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Flashcards in PROP 1023 / CHAPTER 5 Deck (29):
1

TRUE OR FALSE?

A mortgage is not debt itself.

ANSWER:  TRUE

 

Although almost all mortgage agreements contain a promise to repay a debt, a mortgage is not a debt itself. It is evidence of a debt.

2

NOTE ONLY / MORTGAGES

 

A mortgage is a transfer of a legal or equitable interest in land on the condition that the interest will be returned when the terms of the mortgage contract are performed. This usually means upon repayment of the debt.

 

A mortgage agreement usually transfers title of the borrower’s land to the lender. However, the transfer has a condition attached. If the borrower repays the loan, or performs some other obligation under the contract, the transfer becomes void or the lender must transfer the interest back to the borrower.

NOTE ONLY / MORTGAGES

 

A mortgage is a transfer of a legal or equitable interest in land on the condition that the interest will be returned when the terms of the mortgage contract are performed. This usually means upon repayment of the debt.

 

A mortgage agreement usually transfers title of the borrower’s land to the lender. However, the transfer has a condition attached. If the borrower repays the loan, or performs some other obligation under the contract, the transfer becomes void or the lender must transfer the interest back to the borrower.

3

Assignment of rent entitles _ _ _ _ _

Assignment of rent entitles the lender to apply the rents against the mortgage debt.

4

In British Columbia, under the Torrens system of land title registration, all mortgages are registered as _ _ _ _ _ _ _.

In British Columbia, under the Torrens system of land title registration, all mortgages are registered as charges against the title. 

5

A ________ mortgage does not secure a loan. It secures any unpaid balance of the purchase price owing after transfer of title.

A vendor “take-back” mortgage (or vendor take-back mortgage) does not secure a loan. It secures any unpaid balance of the purchase price owing after transfer of title.

6

Occasionally, real estate projects require loans too large for any one lender. In such instances, a group of lenders may form a __________.

Occasionally, real estate projects require loans too large for any one lender. In such instances, a group of lenders may form a consortium.

7

NOTE ONLY /  

MORTGAGE CONSORTIUMS

 

Occasionally, real estate projects require loans too large for any one lender. In such instances, a group of lenders may form a CONSORTIUM

 

Each lender will advance agreed-upon proportions of the loan, secured by a single mortgage in favour of the lenders jointly, or more frequently, in favour of a trustee as their joint representative.

 

In the latter case, a second document called a trust deed is required. In a trust deed, a trustee agrees to act for the joint benefit of all consortium members and to distribute proportionally to them the loan repayment amounts and interest.

NOTE ONLY /  

MORTGAGE CONSORTIUMS

 

Occasionally, real estate projects require loans too large for any one lender. In such instances, a group of lenders may form a CONSORTIUM

 

Each lender will advance agreed-upon proportions of the loan, secured by a single mortgage in favour of the lenders jointly, or more frequently, in favour of a trustee as their joint representative.

 

In the latter case, a second document called a trust deed is required. In a trust deed, a trustee agrees to act for the joint benefit of all consortium members and to distribute proportionally to them the loan repayment amounts and interest.

8

The _ _ _ _ _ _ serves to establish the time of redemption.

The Order Nisi serves to establish the time of redemption.

9

What is a collateral mortgage?  When is it used?

Occasionally, a borrower giving to a lender a specific mortgage upon a parcel of real estate may own other real property of a lesser value. The lender may ask to have the other real property as additional security for the debt.

 

Alternatively, a person owning real property may guarantee the loan of another person with whom that owner is closely connected. A separate mortgage may be placed upon the secondary property of the borrower, or upon the property of a guarantor.

 

In either case, it is referred to as a collateral mortgage.

10

Explain what a "blanket" mortgage is?

A borrower may pledge a number of parcels of real property as security for a single large loan.

 

In this instance, a single mortgage document containing descriptions of the properties is executed and registered in each appropriate land title ofice.

 

This is a “blanket” mortgage.

 

Unlike a collateral mortgage, no single property is the prime security. The lender must realize upon all of the properties forming the security.

11

___________ clauses are terms in loan agreements that require the borrower to pay off the loan immediately if certain conditions are met. 

Acceleration clauses are terms in loan agreements that require the borrower to pay off the loan immediately if certain conditions are met.

 

For example, most home mortgages have an acceleration clause that is triggered if the borrower misses too many payments.

12

Identify the two types of mortgage fraud.

There are two types of mortgage fraud that are the most prevalent: identity fraud and value fraud.

13

Discuss identity fraud?

There are many variations of identity fraud. In most cases, the fraudster impersonates the registered owner of the property in order to secure a mortgage against the land.

 

For example, the fraudster electronically obtains information on the property and the registered owner, then transfers title into his/her name thus obtaining title to the land. If there is a registered mortgage on the land, the fraudster can also electronically create a false discharge of the mortgage.

 

Another variation of identity fraud includes fictitious employment records where the fraudster has created a fake letter of employment or has the number of the employer routed to a co-con-spirator’s phone number who confirms the false employment record.

 

Another example includes the fraudster posing as the solicitor of a fake purchaser for a transaction and stealing the funds instead of directing the funds to the purchaser or non-existent vendor.

 

14

Explain what value fraud is?  Outline a "flip" scenario.

Value fraud in mortgage transactions involve an artificial inflation of the price of a piece of property. The artificial increase can be produced by “flipping the property” or a false assessment appraisal.


One “flip” scenario occurs when the fraudster purchases a home from an innocent vendor for a certain price, i.e., $100,000 and then resells the property for a higher price to a co-conspirator for $200,000. The second purchaser (co-conspirator) arranges for a mortgage equivalent to 95% of the purchase price ($190,000). This amount is applied to pay off the first purchase and the rest is left in the hands of the fraudsters who eventually stop making mortgage payments. The lender is then forced to foreclose and sell the property where they will not realize the full amount remaining on the mortgage since the house price was inflated beyond its actual value.

 

A different version of the flip involves the utilization of a fake appraisal. The fraudster purchases the property and then acquires or creates a false appraisal. The fraudster then sells the house to a purchaser who can qualify for a large mortgage.

 

The final purchaser who is not involved in the fraud is assured that their investment is sound by receiving the false appraisal. Once the buyer goes to sell the house, they realize the value is over-inflated and must continue to make high mortgage payments on a property whose value is lower than the mortgaged amount.

15

Where mortgage payments are in default on a revenue producing property, the borrower may ______ the rents to the lender.

Where mortgage payments are in default on a revenue producing property, the borrower may assign the rents to the lender.

16

Outline the foreclosure process?

Generally, foreclosure proceeds as follows:

 

The foreclosing lender files a petition in provincial supreme court. 

 

A court or tribunal grants the foreclosing lender an ORDER NISI OF FORECLOSURE. 

This interim order allows a reasonable time (usually six months) in which the borrower or inferior claimants may pay the outstanding principal, interest and costs to avoid the borrower’s equity of redemption being extinguished;

 

If an inferior claimant discharges the foreclosing lender’s debt, that payor is subrogated to the rights of the (former) foreclosing lender. That is, the payor assumes all the rights under the mortgage being foreclosed as if the payor was the original lender;

 

If the default is not cured within the stated reasonable time, a court or tribunal will grant the foreclosing lender an order absolute of foreclosure. An order absolute extinguishes the borrower’s equity of redemption and the interests of lesser claimants. The foreclosing lender becomes the fee simple owner of the property. 

17

In British Columbia, under the Torrens system of land title registration, all mortgages are registered as charges against the title.

 

The lender receives the right to have the legal title of the property conveyed to it in the event of default, subject to the equity of redemption. Therefore, the first registered mortgage will be like a legal mortgage, regardless of time of execution.

 

The title, however, will continue to show the borrower as registered owner. Any subsequently registered mortgage will be an _ _ _ _ _ _ _ _ _ _.

In British Columbia, under the Torrens system of land title registration, all mortgages are registered as charges against the title.

 

The lender receives the right to have the legal title of the property conveyed to it in the event of default, subject to the equity of redemption. Therefore, the first registered mortgage will be like a legal mortgage, regardless of time of execution.

 

The title, however, will continue to show the borrower as registered owner. Any subsequently registered mortgage will be an equitable mortgage charging the borrower’s equity of redemption.

18

Identify the type of mortgage clause below:

 

In default of any payment of monies to be made by the mortgagor under the provision of this mortgage, the mortgagee may pay the same and the amount so paid shall forthwith be added to the principal hereby secured, carrying interest at the said rate and shall be payable to the mortgagee forthwith.

 

ANSWER:  This mortgage caluse is an omnibus clause.

 

This clause gives the lender an alternative to accelerating the loan if the borrower defaults. It could be used where property taxes are unpaid but the mortgage is otherwise in good standing, or where the borrower is only in default under a prior mortgage.​

19

There are a number of red flags that mortgage brokers should be cognizant of with respect to potential occurrences of identity fraud:

 

[LIST 3]

There are a number of red flags that mortgage brokers should be cognizant of with respect to potential occurrences of identity fraud:

 

The full name (first and last) of the purchaser or vendor is not disclosed on the application.

 

The purchaser’s employment report does not match industry standards.

 

The purchaser has several investment properties, but no primary residence.

 

The purchaser’s cheque does not match his/her identity.

 

The down payment or deposit is in cash form.

20

What are statutory priorities?  Give 3 examples of statutory priorities?

Statutory Priorities

There are various statutes that may confer priority over a properly registered mortgage on a third party. Statutory priorities include builders liens, taxing authorities, condominium corporations, and family relations claims. It is impossible in this brief summary to list them all. A prospective mortgagee should obtain expert advice on legislation affecting the priority position.

21

Identify the mortgage clause below:

 

In the event that the mortgagor sells, agrees to sell or otherwise disposes of the said lands, the full amount then owing of the principal and interest secured hereby shall become due and payable forthwith, at the option of the mortgagee.

 

ANSWER:  Sales Clause

 

This clause prevents the mortgage from being assumed by anyone unacceptable to the lender. If a mortgage does not contain this, or a similar clause, the mortgage will be assumable by a subsequent purchaser of the mortgaged land.

22

NOTE ONLY  / RIGHT TO PREPAY

 

Generally, before the maturity date, the borrower has no right to prepay the mortgage principal except in accordance with the specific mortgage provisions.

 

As noted earlier in this chapter however, under the federal Interest Act, a non-corporate borrower has the right to tender the principal and interest owing under a mortgage, together with a three months’ interest penalty at any time after five years.

 

This right exists even though the mortgage may specify a longer term. Some mortgages will give the borrower the right to make a prepayment of a specified percent-age of the outstanding principal each year. In times of falling interest rates, this right is used frequently, but in times of rising interest rates, it is seldom taken advantage of.

 

In times when interest rates are abnormally high, prepayment rights are often not included in residential mortgages at all.

NOTE ONLY  / RIGHT TO PREPAY

 

Generally, before the maturity date, the borrower has no right to prepay the mortgage principal except in accordance with the specific mortgage provisions.

 

As noted earlier in this chapter however, under the federal Interest Act, a non-corporate borrower has the right to tender the principal and interest owing under a mortgage, together with a three months’ interest penalty at any time after five years.

 

This right exists even though the mortgage may specify a longer term. Some mortgages will give the borrower the right to make a prepayment of a specified percent-age of the outstanding principal each year.

 

In times of falling interest rates, this right is used frequently, but in times of rising interest rates, it is seldom taken advantage of. In times when interest rates are abnormally high, prepayment rights are often not included in residential mortgages at all.

23

TRUE OR FALSE?

For priority amongst secured lenders priority is based on the time of registration, not the time that the mortgage was granted.

ANSWER:  TRUE

24

NOTE ONLY

Absolute Order of Foreclosure


If the following conditions exist after the redemption period has expired, the lender may petition the court for an absolute order of foreclosure:


i) The value of the property is equal to or exceeds the mortgage debt.


ii) The borrower is declared “judgment proof”, having no assets to apply toward the deficiency.


iii) No offers are received in the judicial sale.
 
Once an Absolute Order of Foreclosure is granted, the lender becomes the new registered owner of the property and all other respondents are removed from the title. This is a final decision. No further action can be taken against the borrower

NOTE ONLY

Absolute Order of Foreclosure


If the following conditions exist after the redemption period has expired, the lender may petition the court for an absolute order of foreclosure:


i) The value of the property is equal to or exceeds the mortgage debt.


ii) The borrower is declared “judgment proof”, having no assets to apply toward the deficiency.


iii) No offers are received in the judicial sale.
 
Once an Absolute Order of Foreclosure is granted, the lender becomes the new registered owner of the property and all other respondents are removed from the title. This is a final decision. No further action can be taken against the borrower

25

What is a mortgage consortium?

A mortgage consortium refers to several lending institutions that group together to jointly finance a single borrower.

 

A consortium may arise because the size of the project at hand is simply too large or too risky for any single lender to assume. 

26

THE FORECLOSURE PROCESS

Foreclosures are started by _______, under the Supreme Court Civil Rules.

 

If there are no special circumstances to suggest a lender should delay starting a foreclosure, the process is usually started around the third month that the mortgage is in default. The law requires the borrower to be served with the _________.

ANSWER

Foreclosures are started by PETITION, under the Supreme Court Civil Rules.

 

f there are no special circumstances to suggest a lender should delay starting a foreclosure, the process is usually started around the third month that the mortgage is in default. The law requires the borrower to be served with the PETITION.

27

THE FORECLOSURE PROCESS / THE ORDER NISI

 

The first Court appearance in a foreclosure is the ORDER NISI.

 

Generally, the lender will seek personal judgment against the borrower at the ORDER NISI hearing, based on the personal promise to pay.

 

The lender will also seek other terms of the Order, such as the length of the redemption period, the amount required to redeem and legal costs.

 

Legal costs are usually ordered at the lowest level of Court costs in BC, particularly for unopposed Foreclosure proceedings.

THE FORECLOSURE PROCESS / THE ORDER NISI

 

The first Court appearance in a foreclosure is the ORDER NISI.

 

Generally, the lender will seek personal judgment against the borrower at the ORDER NISI hearing, based on the personal promise to pay.

 

The lender will also seek other terms of the Order, such as the length of the redemption period, the amount required to redeem and legal costs.

 

Legal costs are usually ordered at the lowest level of Court costs in BC, particularly for unopposed Foreclosure proceedings.

28

An Order for _ _ _ _ _ _ allows the lender to list and market the property through a realtor. 

An ORDER FOR CONDUCT OF SALE allows the lender to list and market the property through a realtor. 

29

TRUE OR FALSE? 
 

If and ORDER ABSOLUTE is granted and there is a shortfall for the lender, then the lender will not be able to try to recover any shortfall on the personal judgment from the borrower after the Order Absolute.

ANSWER:  TRUE