Real Estate Finance

Front 1

Traditional Elements of a Deed

Back 1

1. Premises

2. Habendum/Tendenum

3. Covenants (present and future

4. Testimonium

5. Acknowledgement

6. Date

7. Name of Grantor

8. Name of Grentee

9. Recitation of consideration

10. Description of estate

11. Location

12. Warranties to Estate

13. Exceptions to title

14. Witness, acknowledgment

15. Notarization

16. Transfer Tax Declaration

Front 2

4 Events that Trigger a Commission

Back 2

1. Broker produces a ready, willing, and able buyer

2. Seller withdraws property from sale

3. Seller sells directly or through another agent

4. Seller sells within X time to a party solicited by a broker

Front 3

In order to comply with the statue of Frauds, there must be:

Back 3

(a) writing signed by person against whom enforcement is sought (minority rule: need only be signed by seller

(b) description of the property that can be reasonably identified

(c) Price or method of determining price

Front 4

Exceptions 2 the statute of frauds

Back 4

(a) if conveyance for an interest less than a year (e.g., oral lease)

(b) partial performance: buyer has taken possession or money has been paid

(c) Estoppel/detrimental reliance (depending on jurisdiction

(d) s/f cannot aid in perpetration of a fraud

Front 5

Penalties for "Time is of the Essence":

Back 5

(a) Late party may be liabile for interim damages

(b) May be barred from recovery if latter party repudiates Contract

Front 6

Tender of Performance may be excused under these circumstances:

Back 6

(a) an anticipatory breach

(b) impossibility

Note: won't be waived for inconsequential breaches of other parts of K. Breach must be material

Front 7

Liquidated damages clause usually void if:

Back 7

Perceived as a penalty and not an assessment of damages

Front 8

What to specify in a financing condition:

Back 8

(a) Time to obtain

(b) Principal

(c) Interest

(d) Term

(e) Amortization

Front 9

Measurement of Actual Damages

Back 9

Contract Price less Market Value of the property on date of breach

-Actual damages cannot be negative (obvi)

-Mkt value difficult to determine

Front 10

For liquidated damages to be enforceable:

Back 10

(a) damage must be difficult or impossible to accurately estimate

(b) must be intended to be damages and not a penalty

(c) Reasonable estimation of damages that will follow in the event of a breach AT THE TIME K WAS CREATED

Front 11

Requirements for Specific Performance

Back 11

(a) Must have enforceable K

(b) Monetary damages must be inadequate

(c) Must be enforceable through judicial decree

(d) Mutuality - equitable remedy must be available to both parties

Front 12

Specific performance won't be granted when:

Back 12

(a) it will lead to unconscionable result

(b) if property has already been sold to an innocent 3rd party

(c) If buying property for immediate resell

(d) if claimant is in breach (unclean hands)

(c) if parties Contract around this remedy

Front 13

Equitable Conversion Doctrine

Back 13

Holds that Equitable title passes to purchaser as soon as an enforceable K has been entered into, even though legal title will remain with seller until the closing and delivery of deed

Front 14

How long does Title Insurance Last

Back 14

(a) With same owner- forever

(b) With lender- as long as mortgage is alive

(c) Will not run with property- transferable only when title is transferred b/c of death

Front 15

4 Variables to Consider in a Mortgage

Back 15

(a) Principal Amount

(b) Interest Rate

(c) Term

(d) Amortization period

Front 16

Different rights of a Broker

Back 16

Exclusive Right to sale (Best for Broker)

Exclusive Agency Listing

Open Listing (whoever finds buyer gets commission)

Front 17

Types of Alternative Mortgages

Back 17

(a) Balloon

(b) Adjustable Rate

(c) Negative Amortization

(d) Graduated Payment mortgage

(e) Shared Appreciation Mortgage

(f) Reverse Annuity Mortgage

Front 18

Balloon types

Back 18

(a) Pure Balloon: pay entire principal without amortization

(b) Hybrid Balloon: make payments and then pay entire remaining balance

(c) Adjustable rate instruments: initial low interest rate (used when normal interest rates are high)

Front 19

Adjustable Rate Mortgages

Back 19

-usually tied to some index (ex: LIBOR), Usually comes with a floor and/or ceiling on adjustments for both yearly adjustments and lifetime adjustments

Front 20

Negative Amortization

Back 20

Monthly payment doesn't pay all of interest- therefore, principal increases

Front 21

Timeline of a Mortgage

Back 21

Execution --> Default --> Foreclosure --> SRR (if available)

Front 22

Mortgage

Back 22

Transfer of an interest in land as a security for performance of an obligation

In practical terms, a mortgage is a promissory note + mortgage document itself. Mortgage, like any K, requires consideration.

Front 23

Deed of Trust

Back 23

a variation of a mortgage involving the conveyance of the realty in trust to a 3rd party (usually lender's lawyer), to hold as security for the payment of debt to lender-note holder, whose role is analogous to that of mortgagee

Front 24

4 Jurisdictional Theories of Mortgages

Back 24

(a) Title Theory

(b) Lien Theory

(c) Intermediate Theory

Front 25

Title Theory

Back 25

Immediately upon delivery of mortgage, lender gets legal title until debt is satisfied. However, borrower has right to possession.

At time of default, lender gets rents.

Front 26

Lien Theory

Back 26

Borrower owns property, but lender gets a lien on property as a security. Borrower maintains possession and collects profits. Doesn't lose this right until valid foreclosure.

At time of default, lender is required to go to court to get an intermediary appointed to collect rents.

Majority of jurisdictions follow this if K is silent.

Front 27

Intermediate theory:

Back 27

Borrower maintains possession, rents, and profits. However, at time of default, this right transfers to Lender.

Because of K's, most mortgages operate under intermediate theory.

Front 28

Lender rights upon default

Back 28

(a) right to demand balance (if there is an acceleration clause)

(b) seek foreclosure

(c) forfeiture

(d) right to demand past due payments

(e) specific performance (same as A)

(f) sue for general damages

Front 29

Three types of foreclosure

Back 29

(a) Strict Foreclosure

(b) Judicial foreclosure

(c) Power of sale

Front 30

Borrower's Foreclosure Rights

Back 30

Prior to foreclosure can exercise equity of redemption

After foreclosure buyer can exercise Statutory Rights of Redemption (if there are any)

Front 31

Equity of Redemption

Back 31

Right of the borrower to come in and pay off debt up until the moment of foreclosure.

Available in all states, very important right.

Front 32

Conditional Sales Agreements (3 types)

Back 32

(a) Right of Repurchase

(b) Lease w/ repurchase option

(c) Pure repurchase option

Front 33

Right of repurchase:

Back 33

Grantor and grantee enter into side agreement to pay some borrowed amount back. On repayment the lender re-conveys property to borrower. This repurchase is obligatory.

Front 34

Lease with option to repurchase

Back 34

Borrower conveys absolute deed to lender. Lender leases property to borrower. Borrower can repurchase by paying off loan. Borrower has option to repurchase.

Front 35

Pure repurchase option

Back 35

Absolute deed conveyed to lender. Borrower can repurchase by paying off debt. However, borrower is not obligated to repay loan.

Front 36

Absolute Deed Transaction

Back 36

Borrower gives deed to lender, with understanding that upon payment lender will re-convey property to the Borrower

Front 37

Installment Land Contract

Back 37

The Borrower receives possession and agrees to make payments or P&I until balance is paid off. The seller retains legal title until final payment is made.

This is recognized as legitimate but it has a forfeiture clause (which in theory clogs equity of redemption).

In theory borrower can lose property even if he has made 99% of the payments.

Front 38

Is an absolute deed intended as a security considered part of an equitable mortgage? Courts consider:

Back 38

(a) Was Conveyance intended as security for a loan?

(b) Was there a substantial disparity between the value received by the grantor and the FMV of the RE at the time of conveyance

(c) Who maintains possession?

(d) Relationship b/n parties

(e) Sophistication of the parties

(f) Did either side have legal assistance?

(g) Is the debtor personally liable? (Courts disagree over the relevance of this

Front 39

Issues to address regarding 2nd Mortgages

Back 39

(a) Want any default on 1st mort to be considered a default on the 2nd mort. Why? so 2nd mortgage lender has a chance to foreclose first

(b) Want to restrict borrower from borrwing more money from 1st mortgage lender, expanding first mortgage

(c) Want to have a due on sale clause. This allows immediate payment of mortgage if owner sells property to a 3rd party

(d) Want to have a Due on Furtherance of Encumbrance Clause. If borrower takes on more loans, can forclose.

Front 40

Mortgages vs. Leases

Back 40

When a mortgage is senior to a lease it will terminate that lease in foreclosure. When a lease is senior to a mortgage, foreclosure will not terminate the lease.

Front 41

Due on Sale Clause

Back 41

Clause which permits lender to accelerate debt if property is transferred to a 3rd party

Front 42

Due on encumbrance clause

Back 42

Clause which permits lender to accelerate debt if borrower transfers additional security interest into the property

Front 43

Increase in interest on transfer clause

Back 43

Clause which allows mortgagee to increase interest in the event of a transfer by the mortgagor

Front 44

What triggers a Due on sale clause?

Back 44

(a) an outright sale

(b) an Installment Land Contract

(c) a long term lease

Front 45

A negotiable instrument must be:

Back 45

(a) signed by maker (person who is liable)

(b) an unconditional promise

(c) a certain sum - can be liquidated to known amount

(d) payable on demand or at a certain specified time

(e) "Payable to the order of ___" or "Payable to the bearer

Note: to be a negotiable instrument, must look within the four corners of the document itself, cant look at separate documents for required info

Front 46

Methods of Transferring a negotiable interest:

Back 46

(a) assignment

(b) endorsement by transferor

(c) Negotiation

Front 47

Special properties of transferring by negotiation

Back 47

(a) if not is payable to order, promissory note must be transferred by endorsement

(b) for value)

(c) in good faith

(d) Made with no notice to transferee of claims or defenses or that note is overdue

Front 48

Holder in Due Course

Back 48

One who takes a note free of personal defenses that a mortgagor had against the mortgagee

Front 49

Doctrine of Close-Connectedness

Back 49

If there is an agency relationship between party selling note and party buying, it will prevent HDC status (no good faith)

Front 50

Marshalling

Back 50

an equitable doctrine that dictates the order in which a mortgagee must foreclose when the mortgage covers more than one parcel of land. This is to avoid the unnecessary wiping out of junior interests when possible

Courts will generally not invoke marshaling if it prejudices the senior creditor or 3rd parties. (Prejudice doesn't mean inconvenience.)

Front 51

Deed in lieu of foreclosure

Back 51

MR gives deed to ME in lieu of forclosure

(a) Most often taken in cases of non-recourse debt

(b) examine if it is an attempt to clog equity, or if there really is consideration - such as not foreclosing

(c) in this situation ME gets prop subject to other liens he did not know about. 1st Mort is extinguished due to Merger, and jr. mort now becomes 1st mort. If lender foreclosed, could have wiped out 2nd mort.

Front 52

Purchase Money Mortgage

Back 52

Has super-priority even over prior judgments against the borrower.

Does not apply if judgment was against PROPERTY.

Front 53

After Acquired Property Clause

Back 53

MR promises any property they subsequently acquire will also act as security for mortgage

Very uncommon.

Requires lenders to look at all prior mortgages of borrower.

Front 54

Dragnet Clauses

Back 54

Clause which attempts to tie ANY later debt to original security

Front 55

Narrow Future Advances

Back 55

limits future debt tied to security to monies paid in preserving the property

Requires a showing of intent at the time subsequent debt was acquired.

Front 56

The 3 "Draconian Provisions" of ILSCs

Back 56

(a) Automatic forfeiture of all amounts paid toward the price in the event of a default

(b) retention by the vendor of those amounts as liquidated damages

(c) termination of the contract upon forfeiture

Front 57

When do courts treat an ILSC as an equitable mortgage?

Back 57

(1) When the Purchase goes into possession immediately upon execution of the contract
AND

(2) When the purchaser has paid off a substantial portion of the contract's purchase price

Front 58

Right of Redemption

Back 58

Right of a debtor whose real property has been foreclosed upon and sold to reclaim that property if they are able to come up with the money to repay the debt.

Front 59

Absolute deed

Back 59

-conveys unrestricted title to property

-used to convey title without conditions or encumbrances

-sometimes parol evidence is needed to establish that absolute deed was intended to be a mortgage

Front 60

Types of Covenants

Back 60

(a) Present Covenants: Seisin, Right to Convey, Covenant Against Encumbrances

(b) Future Covenants: Warranty and Quiet Enjoyment, Covenant of Future Assurances

Front 61

Doctrine of After-Acquired Title

Back 61

Says if A--> B, but A doesn't have title, if at some point later, A acquires title, it automatically goes to the person who they sold it to.

Front 62

Graduated Payment Mortgage

Back 62

You pay more over time (like a staircase)

Front 63

Shared Appreciation Mortgage

Back 63

Lender and borrower run the risk together; benefit for the borrower of capping out of pocket mandatory interest payments, unless and until there is an appreciation in the property; lender gets a good deal if the house prices are going up

Front 64

Reverse Annuity Mortgage

Back 64

We give you the money, you pay us back when the house is sold.