Borrower agreements
-Borrower contract: promise to repay, taxes and liens, property insurance, occupancy, maintenance and good repair, covenant against removal.
Mortgage provisions
-Borrower contract: prepayment clause, prepayment penalty clause, acceleration clause, right to reinstate, due on sale clause, defeasance clause
Mortgage features
-Down payments, loan to value ratio, equity, interest, loan servicing, escrow (impound) account, discount points, loan origination fee, takeout commitment
Assignment of mortgage: a legal instrument stating the mortgagee assigns (transfers) the mortgage and promissory note to the purchaser.Estoppel certificate: a written statement that bars the signor from making a claim inconsistent with the instrument (commonly used with a mortgage assumption).
Subject to the mortgage: a buyer makes regular payments but does not assume responsibility
Assumption: buyer of real property that is already mortgaged assumes liability for the mortgage payment of the original loan on the property.
Novation: substitution of a new party or new terms to an exiting obligation.
Due on sale clause: a provision in a conventional mortgage that entitles lender to require entire loan balance to be paid in full if the property is sold.
Residential Mortgage Business
Most real property transactions involve some form of funding/financing. Residential mortgaging is a business.
Key Aspects
Acceleration clause loanee must pay off loan immediately under certain conditions. If the borrower misses too many payment, the acceleration clause is triggered.
Assignment of mortgage legally transfers one mortgage from one mortgagee to another. Assignment of mortgage is a legal document. Banks can sell and buy mortgages from each other. A mortgage provides security for the loan evidenced by a promissory note.
Assumption the action of beginning to take power or responsibility.
Contract for deed (land contract) aka agreement for deed/land installment contract/installment sale agreement seller of real property provides buyer financing to purchase while buyer repays loan in installments. Seller retains legal title to property while buyer takes possession for most purposes other than legal ownership. Sale price is paid in periodic installments. When final purchase price paid including interest seller obligated to convey title to real property. A land contract can be categorized as a special kind of real estate contract because the contract is between the seller and buyer of real property.
Deed in lieu of foreclosure a deed instrument in which a mortgagor (borrower) conveys all interest in real property to the mortgagee (lender) to satisfy a loan that is in default and avoid foreclose proceedings. The borrower immediately releases all indebtness to the borrowed loan. Both sides must enter voluntarily and in good faith. The settlement agreement must have the consideration at the fair market value. If the borrower owes more than the fair market value, then the lender might not accept the deed in lieu of foreclosure. The deed in lieu of foreclosure is sort of like owner/borrower giving up the rights and title and possession and enjoyment of the property. The borrower vacates and gives real property instead of making payments.
Default failure to fulfill an obligation or repay a loan or appear in a court of law. -- some had defaulted on student loans: fail to fulfill an obligation, esp. to repay a loan or to appear in a court of law.
Defeasance clause (defeasance: the action or process of rendering something null and void -- a clause or condition which, if fulfilled, renders a deed or contract null and void. I am guessing a defeasnace clause goes in a residential mortgage contract saying that if something is fulfilled then the contract or deed is deemed null and void.
Discount points interest mortgage borrowers buy to lower amount on subsequent interest. Each discount point costs 1% of the total loan amount and each point lowers interest rate by 1/8-1/4 and are tax deductible in year paid. On a $200,000 loan 1 discount point $2,000. Interest rate on mortgage is 5%. Each point lower interest rate .25%. Buying 2 points costs $4,000. So interest rate goes to 4.5%. Both lenders and borrowers gain benefits from discount points. Borrowers gain the benefit of lowered interest payments down the road, but the benefit applies only if the borrower plans on holding onto the mortgage long enough to save money from the decreased interest payments. Lenders benefit by receiving cash upfront instead of waiting for money in the form of interest payments over time, which enhances the lenders liquidity situation.
Due on sale clause a clause in a loan or promissory note that states the loan can be repaid in full if the property is sold and ownership is transferred. The lender has the right to call the note due if the borrower sells the property and gets paid. Loans are property specific I think.
Equity the value of the shares issued by a company -- the value of a mortgaged property after deduction of charges against it.
Equity of redemption the right of a mortgagor over the mortgaged property, esp. the right to redeem the property on payment of the principal, interests, and costs.
Escrow a bond, deed, or other document kept in the custody of a third party taking effect only when a specified condition has been fulfilled.
Estoppel certificate (estoppel: principle that precludes a person from asserting something contrary to what is implied by a previous action or statement of that a person or by a previous pertinent judicial determination. What is an estoppel certificate? It is a document designed to give third party critical information on the relationship between your landlord and you as a tenant. The third party is frequently a prospective purchaser of the landlord's real property containing your premises, or a lender who will be secured by an interest in that property. Typically the deal that the landlord is making requires the landlord to obtain such certificates from its tenants and present them to the third party for use in its "due diligence" review of the property.
First mortgage a mortgage in a first lien position on the property that secures the mortgage and is first priority over all liens and encumbrances in the case of a default.
Foreclosure the process of taking possession of a mortgaged property as a result of the mortgagor's failure to keep up mortgage payments.
Hypothecation pledge money by law to a specific purpose
Interest money paid regularly at a particular rate for the use of money lent or for delaying the repayment of a debt
Junior mortgage A mortgage that is subordinate to a first or prior senior mortgage. Junior mortgage = second mortgage, but junior could be third or fourth. Senior mortgage always paid down first. Junior = piggy back mortgage gives borrower's with less than 20% down a way to skip the private mortgage insurance. Every borrowing scenario should be expertly and carefully analyzed.
Lien theory the buyer holds the deed during the mortgage period. Buyer promises to make all payments on the property to the lender and the mortgage becomes a lien on the property, but the mortgagor holds the title. Once all payments complete the lender's lien is removed.
Lis pendens a pending legal action. a formal notice of a pending legal action. lis pendens get your legal pending to court legal lis pending pendens -- lis pendens pending legal action. (latin)
Loan origination fee similar to commission based payment. If lender takes 1% on an originating loan, then lender will make $1,000 on $100,000 loan. Usually rate is lowered for higher loans to hold valuable customers.
Loan a thing that is borrowed esp. a sum of money that is expected to be paid back with interest -- borrowers can take out a loan for $100,000.
Loan servicing process by which a lender collects interest, principal, and escrow payments from a borrower. Majority of mortgages are backed by the government Fannie Mae, Freddie Mac or Ginnie Mae (which purchases loans insured by the VA or FHA).
Loan to value ratio LTV a a lending risk assessment ratio that financial institutions and other lenders examine before approving a mortgage. Assessments with higher LTV ratios are higher risk and if the borrower is allowed to borrow money then the loan costs more to borrow or the borrower needs to purchase mortgage insurance. LTV = mortgage amount/appraised value of property. "For example, Jim needs to borrow $92,500 to purchase a $100,000 property. The LTV ratio yields a value of about 92.5%. Since bankers usually require a ratio at a maximum of 75% for a mortgage to be approved, it may prove difficult for Jim to get a mortgage."
Mortgage the charging of real or personal property by a debtor to a creditor as security for a debt esp. one incurred by the purchase of the property, on the condition that it shall be returned on payment of debt within a certain period -- a deed effecting a transaction -- a loan obtained through conveyance of property as security - I put down a hundred thousand in cash and took out a mortgage for the rest.
Mortgagee the lender, typically a bank
Mortgagor the borrower in a mortgage, typically a homeowner
Note a bank note -- record in writing -- to mark
Novation the substitution of a new contract in place of an old one
PITI principal interest taxes insurance -- components of a mortgage payments PITI principal interest taxes insurance -- principal: money used to pay down the loan -- interest: charge you pay to the lender for the privilege to borrow the money -- taxes: property taxes you pay as a homeowner -- insurance: your property insurance and private mortgage insurance. "PITI is typically quoted on a monthly basis and compared to a borrower's monthly gross income by means of computing the individual's front-end and back-end ratios, which are used to approve mortgage loans. Generally, mortgage lenders prefer PITI to be equal to, or less than 28%, of a borrower's gross monthly income."
Prepayment clause the right of borrower to pay debt in full before payment due. " The prepayment privilege is favorable to the borrower because it relieves him/her of the debt, but it deprives the lender of interest that he/she would have received otherwise. However, some lenders offer the prepayment privilege to encourage potential borrowers to borrow from them instead of their competitors."
Prepayment Penalty says if a mortgage is paid within a certain period of time a penalty will be assessed. Penalty usually based on remaining balance of mortgage or certain number of months worth of interest. "A prepayment penalty that applies to both the sale of a home and a refinancing transaction is called a "hard" prepayment penalty. A prepayment penalty that applies to refinancing only is called a "soft" prepayment penalty." "Lenders write prepayment penalties into mortgage contracts to compensate for prepayment risk. As the incentive for a borrower to refinance a subprime mortgage is high, many subprime mortgages have prepayment penalties." "A borrower should be aware of the risks associated with a prepayment penalty. A prepayment penalty can substantially increase the cost of refinancing a mortgage when it would otherwise be economical."
Right to reinstate "Reinstatement involves paying off the missed payments on the loan, as well as some penalties, late fees and possibly attorney’s fees. Reinstatement is designed to get a borrower back to current status on his or her mortgage. Once the loan is reinstated, the borrower must continue to make his or her regularly scheduled payments. The right to reinstatement usually expires within ninety days of being served with a summons for a foreclosure action. Either of these options will ultimately cure, or stop, a foreclosure action. Pursuing either option can be done without an attorney. However, it’s usually prudent to engage an attorney to make sure that your interests are adequately protected if your case is complex."
Satisfaction of mortgage a document generated and signed by a mortgage lender acknowledging that the borrower has paid off the mortgage loan in full and that a mortgage is not a lien on a property.
Short sale proceeds from selling the property fall short of what's due on it. "A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property, and the property owner cannot afford to repay the liens' full amounts and where the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt.[1] Any unpaid balance owed to the creditors is known as a deficiency.[2][3] Short sale agreements do not necessarily release borrowers from their obligations to repay any shortfalls on the loans, unless specifically agreed to between the parties." Property owner cannot afford lien amounts and lien holders agree to release their lien on real estate and accept less than amount owed on the debt.
Statutory redemption period a mortgagor's right to regain ownership of their property that has been foreclosed within a limited amount of time, usually within a year, if they are bale to pay the amount property was sold for at foreclosure.
Subject to means subject to the existing mortgage on a property... The original terms on the note with the lender stay the same.
Subordination agreement a legal document used to make the claim of one party junior to (or inferior to) a claim in favor to another. Used to grant first lienhold status when would usually be second, third, or fourth. "Typically a subordination arises when there are two existing mortgages, a first mortgage and a second mortgage, and the mortgagor intends to refinance the first mortgage. If the holder of the second mortgage does not subordinate the lien of its mortgage to the new mortgage, the new lender will not refinance the first mortgage. However, the second mortgage holder does not want to release its mortgage and re-file, due to additional costs and priority problems, so it will subordinate its lien to the lien of the replacement mortgage."
Takeout commitment specific type of mortgage purchase agreement. A long-term investor agrees to buy a mortgage from a mortgage banker at a specific date in the future. Take-out commitments are enforced once a project reaches a particular stage where long term financing is preferred.
Title theory a lender holds the actual title piece of paper legal title to a piece of real estate for the life of the loan while borrower holds equitable title.
Title theory & Lien theory
Most states are lien theory states. Including Florida.lien theory
Legal concept that regards a mortgage as a just claim on specific property pledged as security for a mortgage debt. In lien theory the borrower retains the title. The lender is protected by a lien on the real property to secure the mortgage debt. If the mortgagor defaults on the mortgage debt, the lender will foreclosure to return the money owed. In contrast, title theory, though not FL, title of the mortgage property is conveyed to the lender through a mortgage deed, or to a trustee through a deed of trust.
title theory
Legal concept that vests title to mortgaged property in the mortgagee (lender) or a third party. If the borrower defaults, the lender may take possession of the property. The borrower retain equitable title to the property. Once the debt is paid in full, the lender conveys title to the borrower. "In lien theory states, the borrower retains title to the property." "Once the debt is paid in full, the lender conveys legal title to the borrower." 
"In real estate law, "equitable title" refers
to a person's right to obtain full ownership of a property or property
interest. This is often contrasted with or used in conjunction with the
term "legal title." Legal title is the actual ownership of the land."
"In real estate law, "equitable title" refers
to a person's right to obtain full ownership of a property or property
interest. This is often contrasted with or used in conjunction with the
term "legal title." Legal title is the actual ownership of the land." Topics with loan instruments
topic |ˈtäpik|
noun
a matter dealt with in a text, discourse, or conversation; a subject
Instruments involved in a mortgage loan: 1) Promissory note to pay and 2) Mortgage which creates a lien interest. A promissory note (mortgage note or bond) must accompany all mortgage loans in FL. The note is the evidence of the actual debt. note
Legal evidence of a debt that must accompany a mortgage in Florida; a legally executed pledge to pay a stipulated sum of money. A note is a promise that the buyer will pay making the owner obligated. The promise to pay is the agreed upon terms of the agreement loan. The note is a separate legal interest and is signed by the borrower. Note is not recorded. Note says:
-amount of indebtness
-interest rate
-repayment method
-term or period to repay
-lists penalties of borrower doesn't make monthly mortgage payments
-the lender can (call) the loan
(calling the loan means the lender demands the full amount of the entire loan before the lending period is up) but only if the lender violates terms of the mortgage
The borrower must sign the note.
Fannie Mae and Freddie mac have loan notes for the fixed rate single family protection. 
"The note is usually not recorded." "A note represents the borrower's promise to pay the lender according to the agreed-upon terms of the loan."
"The note is usually not recorded." "A note represents the borrower's promise to pay the lender according to the agreed-upon terms of the loan."Provisions of mortgage clauses and common mortgage features
A mortgage is an instrument that pledges property as collateral for a debt.mortgage
A written agreement that pledges property as security for payment of a debt. A mortgage is the legal document that represents the lien on the property and secures the debt. The property becomes security for the lender, legally sufficient to ensure recovery for the loan. Hypothecation is the pledging of property as security for payment of loan without surrendering the property.
"A recorded mortgage loan is a lien on the real property." "Federal regulations do not allow lenders to require any amount of reserves. There is a limit."
$40,000 × .06 = $2,400
So I take a loan for $90,000 and have 8 discount points, is $90,000 x .08 = $7,200. The discount point total is reduced from the total loan amount. The lender still gets interest from the whole loan amount, in my case interest still for the $90,000. The lender yields the interest and the discount points. Lenders use computers to determine the amount of discount points to be paid. Each discount point will increase the lender yield by 1/8 (.00125) of 1%. Add (.00125) to each point charged by the lender and add the 1/8% to the mortgage interest rate = the yield rate and cost of the loan.
EXAMPLE: A buyer wants to obtain a mortgage of $180,000, and a lender agrees to make the loan at 5.5% interest plus 6 points up front. What will the approximate yield be to the lender?
To the quoted interest rate of 5.5%, add ⅛ of 1% for each point, or 6⁄8, which reduces to ¾:
⅛ × 6 = 6⁄8 = ¾
Add the ¾ to the mortgage interest rate of 5.5%, and the lender's real yield is approximately 6.25% on the money actually loaned:
¾% + 5.5% = 6.25% approximate yield (• (of a financial or commercial process or transaction) generate (a specified financial return): such investments yield direct cash returns.)
Each discount point increases the lender's yield return by 1/8 of every 1% and 1% is every 1 point. To add that increased yield you add the 1/8ths to the interest rate. So 6 points is .0075. .0075 is 3/4. So the interest rate is 5.5% and you're adding three quarters, so the interest rate is 6.25%. and that's how much the lender will make.
Recap on fractions website (http://www.mathgoodies.com/lessons/fractions/classify.html)
http://www.mathgoodies.com/lessons/fractions/classify.html
A lender may say that a mortgage is going at 96 or 94. Meaning lender will give you 94% or 96%. If the buyer, seller, or a third party pays the remaining 6% or 4%. Means the same thing as quoting 4 or 6 points. The lender gets 1/8 of 1% for each point. Discounting interacts with previous FRS control. The national economy is booming and inflation gets out of hand. "2 Economics a general increase in prices and fall in the purchasing value of money: policies aimed at controlling inflation | [ as modifier ] : high inflation rates." The Feds decide to decrease the amount of money in circulation as an inflation control effort. "
Discounting interacts with the previously discussed FRS control of the money supply. Suppose the national economy is booming and inflation threatens to get out of hand. The Fed decides to decrease the amount of money in circulation as an inflation control effort. Securities are sold to absorb part of the money in circulation, and the discount rate at which banks are permitted to borrow is raised. The money supply drops and interest rates rise. Mortgage rates go to 6.5%, but some lenders raise their interest rates to only 5.5%. To offset the apparent 1% loss in yield, most lenders would make their mortgage loans at 5.5% plus an 8-point discount. This means the lender actually would be lending only 92% of the amount needed; the additional 8% of the loan would come from the person(s) attempting to obtain the loan." Amount of $ in circulation is decreased and more is taken from the borrower in points than the lender in dollars. Feds decrease $ in circulation. Money is from private. Money supply down and interest rises. "Discount points are a method for increasing a lender's yield." "Each discount point paid to the lender will increase the lender's yield (return) by approximately 1/8 of 1%."
Hypothecation
To pledge real or personal property as security for a debt or obligation without giving up possession of the property. Mortgages identify the property being used to secure a loan and contain borrower's obligation to fulfill to lender. A mortgage must be in writing to be enforceable. A mortgage establishes constructive notice of the lien and establishes property priority, ahead of subsequent liens. The two parties to a mortgage are the mortgagor (borrower) and the mortgagee (lender). Mortgagor owns the property and mortgagee owns the mortgage. A mortgage is an investment or chattel (personal property) -- chattel: personal possession. A mortgage can be sold to another investor because a mortgage is treated like chattel and the owner can buy, sell, and trade the mortgage.
Mortagor > needs to borrow money to complete the purchase of a property, owns the encumbered property (mortgagee owns the mortgage on the property)
Mortgagee > supplies the money to the borrower, gets note and money to promise to pay the loan off
Chapter 701 provides the lender to give the mortgagor payoff information. Information is called an estoppel certificate that the mortgagee states the unpaid principal balance, interest due, and per diem rate. Satisfaction of mortgage occurs when the mortgagor finally pays the mortgagee off.
satisfaction of mortgage
A certificate issued by the lender when the debt obligation is paid in full. The mortgagee has to send the mortgagor satisfaction of the mortgage within 60 days. The satisfaction is a document that returns all property back to the mortgagor so the mortgagor is now the legal owner fully of the property - no more debt! The mortgage lien being removed will be shown in the public records. When a mortgage loan recorded in public records it becomes a lien on the property. Mortgage is a voluntary lien. Priority of lien is time recorded. First loan recorded is first mortgage.
first mortgage
A mortgage on property that is superior in right to any other mortgage. The second mortgage taken out is a junior mortgage or second mortgage.
junior mortgage
A mortgage, such as a
second mortgage, that is subordinate in right or lien priority to an
existing mortgage on the same real property. First, second, third, and fourth mortgage are the order of importance unless one is placed priority of the other. The mortgage holder can take a lower priority through a subordination agreement.
A mortgage is a contract between a mortgagor and a mortgagee and must contain elements of a document to be valid. Mortgage lenders commonly use the Fannie Mae Freddie Mac Mortgage instrument. This mortgage instrument contains certain uniform covenants (warranties). The borrower mortgagor promises to pay loan amount and interest to the lender (mortgagee) -- principal in the loan amount without interest. By borrowing from a lender a promise to repay is established. Mortgagor must pay escrowed items, prepayment charges, and late fees. Borrower also agrees to pay all taxes, assessments, and fines that could create a lien with superior priority over the mortgage security instrument. Also the mortgagor agrees to pay all fees, taxes, and fines that could create a lien with superior priority over the mortgage security instrument. Clause also stipulates the mortgagor will pay community association fees if applicable. Mortgagor must promise to insure the property by fire and hazard in an extended coverage policy. Lender might make you pay for flood zone determination and also for flood insurance. If the borrower refuses the insurance the lender may sign you up and bill you. The borrower agrees to use the residence as primary for a year unless the lender agrees otherwise. Mortgagor agrees to keep the property in good shape and prevent waste. Lender authorized to make reasonable inspections of property. Borrower promises to not remove the building that is security for debt.
The mortgagor is pay off all the debt or a majority of the debt without penalties or fees before maturation.
subordination agreement
A written agreement
between holders of liens on a property that changes the priority of
mortgage, judgment, or other liens under certain circumstances. Sub-agreement alters priority order. A junior mortgage recorded at a later date can take priority over a first mortgage that was recorded at an earlier date. A lender who holds a first lien on a vacant parcel can take a subordination agreement to make the junior lien on construction financing for building.
A mortgage is a contract between a mortgagor and a mortgagee and must contain elements of a document to be valid. Mortgage lenders commonly use the Fannie Mae Freddie Mac Mortgage instrument. This mortgage instrument contains certain uniform covenants (warranties). The borrower mortgagor promises to pay loan amount and interest to the lender (mortgagee) -- principal in the loan amount without interest. By borrowing from a lender a promise to repay is established. Mortgagor must pay escrowed items, prepayment charges, and late fees. Borrower also agrees to pay all taxes, assessments, and fines that could create a lien with superior priority over the mortgage security instrument. Also the mortgagor agrees to pay all fees, taxes, and fines that could create a lien with superior priority over the mortgage security instrument. Clause also stipulates the mortgagor will pay community association fees if applicable. Mortgagor must promise to insure the property by fire and hazard in an extended coverage policy. Lender might make you pay for flood zone determination and also for flood insurance. If the borrower refuses the insurance the lender may sign you up and bill you. The borrower agrees to use the residence as primary for a year unless the lender agrees otherwise. Mortgagor agrees to keep the property in good shape and prevent waste. Lender authorized to make reasonable inspections of property. Borrower promises to not remove the building that is security for debt.
The mortgagor is pay off all the debt or a majority of the debt without penalties or fees before maturation.
prepayment clause
A provision in a mortgage that allows the mortgagor to pay the mortgage debt ahead of schedule without penalty. A borrower has the right to repay property in FL unless mortgage states otherwise. Prepayment clause usually located in FHA and VA mortgages on real property. Prepayment clause stipulates conditions and terms under which loan repaid. If lender wants to make you pay a fee for paying loan off early, then this clause is the prepayment penalty clause and must be stated in the mortgage instrument or else can not be enforced.
prepayment penalty
The amount set by the creditor that the debtor is charged for retiring the debt early. If the mortgagor fails on payments the mortgagee can apply the acceleration clause and make the borrower pay off the loan before maturation.
acceleration clause
Stipulation in a
mortgage that the entire unpaid balance of the debt may become due and
payable if a default of expressed conditions should occur. If the mortgagor doesn't pay the lender can foreclose the property. Once the entire debt is delinquent the foreclosure process can begin. A mortgagee can sue a mortgagor for payments in arrears. arrears |əˈri(ə)rz|
pluralnoun
money that is owed and should have been paid earlier. You have 30 days to pay a lender once you receive the NOTICE OF ACCELERATION. If you fail to pay the debt you are in default. Fannie Mae Freddie Mac Uniform Single Family Mortgage Instrument includes acceleration clause and remedies for curing defaults. If the mortgagor repays the mortgagee after the acceleration clause then the mortgagor has the right to reinstate. Right to reinstate stops foreclosure process, and payments mortgagee had to make to force the mortgagor to pay have to be reimbursed. Mortgagor does not owe full amount in reinstatement but does owe what he missed. If the mortgagor sells some part of the property that is valuable and in the mortgage note without telling the lender the lender can demand a full payment of the mortgage to be paid by the mortgagor once he finds out.
pluralnoun
money that is owed and should have been paid earlier. You have 30 days to pay a lender once you receive the NOTICE OF ACCELERATION. If you fail to pay the debt you are in default. Fannie Mae Freddie Mac Uniform Single Family Mortgage Instrument includes acceleration clause and remedies for curing defaults. If the mortgagor repays the mortgagee after the acceleration clause then the mortgagor has the right to reinstate. Right to reinstate stops foreclosure process, and payments mortgagee had to make to force the mortgagor to pay have to be reimbursed. Mortgagor does not owe full amount in reinstatement but does owe what he missed. If the mortgagor sells some part of the property that is valuable and in the mortgage note without telling the lender the lender can demand a full payment of the mortgage to be paid by the mortgagor once he finds out.
due-on-sale clause
A provision in a
conventional mortgage that entitles the lender to require the entire
loan balance to be paid in full if the property is sold. So the due on sale clause is saying if the mortgagor sells the prop. the mortgagee can get the money. Mortgagee can charge interest. Due on sale clause prevents someone else from swooping in and taking over a mortgage behind the lender's back, and requires the mortgage debt to be paid in full when the property is sold. The defeasance clause defeats the prior mortgage once the borrower pays it off. Title theory: mortgaged property conveyed to a lender through the deed. The defeasance clause (defeat: null and void) returns the title to the borrower. Property is no longer used as collateral once paid. When the lender executes a satisfaction of mortgage then the mortgage is defeated.
Title theory: the defeasance clause defeats the conveyance of legal title and returns the legal title to the borrower-mortgagor.
Lien theory: the lender is protected with a lien on the property that pledges the property as collateral until the debt is paid in full.
Down payment is the amount of cash purchaser pays at time of closing: earnest money used toward full debt amount. Loan to value ratio is amount borrowed compared with appraised amount.
loan-to-value ratio (LTV)
Relationship between amount borrowed and appraised value (or sale price) of a property. LTV used to assess risk. Higher LTV higher risk (lower safety cushion). LTV usually falls between 60-90%. LTV formula is loan / appraisal. EXAMPLE: A home was purchased with a down payment of
$36,000 and a loan of $200,000 at 6.5% for 30 years. Monthly payments
are $1,264.14. What is the LTV?
$200,000 loan ÷ $236,000 purchase price
= .84745 or 85% LTV
$200,000 loan ÷ $236,000 purchase price
= .84745 or 85% LTV
Down payment $15,000 on a $150,000 property makes the purchase price $165,000 and the appraisal $175,000 so the LTV is .94 so 94% -- high risk. lol
An owner's equity is the monetary interest owner has above the mortgage amount. Owner's initial equity is down payment. Greater owner's equity, less risk for the mortgage.
equity
The market value of a
property less any debt against it; in a business entity, assets minus
liabilities equals capital (owner's equity); a system of legal rules
administered by a court of chancery. Current market value - mortgage = equity
EXAMPLE: The current market value of a home is
$350,000. The owners have a mortgage loan with a principal balance of
$280,900. How much equity do the homeowners have in their home?
$350,000 market value – $280,900 loan = $69,100 equity
$350,000 market value – $280,900 loan = $69,100 equity
So I buy a home for $315,000 and it's worth $490,000. My equity is $175,000 in that property. Interest is the cost of use for borrowed funds.
Interest
The price paid for the use of borrowed money; estate. Lender charges interest on the amount owed for the life of the loan. Interest due at end of payments period or monthly or at beginning of payment period. End payments are called in arrears. Payments at the beginning are in advance -- rear (end) advance (beginning). In arrears is general practice. Mortgages call for end of period payments due on the first of the following month. Loan servicing is when the lender handles the payment keeping and collecting from the borrower.
Loan servicing
An additional source
of income for lenders. Servicing fees typically range from 3/8 to of 1%
of the unpaid balance of loans serviced. Servicing fees can range from 3/8% to 3/4% to 1% of the unpaid balance of service loans. Loan servicers are typically fine servicing any loans sold to institutional investors. Most lenders require the borrower to pay in advance monthly installments for property tax and hazard insurance. Monthly escrow payment is 1/12 the annual expense for property taxes and hazard insurance premium.
escrow
An impound account
required by most lenders that require borrowers to pay in advance
monthly installments for property taxes and hazard insurance. The
monthly escrow payment is one-twelfth of the estimated annual expense
for property taxes and the hazard insurance premium. When taxes and insurance due the lender pays bills out of the escorw account. The Feds limit the total amount the lender may require. Lenders are protected from catastrophes, default, and tax liens by holding money in an escrow. The monthly payment from the borrower consists of interest, hazard and property taxes, and principal. PRINCIPAL INTEREST INSURANCE AND TAXES IS CALLED PITI.
PITI
Principal, interest, taxes, and insurance payment on a mortgage loan. SO PITI (PITY) THE BORROWER AND ESCORW THE LENDER.
Discount points
A method for increasing a lender's yield. See also mortgage discount point.
LOAN FEE TO INCREASE YIELD ON LOWER THAN MARKET LOAN TO PLACE THE LOAN AT A HIGHER INTEREST LOAN CATEGORY. BORROWER CAN PAY DISCOUNT POINT UP FRONT TO GET A LOWER INTEREST RATE. EXTRA, UP FRONT FEE. "This extra, up-front fee increases the real yield, or annual percentage
rate (APR), to the lender (also see "Mortgage Discounting" later in this
unit)."
Lenders also charge borrower loan origination fee --
loan origination fee
A charge by a lender for taking a mortgage in exchange for a loan. Fee is typically 1% - 2% of loan amount. Borrower pays for obtaining credit reports, prepping loan documents, and processing a mortgage loan application. Loans are more complicated than buying outright (payment in exchange for transfer of title). EXAMPLE: The lender is charging an origination fee of 1.5% on a new mortgage loan of $250,000. What is the cost of the fee?
$250,000 × .015 (1.5%) = $3,750 cost of loan origination fee
$250,000 × .015 (1.5%) = $3,750 cost of loan origination fee
So my loan is $197,000 and my origination fee is 3.5% of my loan. So my origination fee is $197,000 x .035 = $6,895. Wow. A lender may get more money by obligating you to a commitment fee.
takeout commitment
A written commitment
from a financial institution certifying that permanent financing will be
provided when the project is completed. Why would you need financing after the project is complete? "Another source of income to lenders takes the form of commitment fees.
The developer of a subdivision, a shopping center, or an apartment
complex often needs to obtain a written commitment from a financial
institution certifying that permanent financing will be provided when
the project is completed. The point here is that the financial
institution is willing to become the permanent lender in the future, but
first the developer must find a lender of construction money. Why does a developer need permanent financing post-project? With the
written commitment of the future permanent lender, called a takeout commitment,
it is much easier to find a construction money lender. When the project
is built, the permanent lender advances the amount committed, and the
developer repays the construction lender. Most lenders that issue a
takeout commitment charge a nonrefundable fee for making the commitment.
The borrower, in this case the developer, is required to pay the fee at
the time the commitment is made." Developer sometimes needs a construction lender and a permanent lender post-construction. Oh, the takeout commitment pays the construction loan. So the second lender charges the developer a fee for paying off developer construction costs.
"A recorded mortgage loan is a lien on the real property." "Federal regulations do not allow lenders to require any amount of reserves. There is a limit."
Mortgage Discounting
Lenders charge, discount points cost money, there is a yield (• Finance the amount of money brought in, e.g., interest from an investment or revenue from a tax; return:) resulting from discount points. Discount points are based on the loan amount not the selling price. Calculate the actual borrower's cost in dollars added by discount points each point is equal to 1% of the loan amount. EXAMPLE: On a $40,000 loan for which the lender is charging 6 points, find the dollar cost of the points. Take 6% of $40,000.$40,000 × .06 = $2,400
So I take a loan for $90,000 and have 8 discount points, is $90,000 x .08 = $7,200. The discount point total is reduced from the total loan amount. The lender still gets interest from the whole loan amount, in my case interest still for the $90,000. The lender yields the interest and the discount points. Lenders use computers to determine the amount of discount points to be paid. Each discount point will increase the lender yield by 1/8 (.00125) of 1%. Add (.00125) to each point charged by the lender and add the 1/8% to the mortgage interest rate = the yield rate and cost of the loan.
EXAMPLE: A buyer wants to obtain a mortgage of $180,000, and a lender agrees to make the loan at 5.5% interest plus 6 points up front. What will the approximate yield be to the lender?
To the quoted interest rate of 5.5%, add ⅛ of 1% for each point, or 6⁄8, which reduces to ¾:
⅛ × 6 = 6⁄8 = ¾
Add the ¾ to the mortgage interest rate of 5.5%, and the lender's real yield is approximately 6.25% on the money actually loaned:
¾% + 5.5% = 6.25% approximate yield (• (of a financial or commercial process or transaction) generate (a specified financial return): such investments yield direct cash returns.)
Each discount point increases the lender's yield return by 1/8 of every 1% and 1% is every 1 point. To add that increased yield you add the 1/8ths to the interest rate. So 6 points is .0075. .0075 is 3/4. So the interest rate is 5.5% and you're adding three quarters, so the interest rate is 6.25%. and that's how much the lender will make.
Recap on fractions website (http://www.mathgoodies.com/lessons/fractions/classify.html)
http://www.mathgoodies.com/lessons/fractions/classify.html
A lender may say that a mortgage is going at 96 or 94. Meaning lender will give you 94% or 96%. If the buyer, seller, or a third party pays the remaining 6% or 4%. Means the same thing as quoting 4 or 6 points. The lender gets 1/8 of 1% for each point. Discounting interacts with previous FRS control. The national economy is booming and inflation gets out of hand. "2 Economics a general increase in prices and fall in the purchasing value of money: policies aimed at controlling inflation | [ as modifier ] : high inflation rates." The Feds decide to decrease the amount of money in circulation as an inflation control effort. "
Discounting interacts with the previously discussed FRS control of the money supply. Suppose the national economy is booming and inflation threatens to get out of hand. The Fed decides to decrease the amount of money in circulation as an inflation control effort. Securities are sold to absorb part of the money in circulation, and the discount rate at which banks are permitted to borrow is raised. The money supply drops and interest rates rise. Mortgage rates go to 6.5%, but some lenders raise their interest rates to only 5.5%. To offset the apparent 1% loss in yield, most lenders would make their mortgage loans at 5.5% plus an 8-point discount. This means the lender actually would be lending only 92% of the amount needed; the additional 8% of the loan would come from the person(s) attempting to obtain the loan." Amount of $ in circulation is decreased and more is taken from the borrower in points than the lender in dollars. Feds decrease $ in circulation. Money is from private. Money supply down and interest rises. "Discount points are a method for increasing a lender's yield." "Each discount point paid to the lender will increase the lender's yield (return) by approximately 1/8 of 1%."
There are different methods to purchasing a mortgaged property and there are other types of financing
When a home buyer borrows money to buy a home the borrower signs a promissory note and mortgage instrument. Promissory note and mortgage are lender's property. The mortgagee can sell the note and mortgage and stop accepting monthly payments from the mortgagor. Ownership transfer is assignment. An assignment of mortgage is when the mortgagee transfers mortgage and note to another purchaser. The assignment of mortgage is signed by the mortgagee and the new investor. The assignee becomes the new owner of the debt and security instrument. The new company purchasing the mortgage will receive an estoppel certificate stating the amount of unpaid balance, the rate of interest, and the date to which interest has been paid prior to the assignment. The purpose of an estoppel certificate is to stop a claim that the amount owed is different from the unpaid balance, or the interest rate is an amount other than contracted rate. If requested, the mortgagee must provide an estoppel certificate to the mortgagor. Fannie Mae has an assignment of mortgage. Mortgage holder is borrower and mortgage lender is assignee.
A buyer may purchase a mortgaged property in several ways: cash: mortgage would be paid in full, letter of satisfaction would be mailed, and lien removed would be recorded -- property paid in cash would be free and clear. New financing can be a method if the buyer doesn't have the cash or doesn't want to pay all cash for the property. An existing mortgage is paid by the new mortgage. If a new property is encumbered by an existing loan:subject to the mortgage
A buyer makes regular periodic payments on the mortgage but does not assume responsibility for the mortgage. Buyer not obligated to pay off debt but owns the property as though the debt will be paid off but if buyer goes in default seller sends property to foreclosure through court order and gets the cash for the property at sale. Default buyer completely removed and doesn't have to pay difference if there is one.
Assumption
The buyer of real
property that is already mortgaged assumes liability for the mortgage
payments of the original loan that remains on the property. Buyer must assume responsibility for debt. Buyer and seller equally liable for default.
novation
The substitution of a new party and/or new terms to an existing obligation. Seller can completely become clear of this mortgage (money owed) by signing a novation with the new buyer. Seller and buyer must sign the novation. The buyer is solely responsible for defaulting on the loan. (novation takes the original mortgage and the original seller out).
A provision in a
conventional mortgage that entitles the lender to require the entire
loan balance to be paid in full if the property is sold. The lender must write consent for the property to be sold. if the property is sold behind the lender's back, the lender can request the full debt amount be fulfilled. you sell it from under me, you owe me money. The mortgagee can call the existing loan amount and added interest.
due-on-sale clause
A provision in a
conventional mortgage that entitles the lender to require the entire
loan balance to be paid in full if the property is sold. The lender must write consent for the property to be sold. if the property is sold behind the lender's back, the lender can request the full debt amount be fulfilled. you sell it from under me, you owe me money. The mortgagee can call the existing loan amount and added interest.
contract for deed (land contract)
A financing technique
wherein the seller agrees to deliver the deed at some future date and
the buyer takes possession while paying the agreed amount. Also called a
land contract, installment sale contract, or agreement for deed. Financing device used when a buyer lacks cash to make down payment. So the buyer (vendor) makes the small down payment and the lender (vendee) pays the rest. Buyer makes monthly installment payments, including PITI (principal insurance taxes and interest). Vendor retains title until debt is repaid. Vendee has the equitable title. (n real estate law, "equitable title" refers to a person's right to obtain full ownership of a property or property interest.) So vendee gets right to the title and vendor owns the title. Contract for deed can finance residence and commerce places. Contract for deed is usually a piece of land = contract for deed = land contract. Only an attorney should prepare a contract for deed. Foreclosure happens in land contracts too. "When a property is sold subject to the mortgage, the buyer is not personally obligated to pay the debt in full." "Under a contract for deed, the vendee is granted equitable title."
There are different default procedures
-Foreclosure
foreclosure |fôrˈklōZHər|
noun
the process of taking possession of a mortgaged property as a result of the mortgagor's failure to keep up mortgage payments.
-Short sale
-Deed in lieu of foreclosure
-Lis pendens
lis pendens |ˈlis ˈpenˌdenz|
nounLaw
a pending legal action, or a formal notice of this.
If the borrower of a loan defaults on any of the PITI then the borrower goes in default. The lender can go after a borrower who defaults through legal actions like suing.
Defaulting on a mortgage means you are missing your payments. When you miss your payments a procedure begins. Default occurs when a borrower forgets to repay the debt, pay the property tax, maintain and upkeep the property, and insure the property. The lender can assume legal action for the borrowing of the debt. Be careful if you default on your mortgage. A foreclosure must be suit in court. A foreclosure is an enforcement of the mortgage lien.
Foreclosure
A legal procedure
whereby property used as security for a debt is sold to satisfy the debt
owing to default in payment of the mortgage note or default of other
terms in the mortgage document. A lender can initiate a suit on the promissory note: A mortgagee can initiate a suit on the mortgage loan: the mortgagee can sue, obtain a judgment, and execute the judgment against any real property except homestead property. The mortgagee can initiate a foreclosure hearing: mortgagee can foreclose on the lien, accelerate the due date, and when the mortgagor doesn't perform, sell the property. The clerk forwards the title of the real property to the new owner. The clerk disburses the money in accordance with the final decree. What is owed to the mortgagee and what the bid ends at (if surplus) is a surplus fund. Mortgagor gets excess funds. If proceeds are less than mortgage it is deficient and the mortgagee can file suit against a note signor. Deficiency judgments extend to real and personal property. Caveat emptor is applied to foreclosure sales. Purchaser must look for prior liens or interest where there is constructive notice. Equity of redemption lets the mortgagor pay the mortgagee to prevent foreclosure: mortgagor must pay interest, expenses, and interest. Right of equity redemption ends when foreclosure occurs.
A short sale is not a foreclosure. A foreclosure is when the borrower defaults and the lender takes him to court to sue or foreclose. A short sale is when the lender removes liens on property and accepts lesser amount for real property: because net proceeds at a short sale do not satisfy payoff amount of mortgages and liens. The deficiency is because the seller is trying to sell at a lower cost than is owed to the buyer and the lender accepts. Usually the lender accepts a loss if the market is depressed. The lender releases the mortgage so the property can be sold free and clear. The lender agrees to cut losses by short sale rather than drawn out foreclosure.
Sometimes the lender and borrower will agree to settle a default (PITI principal interest tax insurance maintenance) outside of court and take the deed from the borrower in a friendly way. Lender also takes liens. This process is called a deed in lieu of foreclosure. The lender with the deed and the mortgage gets to do what he wants, doesn't need to send the property to foreclosure, conduct a short sale and take a loss, or sue the borrower. Just simply take the deed back and evict the borrower lol.
Lis pendens is a promise. Lis pendens is recorded in court and lets everyone know that there is a pending legal action involving you, real property, and someone else. The lis pendens notice states the parties names, the object of the action, and the legal description of the property. A lis pendens is filed in the court by the lender to start a foreclosure. The lis pendens (promise to take you to court) lets the court know there is pending legal action on the property). Want to buy a foreclosure? Look for a lis pendens in the court. If the borrower attempts to sell the property from under the lender the title search will show the prospective buyer the property is under lis pendens on the way to foreclosure. "When default occurs, the lender has the right under the mortgage
contract to pursue legal action against the borrower for payment of the
debt." " The process is sometimes called a friendly foreclosure, because it is a nonjudicial procedure (it does not involve a lawsuit)."
The two legal theories of mortgages are title theories and lien theories. Title (mortgagor gets the title through a deed -- title conveys through a mortgage deed). Lien lender gets the lien borrower gets the title. Florida is lien theory. A mortgage loan creates a promissory note (promise to pay) and a mortgage (creates lien interest and pledges property as security for debt). Assignment transfers one ownership of property from one owner to another. Once mortgage is paid in full the lender has 60 days to file a satisfaction of mortgage note with court for public records. Priority of mortgage lien determined by mortgage date. Oldest has highest priority and newest has least priority. Second and junior mortgages have lower priority than principal and first. Acceleration clause allows the lender (mortgagee) to get the money faster if the mortgagor defaults on the loan. Due on sale is acceleration. Due on sale gets you your lent money and interest. The clause prevents another party from assuming the mortgage. The defeasance clause let's the borrower get the title back once the debt and interest is paid back to the lender. Title theory makes the lender give back the title. Lien theory makes the lender release the lien. Amount buyer pays is the down payment. Loan to value ratio is percentage of price compared to appraisal. Video: https://www.youtube.com/watch?v=wSQTaPU2deI Owner's equity is subtracting the mortgage balance from the fair market value. Lenders make you pay 1/12 of hazard insurance and property taxes every month and put the money in an escrow and pays out of that impound account. Discount points are paid at the beginning of the loan and increase the lender's yield. Each discount point = 1% and lenders get 1/8 of every 1%. Assignment of mortgage transfers ownership from one individual to another. A contract for deed is another type of financing. The buyer gets the loan from the owner. The seller doesn't hand over the title until all payments complete. Lienholder agrees to sell at a loss and remove all liens is a short sale. Mortgagor gives title to lender to avoid foreclosure called deed in lieu of foreclosure. Equity of redemption allows mortgagor to prevent foreclosure by paying lender money and interest and expenses to collect the debt.
"Under novation, the new buyer is the only party responsible for the debt."
noun
the process of taking possession of a mortgaged property as a result of the mortgagor's failure to keep up mortgage payments.
nounLaw
a pending legal action, or a formal notice of this.
If the borrower of a loan defaults on any of the PITI then the borrower goes in default. The lender can go after a borrower who defaults through legal actions like suing.
Defaulting on a mortgage means you are missing your payments. When you miss your payments a procedure begins. Default occurs when a borrower forgets to repay the debt, pay the property tax, maintain and upkeep the property, and insure the property. The lender can assume legal action for the borrowing of the debt. Be careful if you default on your mortgage. A foreclosure must be suit in court. A foreclosure is an enforcement of the mortgage lien.
Foreclosure
A legal procedure
whereby property used as security for a debt is sold to satisfy the debt
owing to default in payment of the mortgage note or default of other
terms in the mortgage document. A lender can initiate a suit on the promissory note: A mortgagee can initiate a suit on the mortgage loan: the mortgagee can sue, obtain a judgment, and execute the judgment against any real property except homestead property. The mortgagee can initiate a foreclosure hearing: mortgagee can foreclose on the lien, accelerate the due date, and when the mortgagor doesn't perform, sell the property. The clerk forwards the title of the real property to the new owner. The clerk disburses the money in accordance with the final decree. What is owed to the mortgagee and what the bid ends at (if surplus) is a surplus fund. Mortgagor gets excess funds. If proceeds are less than mortgage it is deficient and the mortgagee can file suit against a note signor. Deficiency judgments extend to real and personal property. Caveat emptor is applied to foreclosure sales. Purchaser must look for prior liens or interest where there is constructive notice. Equity of redemption lets the mortgagor pay the mortgagee to prevent foreclosure: mortgagor must pay interest, expenses, and interest. Right of equity redemption ends when foreclosure occurs.
A short sale is not a foreclosure. A foreclosure is when the borrower defaults and the lender takes him to court to sue or foreclose. A short sale is when the lender removes liens on property and accepts lesser amount for real property: because net proceeds at a short sale do not satisfy payoff amount of mortgages and liens. The deficiency is because the seller is trying to sell at a lower cost than is owed to the buyer and the lender accepts. Usually the lender accepts a loss if the market is depressed. The lender releases the mortgage so the property can be sold free and clear. The lender agrees to cut losses by short sale rather than drawn out foreclosure.
Sometimes the lender and borrower will agree to settle a default (PITI principal interest tax insurance maintenance) outside of court and take the deed from the borrower in a friendly way. Lender also takes liens. This process is called a deed in lieu of foreclosure. The lender with the deed and the mortgage gets to do what he wants, doesn't need to send the property to foreclosure, conduct a short sale and take a loss, or sue the borrower. Just simply take the deed back and evict the borrower lol.
Lis pendens is a promise. Lis pendens is recorded in court and lets everyone know that there is a pending legal action involving you, real property, and someone else. The lis pendens notice states the parties names, the object of the action, and the legal description of the property. A lis pendens is filed in the court by the lender to start a foreclosure. The lis pendens (promise to take you to court) lets the court know there is pending legal action on the property). Want to buy a foreclosure? Look for a lis pendens in the court. If the borrower attempts to sell the property from under the lender the title search will show the prospective buyer the property is under lis pendens on the way to foreclosure. "When default occurs, the lender has the right under the mortgage
contract to pursue legal action against the borrower for payment of the
debt." " The process is sometimes called a friendly foreclosure, because it is a nonjudicial procedure (it does not involve a lawsuit)."
The two legal theories of mortgages are title theories and lien theories. Title (mortgagor gets the title through a deed -- title conveys through a mortgage deed). Lien lender gets the lien borrower gets the title. Florida is lien theory. A mortgage loan creates a promissory note (promise to pay) and a mortgage (creates lien interest and pledges property as security for debt). Assignment transfers one ownership of property from one owner to another. Once mortgage is paid in full the lender has 60 days to file a satisfaction of mortgage note with court for public records. Priority of mortgage lien determined by mortgage date. Oldest has highest priority and newest has least priority. Second and junior mortgages have lower priority than principal and first. Acceleration clause allows the lender (mortgagee) to get the money faster if the mortgagor defaults on the loan. Due on sale is acceleration. Due on sale gets you your lent money and interest. The clause prevents another party from assuming the mortgage. The defeasance clause let's the borrower get the title back once the debt and interest is paid back to the lender. Title theory makes the lender give back the title. Lien theory makes the lender release the lien. Amount buyer pays is the down payment. Loan to value ratio is percentage of price compared to appraisal. Video: https://www.youtube.com/watch?v=wSQTaPU2deI Owner's equity is subtracting the mortgage balance from the fair market value. Lenders make you pay 1/12 of hazard insurance and property taxes every month and put the money in an escrow and pays out of that impound account. Discount points are paid at the beginning of the loan and increase the lender's yield. Each discount point = 1% and lenders get 1/8 of every 1%. Assignment of mortgage transfers ownership from one individual to another. A contract for deed is another type of financing. The buyer gets the loan from the owner. The seller doesn't hand over the title until all payments complete. Lienholder agrees to sell at a loss and remove all liens is a short sale. Mortgagor gives title to lender to avoid foreclosure called deed in lieu of foreclosure. Equity of redemption allows mortgagor to prevent foreclosure by paying lender money and interest and expenses to collect the debt.
"Under novation, the new buyer is the only party responsible for the debt."
"Under novation, the new buyer is the only party responsible for the debt."
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