Module 3: Finance Instruments

Question 1

Define Promissory Notes

Answer 1

Financing instrument that evidence a promise to pay a specific amount, to specific individual, in specific time frame.

Question 2

Define note rate

Answer 2

Amount of debt including interest rate used to amortize the debt.

Question 3

What are negotiable instruments

Answer 3

Promissory notes used in real estate that are freely transferable from one party to another.

Question 4

List the 4 types of Notes in real estate

Answer 4

1. Straight Note or Interest-Only Note
2. Installment Note
3. Partially Amortizing Installment or Installment Note with Balloon
4. Fully Amortizing Installment Note

Question 5

Define Security Instrument

Answer 5

Personal or real property

Question 6

What is meant by Hypothecate

Answer 6

Pledges personal or real property as security for debt without giving up possession of it.

Question 7

What are the two main types of security instruments used in real estate transactions

Answer 7

1. Trust Deeds

2. Mortgages

Question 8

Define Trust Deeds

Answer 8

Instruments placing a specific financial interest in the title to real property into the hands of a 3rd party
*Non-judicial foreclosure action

Question 9

Define Mortgage

Answer 9

A security instrument where the borrower conveys interest in property to the lender and creating a voluntary lien on the property.
*Judicial foreclosure action

Question 10

Define Overages

Answer 10

Any remaining money after all debts, liens, expenses, and costs related to property are paid to the debtor.

Question 11

Define Deficiency Judgement

Answer 11

Court order stating that the debtor owes money to the creditor because the collateral property does no bring enough at foreclosure.

Question 12

Define Lien Position

Answer 12

Establishes order liens are paid off from foreclosure proceeds.

Question 13

Difference between Senior mortgage and junior mortgage

Answer 13

Whichever is higher position 1>2, 2>3

Question 14

Define Subordination Agreement

Answer 14

Filed in public record that permits second lien holder to be in the first lien position

Question 15

Define Acceleration Clause

Answer 15

lender right to declare entire loan balance due immediately if borrower defaults or violates contract provisions.

Question 16

Define Alienation Clause

Answer 16

Gives lender certain rights when there is a transfer of ownership in property. aka Due on Sale Clause

Question 17

Define Defeasance Clause

Answer 17

When conditions are fulfilled/ debt paid the document (mortgage) becomes null/void.

Question 18

Define Partial Release, Satisfaction, or Reconveyance Clause

Answer 18

Obligates the creditor to release part of the property from the lien and convey title back to the debtor.

Question 19

Define Prepayment Clause

Answer 19

Gives lender the right to charge the borrower a penalty for paying off the loan early. ie refinancing a loan. Prohibited in Government (FHA, VA, USDA/RHS) loans.

Question 20

Define Covenants

Answer 20

Promises made in keeping property clean, no trash, good condition, insured, etc.

Question 21

Define Demand Clause

Answer 21

If a borrower is in default for violating covenant the lender may demand the default be cured.