law of contracts unit 8

mortgagor

borrower

mortgagee

lender

mortgage

lien or encumbrance on real property

title theory

mortgagor gives legal title to mortgagee and mortgagor retains equitable title; legal title returned to mortgagor after done

lien theory (TX)

lender has a lien on real estate until debt is paid off; mortgagor has equitable title

modified lien theory

title remains with mortgagor but can be taken away if mortgagor defaults

hypothecation

mortgagor puts their house as collateral and morgagee can take it back if mortgagor defaults

promissory note

i promise to pay back my loan

PITI (#monthly mortage payment)

Principal- amount borrowed

Interest- fee to borrow money

Taxes- “PETE” property taxes

Insurance- “jake from state farm”

monthly mortgage payments

are usually around 15 to 30 yrs

Loan origination fee

fee charged to cover the expenses in generating the loan (not prepaid interest') 1 to 3 points usually 1%

Prepayment penalty

penalty because you paid your loan fast (exceptions are federal backed up loans and Fannie Mae and Freddie Mac)

Conventional and Commercial

usually have a prepayment penalty, 80/20 LTV

Deed of Trust

• trustor (borrower)

• trustee (intermeidary, #manager, manages PITI) usually an uninterested 3rd party

• Beneficiary (lender)

Usury

is abusury

interest

a charge for the use of money

in arrears

interest due at the end of payment period

discount point

a unit of measurement used for loan charges; one point= 1% of loan

acceleration clause

accelerates foreclosure; lender has the right to declare debt due payable immediately

release deed (deed of reconveyance)

gives rights back to mortgagor because debt is over

satisfcation

im satified with the debt being paid, #debt is over

impound or escrow accounts

an account that the mortgage lender may require a borrower to have to accumulate funds to pay future real estate taxes and insurance premiums

“subject to” mortgage

buyers are NOT obligated to pay debt in full if foreclosure seller is held liable

assume mortgage

buyers ARE obligated to pay debt in full, if foreclosure, both seller & buyer are liable

first mortgage or deed of trust

a mortgage on land that has no prior mortgage lien

alienation clause

balance becomes immediately due and payable at lender’s option

Second mortgage or deed of trust

another loan for additional funds, bigger risk to lender & high interest risk

land contract

a contract where buyer makes payments to seller & receives the deed after all is paid off

foreclosure

legal procedure in which property is pledged as security is sold to satisfy the debt

equitable right of redemption

the defaulted borrower is able to get back his property by paying off everything (but before foreclosure sale)

deficiency judgment

ruling in which mortgage seeks to get some of the borrower’s debt from the party’s general assets

died in lieu of foreclosure

default borrower negoitates with lender to give back title to lender (lwky lender loses b/c he gets liens back)

the federal reserve system

reserve system which helps regulate real estate

thrifts

genetic term for savings associations

primary mortgage market

loans are originited consisting of lenders and borrowers

Secondary Mortgage Market

buys existing loans to provide liquidity to primary lenders (resale)

Fannie Mae

purchases blocks/pools of conventional & federal backed loans (FHA and VA loans)

Freddie Mac

GSE (government sponsored enterprise) for mortgage loans (conventional loans)

Ginnie Mae

division of the USE Dept. of Housing and Urban development, administers special-assistance programs and guarantees mortgage backed securities using FHA &VA as collateral

Federal Home Loans Bank (FHLB)

GSE that purchases from thrifts

Farmer mac

secondary market for farmer loans

straight loan

divides into 2

1. periodic payments

2. payment of the principal in full at the end of the term

term loans

a type of loan where a lender provides a borrower with a single, upfront lump sum of money that is repaid with interest over a set period (the "term") through regular installments

Balloon payment

• periodic payments with a large sum at the end

amortized loans

debt that is paid off with timely payments

ARMs

mortgage rates that fluctuate

index

economic indicator that adjusts interest rate

margins

a premium added to the index rate representing the lender’s cost of

rate caps

limit the amount of interest rate may change

payment cap

sets maximum amount for payments

reverse mortgage

a loan by which a homeowner receives a ump sum based on the homeowners equity, must be repaid at prearranged date, upon death of the owner

package loan

real and personal property usually popular with developed and purchasers of furnished condomiums

construction loan

loan to finance construction in real estate

buydown

temporary reduction of interest rate on mortgage by lump sum being paid at closing

home equity loans

2nd mortgage that allows you to borrow a fixed, lump sum of money using the equity in your house as collataearl

home equity line of credit (HELOC)

permits the note holder to make advances from time to time, secured by the real estate in deed

conventional loans

secure loands with LTV of 80/20, usually has prepayment

conforming loans

a loan in which you must meet Fannie MAE guidelines like - not exceed 28% of PITI

not exceed 36% of housing and regular costs

Nonconforming loans

loans that dont meet Fannie MAE guidelines

Private Mortgage Insurance

buyer purchases an insurance policy that provides the lender w/ funds incase the borrower defaults

Mortgage Insurance Premium (MIP)

an insurance policy premium used in FHA loans

VA loans

veteran affair a type of financing to veterans which give little to no down payments (lenders will loan 4x)