Chapter 14 Real Estatte

Question 1

The borrower

Answer 1

Mortgagor

Question 2

Lender

Answer 2

Mortgagee

Question 3

Title Theory

Answer 3

In Title theory states:

• the borrower gives legal title to lender
• borrower retains equitable title

Question 4

Lien theory

Answer 4

In lien theory states:

• borrower retains both legal and equitable title.
• Lender has lien.
• if borrower defaults, lender must go through a formal foreclosure process to obtain title.

Question 5

Hypothecation

Answer 5

The pledge of property as security for loan without giving up possession.

Question 6

Promissory note

Answer 6

A financing instrument that states the term of the loan.

It is negotiable (able to be transferred to a third party.

Question 7

Interest

Answer 7

The charge for borrowing money

• Payments at the beginning of the month are called “payments in advance”.
• Payments at the end are called “Payments in arrears”. This is the general practice.

Question 8

Usury

Answer 8

Charging a higher interest rate then allowed by law.

Question 9

Loan origination fee

Answer 9

The charge for starting the loan process.

Question 10

Deed of trust

Answer 10

Instead of a bank holding the title or lien, the interest of the property is put in a trust.

Borrower- Trustor
Lender- beneficiary
3rd party- Trustee

Usually foreclosure are simpler and quicker with a deed of trust

Question 11

Duties of mortgager or trustor

Answer 11

• mortgage payment
• real estate taxes
• maintain insurance
• get authorization from lender before any major altercations

Question 12

Acceleration clause

Answer 12

If borrower defaults, lender has the right to require entire amount of debt.

Without this clause, lender would have to sue for each individual payment.

Question 13

Assignment of the mortgage

Answer 13

Mortgages may be sold to 3rd party as long as contract provisions are not changed.

Question 14

Defeasance clause

Answer 14

The lender is required to execute a “satisfaction, release, or discharge” when loan has been paid I full.

This can be recorded.

Question 15

Release Deed

deed of conveyance

Answer 15

The document given to owner after paying off loan for a deed of trust.

Question 16

Flood insurance reserves

Answer 16

If a lender discovers you are in a flood zone, they require you obtain flood insurance within 45 days. If owner doesn’t get insurance, mortgagee will get it and charge owner.

Question 17

(Buying)

Subject to mortgage or deed of trust

Answer 17

Buyer takes title to property but doesn’t take on liability for the mortgage.

Question 18

Novation

Answer 18

An agreement in writing between buyer, seller and mortgagee, that transfers liability of the mortgage to the buyer.

Question 19

Assuming a mortgage or deed of trust

Answer 19

When buyer legally transfers mortgage using a notation agreement

Question 20

Recording a mortgage or deed of trust

Answer 20

• Must be recorded in city or county of property
• Gives constructive notice
• establishes priority

Question 21

Land contract

Contract for deed

Installment contract

Owner financing

Answer 21

• Buyer (vendee) agrees to purchase property with seller (vendor) holding note
• Buyer gets equitable title and possession
• At the end of term buyer gets title
• if buyer defaults, payments are considered rent.

Question 22

Foreclosure

Answer 22

The legal process of property being sold to satisfy debt

Question 23

Methods of foreclosure

Answer 23

• judicial
• nonjudicial
• strict foreclosure

Question 24

Judicial foreclosure

Answer 24

Wen the mortgagee files suit in court to have property sold

Question 25

Nonjudicial foreclosure

Answer 25

Some states allow a power of sale clause. This give lenders the right to foreclose without going to court

Question 26

Strict foreclosure

Answer 26

When courts give a date for the debt to be paid and if not, lender can sell property. - only in some states. - not the norm

Question 27

Deed of lien in lieu of foreclosure | ( friendly foreclosure)

Answer 27

- Disadvantage to lender - doesn't satisfy liens as in foreclosure - lender looses rights to FHA or VA guarantees - on borrowers credit report

Question 28

Redemption

Answer 28

- Equitable right of redemption: to reclaim property before property is sold. - Statutory right of redemption: to receive property upon payment after property is sold.

Question 29

Deficiency Judgment

Answer 29

If a sale doesn't cover expenses and balance, mortgagee my get a judgment.

Question 30

Alienation clause

Answer 30

Prevents future purchasers from assuming the loan.