (PITI) and monthly gross income
Monthly PITI/Monthly gross income = housing expense ratio
Total Obligations Ratio
What is used to determine the total obligations ratio and how is it calculated?
Monthly principal payment, interest, taxes and insurance (PITI), other monthly obligations, and monthly gross income
Monthly PITI + Other monthly obligations/Monthly gross income = Total Obligation Ratio
Income Ratios
Lender impose different maximum ratios depending on the type of loan. What are the maximum allowed ratios for a conventional lender
Housing expense - Total obligations
28% - 36%
Income Ratios
Lender impose different maximum ratios depending on the type of loan. What are the maximum allowed ratios for an FHA loan
31% - 43%
Income Ratios
Lender impose different maximum ratios depending on the type of loan. What are the maximum allowed ratios for a VA loan
No housing expense ratio - 41%
Default
Equity Redemption
Equity right of redemption is the right of the borrower to do what?
To cure default before foreclosure rather than lose the property
Default
Statutory Right of Redemption
Statutory right of redemption is the right a borrower has to do what?
To redeem from foreclosure for a period-of-time after a foreclosure sale (not recognized in FL)
