Mortgages Flashcards
(6 cards)
Who is the mortgagor?
The borrower — the person who gives the mortgage (the house as security) to the lender.
Who is the mortgagee?
The lender — the person or bank who receives the mortgage and gives the loan.
Two types of mortgage foreclosures:
Two types of mortgage foreclosures:
Judicial foreclosure (dominated way)- a lawsuit that the lender initiates, ending in a court-supervised auction. Costly and time consuming
- These are in every state
Nonjudicial (power of sale) foreclosure- available if the mortgage documents include a power of sale provision. Private parties conduct the foreclosure sale, instead of through the courts
- Half of the states allow this
- Used in mortgage with a power of sale and deed of trust
What is a deed of trust?
Borrower wants to borrow money from lender (beneficiary) to buy a house and they sign a deed of trust. The deed of trust conveys legal title and transfer that to the trustee. The borrower pays off the loan and once it is paid off, the legal title is transferred back to the borrower
If the borrower defaults, the lender sends notice to trustee, who gives notice of the foreclosure process
What are three things that can happen at an auction?
If a third-party buyer buys it for more than the debt, the borrower gets the extra money (but third-party buyers are rare because it’s risky).
The lender can also get the property by making a credit bid (bidding up to the amount owed without paying cash).
A judge can cancel the sale if:
The winning bid is shockingly low (usually less than 20% of the property’s value), or
There was a procedural mistake (like no notice given).
What is mortgage securitization?
After giving a loan, the lender sells the mortgage (often to Freddie Mac or Fannie Mae) at a discount.
Those loans are pooled into a trust, and the trust issues certificates to investors (called Mortgage-Backed Securities or MBS).
A servicer is hired to handle payments, so the borrower deals with the servicer, not the trust or investors
