Real Estate Investment & Finance Notes and Mortgages - Vocabulary Flashcards

Notes: Major Provisions

• Amount Borrowed
• Rate of Interest
• Payment Amount, Due Date, Number of Payments
• Maturity Date
• Reference to the Real-estate – mortgage document
• Application of Payments
• Default
• Penalties for Late Payment and Forbearance

Major Provisions (Expanded)

• Early Payments or Prepayment
• Notification of Default and Acceleration Clause
• Nonrecourse Clause
• Loan Assumability - borrower
• Original borrower may remain personally liable
• “Due on Sale” – Prohibit Assumability
• Assignment Clause – Lender
• Future Advances – Line of Credit
• Maximum amount
• Maximum loan to value
• Release of Lien by Lender

Mortgage: Elements

• Obligation to pay or perform – Note
• Pledge of property as security
• Relationship of Note to Mortgage
• Note: Personal Liability
• Mortgage: pledge of real-property
• Lender can sue on note or mortgage
• Interests that can be Mortgaged

Mortgage: Parties to a Mortgage

• Mortgagor – Owner / borrower
• Mortgagee – Lender
• Governed by State Law
• Federal – indirect intervention

What should always be included

• Identification of the parties
• Proper description of the property
• Covenants of seisin and warranty
• Provision – release of Dower (Curtsey) Rights
• Any other agreement
• Important Clauses
• Taxes & Insurance Fund
• Charges & Liens
• Requires mortgagor to pay taxes, etc. that have priority over the mortgage
• Hazard Insurance
• Property Preservation and Maintenance
• Due on sale clause

Important Clauses

• Borrower’s Rights to reinstate
• Having foreclosure proceedings discontinued
• Pay all late payments
• Cure any default of covenants or agreements
• Pay all expenses
• Insure mortgagee’s rights and mortgagor’s obligations are unchanged
• Lender Possession
• Future Advances
• Subordination Clause

Assumption of Mortgage

• Grantee (Buyer) /Grantor (Seller)
• Liability – Grantee and Grantor
• Release Conditions
• “Subject to” Mortgage
• Liability - Grantor

Property Covered by a Mortgage

• Land
• Existing buildings on the land
• Fixtures that become part of the property
• Easement
• Water and mineral rights
• Rent and profit
• After-acquired property clause

Senior (first) & Junior Mortgages

• Recording Mortgages
• Protect Lien Priority
• Seller Financing – “Purchase-Money Mortgage”
• Third party financing too expensive
• Buyer lacks sufficient down payment

Land Contract

• Seller retains title
• Seller conveys title when purchaser completes the performance obligations
• Usually allows the seller to mortgage the property up to amount of buyer’s indebtedness

Default

• Breach of mortgage contract
• Usually payment of principal and interest
• Default
• Breach of mortgage contract
• Failure to make payments
• Failure to pay taxes
• Failure to pay Insurance Premium
• Technical Default
• Failure to maintain the property

Alternative to Foreclosure

• Workouts
• Why would lender agree to workout
• Workout cost < Foreclosure cost
• Borrow situation is temporary
• Modification of terms
• Lender refrains from taking legal action
• Borrower acknowledges difficulty and agrees to workout conditions

Restructuring the Mortgage Loan

• Recasting of Mortgage
• Extension Agreement
• Alternative to Extension Agreement
• Transfer of Mortgage to a new Owner
• Voluntary conveyance -- Deed in lieu of foreclosure

Foreclosure

• Judicial Foreclosure
• Sue on the debt
• Not limited to the mortgaged property
• foreclosure suit
• obtain a decree of foreclosure and sale pursue both simultaneously

Redemption – Equity Redemption

• canceling title conveyed by a foreclosure sale
• Prior to confirmation of foreclosure sale
• Pay the total debt
• fulfilling other conditions in the mortgage
• statutory redemption
• Right to redeem after foreclosure
• Range from $6$ months to $1$ year
• Some states postpone the sale to allow the redemption

Sale of Property

• Fixing Price
• Governed by state law
• Public Auction – best possible price
• Highest bidder – irrespective of cost
• Only cash
• Lender will bid the full amount of the claim when claim ≤ market value – cost of foreclosure
• “Upset”: court fixes a minimum value

Deed of Trust and Mortgage

• Governed by state law
• Parties to a Deed of Trust: Borrower, trustee, and holder of the note
• Deed of trust: Consult local real estate lawyer
• Deed of trust foreclosure: expeditious than a mortgage
• Mortgage Discharge vs. Deed of Trust
• mortgage discharge: simple acknowledgement of satisfaction on the record
• deed of trust: reconveyance of title is necessary

Nature of Title at Foreclosure Sale

• purchaser of the rights of the mortgagor
• title defects will continue
• Parties to Foreclosure Suit
• Senior Mortgage
• Junior Mortgage
• Judgment Creditors
• Trustees in bankruptcy

Parties to Foreclosure Suit – continued

• Parties not included in foreclosure suit, their rights are whole after sale
• purchaser at the foreclosure sale purchases the property free of liens joined in the foreclosure action
• Junior lien holders – lien destroyed – become unsecured creditors of the borrower

Deficiency Judgment

• deficit remaining after a foreclosure and sale
• Any deficit is a continuing claim
• Unsecured claim unless the borrower owns other real estate
• Several states limit the applicability of deficient judgment

Taxes in Default

• Taxes in Default
• Obligation of the mortgagor (borrower)
• Tax liens are superior liens to claims of mortgagee.
• Mortgagee may elect to pay the tax deficiency to maintain a senior position on the TD.
• Tax sales are not clean sales – pay tax up to $2$ or $3$ years and get the property back.

Bankruptcy

• Chapter 7: straight bankruptcy
• Chapter 11: business restructure
• Chapter 13: Personal restructure – Wage earners proceeding

Page 4: Elements of a Mortgage (Summary)

• Elements align with pages above
• Obligation to pay or perform – Note
• Pledge of property as security
• Relationship of Note to Mortgage
• Note: Personal Liability
• Mortgage: pledge of real-property
• Lender can sue on note or mortgage
• Interests that can be Mortgaged

Page 5–6: Parties and Inclusions (Key Points)

• State-law governance for mortgages and real estate
• Federal intervention is indirect
• Required inclusions reiterate party identification, property description, seisin and warranty covenants, dower rights release, and other agreements
• Financial provisions: Taxes & Insurance Fund; Charges & Liens; Hazard Insurance; Maintenance; Due on sale clause

Page 7–8: Additional Clauses and Assumptions

• Reinstatement rights and procedures
• Stopping foreclosure proceedings
• Cure of defaults and late payments
• Payment of expenses to preserve rights
• Lender possession and rights preserved
• Future advances and subordination clauses
• Assumption mechanics: Grantee/Grantor liability; release conditions; “Subject to” mortgage

Page 9: Property Covered by a Mortgage

• Land and buildings
• Fixtures become part of property
• Easements, water and mineral rights
• Rent and profit
• After-acquired property clause

Page 10: Financing Options and Priorities

• Senior vs. Junior mortgages
• Recording to protect lien priority
• Seller financing – purchase-money mortgage
• When third-party financing is expensive
• Buyer’s down payment considerations

Page 11: Land Contract Details

• Seller retains title until obligations met
• Seller may mortgage up to buyer’s indebtedness

Page 12: Default Breakdown

• Principal and interest payment default
• Taxes and insurance payment failures
• Technical default: due to maintenance failures

Page 13–14: Workouts and Restructuring

• Justifications for workouts: cost, temporary borrower distress
• Terms modification and avoidance of litigation
• Deed in lieu and transfer considerations

Page 15–18: Foreclosure Process Overview

• Judicial foreclosure mechanics
• Foreclosure vs. sale timing
• Deed of Trust peculiarities: expedited processes; reconveyance
• Distinctions between mortgage discharge and deed of trust reconveyance

Page 19–20: Foreclosure Title and Party Scope

• Title at foreclosure: purchaser steps into mortgagor’s rights
• Complications with title defects
• Senior vs. junior mortgage positions in suit
• Judgment creditors and bankruptcy trustees

Page 21: Deficiency Judgments

• What remains after sale
• Unsecured claim status unless other real estate exists
• State variations on deficiency judgment applicability

Page 22: Taxes in Default

• Mortgagor obligation for taxes
• Tax liens outrank mortgage claims
• Mortgagee’s option to pay to maintain senior position
• Tax sales: non-clean sales; tax payoff timelines (up to 2–3 years)

Page 23: Bankruptcy Classifications

• Chapter 7: straight bankruptcy
• Chapter 11: business restructuring
• Chapter 13: personal debt restructuring for wage earners

Key concepts and connections

• Mortgage vs. Deed of Trust: both secure real property but differ by state law and foreclosure efficiency
• Nonrecourse vs. full recourse loans and the implications for borrower liability
• Due-on-sale provisions and their impact on loan assumability
• The role of lien priority and recording in protecting lender interests
• Workouts as an alternative to foreclosure to preserve value and avoid costs
• Redemption rights provide borrowers a chance to reclaim property post-foreclosure
• Tax liens as superior claims require careful tax diligence and potential lender intervention
• Bankruptcy chapters determine how real estate debt is addressed in restructure or liquidation

Key formulas and numerical references

• Range for equity redemption period: 6\text{ months} \leq \text{redemption period} \leq 1\text{ year}
• Redemption and sale timing can be state-specific; adjust expectations accordingly
• Typical mortgage-related timelines often involve multi-year tax considerations (up to 2–3 years for tax restitution) as noted in tax-default discussions
• Lien priority is often protected by recording time and relative seniority of liens

Practical and ethical implications

• Prudent loan structuring should balance borrower access to credit with lender protections (lien priority, due-on-sale clauses, and insurance requirements)
• Transparent workout processes can reduce societal costs and preserve property value for communities
• Foreclosure should consider fairness to borrowers and the impact on neighborhoods, especially with real estate and asset value recovery
• Tax compliance is critical; improper handling of tax obligations can undermine mortgage security
• Bankruptcy implications require careful assessment of asset protection, discharge, and reorganization strategies

Real-world relevance and connections

• These concepts underpin residential and commercial real estate financing, including seller financing and purchase-money mortgages
• Understanding these provisions supports risk assessment, negotiation, and compliance in real estate transactions
• Foreclosure, redemption, and deficiency concepts are central to mortgage lending strategies and default management