Real Estate FinancingReal Estate FinancingPrinciplesPrinciples

MortgagesMortgages

What is a mortgage?Who is the mortgagor?Who is the mortgagee?Title theory vs. lien theory states

What is a mortgage?Who is the mortgagor?Who is the mortgagee?Title theory vs. lien theory states

What we call a mortgage in common conversation is actually two separate documents. promissory note mortgage must have both documents to have a secured

loan Hypothecation – the pledging of property

as security for payment of a loan without actually surrendering the property.

Deeds of trust

What we call a mortgage in common conversation is actually two separate documents. promissory note mortgage must have both documents to have a secured

loan Hypothecation – the pledging of property

as security for payment of a loan without actually surrendering the property.

Deeds of trust

Provisions of the promissory Provisions of the promissory note:note:

Amount of the debtTime and method of paymentInterest rateA note is a negotiable instrument

that can be sold to another investor

Amount of the debtTime and method of paymentInterest rateA note is a negotiable instrument

that can be sold to another investor

What is usury?What is predatory lending?Loan origination fee?Discount points?Prepayment penalty?

Not allowed on loans guaranteed or insured by federal government or on loans bought by FNMA or FHLMC.

What is usury?What is predatory lending?Loan origination fee?Discount points?Prepayment penalty?

Not allowed on loans guaranteed or insured by federal government or on loans bought by FNMA or FHLMC.

Provisions of a MortgageProvisions of a Mortgage

Identifies lender and borrower Includes an accurate legal

description Incorporate the terms of the note by

referenceSee text for additional obligations of

mortgagor

Identifies lender and borrower Includes an accurate legal

description Incorporate the terms of the note by

referenceSee text for additional obligations of

mortgagor

Provisions for defaultacceleration clauseother clauses allow the lender to care

for the property to preserve its valueAssignment of the mortgageBy the provisions of the defeasance

clause in the mortgage the lender must execute a satisfaction when all obligations have been met.

Provisions for defaultacceleration clauseother clauses allow the lender to care

for the property to preserve its valueAssignment of the mortgageBy the provisions of the defeasance

clause in the mortgage the lender must execute a satisfaction when all obligations have been met.

How are taxes and insurance normally handled?

Assignment of rents in case of default

See book for distinction between buying property subject to a mortgage and assuming the mortgage – neither one is common.

Alienation clause (due-on-sale clause)

How are taxes and insurance normally handled?

Assignment of rents in case of default

See book for distinction between buying property subject to a mortgage and assuming the mortgage – neither one is common.

Alienation clause (due-on-sale clause)

It is crucial for all mortgages and releases to be recorded.

What determines the priority of a mortgage?

What is a subordination agreement?

It is crucial for all mortgages and releases to be recorded.

What determines the priority of a mortgage?

What is a subordination agreement?

Provisions of Land ContractsProvisions of Land Contracts

Land contract, contract for deed, installment contract

Buyer is called the vendeeSeller is the vendor

Land contract, contract for deed, installment contract

Buyer is called the vendeeSeller is the vendor

ForeclosureForeclosureForeclosure is the legal procedure

where property pledged as collateral is sold to satisfy the debt.

When a property sells at foreclosure it sells free of the foreclosing mortgage and all junior liens.

Judicial foreclosureNon-judicial foreclosure allowed when

mortgage contains a power-of-sale clause.

Foreclosure is the legal procedure where property pledged as collateral is sold to satisfy the debt.

When a property sells at foreclosure it sells free of the foreclosing mortgage and all junior liens.

Judicial foreclosureNon-judicial foreclosure allowed when

mortgage contains a power-of-sale clause.

Deed in lieu of foreclosureEquitable right of redemption (after

default, but prior to sale)Statutory right of redemption (after

sale)Deficiency judgment

Deed in lieu of foreclosureEquitable right of redemption (after

default, but prior to sale)Statutory right of redemption (after

sale)Deficiency judgment