Chapter 16: Notes and Security Documents

What is used in Georgia, instead of a mortgage or trust deed?

Security deed

The mortgage is NOT the note it is

Security

Mortgage

A document that uses property as security (collateral) for a loan or debt.

Deed of Trust

A document that gives legal title to a neutral third party (trustee) as security for a debt.

A document used in Georgia to secure a note; replaces a mortgage or deed of trust.

Security Deed

Conveys legal title to the lender:

Security Deeds

Foreclosure

The procedure by which a person's property may be taken and sold to satisfy an unpaid debt.

Promissory Note

A written promise to repay a debt; usually referred to simply as a note.

Attorney represents the

Lender

The note is the fundamental loan document and creates the?

Obligation of the borrower to pay the lender.

If there is no note

There is debt.

A note is considered to be?

A negotiable instrument that creates a debt. The debt created may be conveyed to a third party.

Note=Loan

To be valid as evidence of debt, a note must:

1. Be in writhing.

2. Be between a borrower and lender, both of whom have contractual capacity.

3. State the borrower's promise to pay a certain sum of money.

4. Show the terms of payment.

5. Be signed by the borrower.

6. Be voluntarily delivered by the borrower and accepted by the lender.

If the note is secured by a mortgage or trust deed:

It must say so.

Or

Gives

Ee

Receives

The obligor

The one giving the obligation or making the payments on the note.

Obligee

The lender, is receiving the payments

Interest Conveyance

To give the property to someone else.

The note will state:

When the payments are due, where the payments are to be made, the rate of interest, how the interest is to be computed, how the interest is to be applied, and the period payments obligation.

Interest on real estate loans is almost always computed as?

Simple Interest

Interest is paid in arrears, which means:

When a person is making a payment for the month of June, a person is actually paying the interest for May.

Interest is ALWAYS:

Arrears

Simple Interest

Interest calculated on the amount of money still owed for each period.

Say you buy a house and borrow $200,000.

Your interest rate is 6% per year.

For the first year:

$200,000 × 6% = $12,000 interest

Debt Service

The amount of the payment required to retire the debt

Is interest required to make a note valid?

No

Interest is paid in?

Arrears

Prepayment Privilege

The right of the borrower to make additional and early payments against the loan balance without being penalized.

All VA loans and FHA- loans feature?

Prepayment Privilege but cannot charge prepayment loan.

Prepayment penalty provisions would require the:

Borrower to pay penalty is she/he pays off the loan early.

True or False:

While most conventional (nongovernment) loans do not have a prepayment penalty, they legally can.

True

The note will provide the lender with remedies in the event of a?

Default

In the event that the borrower is more than 30 days late:

The lender may accelerate the note

The note will state if there is supporting security such as:

A mortgage, trust deed, or security deed

The mortgage is s separate agreement from:

The promissory note.

Note is evidence of a:

Debt and a promise to pay.

The mortgage provides security (collateral) that the lender can sell if the note is not?

Paid.

Hypothecation

The borrower retains the right to posses and use the property while it serves as collateral.

To pledge property means to

Give up possession to lender while it serves as collateral.

Give up Possession

Pledging

Mortgagor

The party giving a mortgage; the borrower.

Mortgagee

the party receiving the mortgage; the lender

Trustor

One who creates a trust; the borrower in a deed of trust.

Beneficiary

One who benefits a trust is created; the lender in a deed of trust.

Trustee

A neutral third party who holds property in trust as security for a debt.

TRUSTee = holds the property in TRUST

When a note is secured by a deed of trust, three parties are involved:

1. The borrower (the trustor)

2. The lender (the beneficiary)

3. Neutral third party (the trustee)

Naked Title

Also known as bare title. Legal title without the usual rights and benefits of ownership.

Example: The trustee temporarily holds the legal title to the property, but the trustee doesn't get to use the house, live there, sell it for themselves, etc.

True or False

The lender does not receive title, but only a right that allows the lender to request the trustee to act.

True

Reconveyance Deed

Used to reconvey title to property back to the borrower once a debt has been paid on a deed of trust, also called a release deed.

Power of sale is a clause found in:

The deed of trust

Are mortgages common in Georgia

Yes

A security deed in Georgia has the same basic purpose as a mortgage or a trust deed to provide?

Security (collateral) for the note.

Section 1 of Covenants:

Requires the borrower to make payments on time.

Section 2 of Covenants:

States that the payments received will be first applied to interest owed and then principal.

Section 3 of Covenants:

The escrow account for budget loans

Section 4 of Covenants:

The covenant to pay taxes

Section 5 of Covenants:

The covenant to pay insurance

Section 6 of Covenants:

Requires the borrower to occupy the property within 60 days after closing and occupy the property for at least one year as his/her primary residence. (Mortgage Fraud)

Section 7 of Covenants:

The covenant of good repair

Clause that says if the borrower conveys any interest in the property to another without the lender's prior written consent, the lender has the right to call the entire loan balance due and payable; also called the due on sale clause

Alienation Clause

Acceleration Clause

Allows the lender to demand immediate payment of the entire loan if the borrower defaults

Defeasance Clause

Provides that once the loan is fully paid, the lender must release/cancel its security interest in the property.

= “The debt is paid → the lender's claim on the property ends.”

When a borrower creates a debt against a property by signing a note and security deed, the security deed is recorded, and if a title search is completed, the security deed will show as an?

Encumbrance on the property.

Upon payoff of the note, the lender has the obligation to record a document showing that

Debt is paid and the property is no longer encumbered.

When a title search is subsequently completed, the search will show:

The original security deed encumbering the property and then the release.

An alternative to having the security deed signed by the lender and re-recorded is to have the lender:

Execute and record a separate document similar to a quitclaim deed.

Georgia is a lien theory state in relationship to the use of mortgages; that is, the lender simply receives lien rights to the property, and, in the event of default: The foreclosure process is?

Judicial

True or False:

Georgia has effectively circumvented the judicial foreclosure process by using the security deed.

True

Any party interested in the property may contact the lender or representative and receive information. They must?

Must come with cash.

On a loan foreclosure in Georgia, the borrower has the legal right to pay off the loan any time before the sale and reclaim the property. This is known as

Equitable redemption.

Right created by statute/law to reclaim the property AFTER the foreclosure sale.

A legal right allowing a former owner to reclaim a property after foreclosure sale by reimbursing the purchaser as required by law, including applicable interest/costs.

Statutory redemption.

Georgia does not recognize statutory redemption. The foreclosure against debt is?

Final

If an existing mortgage on a property does not contain a due-on-sale clause:

The seller may pass the benefits of that financing along to the buyer.

The safest arrangement for the seller is to ask the lender to substitute the buyer's liability. This is known as?

An assumption with a release of liability and is accomplished through a novation.

Certificate of Reduction

A document issued by the lender to verify the loan balance.

Estoppel Certificate

A document in which a borrower certifies the amount owed on a mortgage loan and the rate of interest.

True or False:

The debt with the highest priority is satisfied first from the foreclosure sale proceeds, then the next highest priority debt is satisfied.

True

First Mortgage

The mortgage loan with highest priority for repayment in the event of foreclosure; also called the senior mortgage.

Second Mortgage:

A second loan using the same house as collateral.

A mortgage in which property is used to secure another note before the first mortgage is fully satisfied.

Junior Mortgage:

Any mortgage on a property that is subordinate to the first mortgage in priority.

Subordination

Voluntary acceptance of a lower mortgage priority than one would otherwise be entitled to.

Ex: Refinancing

Equity equals

What you owe vs what your home is worth

Chattel Mortgage

Mortgage secured by personal property

Fore-Close simply means

To cut off.

Delinquent Loan

When a borrower runs behind in payments.

The two foreclosure routes:

Judicial and Nonjudicial.

Judicial fore-closure

Taking the matter to a court of law in the form of a lawsuit that asks the judge to foreclose (cut off) the borrower.

Nonjudicial Foreclosure

Does not go to court and is not heard by a judge.

The judicial foreclosure process begins with a?

Title Search

Notice of Lis Pendens

Recorded notice which indicates that a lawsuit is pending.

Tax liens must be payed by?

New buyer

Equity of Redemption

The borrower's right prior to foreclosure to repay the balance due on a delinquent mortgage loan.

Deficiency Judgment

A judgment against a borrower if the foreclosure sale does not bring enough to pay the balance owed.

Judgment = an official decision by a court.

True or False

Only a judge can award a lender a deficiency judgment, and only after a confirmation

True

The purchaser at the foreclosure sale receives either a referee's deed in foreclosure or a sheriff's deed. These are usually

Special warranty deed

Statutory Redemption

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

True or False:

Georgia does not allow for a statutory redemption on a security deed foreclosure.

True

Owner occupied houses has to be occuiped for at least?

One Year

Strict Foreclosure

A judicial foreclosure without a judicial sale, and usually with-out a statutory redemption period.

Power of Sale

Allows a mortgagee to conduct a foreclosure sale without first going to court.