Question Answer
What are the essential elements of a mortgage note? Amount borrowed, rate of interest, Payment amount due date and term, maturity date, reference to the mortgage, default, penalties for late payment, acceleration clause, recourse vs. non-rec, assumability, future advances, release of lien
clause condition or provision set in a contract
What does the mortgage instrument do? defines mortgagor (borrower) and mortgagee (lender), gives evidence of a promissory note, pledges property as security, creates an obligation to pay
Basic mortgage requirements borrower & lender, property description, covenants of warranty, provisions between spouses, covenants and other contractual agreements
Mortgage clauses Impound accounts, charges and liens, hazard insurance (preservation and maint of property), transfer of property or a beneficial interest in borrower, borrowers rights to reinstate, lender in possess, future advances, subordination clause
impound accounts Funds for taxes and insurance (generally defined as an impound account). Many home owners choose to pay these on a monthly basis. They are set aside (in an impound account) and paid in full at the time which they are due.
due on sale clause allows the lender to accelerate the debt in order to protect his interests in the property in the case where the said property is transferred without written consent
future advances usually associated with construction loans
assumption of mortgage mtg transfers ownership, docs must be clear as to which party is responsib for mtg, if release of mtg results in increased risk to lender then compensation such as a higher interest rate must take place
acquiring title subject to mortgage buyer takes title but seller is still financially obligated to make payments to the lender, if buyer is unable to make payments the original owner must still make payments
mortgage default and foreclosure breach of mtg contract and note,
alternatives to forclosure restructuring the loan, transfer to new owner, voluntary conveyance to the lender, a friendly foreclosure, prepackaged bankruptcy
bankruptcy chap 7, 11, 13
Chap 7 bankruptcy all debts complete discharged, available to anyone
chap 11 bankruptcy available to owners of a business, tries to preserve debtor’s assets while coming up with a reorganization plan which has to be filed with 120 days
chap 13 bankruptcy alternative to Chapter 7 liquidation, similar to Chapter 11 as it is designed to rehabilitate the debtor, your unsecured debts must be less than $100,000 and secured debts less than $35,000
note document which serves as evidence that debt exists between a borrower and a lender and has the terms by wheich the loan must be repaid and the rights and responsibilities of both parties
what info is ususally contained in the note? amount borrowed, interest rate, due dates, maturity date, ref to real estate, applic of payments, default (usually occurs when nonpay), penalties, provisions, notif of default, non recourse clause, ln assum, assingment cls, future advances, rel of lien
t or f provision is a privilege and nor a right because the dollar amount and number of payments to be made by the borrower are specified. true
notification of default with any past due payments, the lender must notify the borrower that he or she is in default. The lender may then accelerate on hte note by demanding that all owed under loan be paid immediately
nonrecourse clause provision under which the lender agrees not to or specifies conditions under which it will not hold the borrower personally liable in the event of a default on the note.
loan assumability conditions a borrower will be allowed to substitute another party in his place who will then assume respons for remain loan payments
due on sale clause requires all remaining amounts due to be paid upon sale of or transfer of title to the property.
assignment clause gives the lendedr thr right to sell the note to another party without permission from the borrower.
future advances provision under which the borrower may request additional funds up to some max amount or max percentage of the current property value under the same terms contained in orig ln agreement. interest rates may vary
release of lien lender agrees to release or extinguish it lien on the property when the loan is paid in full.
mortgage created in a transaction in which on party pledges real property to another party as a security for an obligation owed to the party
promissory note executed contemporaneously with the mortgage
essential elements to a mortgage obligation to pay or perform and pledge of property as security for that obligation.
mortgagor borrower
what is the difference between the note and the mortgage? note-provides evidence of the debt and makes borrower liable, and the mortgage-separate doc that pledges the property as security for the debt.
mortgagee lender
what are some other interests that can be mortgaged? any interest in real estate that is subject to sale, grant, or assignment can be mortg. any that can be transferred like fee simple, life, estates for years, remainders, reversions, leasehold interests, and options to purchase
does a mortgage have to be in writing? yes, the statute of frauds states it must be in writing. However, there is no specific form that must be used for mortgages. It could be handwritten.
What are the subjects that must be included in a mortgage identif of the mortgagor and mortgagee, description of property, covenants of seisin and warranty, provisions for release of dower rights, any other desired covenants and contractual agreements.
FNMA-FHLMC Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. adopted joint standardized mortgage forms for the purpose of facilitating secondary market transactions on a nationwide basis.
why have most states adopted uniform federal mortgage forms? becuase it is readily acceptable by the major secondary market institutions, should the lender desire to sell the mortgage after it has been originated.
funds for taxes and insurance clause requires the mortgagor to pay amounts to cover taxes and fire and casualty insurance plus mortgage insurance premiums. borrower pays these to the lender and the lender is able to make sure these items are paid for and the property is protected.
charges of liens clause requires the mortgagor to pay all taxes, assessments, charges and claims assessed against the property that have priority over the mortgage and to pay all leasehold payment if any. This is done because liens generally have priority over 1st mortgage.
Hazard Insurance clause requires the mortgagor to obtain and maintain insurance against loss or damage to the property caused by fire and other hazards to protect the property
preservation and maintenance of the property clause obligates the mortgagor to maintain the property in good condition. This is to insure the collateral retains its value
transfer of property or beneficial interest in borrower clause known as the due-on-sale clauseallows the mortgagee to accelerate the debt when the property or some interest itn the property is transferred without the written consent of the mortgagee.
borrowers rights to reinstate clause gives the mortgagor the right to have foreclosure proceedings discontinued at any time before a judgment is entered enforcing the mortgage if the mortgagor follows stated rules.
how can a mortgagor stop a foreclosure 1. pays to mortgagee all sums due 2. cures any default of any covenants or agreements 3. pays all expenses incurred by the lender in enforcing its mortgage 4. takes such action to ensure mortgagees rights in the property are in tact
lender in possession clause upon acceleration or abandonmnet of property, the mortgagee may enter the property to protect the security
future advances clause the mortgage may cover future advances as well as current advances.
open end mortgage the borrower arranges in advance with the mortgagee fore a total amount usually stated in the mortgage that will be advanced in stages under the mortgage to meet the part of the costs of construction as it progresses.
subordination clause a first mortgage holder agrees to makeits mortgage jr in priority to the mortgage of another lender. ususally comes into play when construction or improvement is done.
assumption of mortgage if it is the intention of both parties this deed will contain a clause that the grantee (new buyer) assumes and agrees to pay the amount of the obligations owed to the mortagee as part consideration for conveyance of title
can the mortgagee hold the orig. owner of the real estate liable is the assumer does not pay? yes, because the assumption really has nothing to do with the mortagee, the orig mortgagor could be liable unless it has received a release from the debt.
"subject to" mortgage grantee may not be willing to assume responsibility for the loan in the even he does not want to continue or defaults on his payments, mortgagor is responsible for the loan.
fixture an item of tangible personal property (also called a chattel) that has become affexed to or is intended to be used with the real estate and is considered part of the property.
after acquired property clause states that property acquired subsequent to the execution of the mortgage that becomes part of the real estate is included in the security covered by the mortgage
junior mortgages senior mortgage is the first mortgage, all other are given the class name of jr mtg. or a second mortgage, normally second mtgs are short term and carry a higher interest rate than 1st mtg. because of additional risk associated with it.
does the recording of the mortgage make it legal? no, it was already legal it only makes it public. It also established priority of subsequent acts of the mortgagor. The priority is established by the time or recording
is is important for mortgagees to make sure their mortgages are recorded absolutely, it establishes priority over other liens
what are some other financing sources? seller financing-used when 3rd party mtg financing is too expens. and not available, the buyer does not qualify, seller desires to take advantage of the installment method of reporting gain, seller desires to raise price and lower interest
purchase money mortgage any mortgage given by a buyer to the seller to secure payment of all or part of the purchase price of a property
land contract has a variety aliases including real estate contract, installment sales contract, agreement to convey and contract for deed. the seller gives title when purchaser completes performance of the obligation called for in the contract, norm oblig is payment)
is a land contract the same as a mortgage? no, seller retains land title in their name,
can a person buying under a land contract control what happens on the property? no, after their contract the title hold can lease, etc the property
in a mortgage, who has the title what about a land contract? mortgage – buyer, land contract – seller
what constitutes default failure to fulfill a contract, agreement, or duty, especially a financial obligation like a note. most common is not paying installments of principle and interest
technical default can things like not keeping up with the maintenance of the security. Not normally enough to have mortgagee push for foreclosure.
workouts the various ways undertaken to deal with a mortgagor who is in financial trouble. many time the parties make a workout agreement that sets forth the rules by which during a specified period of time the lender will not pursue legal remedies
what are the 5 alternatives considered in a workout? 1. restructuring the mortgage loan2. transfer of the mort. to a new owner3. voluntary conveyancy of the title to the lender4. a friendly foreclosure5. a prepackaged bankruptcy
extension agreement a mortgagor in financial difficulty may seek permission from the mortgagee to extend the mortgage terms for a period of time
what are some of the things a mortgagee with take into consideration when a borrower asks for an extension condition of security, intervening liens, surety status of grantees that have assumed the loan,
purchasing property "subject to" allows the buyer to back out of the deal if the deal is not a good financial investment for him.
voluntary conveyance (giving deed in lieu of foreclosure) if there is equity in the house the mortgagee may take the title and pay the mortgagor for the equity. Mortgagors must insist on getting a release of lien
friendly foreclosure a foreclosure action in which the borrower submits to the jurisdiction of the court waives any right to assert defenses and claims and to appeal or collaterally attack any judgment and otherwise agrees to cooperate with the lender in the litigation.
prepackaged bankruptcy before filing bankr. petition, borrowers agree with all their creditors to the terms on which they will turn their assets over to their creditors in exchange for discharge of liabilities
when do mortgagees press for foreclosure normally they are quite patient and will work with the borrower and make arrangements and negotiations for the borrower to pay. When these attempts fail, then foreclosure could be necessary.
judicial foreclosure to sue on the debt, obtain judgment, and execute the judgment against property of the mortgagor. A judgment is not limited to the property, it may also be placed against mortgagors other property that is okay by law.
what are the 2 remedies that a mortgagee has to protect their interest in a property? judgment against a property and foreclosure
redemption the process of canceling or annulling a title conveyed by a foreclosure sale by paying the debt or fulfilling the other conditions in the mortgage.
equity of redemption the right of the mortgagor to redeem his or her property from default, the period from the time of default until foreclosure proceedings are begun.
the right to redeem property after foreclosure statutory redemption, this exists in about half of the states (this runs about 6 mo to a year after the foreclosure sale)
what do states do instead of allowing mortgagors to redeem property after a foreclosure? they allow a longer period of time before the foreclosure to pay the debt that is in default
deed of trust may be used in some cases to finance real estate in place of a mortgage. It includes 3 parties: Borrower (trust creator), trustee (holds title as security), holder of note.
t or f the trustee has power of sale when they hold the title of security in cases with a deed of trust. true, when the borrower is in default
what is the advantage of a deed of trust over a mortgage? deed of trust has the advantage of normally being more expeditious in a foreclosure
bankruptcy a proceeding in which the court takes over the property of a debtor to satisfy the claims of creditors. the goal is to relieve the debtor of all liabilities, so that he or she may become financially solvent.
chapt 7 liquidation "straight bankruptcy" to give debtors a fresh start by dischar. all of their debts and liquidating their nonexempt assets. avail to any person regardless of the extent of his or her assets or liabilities. can be filed by debtor or credit. against them.
chap 11 avail to owners of business. looks to the preservation of debtor's assets while a plan or reorganization to rehabilitate the debtor is formulated.
how long after the debtor files chapt 11 does he have to come up with a plan of reorganization? 120 days must be filed by the debtor with the court.
What are the two ways reorganization of debt in chap 11? reduce payments of debt and stretch out the time period in which to pay off the debt, or scale down the debt reducing the debtor's obligation to an amnt less than full claim
cramdown under chp 11, provide borrowers with the ability to restructure their secured and unsecured indebtedness by executing a plan of reorg. that outlines the mechanics for getting borrowers back on their feet and tells how diff classes will be treated
chap 13 known as wage earner proceeding, designed for rehab. to qualify you must have an income and have unsecured debt of < $100,000 and secured debt of < $350,000 .
which chap is most likely to be used for individuals? chap 13
what is the goal of chap 13 a repayment plan. Can be filed any time in good faith.
discharge assuming successful completion of plan payment under chp 13, the debtors receive a discharge of all debts provided for in the plan other than longterm obligations
t or f a property subject to a deed of trust may be sold subject to the deed of trust either with or without an assumption of debt by the purchaser true
t or f only a trustee has the power to clear the record through a reconveyance of the property when there is a notice against it. true.
does the purchaser inherit title defects when he or she purchases a property? yes. any defects that existed prior to the foreclosure sale will continue with the title as it passes to the purchaser. So every foreclosure action should be preceeded by a record search for jr claimants and judgements
t or f the purchaser at the foreclosure sale takes over the property free of the lien of the mortgage being foreclosed but also free of all holders of junior liens who have been joined in foreclosure actions. true
redeem up or foreclose down the jr mortgagees must honor the prior position of sr mortgagees, but jr mtgees may wipe out liens jr to theirs.
deficiency judgment any deficit remaining after a foreclosure and sale of the property, this judgments are unsecured unless debtor has additional property to place the judgment on.
tax sale intended to parellel that followed in the foreclosure of mtg. at sale time purchaser recieves a tax certificate which is subject to redemp in all states, period of redemp.. is 2-3 yrs. If prop not redeemed by deliqu taxpr, purchased entitle to prop. deed