Chapter 13 Real Estate Financing: Principles
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Makes the entire debt due immediately if the borrower defaults on an installment payment or another covenant.
Adjustable Rate Mortgage (ARM)
Fluctuating interest rate, usually one tied to a published index. Caps on adjustments on periodic interest, lifetime interests, and payment amounts are normal.
Prevents the borrower from letting someone else assume the debt without the lender's approval.
A loan in which principal as well as interest is payable in periodic installments over the term of the loan.
A final payment of a mortgage loan that is larger than the required periodic payments because the loan amount was not fully amortized.
The person for whom a trust operates or in whose behalf the income from the trust estate is drawn. A lender in a deed of trust loan transaction. The recipient of personal property in a will.
the principle and interest payment on a loan (PI)
Deed in lieu of foreclosure
a deed given by the mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. This avoids foreclosure but does not remove liens from the property.
Deed of trust
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).
The nonperformance of a duty, whether arising under a contract or otherwise; failure to meet an obligation when due.
A personal judgement levied against the borrower when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full.
Direct Reduction Loans
A mortgage loan that requires a fixed amount of principal payment in each period; the total debt service starts higher than with a level payment loan since interest portion will reduce with each payment.
Interest paid in advance; one point equals 1 percent of the loan amount for the borrower and increases the yield for the investor approximately 1/8%
Due-on-sale clause (Alienation Clause)
A provision in a mortgage that states that the entire balance of the note is immediately due and payable if the mortgagor transfers (sells) the property.
In a title theory, it gives the grantor (borrower) the right to use and posses the property and to demand the return of the legal title when the debt is paid in full.
The interest or value that an owner has in property over and above any indebtedness.
Equity of redemption
The right of a borrower in default on a mortgage loan to reclaim the forfeited property prior to the foreclosure sale through payment in full of all debt and associated costs.
a 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.
Graduated Payment Mortgage (GPM)
A loan in which the monthly principal and interest payments increase by a set amount each year for a certain number of years and then level off for the remaining loan term; probable negative amortization in early years.
a borrower in a deed of trust loan transaction.
Growing Equity Mortgage (GEM)
Makes use of a fixed interest rate, but payments or principal are increased according to an index or a schedule.
The pledging of property as security for an obligation or a loan without losing possession of it.
a charge made by a lender for the use of money. Most interest mortgage loans interest is paid in arrears (at the end of the payment period).
The form of foreclosure used in lien theory states.
Two party mortgage instrument is used as security for the debt. The borrower retain both legal and equitable title.
Loan origination Fee
An administrative fee charged to the borrower by the lender for making a mortgage loan; usually computed as a percentage of the loan amount.
A conditional transfer or pledge of real estate as security for the payment of a debt. Also, the document creating a mortgage lien theory state.
A mortgagee is the lender in a mortgage loan transaction; a mortgagor is the borrower.
When the debt service payment on a loan is not large enough to pay the interest due; the principal balance actually grows with each payment.
A written promise or order to pay a specific sum of money. Ex. a promissory note
Power of sale foreclosure
The form of foreclosure used in a title theory state, such as NC; also called nonjudicial foreclosure.
- a charge imposed on a borrower who pays off the loan principal early.
- Lenders in NC are not permitted to charge a prepayment penalty on any residential loan with an original balance of $150,000 or less that is the first lien on the borrower's primary residence.
The original amount of the total balance due and payable at a certain date.
- a financing instrument that states the terms of the underlying obligation, is signed by its maker, and is negotiable (transferable to a third party); a personal IOU.
- Only the borrowers (makers) of the note sign it, it is not recorded, and there is only one original that is signed at the closing.
Satisfaction of mortgage
a document acknowledging the full repayment of a mortgage debt.
When a lender allows a borrower to sell the mortgaged property for less money than necessary to satisfy the loan.
Statutory redemption period
10 days after the auction.
Statutory right of redemption
The right of a defaulted property owner to recover the property after its sale by paying the appropriate fees and charges.
A loan in which only interest is paid during the term of the loan, with the entire principal due with the final interest payment; also called a straight loan.
Three party deed of trust instrument. Lender is the owner of mortgaged land who vests the legal title with the trustee while the borrower holds equitable title. Buyer regains legal title upon full payment of the mortgage debt.
- Charging interest at a higher rate than the maximum rate established by state law.
- NC exempts all residential first deed of trust form state ususry laws.
The return of investment; amount of profit
Distribution of Foreclosure proceeds
- 1. To pay all costs of the sale
- 2. To pay real and personal property taxes or assessments
- 3. To pay the mortgage or deed of trust debt
- 4. To pay off any other liens
- 5. To pay any surplus to the borrower
Buying subject to the mortgage
The buyer takes title knowing they must make payments on the existing loan. On default, the lender forecloses and the property is sold by court order to pay the debt. If the sale does not pay off the entire debt, the purchaser is not liable for the difference. The seller remains liable.
Assuming a seller's mortgage
If the assumptor defaults, a deficiency judgement against the assumptor and the original borrower may be obtained for the unpaid balance, unless the original borrower received a release from liability by the lender, then only the assumptor is liable.
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