Chapter 8 P RE Real Estate Finance Flashcards

Chapter 8 P RE Real Estate Finance Flashcards Impound Accountsreserves - moneys collected in advance from borrowers to assure payment of recurring costs, such as property taxes and fire insurancelenders sometime require when down payment low The original loan taken out when purchasing a property , not a refinanced or junior loan Amortization Principle of Leveragepractice of purchasing real estate using a small amount of your own funds and a larger portion of borrowed fundsThe more money borrowed the more leverage Straight NoteInterest only payments, with entire principal due in a lump sum at maturity date Hypothocationto provide title to a property as security for a loan w/o giving up possession.hypothecate = pledgemost real property buyers hypothecate their property as security for a bank loantrust deed in cal uses promissory note as primary evidence of debt which creates a lien on the property Redemption Periodlegal time period in which a foreclosed owner can buy back (regain) propertymortgage = 1 yeartrust deed = short period of time 4 months IndexAn index is a published interest rate based on the returns of investments such as U.S. Treasury securitiesstarting interest rate used as the indicator that changes from it can be calculatedIf index goes up 1% the ARM goes up 1%must be1. beyond control of lender2. avail and verifiable

by the publicindex examples: Cost of living index, 11th

district cost of funds, one year t bill, and the london interbank offered rate

• basic kinds of Promissory Notes1. Straight Note - principal is a one lump sum payment, at

maturity while interest paid in installments2. Partially Amortized Note - installment note w/a balloon Payment, promissory note with periodic payments and a large payment at the end (maturity or due date)3. Fully amortized note - promissory note for which both the principal and interest are paid in equal installments until the debt is paid in full The Cappercentage rate ceiling or restriction on loan1. periodic interval (adjustable) limits change up or down (caps) to 1/2% every quarter (or term)2. lifetime change in interest rates or payments - cap often max of 5% up/down initial agreed to contract rate

IndexA.P.R.Junior LoanTrust Deed Seasonal NoteLonger than 36 months Subordination ClauseA clause in which the holder of a trust deed permits a subsequent loan to take priorityThe clause in a loan that allows buyer to alter the priority of a loan.Nominal Interest Ratethe stated interest rate on a loan Usurythe illegal action or practice of lending money at unreasonably high rates of interest.Almost all lenders exempt except a private individual lending to a private individual Remedy for DefaultPayment of late payments, taxes, expensesRedemption period in a deed of trust, the person who acts as an intermediary btw the truster and the beneficiaryone who holds property in trust for another to secure the performance of an obligation Trustee's Sale Assignment of RentsClause allows that allows lender's right to take possession and collect rents and pay expenses in the event of a loan default Simple Interestinterest paid based only on the principal amount owed Legal TitleBare or Naked legal titleHeld by trustee until the terms of a trust deed and note have been fulfilled - when truster has paid note in full - trustee will reconvey the naked legal title Deed of ReconveyanceWhen a trust deed note is paid, trustee records deed of reconveyance to remove the lien from public recordProof of payment in full a clause in a deed of trust allowing non-judicial foreclosureAuthorizes holder of note/title to sell property at auction without judicial foreclosure Deed in Lieu Promissory Notewritten unconditional promise by one person to another to pay in demand, or over a fixed determinable time, a certain sum of money.borrowers hypothecate real property as for payment of the promissory note Negative Amortizationinterest rate charges are higher than the monthly paymentMeans the amount of the home equity is deceasing instead of increasing.Notice of default must be published in a newspaper of general circulation once a week for 3 weeks Land Contract Foreclosure salenonjudicial foreclosure under the "power of sale" clause in the deed of trust and promissory note Power of Sale The Marginspread btween the index rate and the initial contract rate from which the lender will make a profit and cover its coststhe margin percentage remains the same.it is agreed to in advance, the number of percentage points, an amount

to cover cost and to make a profit for the lender.If index rate 4% and margin is 3% interest rate paid by homeowner is 7% - if it moves up to 5% the interest rate will increase to 8% the margin always remaining at 3% Prepayment PenaltiesClause for an Additional charge one may owe if they decide to pay off their loan before the due dateOnly enforceable during the first 5 years of a 1-4 unit home loan

Promissory Notesa promise in writing to pay a specific amount during a limited time, or on demand, to a named persona negotiable instrument that can be passed easily from one person to anothermost common example is a personal check 15-Year Fixed loanfixed rate loan that can, for a slight increase, be paid of in only 15 years instead of 30 borrower signs over the deed to the lender to prevent foreclosure Short Sale Payment of debt in regular periodic installments of principal and interest, as opposed to interest only payments Trustor Default on a Trust DeedBy law the lender can start a default action after 10-15 day grace period. Grace Period is a set number of days in which the lender will allow a payment to be late w/o penalty.The lender, after grace, may start default action Promotional NoteCommon in adjustable rate mortgagesa Short -term note up to and including a term of 36 months part of truth in lending law, allows borrower to rescind a loan transaction until midnight of the 3rd business day - secured by a borrowers residence Truth in Lending law Effective Interest RateThe actual rate of interest paid by the borrower or earned by the lenderincluding interest, points, loan feesinterest = Principal x Rate X Time Acceleration Clauseclause in the DEED OF TRUST that allows the lender to demand immediate payment of the entire loan if the borrower defaults Loan Paymentnote made up of principal and interest jot be paid off on a promissory note AssumptionBuyer ASSUMES loan on property already encumbered and takes responsibility w/lenders consent for full paymentname on loan changed to buyer - the seller has secondary responsibility to file SUBSTITUTION OF LIABILITY FORMSUBJECT TO loan takeover Partially Amortized Noteinstallment note w/a balloon Payment, promissory note with periodic payments and a large payment at the end (maturity or due date) Borrower under a deed of trustone who deeds property to a trustee to hold in security of obligation Trustee a second trust deed for which the monthly payment includes the amount of monthly payment on the existing first trust deed Purchase Money Instrument Reverse Mortgage LoanEnables older homeowners (62+) to convert home equity into income without requiring borrower to move.sold at the time the owner dies Mortgage v Trust DeedLender has fewer restrictions1. short period to reinstate prior to the sale, fact the the sale once made is usually