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Flashcards in Real Estate Financing: Principles Deck (17)
1

deed of trust

The means by which a trustor conveys real estate to a trustee for the benefit of a beneficiary. The real estate is held by the trustee to fulfill the purpose of the trust.

2

title theory

the mortgagor actually gives legal title to the mortgagee (or some other designated individual) and retains equitable title. Legal title is returned to the mortgagor only when the debt is paid in full. In effect, because the lender actually holds legal title, the lender has the right to immediate possession of the real estate and rents from the mortgaged property if the mortgagor defaults.

3

lien theory

the mortgagor retains both legal and equitable title. The mortgagee simply has a lien on the property as security for the mortgage debt. If the mortgagor defaults, the mortgagee must go through a formal foreclosure proceeding to obtain legal title.

4

intermediate theory

based on the principles of title theory but requires that the mortgagee foreclose to obtain legal title.

5

hypothecation

pledging property as security for a loan without giving up possession.

6

discount points

when a lender sells a mortgage to an investor and the investor wants a higher yield than the mortgage offers, the lender will charge the borrower discount points. (basically its demanding a higher interest rate from the borrower)

7

defeasance clause

A clause that cancels a specified right upon the occurrence of a certain condition, such as cancellation of a mortgage upon repayment of the mortgage loan.

8

release deed

A document, also known as a deed of reconveyance, that transfers all rights given a trustee under a deed of trust loan back to the grantor after the loan has been fully repaid.

9

The National Flood Insurance Reform Act of 1994

imposes certain mandatory obligations on lenders and loan servicers to set aside (escrow) funds for flood insurance on new loans for property in flood-prone areas. Borrower must purchase flood insurance

10

deficiency judgement

A personal judgment levied against the borrower when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full.

11

novation

The novation makes the buyer (assumer) solely responsible for any default on the loan. The original borrower (seller) is freed of any liability for the loan.

12

alienation clause

An alienation clause provides that when the property is sold, the lender may either declare the entire debt due immediately or permit the buyer to assume the loan at an interest rate acceptable to the lender.

13

land contract (installment contract)

the buyer (called the vendee) agrees to make a down payment and a monthly loan payment that includes interest and principal. The payment also may include real estate tax and insurance reserves. The seller (called the vendor) retains legal title to the property during the contract term, and the buyer is granted equitable title and possession. At the end of the loan term, the seller delivers clear title.

14

judicial foreclosure

allows the property to be sold by court order after the mortgagee has given sufficient public notice.

15

nonjudicial foreclosure

Some states allow nonjudicial foreclosure procedures to be used when the security instrument contains a power-of-sale clause. In nonjudicial foreclosure, no court action is required.

16

strict foreclosure

the court establishes a deadline by which time the balance of the defaulted debt must be paid in full. If the borrower does not pay off the loan by that date, the court simply awards full legal title to the lender. No sale takes place.

17

deed in lieu of foreclosure

"friendly foreclosure" because it is carried out by mutual agreement rather than by lawsuit. disadvantage is that the mortgagee takes the real estate subject to all junior liens