Chapter 5, Real Estate Finance

Front 1

Acceleration Clause

Back 1

A clause in a mortgage, land purchase contract or lease stating that, upon default of any terms of original contract, the balance of the obligation should at once become due and payable.

Front 2

Adjustable Rate Mortage

Back 2

A loan with an interest rate that is periodically adjusted to reflect changes in a specified financial index.

Front 3

Ballon Mortage

Back 3

One in which the scheduled payment will not fully amortize the loan over the mortgage term. Therefore, it requires a final pay called a balloon payment, larger than the uniform payments, to fully satisfy the debt

Front 4

Conventional Loan

Back 4

A loan made with real estate as security, and not involving government participation in the form of insuring (FHA) or guaranteeing (VA) the loan. The lender (institution or private party) looks solely to the credit of the borrower and the security of the property to assure payment of the debt.

Front 5

Deed of Trust

Back 5

An instrument used in many states in place of a mortgage. Property is transferred to a trustee by the borrower (trustor), in favor of the lender (beneficiary), and reconveyed upon payment in full.

Front 6

Defeasance Clause

Back 6

A clause to terminate a partys rights in an instrument under specified conditions" such as reconveyance of title upon payment of debt. """

Front 7

Due on Sale Clause

Back 7

Provision in a mortgage or deed of trust allowing the lender to demand immediate payment of the loan balance upon sale of the property. See ALIENATION CLAUSE.

Front 8

Equal Credit Opportunity Act

Back 8

Federal law passed in 1974, to prohibit lenders from discrimination in the granting of credit on the basis of race, creed, color, religion, national origin, sex, marital status, age, or because income comes from public assistance programs.

Front 9

Construction Loan

Back 9

A short-term, interim loan for financing the cost of construction. The lender makes payments to the builder at periodic intervals as the work progresses.

Front 10

FNMA (Fannie Mae)

Back 10

See Federal National Mortgage Association.

Front 11

Amortized Loan

Back 11

A loan that is completely paid off, interest and principal, by a series of regular payments that are equal or nearly equal. Also called a Level Payment Loan.

Front 12

Assumed to Agree and Pay

Back 12

An agreement to become personally liable for the terms and conditions of a mortgage, including the payments.

Front 13

Foreclosure

Back 13

The legal process by which a borrower in default under a mortgage is deprived of his or her interest in the mortgaged property. This usually involves a forced sale of the property at public auction with the proceeds of the sale being applied to the mortgage debt.

Front 14

Good Faith Estimate

Back 14

Any act done with honest intent. Bona Fide.

Front 15

Graduated Payment Mortage

Back 15

A mortgage that has payments beginning at less than interest only, and gradually increase at specified times (usually once each year for seven years), then level off and stay the same for the balance of the loan term.

Front 16

Holder in Due Course

Back 16

Person who, in good faith and for value, obtains a promissory note or check before it was overdue, and who does not have notice that it had been previously dishonored, and does not have knowledge of any defects.

Front 17

Installment Land Contract

Back 17

Purchase of real estate wherein the purchase price is paid in installments over a long period of time and title is retained by seller. Upon default, the payments are forfeited. See also LAND

Front 18

Land Contract

Back 18

A contract for the sale of real or personal property in which possession is delivered to the buyer, title to remain vested in the seller until all the conditions of the contract have been fulfilled. (See CONDITIONAL SALES CONTRACT)

Front 19

Loan Commitment

Back 19

1) Title insurance term for the preliminary report issued before the actual policy. Said report shows the condition of title and the steps necessary to complete the transfer of title as contemplated by buyer and seller. (2) A written promise to make or insure a loan for a specified amount and on specified terms. (See COMMITMENT)

Front 20

Lock in Clause

Back 20

A clause in a note, mortgage, or trust deed that prevents prepayment.

Front 21

Mortgage

Back 21

1) To hypothecate as security, real property for the payment of a debt. The borrower (mortgagor) retains possession and use of the property. (2) The instrument by which real estate is hypothecated as security for the repayment of a loan.

Front 22

Mortgagee

Back 22

A bank or other financial institution that lends money to the borrower. The borrower is considered the mortgagor.

Front 23

Mortgagor

Back 23

The person who borrows money to purchase. The lender is called the mortgagee

Front 24

Package Mortgage

Back 24

A trust deed or mortgage, secured by both real property and personal property (appliances, carpeting, etc.).

Front 25

Prepayment Privilage

Back 25

The right a debtor has to pay off all, or a part of, the debt, without a penalty or fee being charged, before the debt becomes due.

Front 26

Promissory Note

Back 26

A written promise to repay a specified amount over a specified period of time.

Front 27

Purchase Money Mortgage

Back 27

Deed of trust, mortgage or land contract given to the seller to secure payment of the balance of the purchase price or a deed of trust, mortgage or land contract on an owner-occupied dwelling of four units or less, given to a lender to secure repayment of a loan that was used to purchase the property.

Front 28

Savings and Loan Associations

Back 28

Established to promote "thrift" and home ownership by loaning out the depositors' deposits, in the form of residential home mortgages.

Front 29

Seasoned Loan

Back 29

A loan with good payment record.

Front 30

Secondary Mortgage Market

Back 30

Market place for the sale and purchase of existing trust deeds and mortgages. See also FNMA, GNMA, FHLMC, etc.

Front 31

Straight Note

Back 31

A note in which the principal is paid in one sum.

Front 32

Subject To

Back 32

The transfer of rights to pay a debt from one party to another, with the original party remaining liable for the debt if the second party defaults.

Front 33

Syndication

Back 33

When the purchase of real estate is made primarily for investment purposes financing is often conducted by a group instead of by an individual. One person may not have sufficient capital for the purchase of the desired equity, therefore, two or more persons may join in the purchase and take title in common (trusteeships are often used). Pooling money in this fashion makes it possible for a person of limited financial means to share in the profits of a real estate investment.

Front 34

Truth-in-Lending

Back 34

The Federal Reserve Boards "Regulation Z"" which requires disclosure of certain loan terms to the borrower" before the obligation is effective. "

Front 35

Wrap-Around Mortage

Back 35

A loan given to a buyer for the remaining balance on a seller's first mortgage and an additional amount requested by the seller. Payments on both amounts are made to the lender who holds the wraparound loan