Chapter 14 - Real Estate Financing: Principles

Front 1

Acceleration Clause

Back 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.

Front 2

Alienation Clause

Back 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.

Front 3

Assume

Back 3

A buyer is personally obligated for the payment of the entire debt of a seller; that is, the buyer assumes the debt. The original seller is not liable for the debt if the property is foreclosed on.

Front 4

Beneficiary

Back 4

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

Front 5

Deed in lieu of foreclosure

Back 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.

Front 6

Deed of trust

Back 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.

Front 7

Defeasance Clause

Back 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 upon repayment of the mortgage loan.

Front 8

Deficiency Judgment

Back 8

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

Front 9

Discount Points

Back 9

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

Front 10

Equitable Right of Redemption

Back 10

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

Front 11

Foreclosure

Back 11

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. The foreclosure procedure brings the right 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.

Front 12

Hypothecation

Back 12

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

Front 13

Interest

Back 13

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

Front 14

Lien Theory

Back 14

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

Front 15

Loan Origination Fee

Back 15

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.

Front 16

Mortgage

Back 16

A conditional transfer or pledge of real estate as security for the payment of a debt. Also, the document creating a mortgage lien.

Front 17

Mortgagee

Back 17

A lender in a mortgage loan transaction.

Front 18

Mortgagor

Back 18

A borrower in a mortgage loan transaction.

Front 19

Negotiable Instrument

Back 19

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.

Front 20

Promissory Note

Back 20

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

Front 21

Novation

Back 21

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

Front 22

Owner Financing

Back 22

the seller is the primary lender securing his or her interest with the use of a deed, note and mortgage, deed of trust, or contract for deed. The buyer takes possession of the property, but the seller retains legal title until paid in full.

Front 23

Prepayment Penalty

Back 23

A charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost.

Front 24

Release Deed

Back 24

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.

Front 25

Satisfaction

Back 25

Release or discharge of when a note has been fully paid. This document returns to the borrower all interest in the real estate originally conveyed to the lender. Entering this release in the public record shows that the debt has been removed from the property.

Front 26

Statutory Right of Redemption

Back 26

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

Front 27

Subject to

Back 27

Buyer takes title of property and makes payments on the existing loan but is not personally obligated to pay the debt in full. Original seller might continue to be liable for the debt.

Front 28

Title Theory

Back 28

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

Front 29

Trustor

Back 29

A borrower in a deed of trust loan transaction; one who places property in a trust. Also called a grantor or settler.

Front 30

Usury

Back 30

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