17) RECP Chapter 17 Real Estate Finances (IN PROGRESS)

hypothecation

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

lien-theory

An interpretation of a mortgage in some states as being purely a lien on real property, owner by the mortagor:

-Title: The borrower holds both legal and equitable title to the property.

-Lender's Security: The lender holds a lien on the property.

-Security Instrument: Typically uses a mortgage.

-Foreclosure: Usually requires a judicial process, involving the court system.

-Example States: Florida, South Carolina, New Mexico, and Pennsylvania are examples of lien theory states.

*The theory dictates who truly holds ownership rights during the loan term.

title-theory

An interpretation of a mortage in some states as a conveyance of ownership from the mortgagor (borrower) to the mortgagee (the bank):

-Title: The lender (or trustee) holds the legal title to the property until the loan is fully repaid.

-Lender's Security: The lender has ownership of the title.

-Security Instrument: Often uses a Deed of Trust, which involves three parties: the borrower, the lender, and the trustee.

-Foreclosure: Can be a non-judicial process (often referred to as trustee sale) because the lender already holds the title.

-Example States: Nevada is a title theory state that uses a deed of trust.

*The theory dictates who truly holds ownership rights during the loan term.

valid mortgage or trust deed requirements

* A note as evidence of the debt

*The mortgage or trust deed as evidence of the collateral pledge

*May also require a signed promissory notes for the amount borrowed

-Also identifies the debt amount, the term of the loan, and the method/timing of payments

-Does NOT usually detail payment amounts, interest rates, or charges

mortgagor

The borrower in a mortgage agreement.

mortgagee

A lender/bank in a mortgage loan transaction.

mortgage

A legal document stating the pledge of the borrower

deed of trust

A deed to real property, which serves the same purpose as a mortgage, involving three parties instead of two. The third party holds naked title for the benefit of the lender. Beneficiary (Lender), Trustor (Borrower), Trustee (Third Party)

trustor (in a deed of trust)

Borrower under a deed of trust

trustee (in a deed of trust)

A third party under a deed of trust, who acts as an agent for the lender

beneficiary of a trust (in a deed of trust)

The lender, for whom a trustee holds the title until a borrower's loan is paid

mortgage principal

Amount of money borrowed on which interest is payed or received

loan balance

Remaining unpaid principal at any point in the life of the loan (aka remaining balance)

interest

A charge for the use of borrowed money; may be paid in advance or at the end of a payment period, depending on the loan terms

interest rate

A percentage applied to the principal to determine the amount of interest due

Annual Percentage Rate (APR)

Cost of borrowing money on an annual basis; takes into account the interest rate and other related fees on a loan.

points

Extra charges that must be paid by the buyer to the lender in order to get a lower interest rate; discount points that make up the difference between the interest rate of the loan and the required return by a lender

loan term

The period of time over which a loan must be repaid

promisory note maker/payer

A person/borrower who exexcutes a promisory note

promissory note payee

The party/lender who receives a payment from a borrower

negotiable instrument

A promissory note where the holder of it can transfer the right to collect the debt to another person or agency (ex. when a mortgage company sells a loan to a different company)

private mortgage insurance (PMI)

Insurance provided by a private carrier that protects a lender against a loss in the event of a foreclosure and deficiency/borrower default

typical mortgage clauses

-Payment of principal & interest/prepayment and late charges

-Funds for taxes/insurance

-Application of payments

-Charges/liens

-Hazard/property insurance

-Occupancy, preservation, maintenance and protection of the property

-Protection of lender's rights in the property

-Mortgage insurance

-Inspection

-Condemnation

-Borrower not released/forbearance by lender not a waiver

-Transfer of the property or beneficial interest in borrower

-Borrower's right to reinstate

-Release

Payment of principal & interest/prepayment and late charges (mortgage clause)

Funds for taxes/insurance (mortgage clause)

Application of payments (mortgage clause)

Charges/liens (mortgage clause)

Hazard/property insurance (mortgage clause)

Occupancy, preservation, maintenance and protection of the property (mortgage clause)

Protection of lender's rights in the property (mortgage clause)

Mortgage insurance (mortgage clause)

Inspection (mortgage clause)

Condemnation (mortgage clause)

Borrower not released/forbearance by lender not a waiver (mortgage clause)

Transfer of the property or beneficial interest in borrower (mortgage clause)

Borrower's right to reinstate (mortgage clause)

Release (mortgage clause)

Uniform Residential Loan Application

A standardized form from Fannie Mae or Freddie Mac that lenders require potential borrowers to complete with pertinent information about the borrower and the property.

application initiation

The reciept by a lender of a completed application package from an applicant

mortgage underwriting

The process of qualifying the applicant and the property; evaluates the borrower's ability to repay, appraises the property value offered as security, and determines the terms of the loan