RE Chapter 3

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  1. A loan secured by real property usually consists of a ______ and a _____
    • Promissory note
    • Trust deed
  2. A buyer taking out a loan must sign a ______, which serves as evidence of the debt
    Promissory Note
  3. A buyer's agreement to repay the amount he is borrowing, plus the agreed upon interest--signed when he is taking out a loan
    Promissory note
  4. An innocent party who purchases a negotiable instrument without knowledge of any defects
    Holder in due course
  5. Type of promissory note in which the buyer makes no principal payments during the term of the loan, only interest. The entire principal is due at the end of the loan term (balloon payment)
    Straight Note
  6. Straight notes generally have _____ interest rates than amortized notes
  7. Type of promissory note in which the buyer pays regular periodic payments of both principal and interest until the loan is completely repaid
    Fully Amortized Loan, or Installment Note
  8. Tool used to determine the monthly payment of a fully amortized loan
    Amortization Table
  9. The liquidation of a financial obligation, such as a loan
  10. To gradually pay off a debt with installment payments of a principal + interest
  11. In an amortized loan, as the loan gets older, the amount of the monthly payment applied to payment of the principal goes _____, and the amount applied to payment of interest goes ______
    • Up
    • Down
  12. Type of promissory note in which the buyer pays low monthly payments during the life of the loan, and pays a balloon payment at the end of the term
    Partially Amortized/Balloon Note
  13. Any payment that is significantly larger than the other payments, usually paid at the end of a loan term
    Balloon payment
  14. Instruments used to secure a promissory note (2)
    • Mortgages
    • Trust deeds
  15. Term that designates the interest of a creditor in the property of a debtor (a mortgage deed creates a ________ in a borrower's property)
    Security interest
  16. Mortgages and trust deeds are not ______, they are security devices
    Negotiable instruments
  17. Aka the borrower of a mortgage, signs the promissory note and mortgage
  18. Aka the lender of a mortgage, holds the promissory note and mortgage during the life of the loan
  19. A trust deed does not create an _____ in property
  20. Aka the borrower of a trust deed, signs promissory note and trust deed
  21. Aka the lender of a trust deed, lends the money and holds the promissory note and trust deed
  22. The trust deed gives the trustee the right to _____ by way of a trustee sale, giving him ____ legal title. The trustor retains ____ legal title
    • Foreclose
    • Naked
    • Actual
  23. A beneficiary of a trust deed should be okay with boundary line changes, deed restriction agreements, etc., because all of these may impact the ______
    Value of the property that is securing the debt
  24. When a trust deed debt is paid in full, the beneficiary signs a "__________" and sends it to the _____
    • Request for full reconveyance
    • Trustee
  25. In a trust deed, this is an agent for the beneficiary, chosen by the beneficiary, that remains a neutral 3rd party and handles foreclosure
  26. The trust deed passes the power of sale from the _____ to the ______ by way of a trustee's sale (aka ______)
    • TrustorĀ 
    • Trustee
    • Nonjudicial foreclosure
  27. Upon receipt of the "Request for Full Reconveyance" from the beneficiary, the trustee signs and records the "___________" to return the power of sale to the truster and show that the deed ________
    • Reconveyance Deed
    • Has been paid in full
  28. Trust deeds and mortgages get recorded to ________
    Secure the debt
  29. Ways trust deeds & mortgages differ (3)
    • Parties
    • Title
    • Rights of redemption
  30. The trust deed is merely ______ to the debt
  31. Default on a mortgage usually requires _____ foreclosure, and is ___ difficult than foreclosure on a trust deed
    • Judicial/court
    • More
  32. After a court foreclosure sale on a mortgage, the borrower has the ability to redeem the property by paying the loan in full for ____ after the property was sold
    1 year
  33. During the right of redemption period, a mortgagor retains _____ of the property
  34. In the event of default on a trust deed, a beneficiary may elect to foreclose by a ______ foreclosure, but more often elects to have the trustee foreclose through a _________, aka _____ foreclosure
    • Court/judicial
    • Trustee sale
    • Non-judicial
  35. The quickest, easiest, and most expedient method of foreclosure, that takes approx 4 months to complete. Only available for trust deeds
    Trustee Sale
  36. Foreclosure process for trust deeds
    • Trustee records Notice of Default
    • Waits 3 months
    • Advertises Trustee Sale 1x/week for 3 weeks
    • Holds Trustee Sale
    • Trustor has until 5 days before sale to reinstate the loan (no right of redemption)
  37. In a trust deed foreclosure, this is only possible if there is a court foreclosure on a non-purchase money loan, and the fair market value is less than the loan amount (rare)
    Deficiency Judgment
  38. A purchase-money loan is (2)
    • Any seller financing
    • Any loan created to purchase 1-4 owner-occupied residential units
  39. A legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default
  40. In the event of a court foreclosure of a trust deed, the truster may be entitled to a ______
    Right of redemption
  41. Type of foreclosure in which the lender becomes the owner (instead of selling it) and is required to assume any junior liens, which remain in this case
    Deed-in-lieu of foreclosure
  42. The first loan against a property
    Senior lien/loan
  43. Any loan which is not first/senior
    Junior lien/loan
  44. The most important concern to a lender making a junior loan
    Buyer's equity
  45. A beneficiary (lender) of a junior loan benefits from recording a ______, so that he will be notified immediately if the borrower defaults on a prior loan
    Request for Notice of Default
  46. Lenders may not impose a late charge until a payment is more than ______ late
    10 days
  47. A lender must notify a borrower when a balloon payment is due no less than ____ and no more than ____ days before the it is due
    • 90
    • 150
  48. Any conflict between the terms of the promissory note and the terms of the trust deed will be controlled by the _______
    Promissory note
  49. A loan where the borrower receives cash using a new note secured by a trust deed or mortgage
    Hard money loan
  50. Lenders that negotiate hard money loans may charge a maximum commission of _____ on first trust deeds or mortgages, and _____ on junior loans
    • $30,000
    • $20,000
  51. When monthly loan payments are insufficient to pay the interest on a loan, the loan balance ____ as a result. This is called _______
    • Goes up
    • Negative amortization
  52. Mortgage that has partially deferred payments of the principal + interest at the start of the loan term (involves negative amortization for the first 3-5 years, then goes up substantially)
    Graduated Payments Adjustable Mortgage (GPAM)
  53. Mortgage that gives a lender the right to an agreed percentage of the appreciation in the market value of the property in exchange for an initially low/below market interest rate
    Shared Appreciation Mortgage (SAM)
  54. Shared appreciation mortgages are most desirable when the prices of homes are ____
    Steadily appreciating in value
  55. A recorded trust deed or mortgage containing details which may be incorporated by reference and apply to later loan documents
    Fictitious trust deed
  56. A written contract where the seller becomes the lender, allowing the buyer to owe him all or part of the purchase price
    Land Contract
  57. In a Land Contract, the seller is the ____, and the buyer is the _____. The seller retains _____ until the buyer has met the contract conditions. Land contracts are NOT _______
    • Vendor/lender
    • Vendee
    • Legal title
    • Negotiable instruments
  58. Other names for Land Contracts (6)
    • Real property sales contract
    • Installment sale contract
    • Land sale contract
    • Agreement to convey
    • Agreement to purchase and sale
    • Conditional sales contract
  59. A land contract may be described as a _____ whereby a seller becomes the lender to a buyer. Their relationship is like that of a ____ and _____
    • Security device
    • Trustor and beneficiary
  60. When a vendor (seller) in a Land Contract receives payments from the vendee, he must first use the money to _____
    Make payments on any loans against the property
  61. A vendor in a Land Contract may not use a vendee's impound money for any purpose other than _____ without the consent of the vendee
    Paying the impounds
  62. In a Land Contract, the buyer gets _____ of the property and becomes an _____ owner holding _______
    • Possession
    • Equitable
    • Equitable title
  63. Under a Land Contract, can a vendee prepay a contract?
    Yes, for 1-4 units
  64. Land Contracts are used in what type of loans? Who are the vendors in this case?
    • Cal-Vet
    • Dept of Veterans Affairs
  65. If a Land Contract has been recorded by the ______, a ____ would be brought by the vendor to clear the title when the vendee refused to quitclaim his interest back to the vendor
    • Vendee (buyer)
    • Quiet title action
  66. Grant deeds and Land contracts differ in ___ (3)
    • Interest conveyed to the buyer
    • Signatures of parties
    • Designation of purchase price
  67. Loans are originated in the _____, made up of institutional and non-institutional lenders
    Primary Mortgage Market
  68. Lenders that receive most of their deposits from "household savings" (those of individual depositors)
    Institutional Lenders
  69. Institutional lenders, specifically, are ___ (3)
    • Insurance companies
    • Savings and loans (savings banks)
    • Commercial banks
  70. Type of institutional lender that uses loan correspondents (mortgage bankers) to negotiate and service their loans, usually do NOT make construction loans, and prefer large, long-term loans on existing commercial property
    Insurance Companies
  71. Type of institutional lender that is the main source for home loans (1-4 units), are deregulated, meaning they can pay any amount of interest on money deposited within them, and have the greatest percentage of their assets in real estate loans
    Savings Banks (S&Ls)
  72. Type of institutional lender that prefers short term loans, and is thus the primary source of construction financing. Regulated by the Federal Reserve Board
    Commercial banks
  73. The Federal Reserve Board regulates banks and the national money supply by adjusting the _____, changing minimum _____ requirements, and buying/selling _____ through the Fed Open Market Committee
    • Discount Rate
    • Cash reserve
    • Government bonds
  74. Raising the discount rate _______ the money market
    Selling bonds _____ the money supply
    • Tightens
    • Tightens
  75. A(n) ____ in real estate sales and a(n) ______ in the use of second trust deeds indicates a tight money market
    • Decrease
    • Increase
  76. Interest rates on real estate loans are primarily determined by __________
    Supply and demand of money
  77. When interest rates on bonds _____ the supply of funds for real estate loans ______
    • Increase
    • Decreases
  78. When compared to real estate investments, some investors prefer stocks and bonds because they have greater ________
  79. Non-institutional lenders that are the primary source of junior loans
    Private lenders (sellers, private investors, etc.)
  80. Non-institutional lenders that are licensed by the BRE as RE brokers, Residential Mortgage lenders, or CA Finance lenders. They generally originate conventional loans, lend their own money, negotiate loans which are readily salable in the secondary mortgage market, and practice warehousing
    Mortgage Companies (mortgage bankers, mortgage loan correspondents)
  81. Collecting loans prior to resale, involves putting together mortgage portfolios. Practiced by mortgage companies
  82. Resale marketplace for loans, where existing loans are bought and sold.
    Secondary Mortgage market
  83. _____ and ______ are important in the secondary mortgage market
    • Liquidity
    • Marketability
  84. Major participants in the Secondary Mortgage Market
    • Federal National Mortgage Association (Fannie Mae)
    • Government National Mortgage Association (Ginnie Mae)
    • Federal Home Loan Mortgage Corporation (Freddie Mac)
  85. Participants in the Secondary Mortgage Market have increase the amount of ________
    Housing credit available to the economy
  86. Participant in the secondary mortgage market that was created for the purpose of increasing the amount of housing credit available to the economy, concerned primarily with the development of the SMM for conventional, FHA, and VA loans originated in the primary mortgage market
    Fannie Mae (FNMA, Federal National Mortgage Association)
  87. Participant in the Secondary Mortgage Market that works with Fannie Mae and Ginnie Mae to increase the availability of mortgage money and maintain the secondary market for residential mortgages
    Freddie Mac
  88. Participant in the Secondary Mortgage Market, a federal agency within the Dept of Housing and Urban Development
    Government National Mortgage Association (Ginnie Mae)
  89. A loan secured (collaterized) by real estate
    Mortgage loan
  90. The interest a lender receives from a mortgage (not the principal), can be described as the lender's effective interest return on a loan
    Mortgage Yield
  91. Demand sources for mortgage money include ______ (3)
    • Construction
    • Sales financing
    • Refinancing
  92. Fannie Mae is a ______ source for mortgage money
  93. Short term loan that finances construction (synonymous with construction loan)
    Interim loan
  94. The maturity date on a construction loan is computer from the _______
    Date of the note
  95. Interest on a construction loan is computed from the date the ______
    Loan proceeds are placed in escrow
  96. Long term loan received by a buyer to pay for new construction, proceeds are used by the builder to pay off the construction loan
    Take-Out Loan
  97. Any time a lender agrees to provide a loan, at a set interest rate, at some future date
    Standby Commitment
  98. Loan whose interest rate can increase or decrease depending on money market conditions
    Variable Interest Rate Loan
  99. Statement made by a lender disclosing the current loan balance
    Beneficiary Statement
  100. A trust account established to hold funds for future needs relating to a parcel of real estate, benefits both the lender and the borrower--lender saves payments from borrower in this account to cover taxes, insurance, etc. (not monthly principal + interest payments)
    Impound Account
  101. To hold, reserve, or impress
  102. Monthly payments on a first trust deed with impounds typically includes principal + interest, taxes and insurance, but not ______
    HOA Fees
  103. An indicator of the risk inherent in a loan, considered by lenders when deciding to make a loan or not
    Borrower's Credit History
  104. Most lenders consider _____ the most important factor when decided to make a loan or not, and use ____ for credit scores--the higher the score, the _____ the risk
    • Degree of risk
    • FICO
    • Lower
  105. The percentage of the appraised value which a lender will lend on a property--if a lender requires an 80/20, he will lend _____ of the value and require a _____ downpayment
    • Loan-to-value Ratio (LTV)
    • 80%
    • 20%
  106. The lower the loan-to-value ratio, the ______ the downpayment
  107. The loan-to-value ratio provides the most security to the ________
    Lender of a junior loan
  108. High loan-to-value ratios mean ____ financing costs
  109. A form of prepaid interest demanded by the lender when a loan is negotiated
    Discount points
  110. Each Discount Point costs ____ percent of the face amount of the loan
  111. Lenders commonly charge ____ to increase effective yields, close the gap between fixed interest rates and market rates, and help defray the costs of a loan
    Discount points
  112. Type of loan that does not use discount points
  113. Selling a note for less than the face amount of the current balance
    Discounting a note
  114. When an investor buys a loan at a discount and later forecloses, he does so for the _____ loan balance, not the ______ amount (aka the ___ of the 2 values)
    • Current
    • Discounted
    • Higher
  115. The different between the value and the loan, or the owner's share of the total property value, or the initial downpayment
  116. The cash provided by a buyer as a down payment
    Equity Funds
  117. Real estate loans are commonly funded by a combination of ____ and _____
    • Loan/debt
    • Downpayment/equity funds
  118. When a buyer takes property subject to ______, the lender keeps the seller on the loan as the borrower. The seller is liable for _____, and thus the benefit is to the _____. If foreclosed, the buyer's loss is limited to ______
    • An existing loan
    • A deficiency
    • Buyer
    • His equity
  119. When a buyer ____ a loan, he becomes primarily liable. The seller is relieved from _____ and is held ______
    • Assumes
    • Primary liability
    • Secondarily liable
  120. When a lender agrees to "____", the seller is relieved from all liability on the loan
    Substitution of liability
  121. When there is more than one borrower (obligor) on a promissory note, the lender will include the term "____"
    Jointly and severally
  122. Interest charged on an unpaid principal amount and used on most home loans, calculated by Interest = principal x rate x time
    Simple Interest
  123. Formula for Simple interest
    I = PRT (Principal x rate x time)
  124. The interest rate named in the loan document
    Nominal rate
  125. A standardized method of calculating the interest rate under the Federal Truth in Lending law
    Annual Percentage Rate (APR)
  126. The interest rate that is actually paid by the borrower for the use of the money
    Effective Rate
  127. The opposite of hypothecate, in which a borrower gives up possession of an item that is currently securing a debt
  128. Caused when there is more money available than there are goods for sale. This trend benefits the ______ in a loan
    • Inflation
    • Trustor
  129. If housing prices rise 20%, the purchasing power of the housing dollar goes down _____
    16-2/3%, or 1/6
  130. Excellent inflation hedges include ____ (3)
    • Equity assets
    • Ownership of real estate
    • Income producing property that will maintain its value
  131. Situation that protects a lender who made a no down payment loan without government backing, also benefits a trustor when it results from inflation
  132. Caused when there are no more goods available than money to purchase them. The general level of prices ____ and the value of money _____
    • Deflation
    • Decreases
    • Increases
  133. Used by lenders as a loan qualifying tool, with prime mortgage lenders preferring that not more than 25-28% of a loan applicant's gross income be spent for housing
    Debt-income ratio
  134. The costs related to the origination of a loan that are often passed on to the borrower
    Loan origination fee
  135. Using borrowed money (financing) to the maximum extent possible
  136. A hidden cost of ownership is the ________ on the owner's equity
    Loss of interest
  137. Exists when prices rise and there are more buyers than sellers, prices rise because there is a shortage of inventory
    Seller's market
  138. Do unemployment rates directly affect mortgages and interest rates?
  139. Changes in consumerisn, land use controls, and the RE industry all affect ____ in future years
    Real Estate
  140. 4 cycles of businesses
    • Depression
    • Recession
    • Expansion
    • Prosperity
  141. Loan that was created by the National Housing Act to enable buyers to purchase homes with a small downpayment. Unique feature is that it insures lenders against loss. Seller usually pays origination fee
    Federal Housing Administration (FHA) Loan
  142. In an FHA loan application, the borrower applies to ____
    The lender directly, not the FHA
  143. Downpayments of FHA loans ______
    Vary with the amount of the loan
  144. Interest rates of FHA loans are determined by ______, and the _____ never has authority to change them
    • Mutual agreement between borrower and lender
    • Federal Reserve Board
  145. Discount points in FHA loans are ______
    Commonly used by lenders
  146. In an FHA loan, ______ and _____ are not allowed
    • Alienation clauses
    • Prepayment penalties
  147. This is required for FHA loans, and protects the lender in the event of default by the borrower. It is paid by the borrower, either as a lump sum or amortized
    Mortgage Insurance Premium (MIP)
  148. A private program similar to FHA Mortgage Insurance premium--borrower pays for insurance in either this program or FHA
    Private Mortgage Insurance (PMI)
  149. The usual ceiling height in a home purchased with an FHA loan is _____
    8 feet
  150. Government loan program whose financing may not exceed the value established by the "Certificate of Reasonable Value" government appraisal. Some of these loans require no downpayment/100% of purchase price loaned
    Veterans Administration (VA) Loan
  151. Unlike most conventional loans, there is no ______ clause in FHA & VA loans
    Prepayment penalty
  152. If a veteran sells his home to a non-veteran "subject to" his existing VA loan, he is _______
    Personally liable for any loss suffered by the VA if the buyer defaults
  153. Government loan in which a veteran applies and makes payments to the Dept of Veterans Affairs, and is sold a home/farm from the state using a Land Contract, no discount points are charged, and the home must be occupied by the veteran or his family
    Cal-Vet (Calif. Veterans Farm & Home purchase Plan), also called DVA loan
  154. FHA will loan on _____ property, but VA and Cal-Vet will not
  155. Any clause in a loan which requires the loan to be paid off upon the happening of a certain event, e.g. alienation clause
    Acceleration Clause
  156. A clause in a loan which requires the borrower to pay off the loan when the title is transferred, opposite of acquisition
    Alienation Clause
  157. To transfer or convey
    Alienation Clause
  158. Clause in a loan in which the lender agrees to give up priority to later loans, allows future loans to have priority, and benefits the borrower (trustor). This clause affects the "first in recording, first in right" rule
    Subordination Clause
  159. Clause in a loan that allows a borrower to re-borrow principal previously repaid. This is most beneficial to a borrower who needs to re-borrow money previously paid to the lender without rewriting the loan documents
    Open-end Clause
  160. Another term for Open-End Loan Clause
    Revolving line of credit
  161. Clause in a loan that allows borrowers to prepay loans only if they pay the lender extra money. This is not allowed on a loan after 5 years, and benefits the lender (beneficiary)
    Prepayment Penalty Clause
  162. When might a lender waive a prepayment penalty?
    In a tight money market when there is a lack of funds
  163. Clause in a loan that permits a borrower to prepay without penalty
    "Or More" Clause
  164. Practice of using more than one piece of land to secure a debt
    Blanket encumbrance/blanket loan
  165. Clause that allows some of the land from a blanket loan to be released upon partial payment of the debt
    Release Clause
  166. The beneficiary (lender) of a blanket trust deed signs a _______ when part of the debt is paid. The trustee then signs and records a _______
    • Request for partial reconveyance
    • Partial reconveyance deed
  167. Opposite of alienation
  168. When a builder pays to have several lots released from beneath a blanket encumbrance, his percentage of equity in the remaining encumbered lots _______
  169. A _______ lien cannot be a blanket encumbrance
    Property tax
  170. Part of the Federal Consumer Protection Act designed to protect the borrower, whose purpose is to assure a meaningful disclosure of credit terms by the lender and allows the borrowers to make an intelligent comparison between the different loans
    Truth in Lending Law (Regulation Z)
  171. Under the Truth in Lending Act, the lender must disclose the _____ to the borrower, which is the relative cost of credit expressed in percentage terms
  172. The Truth in Lending Act applies to all real estate loans that are not for _____ purposes, and also do not regulate _____
    • Business
    • Agricultural
  173. Under the Truth in Lending Act, the disclosure statement provides the borrower with ____ (3)
    • Name of lender
    • Finance charge (excluding appraisal/credit report fees)
    • APR
  174. Under the Truth in Lending Act, all advertising must disclose specifics of credit terms (if any are mentioned), if an interest rate is mentioned, the ad must disclose the _____
  175. Advertising terms which require additional disclosures under the Truth in Lending Law are called ______
    Trigger terms
  176. Under the Truth in Lending Act, _______ loans on the borrower's residence include the right to rescind or cancel
    Nonpurchase Money Loans, aka refinance loans
  177. Under the Truth in Lending Act, the borrower has the right to rescind a loan agreement until midnight of the ____ business day after the promissory note is signed, unless the loan was used to finance the purchase of the _____
    • 3rd
    • Borrower's residence
  178. Loans created to purchase the borrower's personal residence, and carry no right to rescind
    Purchase Money Loans
  179. RESPA stands for
    Real Estate Procedures Act
  180. The intent of ______ is to provide borrowers with fast and reliable information on the costs of completing a real estate transaction, in order to let borrowers "shop around" for settlement services
  181. RESPA applied to loans of ______ units made by lenders who deposits are insured by ______
    • 1-4 residential
    • Federal government
  182. Lender requirements under RESPA (2)
    1) Deliver the HUD "Settlement Costs" info booklet to the borrower within 3 days after loan application is received

    2) Lender cannot charge the borrower for preparing the Uniform Settlement Statement, which must be given to the borrower before close of escrow
  183. Kickbacks, or referral fees, are ______ under RESPA
  184. Statement that must be given to the borrower for every loan negotiated by a broker within 3 days of receipt of a loan application, or before the borrower is obligated to take the loan (whichever is earlier)
    Mortgage Loan Disclosure Statement (Loan Broker Statement)
  185. Listing taken by a broker that is limited to a term of no more than 45 days
    Exclusive Loan Listing
  186. Federal law whose purpose is to prohibit and discourage discrimination in lending practices based upon age, sex, race, marital status, color, religion, or nationality--all applicants must be considered in the same manner
    Equal Credit Opportunity Act
  187. If a credit agency refuses to correct errors in a credit report, the consumer may seek ______ and ______
    • Actual damages + attorney's fees/court costs
    • Punitive damages
  188. A statistical measure of changes in the prices and goods and services over time. Standard measure of inflation
    Consumer Price Index (CPI)
  189. When calculating the consumer price index, one of the largest denominators is _______
    Housing expenses
  190. Consumer price index is commonly used in _____ leases as a way of adjusting the rent for inflation
  191. price indexes determine the purchasing power of _____
    The US dollar
  192. The measure of goods and services produced by the nation during any one calendar year.
    Gross Domestic Product/Gross National Product
  193. When GDP rises, personal income, home construction, and home _____
Card Set
RE Chapter 3
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