General - Chapter 9 Lesson 1

Question 1

Two main theories of financing

Answer 1

lien theory and title theory (intermediate theory)

Question 2

Lien Theory

Answer 2

security instrument creates lien against prop must be repaid to debtor. prop=collateral (borrower still holds legal title)

Question 3

How is lien theory enforced

Answer 3

court-supervised foreclosure

Question 4

Title theory

Answer 4

lender holds actual legal title, borrower only holds equitable title

Question 5

How is title theory enforced

Answer 5

holder may foreclose without court intervention after noticing the mortgagor

Question 6

Intermediate theory

Answer 6

combo, lender places lien on title, have right to repossess the title through third party if borrower defaults

Question 7

mortgage

Answer 7

type of security instrument involving 2 parties

Question 8

mortgage creates…

Answer 8

voluntary lien

Question 9

once lien repaid

Answer 9

promissory note canceled and lender issue satisfaction of mortgage

Question 10

Mortgages are primary security in…

Answer 10

lien theory states

Question 11

Borrower

Answer 11

mortgagor

Question 12

lender

Answer 12

mortgagee

Question 13

Trust deeds

Answer 13

three-party instruments placing into the hands of a disinterested third party a specific financial interest in title as security

Question 14

borrower

Answer 14

trustor (equitable title)

Question 15

third-party

Answer 15

trustee (legal title)

Question 16

Get rid of trust deed

Answer 16

reconveyance deed

Question 17

title theory states usually use

Answer 17

trust deeds

Question 18

land contract

Answer 18

security instrument that can be used to finance the purchase of real estate (should be recorded to protect buyer’s interest)

Question 19

land contracts provide

Answer 19

freedom from institutional loan qualifying standards, purchase home using seller financing

Question 20

primary mortgage market

Answer 20

lenders make mortgage loans directly to borrowers. Process occurs in primary market where borrowers and lenders negotiate terms and carry out mortgage transactions

Question 21

Secondary mortgage market

Answer 21

replenish funds so they can make additional mortgage loans, made up of private investors or gov-sponsored enterprises that buy and sell real estate mortgages

Question 22

warehousing

Answer 22

gathering loans in the primary market for sale in the secondary market

Question 23

Organization responsible for most secondary market activity

Answer 23

Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, and Government National Mortgage Association

Question 24

Equity

Answer 24

difference between value of a home and balance of any loans using home as collateral

Question 25

home equity loan

Answer 25

mortgage on one's principal residence, provides fixed amount of money that can be repaid with regular payments over fixed term

Question 26

Home Equity Line of Credit

Answer 26

specific credit limit from which he can draw and pay back principal only as it is used (secured + open-ended)

Question 27

Reverse Mortgage

Answer 27

62+ convert home's equity to monthly cash stream or line of credit, mortgage repaid if home is sold or borrower does not occupy the home for 12 consecutive months, or the borrower dies

Question 28

Chattel Mortgage

Answer 28

personal property used as security, bill of sale

Question 29

Package Mortgage

Answer 29

real estate property and personal property

Question 30

Blanket Mortgage

Answer 30

2+ parcels or lots, new development

Question 31

unencumbered

Answer 31

free and clear of mortgages, prop tax liens, and other liens

Question 32

loan assumption

Answer 32

occurs when a buyer agrees to take over payments of seller's debt on an existing mortgage with the terms of the note remaining unchanged

Question 33

"subject to" financing

Answer 33

buyer gets a loan to purchase property subject to the seller's existing financing, buyer acknowledges the seller's existing financing but accepts no personal liability, and seller remains liable for the existing financing

Question 34

Clauses

Answer 34

specify the rights of the lender or borrower

Question 35

acceleration clause

Answer 35

lender the right to declare balance due immediately for violation

Question 36

alienation clause

Answer 36

prohibits assumption of the loan, must be paid off at sale

Question 37

defeasance clause

Answer 37

defeat or cancel certain right upon the occurrence of specific event

Question 38

occupancy clause

Answer 38

borrower to occupy prop within certain time

Question 39

Partial release, satisfaction, or conveyance clause

Answer 39

creditor to release part of the property from the lien and convey title to that part back to the debtor once certain provisions of not have been satisfied

Question 40

prepayment clause

Answer 40

allows lenders to charge borrowers a penalty for paying off the loan early or making substantial principal reduction, which can deprive the lender of interest income (lock-in clause)