Real Estate Financing Principals

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Acceleration Clause

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At the time of a foreclosure the lender has the right to "accelerate: the maturity of the debt. This means the lender may declare the entire debt to be due immediately.

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alienation clause

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An alienation clause provides that when the property is sold the lender may declare the entire debt due immediately or permit the buyer to assume the loan at the current market interest rate "Real Estate Clause" "Due on Sale" or "Call Clause"

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beneficiary

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Is the holder of a note (lender) in a deed of trust.

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certificate of sale

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The successful bidder at the "Sheriffs sale, receives this in place of a deed.

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deed in lieu of foreclosure

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This is an alternative to foreclosure, sometimes called a friendly foreclosure because its carried out by a mutual agreement rather than a lawsuit.

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deed of trust

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Legal title in real property is transferred to the trustee, which holds in as security for a loan(debt) between a borrower and a lender.

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defeasance clause

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A mortgage provision indicating that the borrower will be given once all mortgage terms are met. Not required in states using property liens as collateral for a mortgage.

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deficiency judgement

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an unsecured money judgment against a borrower whose mortgage foreclosure sale did not produce sufficient funds to pay the underlying promissory note, or loan, in full.

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discount point

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fees specifically used to buy-down your rate 1% of your loan size.

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equitable right of redemption

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This right allows a borrower the opportunity to pay off the balance of mortgage debt, including interest and foreclosure fees, on the property. This right can be exercised at any time prior to the foreclosure sale.

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equitable title

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refers to a person's right to obtain full ownership of a property or property interest.The actual ownership of land.

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Escrow account

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an account separate from the mortgage account where deposit of funds occurs for payment of certain conditions that apply to the mortgage, usually property taxes and insurance.

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foreclosure

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the process of taking possession of a mortgaged property as a result of the mortgagor's failure to keep up mortgage payments.

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hypothecation

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a borrower pledges collateral to secure a debt or a borrower, as a condition precedent to a loan, or has a third party (usually an affiliate) pledge collateral for the borrower.

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interest

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money paid regularly at a particular rate for the use of money lent, or for delaying the repayment of a debt.

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intermediate mortgage theory

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based on the principles of title-theory states but still requiring the mortgagee to formally foreclose to obtain legal title.

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Judicial foreclosure

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If the court confirms that the debt is in default, an auction is held for the sale of the property in order to acquire funds to repay the lender

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land contract

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An agreement between a buyer and seller of property in which the buyer makes payments toward full ownership (as with a mortgage), but the title or deed is held by the owner until the full payment is made.

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lien theory

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the deed stays with the borrower (mortgagor), and the lender (mortgagee) places a lien on the property using the mortgage instrument.

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loan origination fee

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An up-front fee charged by a lender for processing a new loan application, used as compensation for putting the loan in place.

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mortgage

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convey (a property) to a creditor as security on a loan.

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mortgagee

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the lender in a mortgage

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mortgagor

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the borrower in a mortgage

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negotiable instrument

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a document guaranteeing the payment of a specific amount of money either on demand or at a set time with the payer name on the document.

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non judicial foreclosure

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you sign a deed of trust or mortgage that typically contains a power of sale clause. If you have a power of sale provision in your mortgage contract, the lender can foreclose without going to court.

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novation

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the substitution of a new contract in place of an old one

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prepayment penalty

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A clause in a mortgage contract that says if the mortgage is prepaid within a certain time period, apenalty will be assessed. The penalty is usually based on percentage of the remaining mortgage balance or a certain number of months worth of interest.

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promissory note

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a signed document containing a written promise to pay a stated sum to a specified person or the bearer at a specified date or on demand.

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release deed

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usually issued once a mortgage or other type of debt, previously secured against the asset, has been paid in full.

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satisfaction of mortgage

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A document generated and signed by a mortgage lender, acknowledging that the borrower has paid off the mortgage loan in full and that the mortgage is not a lien on the property.

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sheriff’s deed

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A document giving ownership rights in property to a buyer at a sheriff's sale

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sheriffs sale

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a public auction sale of property held by the sheriff pursuant to a writ (court order) of execution (to seize and sell the property) to satisfy (pay) a judgment, after notice to the public.

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statutory right of redemption

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give homeowners the right to redeem their mortgages for a period of time after the foreclosure sale, typically by paying the foreclosure sale price, plus interest and other allowable fees, to the foreclosure sale purchaser.

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statutory right of reinstatement

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This option is applicable when the defaulting mortgagor wishes to cure the default and reinstate the loan as though no acceleration had occurred.

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strict foreclosure

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s also an effective remedy where the value of the goods foreclosed is the equivalent of the debt due and owing, and the creditor can easily sell the goods for that value.

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title theory

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th e lending institution holdstitle to the property in the name of the borrower through a Deed of Trust. In a LienState, the deed stays with the borrower (mortgagor), and the lender (mortgagee) places a lien on the property using the mortgage instrument.

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Usury

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the illegal action or practice of lending money at unreasonably high rates of interest.