acceleration clause
The clause in a mortgage or deed of trust that can be enforced to make the entire debt due immediately if the borrower defaults on an installment payment or other covenant. *Without an acceleration clause, the lender would have to sue the borrower every t
**Notes about provisions for default
lenders prefer a security interest in real property. The mortgage (or deed of trust) is known as the security instrument. The security instrument creates the lien on the property. The mortgage allows the lender to sue for foreclosure in the event the borr
alienation clause
(aka a resale clause, due-on-sale clause, or call clause) in the note...The clause in a mortgage or deed of trust that states that the balance of the secured debt becomes immediately due and payable at the lender's option if the property is sold by the bo
assume
A buyer is personally obligated for the payment of the entire debt of a seller; that is, the buyer assumes the debt. The original seller is not liable for the debt if the property is foreclosed on.
beneficiary
1. The person for whom a trust operates or in whose behalf the income from a trust estate is drawn. 2. A lender in a deed of trust loan transaction.
deed in lieu of foreclosure
A deed given by the mortgagor to the mortgagee when the mortgagor is in default under the terms of the mortgage. This is a way for the mortgagor to avoid foreclosure.
This is sometimes known as a friendly foreclosure because it is carried out by mutual agreement rather than by lawsuit. The disadvantage of the deed in lieu of foreclosure is to the lender because it does not eliminate junior liens. In a foreclosure actio
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deed of trust
An instrument that grants a trustee under a land trust full power to sell, mortgage, and subdivide a parcel of real estate. The beneficiary controls the trustee's use of these powers under the provisions of the trust agreement.
defeasance clause
A clause used in leases and mortgages that cancels a specified right upon the occurrence of a certain condition, such as cancellation of a mortgage upon repayment of the mortgage loan.
deficiency judgment
A personal judgment levied against the borrower when a foreclosure sale does not produce sufficient funds to pay the mortgage debt in full.
discount points
A unit of measurement used for various loan charges; one point equals 1 percent of the amount of the loan.
Discount points are used to increase the lender's yield (rate of return) on its investment. For example, the interest rate that a lender charges for a loan might be less than the yield an investor demands. To make up the difference, the lender charges the
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The difference between the loan's stated interest rate and the yield required by the lender
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How long the lender expects it will take the borrower to pay off the loan
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To figure how many points are charged on a loan, divide the total dollar amount of the points by the amount of the loan. For example, if the loan amount is $350,000 and the charge for points is $9,275, how many points are being charged?
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$9,275 � $350,000 = 0.0265 or 2.65% or 2.65 points
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equitable right of redemption
The right of a defaulted property owner to recover the property prior to its sale by paying the appropriate fees and charges.
foreclosure
A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms in the mortgage document. The foreclosure procedure brings the rights of all parti
It passes title to either the person holding the mortgage document or deed of trust or to a third party who purchases the property at a foreclosure sale. The purchaser could be the mortgagee. The property is sold free of the foreclosing mortgage and all j
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There are three general types of foreclosure proceedings
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judicial
Judicial foreclosure allows the property to be sold by court order after the mortgagee has given sufficient public notice. When a borrower defaults, the lender may accelerate the due date of the remaining principal balance, along with all overdue monthly
nonjudicial
Some states allow nonjudicial foreclosure procedures to be used when the security instrument contains a power-of-sale clause. In nonjudicial foreclosure, no court action is required. In those states that recognize deed of trust loans, the trustee is gener
To institute a nonjudicial foreclosure, the trustee or mortgagee may be required to record a notice of default at the county recorder's office. The default must be recorded within a designated period to give notice to the public of the intended auction. T
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strict foreclosure
Although judicial foreclosure is the prevalent practice, it is still possible in some states for a lender to acquire mortgaged property through a strict foreclosure process. First, appropriate notice must be given to the delinquent borrower. Once the prop
*The specific provisions and procedures depend on state law.
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hypothecation
To pledge property as security for an obligation or loan without giving up possession of it.
interest
A charge made by a lender for the use of money.
A lender charges a percent of interest on the principal over the time of loan. Interest may be due at either the end or the beginning of each payment period. Payments made at the end of a period are known as payments in arrears. This payment method is the
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lien theory
Some states interpret a mortgage as being purely a lien on real property. The mortgagee thus has no right of possession but must foreclose the lien and sell the property if the mortgagor defaults. *The mortgage, or deed of trust, is nothing more than coll
loan origination fee
A fee charged to the borrower by the lender for making a mortgage loan. The fee is usually computed as a percentage of the loan amount.
When a mortgage loan is originated, a loan origination fee, or transfer fee, is charged by most lenders to cover the expenses involved in generating the loan. These expenses include the loan officer's salary, paperwork, and the lender's other costs of doi
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mortgage
A conditional transfer or pledge of real estate as security for the payment of a debt. Also, the document creating a mortgage lien.
mortgagee
A lender in a mortgage loan transaction.
mortgagor
A borrower in a mortgage loan transaction.
negotiable instrument
A written promise or order to pay a specific sum of money that may be transferred by endorsement or delivery. The transferee then has the original payee's right to payment.
note
A financing instrument that states the terms of the underlying obligation, is signed by its maker, and is negotiable (transferable to a third party).
novation
Substituting a new obligation for an old one or substituting new parties to an existing obligation.
If a seller wants to be completely free of the original mortgage loan, the seller(s), buyer(s), and lender must execute a novation agreement in writing. The novation makes the buyer solely responsible for any default on the loan. The original borrower (se
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owner financing
The seller is the primary lender securing his or her interest with the use of a deed, note and mortgage, deed of trust, or contract for deed. The buyer takes possession of the property, but the seller retains legal title until paid in full.
While land contracts or owner financing can occur with residential or commercial properties, they are more common with unimproved acreage and farmland sales. Sometimes the seller is the primary lender, and at other times, the seller may be in a secondary
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prepayment penalty
A charge imposed on a borrower who pays off the loan principal early. This penalty compensates the lender for interest and other charges that would otherwise be lost.
the total amount of accrued interest is carefully calculated during the origination phase to determine the profitability of each loan. If the borrower repays the loan before the end of the term, the lender collects less than the anticipated interest. For
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Lenders may not charge prepayment penalties on mortgage loans insured or guaranteed by the federal government or on those loans that have been sold to Fannie Mae or Freddie Mac.
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promissory note
referred to as the note or financing instrument" - A financing instrument that states the terms of the underlying obligation, is signed by its maker, and is negotiable (transferable to a third party).
release deed
A document, also known as a deed of reconveyance, that transfers all rights given a trustee under a deed of trust loan back to the grantor after the loan has been fully repaid.
When a real estate loan secured by a deed of trust has been completely repaid, the beneficiary must make a written request that the trustee convey the title to the property back to the grantor. The trustee executes and delivers a release deed (sometimes c
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satisfaction
(Also known as "Release" or "discharge") of when a note has been fully paid. This document returns to the borrower all interest in the real estate originally conveyed to the lender. Entering this release in the public record shows that the debt has been r
The release must be executed and recorded by the assignee or mortgagee when the mortgage or deed of trust has been assigned.
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statutory right of redemption
The right of a defaulted property owner to recover the property after its sale by paying the appropriate fees and charges.
The mortgagor who can raise the necessary funds to redeem the property within the statutory period pays the redemption money to the court. Because the debt was paid from the proceeds of the sale, the borrower can take possession free and clear of the form
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subject to
A clause in a contract specifying exceptions or contingencies of a purchase.
When the property is sold subject to the mortgage, the buyers are not personally obligated to pay the debt in full. The buyers take title to the real estate knowing that they must make payments on the existing loan. Upon default, the lender forecloses and
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title theory
Some states interpret a mortgage to mean that the lender is the owner of mortgaged land. Upon full payment of the mortgage debt, the borrower becomes the landowner.
(UTAH is a title theory state).
In theory, the lender actually owns the property until the
trustor
A borrower in a deed of trust loan transaction; one who places property in a trust. Also called a grantor or settler.
usury
Charging interest at a higher rate than the maximum rate established by state law.