Unit 15: Real Estate Financing: Principles

Question 1

Acceleration Clause

Answer 1

The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrower defaults on an installment payment or other covenant.

Question 2

Alienation Clause

Answer 2

The clause in a mortgage or deed of trust that states that the balance of the secured debt becomes immediately due and payable at the lender’s option if the property is sold by the borrower. In effect, this clause prevents the borrower from assigning the debt without the lender’s approval.

Question 3

Beneficiary

Answer 3

(1) The person for whom a trust operates or on whose behalf the income from a trust estate is drawn. (2) A lender in a deed of trust loan transaction. Also called a legatee.

Question 4

Certificate Of Sale

Answer 4

The document generally given to the purchaser of delinquent property taxes at a tax foreclosure sale.

Question 5

Deed In Lieu Of Foreclosure

Answer 5

A deed given by the mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. This is a way for the mortgagor to avoid foreclosure.

Question 6

Deed Of Trust

Answer 6

An instrument used to create a mortgage lien by which the borrower conveys title to a trustee, who holds it as security for the benefit of the note holder (the lender). Also called a trust deed. ***In Illinois, a deed of trust is treated like a mortgage and is subject to the same rules including foreclosure. The trustor (borrower) in a deed of trust holds the title to the real estate.

Question 7

Defeasance Clause

Answer 7

A clause used in leases and mortgages that cancels a specified right upon the occurrence of a certain condition, such as cancellation of a mortgage on repayment of the mortgage loan.

Question 8

Deficiency Judgment

Answer 8

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

Question 9

Discount Point

Answer 9

A unit of measurement used for various loan charges; one point equals 1% of the amount of the loan.

Question 10

Equitable Right Of Redemption

Answer 10

The right of a defaulted property owner to recover the property before its sale by paying the appropriate fees and charges.

Question 11

Equitable Title

Answer 11

The interest held by a vendee under a contract for deed or an installment contract; the equitable right to obtain absolute ownership to property when legal title is held in another’s name.

Question 12

Escrow Account

Answer 12

The trust account established by a sponsoring broker under the provisions of the license law for the purpose of holding funds on behalf of the sponsoring broker’s principal or some other person until the consummation or termination of a transaction. Also called a trust account.

Question 13

Foreclosure

Answer 13

The legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. The foreclosure procedure brings the rights of all parties to a conclusion and passes the title in the mortgaged property to either the holder of the mortgage or a third party, who may purchase the realty at the foreclosure sale, free of all encumbrances affecting the property subsequent to the mortgage.

Question 14

Hypothecation

Answer 14

To pledge property as security for an obligation or loan without giving up possession of it.

Question 15

Interest

Answer 15

A charge made by a lender for the use of money.

Question 16

Intermediate Mortgage Theory

Answer 16

Theory based on the principles of title theory states but still requiring the mortgagee to formally foreclose to obtain legal title.

Question 17

Judicial Foreclosure

Answer 17

Type of foreclosure that allows the property to be sold by court order after the lender has given sufficient public notice to the defaulting borrower.

Question 18

Land Contract

Answer 18

A contract for the sale of real estate whereby the purchase price is paid in periodic installments by the purchaser, who is in possession of the property even though title is retained by the seller until all payments are received in full. Also called a contract for deed or an articles of agreement for warranty deed.

Question 19

Lien Theory

Answer 19

Some states interpret a mortgage as being purely a lien on real property. The mortgagee thus has no right of possession but must foreclose the lien and sell the property if the mortgagor defaults.

Question 20

Loan Origination Fee

Answer 20

A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount.

Question 21

Mortgage

Answer 21

(1) A conditional transfer or pledge of real estate as security for the payment of a debt. (2) The document creating a mortgage lien.

Question 22

Mortgagee

Answer 22

A lender in a mortgage loan transaction.

Question 23

mortgagor

Answer 23

the borrower of a mortgage loan

Question 24

Negotiable Instrument

Answer 24

A written promise or order to pay a specific sum of money that may be transferred by endorsement or delivery. The transferee then has the original payee’s right to payment.

Question 25

Nonjudicial Foreclosure

Answer 25

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

Question 26

Novation

Answer 26

Substituting a new obligation for an old one or substituting new parties to an existing obligation.

Question 27

prepayment penalty

Answer 27

a fee that some lenders charge if you pay off all or part of your mortgage early

Question 28

Promissory Note

Answer 28

A financing instrument that states the terms of the underlying obligation is signed by its maker and is negotiable (transferable to a third party).

Question 29

Release Deed

Answer 29

A document, also called 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.

Question 30

Satisfaction Of Mortgage

Answer 30

A document acknowledging the payment of a mortgage debt.

Question 31

Sheriff’s Deed

Answer 31

In Illinois, a specialized quitclaim deed issued to the purchaser of a foreclosed home, the owner of which exercises the equitable right of redemption.

Question 32

Sheriff’s Sale

Answer 32

Occurs when a default is not cured by redemption or reinstatement and a decree of foreclosure is entered.

Question 33

Statutory Right Of Reinstatement

Answer 33

In Illinois, an option available when the defaulting mortgagor wishes to cure the default and reinstate the loan as if no acceleration had occurred.

Question 34

statutory right of redemption

Answer 34

The right of redemption allows homeowners to keep their homes if they pay back what they owe even after their lender starts the foreclosure process or puts the home up for sale at public auction.

Question 35

Strict Foreclosure

Answer 35

A way for a lender to acquire mortgaged property as an alternative to judicial foreclosure.

Question 36

Title Theory

Answer 36

Some states interpret a mortgage to mean that the lender is the owner of mortgaged land. On full payment of the mortgage debt, the borrower becomes the landowner.

Question 37

Usury

Answer 37

Charging interest at a higher rate than the maximum rate established by state law.

Question 38

payment in advance

Answer 38

Interest payment made at the beginning of each period

Question 39

payment in arrears

Answer 39

Interest payment made at the end of each period

Question 40

When can an escrow account be terminated?

Answer 40

When an individual who has owned his home for 12 years and reduced his mortgage balance to 65% of its original amount

Question 41

A successful bidder at a foreclosure sale receives what document?

Answer 41

The successful bidder at the sale receives a certificate of sale, not a deed. Only after the sale is confirmed by the court will the certificate holder receive a sheriff’s deed.

Question 42

Illinois is characterized as what type of state pertaining to foreclosures?

Answer 42

judicial foreclosure state.

Question 43

After final mortgage payment, the mortgagor would receive what?

Answer 43

The lender is required to execute a satisfaction of mortgage (also called a release of mortgage or a mortgage discharge) when the note has been fully paid.

Question 44

is included in the definition of mortgage contained in the Illinois Mortgage Foreclosure Law?

Answer 44

Installment contracts payable over at least five years, with a 20% down payment

Question 45

What best describes the theory of the mortgagor/mortgagee relationship in Illinois?

Answer 45

Intermediate mortgage theory

Question 46

The borrower under a deed of trust is called the…?

Answer 46

trustor

Question 47

release clause

Answer 47

A release clause is a loan provision that allows an individual property in a blanket mortgage to be released from any liens by the lender. Blanket mortgages enable investors, builders, and developers to place multiple properties under a single loan, which is much more efficient than having multiple mortgages.

Question 48

Short Rate

Answer 48

A higher periodic rate charged for a shorter term than that originally contracted. The increased premium charged by an insurance company on early cancellation of a policy to compensate the insuror for the fact that the original rate charged was calculated on the full period of the policy. This increased charge enters into a buyer’s decision whether to assume the seller’s existing homeowner’s hazard insurance policy or to cancel it and obtain a new policy

Question 49

OPEN-END CLAUSE

Answer 49

An open-end clause is a provision in a mortgage contract that allows the mortgaged real estate to be used as security to borrow additional money.