Accelerate
To speed up or increase.
Amortize
To make regular payments, usually to reduce debt.
Assign
To transfer or convey
Beneficiary
The recipient in a trust deed transaction.
Default
A failure to perform a legal duty. Usually refers to a failure to pay a debt.
Hypothecate
To mortgage without giving up the security to the lender.
Instrument
A written document having legal form and significance.
Mortgage
The hypothecation of property to a creditor as security of payment of a debt.
Mortgagee
A person to whom property is mortgaged; the lender.
Mortgagor
A person who pledges property as security for the payment of a debt; borrower.
Negotiable
Capable of being assigned one transferred for value.
Prepayment penalty
A penalty imposed by a lender when a loan is paid before its due date.
Trustee
One who receives and holds title to the property for the benefit of another.
Trustor
A borrower using a trust deed. One who deeds his property a trustee as security for repayment of a loan.
Real estate loans involve 2 documents
1.) Promissory note (actual loan agreement)
2.) Trust deed/mortgage
Trust deed or mortgage
Security for the debt; makes property collateral for the loan.
Negotiable instrument
Can be transferred in the course of business (sold).
Holder in due course
One who has taken a note, check, or bill of exchange in due course.
1. Before it was overdue
2. In good faith and for value
3. Without knowledge & without notice of any defect
Endorsement in blank
Where the payee simply signs the back of the document.
Special endorsement
Where the payee writes "pay to the order of" some other person & then signs beneath that statement. Same concept as 2 party check.
Restrictive endorsement
Limits the use of how funds are handled. "For deposit only.
Qualified endorsement
Payee writes "without recourse" after the signature. The person who signed the note accepts no liability in the event that the maker of the note defaults.
Default
A note is selling it for less than its current unpaid balance.
Nominal interest rate
Promissory note will also state interest rate. Rate stated in note. The rate at which the monthly payment is calculated.
Effective interest rate
Rate actually paid. It would be higher because of the discount points.
Interest rate can be calculated as
1. Compound
2. Simple
Compound
Most often seen in savings accounts.
If someone deposits funds in a bank account paying 8% compounded daily, the efective interest rate would actually be 8.33% bc of the interest paid on the interest.
Simple
Interest is paid only on the balance due, not interest on interest on interest.
Saver- Distinct advantage.
Borrower- Disadvantage.
RE loans are almost always based on simple interest.
Interest rate
Determined by amount of money available, length of loan, and borrower's ability to repay.
- Most important factor is the amount of money available (demand for the present supply of money).
- Purchase of a home with a small down payment and a long repaymen
Usuary
Charging more interest than the law allows.
Mortgage yield
Effect interest return received by an investor.
3 methods loans can be structured for repayment
1. Straight loans
2. Amortized (payment plus interest)
3. Amortized (payment including interest)
Straight loans
Also called a term loan/ interest only loan.
During term, borrower pays only interest on the loan. When loan matures, entire balance must be repaid in one lump some.
Amortized (plus interest)
Amortized means that the loan balance is reduced with each payment. Defined as the liquidation of a financial obligation on an installment basis. Payment plus interest means that the borrower pays a specified amount against the principal, plus whatever in
Amortized (payment including interest)
There can be a fixed payment that includes interest.
Partially amortized
The loan will not be completely paid off by regular payments.
Balloon payment
A large payment at the maturity of the loan to repay the remaining loan balance.
Joint note
When 2 or more people borrow money using a note, each borrower is only responsible for his/her part.
Joint and several note
Each borrower can be held liable for the entire loan in case the others don't pay their shares
Legal owner of property has only 1 right
The right to sell the property if the loan goes in default. Trustee doesn't have the right to occupy/possess the property.
Power of sale clause
Permits the trustee to sell the property without court action.
Notice of default
If a lender chooses a trustee's sale, the trustee will notify trustor.
Notice of sale
After 3 months, they public notice of sale in local papers for 3 weeks. A notice will also be posted on the property. Will show name of lender & balance due on the loan.
Reinstallment rights
Until 5 days before the sale, the trustor has reinstallment rights. They only need to pay the back payments and penalties.
Redemption rights
Trustor has this up until time of sale. They can pay the loan off in full and stop the sale.
Deficiency Judgment
A judgment given when the security pledge for a loan doesn't satisfy the debt upon its default. Possible if:
1. Property is sold through a court foreclosure rather than a trustee's sale.
2. The loan isn't a "purchase money loan."
3. Amount due on loan exc
Satisfaction of mortgage
Upon payment of loan, mortgagee (lender) issues a certificate of discharge.
Equity of redemption
CA law requires that the borrower be given 1 year right of redemption in the property. The borrwer has one year to pay off the loan balance and to regain the property.
Purchase money loan
Either:
1. Seller extends credit to buyer and accepts a trust deed or mortgage as part of the purchase price.
2. A loan to finance the purchase of an owner occupied residential dwelling of court units or less.
Proceeds of sale order
1. Costs, fees, and expenses of sale.
2. Any property tax and special assessment liens.
3. Mortgages, mechanic's liens/trust deeds.
4. Any other liens on property.
5. Any balance to the defaulting borrower.
Doctrine of relation
When a property is sold at foreclosure/trustee's sale, doctrine back holds that the title of the successful bidder dates back to the date the loan was originated.
3 types of loans
1. Fixed rate
2. Variable
3. Graduated
Fixed rate loan
Traditional mortgage is a 30 yr fixed date mortgage. Interest rate is determiend at time loan is obtained and won't changed over term of loan.
- Fully amortized.
- Required payments remain level throughout term and are calculated that an ever increasing p
Variable rate loan
Lender is allowed to increase/decrease interest rate associated with mortgage. Rate is often tied to some indicator of interest rates. If interest rate increases, their payments also increase.
Graduated payment loan
Usually fixed rate, but payments aren't level. First few years there is a reduced monthly payment that is increased at regular intervals.
Junior loans
Any trust deed or mortgage that is not a first trust deed or mortgage (secondary financing). Two types: Purchase money & hard money
1.) Priority is established by time of recording.
2.) The risk of a junior lienholder is higher.
3.) The basic protection f
Purchase money loan
Loan where the proceeds are used to help finance the purchase of property.
Hard money loan
Occurs when a person has owned a property for period of time and then borrower additional money against that property.
Acceleration clause (default clause)
Gives lender right to call all sums owed him to be immediately due and payable upon the happening of a certain event (e.g., failure to pay taxes). If a lender accelerates the loan, it is called. An acceleration clause does not affect the negotiability of
Alienation clause (due on sale clause)
Gives lender right to call all sums owed him to be immediately due and payable, if title is transferred. Buyer cannot assume the loan without the lenders permission. An alienation clause is one type of acceleration clause.
Subordination clause
Lender with first priority agrees to take a subordinate position to subsequent (future) liens. It may be an agreement in a junior lien which permits a first lien to be refinanced without suffering a loss in priority. It benefits the trustor and is usually
Or more clause
Permits borrower to pay an additional amount without penalty.
Prepayment penalty clause
Permits lender to charge a penalty if loan is paid before due. It benefits the lender. The lender may waive the penalty if a new loan can be made on the property at a higher interest rate.
Open end loan
Contains an add-on clause permitting borrower to borrow additional money after the loan has been reduced, without rewriting the loan documents.
Lock in clause
Borrower cannot pay off loan in advance. Not allowed on owner-occupied residential property of 4 units or less.
Request for notice of default
Holder of a junior loan may protect loan by recording this and the notice will be sent if the borrower defaults payment on superior loan.
Blanket encumbrance
The use of more than one parcel to secure a trust deed or mortgage. It is used when a single property does not constitute security for a loan. A release clause (partial release clause) allows part of the property to be reconveyed when part of the loan is
Package loan
The use of both real and personal property as security for a loan.
Chattel mortgage
Used when personal property is the security for the debt. Has been replaced in most states by a security agreement controlled by the Uniform Commercial Code.
Pledge
Borrower gives up use and possession of property which is used as security for the debt.
Hypothecate
Borrower does not give up use and possession of the property. When using real property as security for a loan, the title is hypothecated.
Assignment by lender
If a lender assigns a debt, both the note and trust deed or mortgage must be assigned.
Estoppel Certificate
Statement by borrower stating the unpaid principal and interest.
Offset statement (beneficiary's statement)
Statement by lender setting forth the present status of loan, including the balance due.
Ficticious trust deed
A previously recorded trust deed or mortgage which contains details applying to any subsequent related loan documents. Subsequent trust deeds or mortgages refer to it.
All inclusive trust deed
(AITD wraparound trust deed, hold harmless trust deed, overriding trust deed) - A trust deed which is subordinate to, yet includes the liens to which it is subordinated.