☑️ Chapter 3: Finance Instruments Flashcards
1
Q
Vocabulary: This is a contract clause that gives a lender, the right to declare the entire loan balance due immediately because of borrower fault, or for violation of other contract, provisions.
A
A. Acceleration Clause
2
Q
Vocabulary: This is a contract clause that allows the lender to exercise certain rights upon the sale or transfer of an interest in the property. Also known as _____?
A
A. Alienation Clause
B. Due On Sale Clause
3
Q
Vocabulary: A final lump sum payment, at the end of a loan terms to pay off the entire remaining balance of principles and interest, not covered by payments during the long-term. Also known as ____?
A
A. Balloon Payment
B. Negative Amortization
4
Q
Vocabulary: This is property pledged as security for a debt.
A
A. Collateral
5
Q
Vocabulary: This is a security instrument, placing a specific financial interest in the title to real property into the hands of a disinterested, third-party as security for the payment of a note. Also known as _______?
A
A. Deed Of Trust
B. Trust Deed
6
Q
Vocabulary: This is a contract clause in a legal document that states that in the event, a stated condition has been fulfilled, the document becomes null and void.
A
A. Defeasance Clause
7
Q
Vocabulary: An interest created in property upon the execution of a valid sales contract, where an actual title will be transferred by deed at a future date. Also the buyer’s interest in property under a land contract.
A
A. Equitable Title
8
Q
Vocabulary: A security instrument with a first lien position. This almost always has priority over all other mortgages. This means this lender gets paid first in the person event of a foreclosure sale.
A
A. First Mortgage
9
Q
Vocabulary: A legal proceeding to reclaim real estate that was offered as collateral to secure a debt. This occurs if the debt was defaulted.
A
A. Foreclosure
10
Q
Vocabulary:
This is a lawsuit, filed by a lender or other creditor to foreclose on a mortgage or other lien. A court ordered sheriff sale of the property to repay the debt.
A
A. Judicial Foreclosure
11
Q
Vocabulary:
This is a foreclosure by a trustee under the power of sale clause, in a deed of trust, without the involvement of a court. This is not used in some states.
A
A. Non-Judicial Foreclosure
12
Q
Vocabulary: This is a condition in which a debtor pledges, personal or real property at security for a debt, typically without giving a possession of it.
A
A. Hypothecate
13
Q
Vocabulary: This is any lien that is a lower priority than any other lien.
A
A. Junior Lien
14
Q
Vocabulary: This is ownership of real property that is enforceable by law.
A
A. Legal Title
15
Q
Vocabulary: This is a non-possessory written interest in property, giving the lienholder the right to foreclose if the owner does not pay debt owed to the lienholder for the property.
A
A. Lien
16
Q
Vocabulary: This is the order in which liens are paid out of the proceeds of a foreclosure sale.
A
A. Lien Position
17
Q
Vocabulary: This is a notice of pending legal action in regards to a lien.
A
A. Lis Pendens
18
Q
Vocabulary: A written instrument that creates a voluntary lien on real property to security payment of a debt. The parties involved are the borrower and lender.
A
A. Mortgage
19
Q
Vocabulary: This is a contract clause that allows the trustee to sell trustee property, without court supervision, when the terms of the trust deed are not kept.
A
A. Power Of Sale Clause
20
Q
Vocabulary: This is a contract clause that gives the lender, the right to charge the payer, a penalty for paying off the loan early, such as when refinancing a loan.
A
A. Pre-Payment Clause
21
Q
Vocabulary: This is a financing instrument that is evidence of a promise to pay a specific amount of money to a specific person within a specific time frame. A written, legally binding promise to pay a debt.
A
A. Promissory Note
22
Q
Vocabulary: These are real estate instruments that are freely transferable from one party to another.
A
A. Negotiable Instruments
23
Q
Finance Instruments:
Promissory Notes:
This type of promissory note, calls for interest-only payments during the term of the note with a balloon payment at the end of the loan term to pay off the principal amount. This is usually a short term loan.
A. What type of promissory note is this?
B. What is this note also known as?
A
A. Straight Note
B. Interest-Only Note
24
Q
Finance Instruments:
Promissory Notes:
Types Of Notes:
This type of promissory note, calls for payments of principal, and/or interest at designated intervals. Possibly a balloon payment may be required.
A. What type of promissory note is this?
A
A. Installment Note
25
Finance Instruments:
Promissory Notes:
Types Of Notes:
This type of promissory note, calls for periodic payments of principal and interest during the loan term with a balloon payment at the end of the term to pay off the balance due.
A. What type of promissory note is this?
B. What is this note also known as?
A. Partially Amortizing Installment Note
B. Installment Note with Balloon
26
Finance Instruments:
Promissory Notes:
Types Of Notes:
This type of promissory note, calls for regular payment of principal and interest, calculated to pay off the entire balance by the end of the loan term.
A. What type of promissory note is this?
A. Fully Amortizing Installment Note
27
Finance Instruments:
Promissory Notes:
Under a Promissory Note:
A. This is the person or institution, lending the money.
B. This is the maker. This is the person who makes the promise to repay the funds by signing a promissory note.
A. What is A?
B. What is B?
A. Payee
B. Payor
28
Finance Instruments:
Promissory Notes:
This is the amount of debt, including the interest rate, used to amortize the debt, in a promissory note.
A. What is this called?
A. The Note Rate
29
Vocabulary:
This is a contract clause that obligates a creditor to release the property from the lien and convey (deliver) partial title as well as a predetermined part of the land back to the debtor once certain provisions of the note or mortgage have been satisfied.
What is the called? What is this also known as ______?
A. Reconveyance Clause
B.
1. Partial Release
2. Satisfaction
30
Vocabulary:
This is any lien that has a higher position than another lien.
A. Senior Lien
31
Vocabulary:
This is a written agreement between lienholders on a property owner that changes, the position of priority of mortgages, judgments, and other liens. Signing this agreement can make a lien first priority through last priority.
A. Subordination Agreement
32
Financial Instruments:
Security Instruments:
Trust Deeds:
Under a Trust Deed:
A. This is the person or institution, lending the money who retains both the note and the deed of trust.
B. This is the person who makes the promise to repay the funds.
A. What is A?
B. What is B?
A. Beneficiary
B. Trustor
33
Financial Instruments:
Security Instruments:
SECURITY INSTRUMENTS are written instruments that require a debtor to hypothetate their property as a condition of a loan to a creditor. This instrument serves as protection for the creditor and motivation for the debtor, to make sure that the terms of the note are fulfilled, and the note is repayed as agreed. When the debt is repayed, this instrument are canceled.
A. What are the Two Main Types?
A.
1. Trust Deeds
2. Mortgages
34
Financial Instruments:
Security Instruments:
Title Theory and Lien Theory:
This security instrument theory gives the ACTUAL TITLE of the property to the lender WHILE the debt is OUTSTANDING, with the borrower retaining ONLY _______ TITLE in possession of the land. Once the mortgage amount has been REPAID, legal title _______ to the borrower. The lender does NOT have possession or use of the property, and would NOT have to go through a foreclosure, proceeding to gain possession in the event of a default, although it may be possible to avoid a lengthy, judicial foreclosure, proceeding and gain possession through non-judicial or STRICT _____.
A. Is this lien theory or title theory?
A. Title Theory
B. EQUITABLE
C. CONVERTS or is conveyed
D. foreclosure
35
Financial Instruments:
Security Instruments:
Title Theory and Lien Theory:
This security instrument theory creates a lien against the property, which must be repaid by the debtor. The property serves as collateral that has hypothecated to the lender as security for the debt, but the MORTGAGOR holds the title to the property or equitable title, if a deed of trust is used. The lender may be required to go through judicial foreclosure, proceeding to OBTAIN title and possession in the event of default.
A. Is this lien theory or title theory?
A. Lien Theory
36
Financial Instruments:
Security Instruments:
Title Theory and Lien Theory:
Is Arizona a title-theory state or lien theory state?
A. What does this mean?
A. Arizona is a Title-Theory state
B. This means that a buyer/borrower has ONLY an EQUITABLE INTEREST (rather than a legal or ownership interest) in a property that is the subject of a mortgage or promissory note.
37
Financial Instruments:
Security Instruments:
Judicial Foreclosure Procedure: This is any money remaining after all debts, lemons, expenses, and costs related to a property being for clothes are paid off to the debtor.
A. What is this called?
A. Overages
38
Financial Instruments:
Security Instruments:
Judicial Foreclosure Procedure:
This is a ______ order, stating that the debtor OWES money to the creditor, due to the fact that the _____ property did NOT bring enough funds in at the ______ to cover the ENTIRE loan amount, accrued, interest, and other costs. This is called a _____.
A. court order
B. collateral
C. Foreclosure Sale
D. Deficiency Judgement
39
Financial Instruments:
Security Instruments:
Redemption:
This is the right to SAVE, or REDEEM the property PRIOR to the CONFIRMATION of SALE.
A. What is this called?
A. Equitable Right of Redemption
40
Financial Instruments:
Security Instruments:
Redemption:
This is the RIGHT, for DEBTORS to REDEEM the property AFTER the FINAL sale. Once the redemption is MADE, the court will set ASIDE the funds made from the sale, pay the parties, and the debt, or gains title to the property again.
A. What is this called?
A. Statutory Right of Redemption
41
Financial Instruments:
Security Instruments:
Redemption:
An OPTION debtors have to AVOID foreclosure is to make a voluntary CONVEYANCE to the lender. With this ACTION the debtor, will still LOSE the property, but by conveying the property VOLUNTARILY before the FINAL court action, they then AVOID having a foreclosure on their CREDIT record. After CONFIRMATION of sale, however, it is TOO late.
NOTE: The lender is NOT obligated to ACCEPT this option, as a SATISFACTION of the DEBT, and could still PURSUE a deficiency judgment.
A. What is this called?
A. Deed in Lieu Of Foreclosure
42
Financial Instruments:
Security Instruments:
Mortgage Lien Position:
This is a security instrument in a SECOND lien position. This MAY be used to help BUY the property or might be WITHDRAWN later to generate additional funds from the owners ACCUMULATED equity (e.g. a home equity loan) in the property for REPAIRS, COLLEGE tuition, or some other purpose. Although the property is still used as SECURITY it is RISKIER because it doesn’t get paid out FIRST in the event of a default that leads to foreclosure.
A. What is this called?
A. Second Mortgage
43
Financial Instruments:
Typical Clauses In Financial Instruments:
________ Clause:
An ________ clause gives the lender the RIGHT to declare the ENTIRE loan balance DUE ______ based on borrower DEFAULT or VIOLATION of other contract provisions. Most promissory notes, mortgages, trust deeds, and land contracts contain these clauses as lenders want to be able to make all payments due WITHOUT having to file a SEPARATE action for each missed payment. Lenders must wait until payments are delinquent at least _____ days before enforcing this Clause that appears in the mortgage or NOTE DUE to CFPB regulation.
A. Fill In The Blank
A. IMMEDIATELY
B. 120 Days
44
Financial Instruments:
Typical Clauses In Financial Instruments:
________ Clause:
The ________ clause in a contract gives the lender the RIGHT to CHARGE the borrower a PENALTY for paying off the loan EARLY, such as when ______ a loan. An example might be that this clause calls for the debtor (or borrower) to pay an ADDITIONAL _____% of the loan amount if MORE than _____% of the principal is REPAID during the FIRST _____ years of the loan.
NOTE: This type of clause may be seen in a CONVENTIONAL loan, but it’s ______ in government loans.
I.e. _____, _____, _____, and _____.
A. What is this Clause called?
A. Prepayment Clause
B. REFINANCING
C. 2%
D. 20%
E. 5
F. PROHIBITED
G. FHA, VA, USDA, and RHS
45
Financial Instruments:
Typical Clauses In Financial Instruments:
________ Clause:
Title XIV of Dodd-Frank prohibits ______ penalties on residential mortgage loans OTHER THAN ________ qualified mortgages.
A. Prepayment Clause
B. Prepayment
C. Fixed-Rate
46
Financial Instruments:
Typical Clauses In Financial Instruments:
Other Mortgage _______:
These are promises that can appear and deeds, mortgages, or any other document. These typically can COMPEL or PREVENT certain actions by the property owner or uses for the property.
A. Covenants
47
Financial Instruments:
Typical Clauses In Financial Instruments:
Other Mortgage _______:
Typical covenants and mortgage include provisions, protecting the lender’s security interest in the property.
These can include:
1. Promising to keep the property in _____ condition and repair.
2. Not committing _____, which is damaging or diminishing the property over time.
3. Promising to keep fire, hazard, and flood _____ in force on the property.
4. Agreeing to pay taxes and other assessments on _____.
A. Covenants
B. good
C. waste
D. insurance
E. time
48
Financial Instruments:
Typical Clauses In Financial Instruments:
Other Mortgage _______:
Failure to keep any of these CAN be CITED in the mortgage and a violation can FORCE the borrower to be in DEFAULT. If a borrower is in default for committing or VIOLATING a covenant and the security instrument contains a ______ Clause, the lender can DEMAND that the DEFAULT be _____, or the Note is DUE and PAYABLE _____.
A. Covenants
B. Demand Clause
C. Cured
D. immediately
49
Summary: Finance instruments are written documents establishing rights and duties of the parties in a transaction. ______ notes are written promises to pay money. They are negotiable instruments and are freely transferable. There are four common note types:
1. _______ note
2. _______ note
3. _______ note with a balloon
4. _______ amortizing note
The rate that is used to amortize the mortgage loan and determine the monthly loan payments is known as the ______.
A. Promissory
B.
1. Straight note
2. Installment note
3. Installment note with a balloon
4. Fully amortizing note
B. note rate
50
Summary: Security instruments give a creditor certain rights impacting ownership of collateral in order to satisfy the debt if the debtor doesn't pay as agreed. They require a debtor to hypothecate the property, which means to pledge it as collateral without giving up possession. Two types of security instruments are _____ deeds and _______.
A. Trust
B. Mortgages
51
Summary: Trust deeds (or deeds of trust) place legal title interest in the property is held in the hands of a _____ as security for the payment of a note; this allows for _____ foreclosure in the event of default.
A. third party
B. Non-judicial
52
Summary: Mortgages or deeds of trust create liens against property as security for debt. A debtor has ______ Right of Redemption to regain property until the confirmation of sale. The order of mortgage is important: A senior mortgage is any mortgage in a higher lien position; a junior mortgage is in a lower lien position. ______ Tax liens are always senior and paid first.
A. Equitable (ERR)
B. Property tax
53
Summary: Many clauses are common in real estate financing contracts. An _____ clause allows the lender to call the loan balance due if in default. A _______ clause allows the lender to charge a penalty for paying a loan off early. An _______ clause allows the lender some stated rights if the property is transferred (also called due on sale clause). A _______ clause cancels a mortgage when it has been repaid. A ________ clause allows a later recorded mortgage to take priority over an earlier one. A _____ release occurs when a part of the property is released from the lien upon payment of part of the balance. A _____ clause allows the lender to demand repayment in full if a borrower defaults on a promise or covenant that was made in the security instrument.
A. acceleration
B. prepayment
C. alienation
D. defeasance
E. Subordination
F. partial
G. demand
54
Chapter 3:
Chapter Quiz:
1. A promissory note calling only for payment of interest during its term is a(n)
A. amortizing note.
B. installment note.
C. negotiated note.
D. straight note.
D. straight note. - A straight note is a note where interest-only payments are made for a specified period of time and a balloon payment is required at the end of the term to retire the note.
55
Chapter 3:
Chapter Quiz:
2. A clause that permits the lender to call the outstanding balance due and payable should the property be sold by the borrower is a(n)
A. acceleration clause.
B. alienation clause.
C. balloon payment clause.
D. exculpatory clause.
B. alienation clause. - The alienation clause (also called the "due on sale" clause) states that in the event an entire or partial interest is transferred by a borrower, the lender may call the entire balance of the loan due.
56
Chapter 3:
Chapter Quiz:
3. Which document normally accompanies the mortgage?
A. abstract of title
B. contract of sale
C. deed
D. promissory note
D. promissory note - The promissory note provides the evidence of debt and the mortgage provides the creditor security for the note.
57
Chapter 3:
Chapter Quiz:
4. To foreclose a mortgage as opposed to a trust deed, a creditor:
A. files an attachment in the amount of the debt.
B. files a court action.
C. notifies the debtor of the default, waits ten days, publishes a notice of default in the paper, then claims a forfeiture.
D. notifies the trustee of default.
B. files a court action. - A mortgage requires judicial foreclosure. To begin the judicial foreclosure process, a lender must file an action in court.
58
Chapter 3:
Chapter Quiz:
5. Which term describes the process by which a borrower pledges property as security for a loan without giving up possession of it?
A. defeasance
B. hypothecation
C. redemption
D. subordination
B. hypothecation - Hypothecation is the pledging of security for a note or loan without giving up possession or use of the property.
59
Chapter 3:
Chapter Quiz:
6. What clause gives a lender the right to declare the entire loan balance due immediately because of borrower default or for violation of other contract provisions?
A. acceleration clause
B. alienation clause
C. defeasance clause
D. prepayment clause
A. acceleration clause - An acceleration clause gives the lender the right to declare the entire loan balance due immediately because of borrower default or for violation of other contract provisions.
This is sometimes referred to as "calling the note."
60
Chapter 3:
Chapter Quiz:
7. The document that creates a lien against real property as security for the promise to repay a loan is called a(n)
A. equitable title.
B. mortgage.
С. promissory note.
D. subordination note.
B. mortgage. - A mortgage creates a lien against real property as security for the payment of a note. The mortgage is a type of security instrument where the borrower (mortgagor) pledges the property to the lender (mortgagee) as collateral for the debt.
61
Chapter 3:
Chapter Quiz:
8. The borrower who pledges property to a lender as collateral for a debt is referred to as the
A. beneficiary.
B. mortgagee.
C. mortgagor.
D. trustee.
C. mortgagor. - The borrower who pledges property as collateral for a debt is called the mortgagor. The lender is called the mortgagee.
62
Financial Instruments:
Typical Clauses In Financial Instruments:
________ Clause:
In some situations, the parties may desire that a LATER recorded instrument has PRIORITY over an EARLIER recorded instrument. This is common in _____ loan financing.
A. Subordination
B. construction
63
Financial Instruments:
Security Instruments:
Mortgage Lien Position:
It's IMPORTANT to note that a mortgage would not necessarily be the first recorded lien on a property.
If someone purchases a NEW home from a builder who did NOT pay all ALL subcontractors or suppliers PRIOR to the borrower purchasing the home, any lawsuit for collection from the builder may relate to when the work was commenced, which puts a mechanic's or materialman's LIEN ahead of the LENDER. This would then make the primary loan the _____ mortgage.
A. Second Mortgage
64
Financial Instruments:
Security Instruments:
Mortgage Lien Position:
Since the DATE of lien filing generally dictates lien POSITION, there are situations where, due to CLERICAL errors, FIRST mortgage liens are FILED at a date LATER than the filing of JUNIOR mortgages, thus _____ FIRST lien position and makes it the ______ mortgage. In such circumstances, efforts must be made to CORRECT the situation in order to preserve a lender's rights.
A. Losing
B. Secondary
65
Financial Instruments:
Typical Clauses In Financial Instruments:
________ Clause:
Because of the high-risk nature of _______ loans, and these lenders frequently REFUSE to lend money unless they can be assured of a FIRST lien position. Since, in many cases, the developer has ALREADY purchased the land on some sort of deferred payment plan, there is often a security instrument (mortgage, trust deed, or land contract) already recorded. For the construction mortgage to take PRIORITY over the LAND mortgage, the first lender would need to file a _______ agreement in the public record that permits the SECOND lienholder to be in the FIRST lien position.
A. construction
B. subordination
66
Financial Instruments:
Typical Clauses In Financial Instruments:
________ Clause:
When a property owner has a JUNIOR mortgage, such as a ______ line of credit, and wants to refinance his first mortgage but KEEP the line of credit OPEN. The holder of the junior mortgage would file a ______ agreement that gives the new mortgage PRIORITY, even though it was recorded LATER in time.
A. Home Equity Line Of Credit HELOC
B. Subordination
