Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
51 Cards in this Set
- Front
- Back
|
2 DIFF THEORIES REGARDING THE EFFECT OF MORTGAGING PROPERTY |
1. Lein Theory 2. Title Theory |
|
|
LIEN THEORY |
Borrower (mortgagor) retains equitable title and conveys legal title to a trustee until the debt has been satisfied |
|
|
TITLE THEORY |
the borrower retains equitable title and conveys legal title to a Trustee until the debt has been satisified -uses the 3 party deed of trust instrument (a form of mortgage) as security for the debt -the borrower (Grantor or Trustor) actually conveys legal title to the Trustee (third party) to hold for the lender (beneficiary) until the debt is satisfied. -Borrower retains equitable title to the property |
|
|
EQUITABLE TITLE |
The right to use and possess the property as if he or she owned it and to demand the return of the legal title then the debt is repaid. |
|
|
POWER OF SALE FORECLOSURE |
The trustee can initiate this to sell the property if the debt is not paid per the terms of the promissory note. |
|
|
MORTGAGE LOAN INSTRUMENTS |
1. Promissory note 2. Mortgage or Deed of Trust
|
|
|
PROMISSORY NOTE |
Financing instrument, written promise or agreement to repay a debt in definite installments with interest. |
|
|
MORTGAGE OR DEED OF TRUST |
Security instrument, document that pledges the property to the to the lender as security or collateral for a debt. |
|
|
HYPOTHECATION |
Act of pledging real property as security for payment of a loan without giving up possession of the property... |
|
|
DEED OF TRUST |
Three parties - Grantor (borrower) - Beneficiary (lender) and Trustee (holds naked title) |
|
|
THE PROMISSORY NOTE |
1. has a Term 2. a promise to pay 3. signature of the borrower - simple document that states the amount of the debt,the time and method of payment, and the rate of interest -signed by all parties who have an interest in the property -not recorded -only one original that is signed at closing |
|
|
NEGOTIABLE INSTRUMENT |
A promissory note is negotiable instrument - a written promise to pay a specific sum of money -considered to be negotiable when the holder ( the payee) may transfer the right to receive payment to a third party. -to be transferred an instrument must be in writing, made by one person to another and signed by the maker. |
|
|
SPECIAL NOTE PROVISIONS |
1. Acceleration Clause 2. Prepayment penalty clause 3. Due-on-sale Clause |
|
|
ACCELERATION CLAUSE |
Provides that if a borrower defaults, the lender has the right to accelerate the maturity of the debt - to declare the entire debt due and payable immediately even tho the terms of the mortgage originally allow the borrower to amortize the debit in regular payments over a period of yrs (without this, the lender would have to sue the borrower every time the payment was late) |
|
|
PREPAYMENT PENALTY CLAUSE |
When a loan is paid in installments over a long term, the total interest paid by the borrower can exceed the principal of the loan...if such a loa is paid off before its full term, the lender collects less interest from the borrower. For this reason, some lenders include a prepayment penalty clause in the promissory note.
|
|
|
N.C & PREPAYMENT PENALTY CLAUSE |
A loan that does not have a prepayment penalty clause will include a prepayment privilege clause which allows the borrower to prepay a portion or all of the outstanding balance without penalty. Lenders in N.C are not allowed to charge a prepayment penalty on any residential loan with an original balance of $150K or less that is the first lien on the borrower's primary residence. Also fed law prohibits lenders from charging a prepayment penalty on any FHA insured VA-guarunteed loan. |
|
|
DUE ON SALE CLAUSE |
or Alienation Clause - provides that on sale of the property by the borrower to a buyer who wants to assume the loan, the lender has the choice of either declaring the entire debt to be due and payable immediately or permitting the buyer to assume the loan at current market interest rates. Lack of this would permit a loan assumption without the lender's prior consent. |
|
|
PRINCIPAL AND INTEREST (DEBT SERVICE) |
A charge for use of money borrowed (the principal) is called interest. -interest can be due either at the end of each payment period (payment in arrears) or at the beginning of each payment period (payment in advance) -this will be specified in the note but usually paid in arrears |
|
|
AMORTIZED LOANS |
Regular level payments are made, each payment is broken down and applied first to the interest owed, with the rest of the payment applied to the principal amount over a term of perhaps 15-30 yrs.
|
|
|
DIRECT REDUCTION LOANS |
Where the loans require a fixed amount of principal to be paid in each payment with the amount applied to interest varying a the balance is reduced. |
|
|
PITI |
Each month, in addition to paying P&I, the borrower is normally req by the lender to pay 1/12 of the annual real property taxes and 1/12of various annual insurance premiums, such as for HO, Flood, or Mortgage Insurance policies..the T&I portion of the monthly payment is placed into the lender's escrow account and held until those bills are due. -the lender recvs the Tax & Ins bills and pays those from its escrow account on behalf of the borrower |
|
|
FULLY AMORTIZED FIXED-RATE MORTGAGE |
The fully amortized fixed-rate req that the mortgagor pay constant amount, usually monthly, that will completely pay off the loan amount with the last equal payment. The mortgagee first credits each payment to the interest due and then applies the balance to reduce the Principal. -each debt payment is the same, but the portion applied toward repayment grows and the interest declines as the unpaid balance of the loan is reduced. |
|
|
PARTIALLY AMORTIZED FIXED-RATE MORTGAGE |
The monthly principal and interest payments are a constant amount but that payment amnt is not sufficient to pay off the loan within the loan term. At maturity, a balloon payment will be due to pay the remaining principal. |
|
|
SIMPLE INTEREST AND PRINCIPAL CREDITED FROM AMORTIZED PAYMENT |
Lenders charge borrowers a certain percentage of the principal as interest for each yr a debt is outstanding |
|
|
USURY |
The max rate of interest legally charged on loans may be set by state usury laws. Charging interest in excess of this rate is called usury and is illegal |
|
|
DISCOUNT POINTS |
The return or profit on a loan is sometimes called the yield -when he rate of interest that a lender charges for a mortgage loan might be less than then the rate of return req by the lender or by an investor who might purchase that loan from the Lender. - discount points are charged to make up the diff bt the mortgage interest rate and the req investor yield. 1 Discount point - 1% of the original loan amount and increases the yield of a loan by approx 1/8th a percent. |
|
|
DISCOUNT POINTS INVESTOR YIELD |
1 point = 1/8th percent increase yield 2 points = 1/4th percent 4 points = 1/2 percent 6 points = 3/4 percent 8 points = 1 percent |
|
|
LOAN ORIGINATION FEE |
Admin expense for generating the loan -not prepaid interest,an expense that must be paid to the Lender, usually 1% of the loan amnt regardless of any discount points that might also be charged. |
|
|
AMORTIZATION |
debt liquidation, process of paying off a home loan by making periodic payments of Principal and Interest, called debt service. |
|
|
CALCULATING AMORTIZATION |
Using Factor chart: If a person borrowed $1000 for 30 yrs at .07% monthly payment would be $6.65. To compute Monthly PI payment - $75000 / $1000 = 75,000 x $6.65 per thousand = $498.75 |
|
|
CALCULATING PITI |
Principal, Interes,taxes and Ins $130000 at 7.5% for 30 yrs. Loan Factor is $6.99 per thousand borrowed. Estimate annual taxes are $1200 and the estimated annual ins premium is $360. Monthly PITI
$130000 / $1000 = 130 x $6.99 = $908. 70 $1200 / 12 = $100 $360 / 12 = $30.00 $908.70 + $100 + $30 = $1038.70 |
|
|
CALCULATING TOTAL INTEREST PAID ON LIFE OF LOAN |
FIXED RATE MORTGAGE $498.75 on a 30 yr $75,500 loan $498.75 PI x 360 = $179,550 total PI - $75,500 orig Principal = $104,050 |
|
|
CALCULATING MORTGAGE DEBT REDUCTION |
Example - Monthly PI payment is $498.75 with loan of $75500 at 7%. After first months payment, what is the new loan balance: $75500 x. 0.07 = $5285 / 12 months = $440.42 monthly $498.75 PI - $440.42 = $58.33 $75500. - $58.33 = $75441.67 loa balance after one month's payment |
|
|
CALCULATING LOAN ORIG FEES, DISC POINTS AND ASSUMPTION FEES |
Loan amount : $90,500 ; 1 % orig fee ; Market interest rates are 6.5 % but the buyer wants to get a rate of .6% which the lender has approved with payment of discount points. What is total amount of fees to be paid by buyer? $90,500 x .01 = $905 orig fee 6.5%-6.0% = .5% (.125 +.125 = .25 (2 points) +.25 = 4 points $90,500 x .04=$3620 discount points $905 orig + $3620 = $4, 525 |
|
|
FIXED RATE LEVEL PAYMENT MORTGAGE (FULLY AMORTIZED) |
most popular - also referred to as simple interest loan
|
|
|
INTEREST ONLY MORTGAGE LOAN |
Periodic payments of interest only, with the principal to be paid in full at the end of the loan term in a balloon payment. Term loan |
|
|
ARM - ADJUSTABLE RATE |
Originate at one rate of interest w/ the rate fluctuating up or down during the loan term based on the movement of a published index. 1. Note rate - original rate charged 2. index - the interest rate on the outstanding balance of the loan is increased or decreased 3. Margin - amount of interest a lender charges over and above the index rate 4. interest rate caps - rate caps limit the amount the interest rate may incase or decrease in any one adjustment period. 5. Payment caps - 6. adjustment period - establishes how often the loan rate may change 7. Conversion option - lenders may offer a conversion which permits the mortgage to be converted from an adjustable-rate to a fixed rate loan at certain intervals during the life of the mortgage |
|
|
GRADUATED PAYMENT MORTGAGE |
flexible payment plan allows a mortgagor to make lower monthly payments for the first few yrs of the loan and larger payments for the remainder of the term - can result in negative amortization where as each payment is made, the unpaid interest is added to the principal balance resulting in an increasing loan balance for the first few yrs |
|
|
BALLOON PAYMENT LOAN |
when a mortgage requires periodic payments that will not fully amortize the amount of the loan by the end of the loan term, the final payment is an amount that is larger than the previous payments - called a partially amortized loan
|
|
|
GEM - GROWING EQUITY MORTGAGE |
makes use of a final interest rate, but payments of principal are increased according to an index or schedule. The total payment increases but the borrower's income is expected to keep pace |
|
|
MORTGAGE OR DEED OF TRUST DOCUMENT |
-must refer to the terms of the promissory note -clearly set that the property is intended to be security for a valid debt -identify lender and borrower -accurate legal description of property -written and signed by all parties who have an interest -must be recorded & delivered & accepted by the lender or trustee |
|
|
RIGHTS AND DUTIES OF BORROWER |
1. payment of debt in accordance w terms of noe 2. payment of real estate taxes on property 3. mx of adeq ins to protect lender 4. mx of property in good repair 5. lender auth before making any alterations |
|
|
METHODS OF FORECLOSURE |
1. Judicial foreclosure - court process, can be sold by court order ager borrower has been given sufficient public notice ; new owner recv title to property by means of a Sheriffs Deed 2. Nonjudicial Foreclosure - made possible by the power of sale clause in the deed of trust. Gives trustee the power to see the property and use the proceeds to repay debt 3. Strict Foreclosure - After appropriate notice has been given and the proper papers have been prepared and filed, the court establishes a specific time period during which the balance of the defaulted debt must be paid in full. If this is not done, court usually awards full legal title to the lender (Not used in N.C) |
|
|
DISTRIBUTION OF PROCEEDS |
After property is sold at the foreclosure, the proceeds are distributed in the following five-step order: 1. To pay all costs of the sale, including court costs or trustee fees, legal fees, advertising fees, etc. 2. To pay any outstanding real and personal property taxes or assessments 3. To pay the mortgage or Deed of trust debt in order of recordation 4. To pay off any other liens in order of priority 5. To pay any surplus to the borrower (equity)
|
|
|
REDEMPTION |
Defaulting borrowers have a chance to redeem their property. In most cases, has 2 parts - equity right of redemption or statutory right of redemption.
|
|
|
EQUITY RIGHT OF REDEMPTION |
is inherited from the old common law proceedings in which the foreclosure process extinguished the borrower's right to regain the property....occurs if during the foreclosure process the borrower stops it by paying in full essentially.
|
|
|
STATUTORY RIGHT OF REDEMPTION |
During the NC 10 day statutory redemption period after the auction (the upset bid period) a borrower can try to raise the funds to redeem the property. Each upset bid triggers a new 10 day period. |
|
|
DEFICIENCY JUDGMENT |
if the foreclosure sale does not produce sufficient proceeds to pay the loan balance and accrued unpaid interest plus costs of sale,the lender may be entitled to a person al judgment agains the maker of the note for unpaid balance... in NC these are prohibited in certain cases such as when a purchase money deed of trust is used ( seller financing) |
|
|
DEED IN LIEU OF FORECLOSURE |
Used when a borrower has defaulted on the mortgage loan and wants to avoid foreclosure action. With the lender's agreement, the debtor simply gives the lender a deed in lieu of foreclosure. |
|
|
SHORT SALES |
transaction where the proceeds from the sale are not sufficient to fully satisfy the outstanding balance on the seller's existing mortgage and the borrower lacks sufficient funds to make up the shortfall |
|
|
BUYING SUBJECT TO OR ASSUMING A SELLER'S MORTGAGE |
2 Diff distinctions - 1. Subject to the mortgage - the buyer is not personally obligated to pay the debit in full 2. A buyer purchases the property and assumes the seller's debt and becomes personally liable |
