When the owner defaults on a mortgage, what can the lender do to obtain the money that is owed?
Question 9 options:
Foreclosure
Assignment
Acceleration
Discharge
Redemption
Answer
| Foreclosure Explanation Foreclosure is a means for the home-owner to take possession and sell a home if the borrower defaults on the loan. When the property is sold, money from the sake is used to pay off the loan balance. In case the money from such sales is insufficient to pay off the full loan amount, the borrower may be held liable for the difference or be forced out of the home. |
Revision
What is a Mortgage?
- It is NOT MONEY LOANED BY THE LENDER
- Conditional conveyance of title/ownership of real estate to secure payment of a loan
- Creates claim or lien on title = encumbrance as mortgage is recorded at registry of deeds
Hypothecation
- Borrower retains possession while repaying debt
Discharge of Mortgage
- property title/ownership reverts back to borrower when loan paid in full
Promissory Note
- Loan document that is the written contract to prepay the debt and is NOT recorded
Mortgager vs Mortgagee
Mortgagor – borrower/owner
Mortagagee- lender/bank
Equity
- Difference between sale price (property value) and loan (total owed)
Obligations of Mortgagor
Repay the loan as agreed
Keep property properly insured
Prevent waste
Don’t remove improvements without consent of lender
Pay all taxes and assessments when due
Rights of Mortgagor
- Possession and enjoyment of property unless in default
- Release of mortgage (discharge) upon repayment of loan
- Right of Redemption after default
What is the other name/purpose of equity?
- Downpayment: which is sale price and loan amount difference as well (at start of purchase)
Rights of Morgagee
Borrower/Owner
- -if in default the bank has right to sue borrower for amount due on note
- -Sell property at public auction (foreclosure)
- -Sell mortgage and note (assignment) to third party
Special Clauses in Mortgages
- -Defeasance Clause: bank discharges lien
- -Acceleration: back and future payments due (because you are in default)
- -Due on Sale/Alienation Clause: transfer ownership then pay off remainder of balanced own
- -Nonrecourse loan clause: the bank can not go after the borrower’s other assets
- -Recourse loan: the bank can go after everything
- -Prepayment Penalty: if you pay early can be charged for it
- -power of sale and foreclosure: form of foreclosure
Tax and Insurance Escrow
Escrow means any transaction where a person for the purpose of effecting the same transfer, encumbering or leasing of real property or personal property to another person, delivers any written instrument, money, evidence or title to real or personal property or other things of value to a third person to be held by such third person until the happening of a specified event. The performance is then to be delivered by such third person to a grantee, grantor, promisee, promissory, obliged, obligator, bailee or Baylor or agent or employee of any of the latter.
Default and Foreclosure
Default:
- -occurs when borrower fails to comply with terms of mortgage
- -borrower fails to make monthly payments as agreed in loan
Foreclosure:
- -process of terminating a defaulted mortgagor’s equitable right of redemption
- -deficiency sale foes not always forgive debt
Types of Foreclosures (2)
- Judicial: to foreclose you must sue
- Statutory: state law outlines process, as long as they follow steps lenders can foreclose
Types of Mortgages (list)
Second Mortgage and Subordination: a second mtg taken out
- Purchase Money Mtg: seller acts as bank/lender
- Equity/open end credit mtg
- assumable and takeover mtg
- construction mortgage
- blanket mortgage
- package mortgage
- reverse annuity mortgage
Type of Mtg: Purchase Money Mortgage (also known as)
- A mortgage given by the seller to the buyer to cover all or part of the sale price. (Seller financing.)
Type of Mortgage: Equity Mortgage/Open Ended Credit
- a loan arrangement wherein the lender agrees to make a loan based on the amount of equity in a borrower’s home
Type of Mortgage: Construction Mortgage
- A loan secured by real estate which is for the purpose of funding the construction of improvements or building(s) upon the property.
Type of Mortgage: Assumable and Takeover Mortgage
- FHA and VA Loans allow this only*
- picking up the mortgage where it lets off
Type of Mortgage: Blanket Mortgage
- A mortgage which covers more than one piece of real estate. Often used by a developer in the financing of undeveloped lots. Contains a partial release clause.
Type of Mortgage: Package Mortgage
- A mortgage, used in the purchase of new residential property which, in addition to real property, covers certain personal property items and equipment. (Washer, dryer, drapes, refrigerator, stove)
Type of Mortgage: Reverse Annuity Mortgage
- Allows borrowers (62 years or older) to borrow against their equity. Loan is due upon the sale of property or death of owner.
Other Types of Security Documents: Installment Land Contract
- Installments paid while occupying home until paid off then receive deed; however if in default forfeiture of ownership and no return in previous payments
Other Types of Security Documents: Deed of Trust
- A deed to real property, which serves the same purpose as a mortgage, involving three parties instead of two. The third party holds naked title for the benefit of the lender. Beneficiary (Lender), Trustor (Borrower), Trustee (Third Party)
