The mortgagor (borrower) gives the mortgage document to the lender (mortgagee).
Mortgagor is what? Mortgagee is what? The lender receives the property as _______.
-borrower
-lender
-secuirty
Texas law contains no provision for statutory redemption of owner-occupied property foreclosed under a deed of trust.
true:
What are the two parts of a mortgage loan?
the debt and the security for the debt
When a property is to be mortgaged, the owner must execute or sign, two separate instruments. What are they?
-promissory note
-deed of trust or mortgage
What is a promissory note?
-the promise or agreement to repay the debt; the note creates debt
What mortgage document is generally used in Texas to secure payment of debt?
Deed of trust
What is a mortgage?
-the document creates the lien, or conveys the property to the mortgage as security for the debt.
A vendor's lien is held by...
the seller
___________ is the pledging of property as security for payment of a loan without giving up possession of the property.
Hypothecation
Both the ____ and the _____________ must be executed to create an enforcement mortgage lien.
note and the deed of trust
Who is the maker and who is the payee of a promissory note?
maker aka payor: borrower
payee: lender
What four main things does the promissory note state?
-amount of debt, time, method of payment, and interest rate.
The note, like the mortgage or deed of trust, must be signed by all interested parties (spouses).
true: one exception, is community property where one spouse is designated as the manager of that particular piece of community property.
The promissory note is a negotiable instrument.
true
The individual who holds the promissory note is called the _____. He may transfer the right to receive payment to a third party in one of two ways, what are they? The transferee or new holder of the note, is known as a _________________.
-payee
1. by signing the instrument over to the third party
2. delivering the instrument in person
-holder in due course
When the note sold and is endorsed and signed over to that entity, that entity is called _________________ of the note. Payments on the loan continue to be paid to the original lender or to a designated loan servicer, who passes the funds on to the purchaser in the second market.
holder in due course
A charge for the use of money is called...
interest
How is interest calculated on an installment payment?
-take the loan balance and multiply it by the interest rate, than take that number (annual interest total) and divide it by 12 months. That will equal the monthly interest amount for that year. Add the principle for full monthly total payment.
1. $50,000 loan balance x 0.12 = $6,000 (annual interest
The monthly mortgage payment (P&I) remains the same from the first payment until the last payment on a fixed rate note. This is called a monthly direct reduction, ________ loan.
amortized
The interest on monthly amortized loans sold to Fannie Mae and Freddie Mac is calculated on a 30-day month/360-day year basis; that is annual interest is divided by ____ days equals the daily interest charge. This is also called the ____ year.
360
banker's
**Ginnie Mae requires 365-day year interest computation; annual interest divided by 365 days equals the daily interest charge.
What is payment in arrears?
pay interest at the end of each payment period (end of month)
-most of time
What is payment in advance
pay interest at the beginning of each payment period (beginning of month); most likely will include interest from the previous month. 1st payment is due on closing, no interest for 1st payment, have money upfront for 1st payment
Interest payments made under a mortgage loan on the taxpayer's residence are deductible for federal income tax purposes.
true
What is usury?
charging over the maximum rate of interest that may be charged on mortgage loans set by state laws.
-lenders are penalized
Under Texas state law, the maximum rate of interest is determined by the buyer's income.
false; is determined by the buyer's use of the property.
What is the ceiling interest rate in Texas for a mortgage for personal, family, household, or agricultural use? What is it for business, commercial, investment, or similar-purpose loans?
18%; can raise up to 24% depending on the floating index by the Federal Reserve Board.
-28%
What is the floating index?
???
During the first three to five years of the loan, some mortgage notes require the borrower pay a prepayment penalty against the unearned portion of the interest for payments made ahead of schedule.
true: The Good-Faith Estimate (GFE) given to the borrower at the time of the loan application and the HUD-1 Settlement Statement given at closing must state whether or not a mortgage has a prepayment penalty.
Under Texas law, a prepayment penalty is prohibited on a loan on residential homestead property if the note has an interest rate of __% or more and on a federally related mortgage loan--one insured by FHA or VA.
12%
Deed of Trust or Trust Deed is a ______ party security, whereas a mortgage is a ______party security. Who are the parties of each action?
three: borrower (mortgagor, trustor, grantor), lender (mortgagee, beneficiary), and a neutral third party (trustee). third party is the one who holds the title and gives payment to lender.
two: borrower (mortgagor, trustor, grantor), and lender (mortgagee)
What are the names the borrower goes by in a deed of trust? What are the lenders names? What is the third party called?
borrower: mortgagor, trustor, grantor
lender: mortgagee, beneficiary
third party (neutral): trustee
The title remains with the seller until the loan is paid off with a deed of trust.
false; title remains in the trust, held by the trustee (third party)
The trustee is limited to carrying out the duties as directed by the beneficiary, or lender.
true; wording in the deed of trust sets forth actions that the trustee may take if the borrower defaults under any of the terms.
Usually the lender chooses the trustee.
true; generally an employee of the lender.
Because Texas is a lien theory state, the borrower is considered the _______ of the property, rather than the lender.
owner
In Texas and other states where deeds of trust generally are preferred, foreclosure procedures for defaulted deeds of trusts are usually simpler and speedier than those for regular mortgages.
true
The deed of trust refers to the terms of the note and clearly establishes the the conveyance (transportation) of land is security for the debt.
true
If the borrower fails to meet any of obligations, it will result in the borrower's default on the note. What are these obligations of the borrower to follow for the note?
-payment of the debt in accordance with the terms of the note
-payment of all real estate taxes on the property given as security
-maintenance of adequate insurance to protect the lender if the property is destroyed or damaged by fire, windstorm, or other hazard
-maintenance of the property in good repair at all times
-not introducing hazardous material (as defined by the EPA) to the property
Amortization
a loan in which the principal and interest is payable in monthly or other periodic installments over the term of the loan.
If a borrower defaults under deed of trust rule, the acceleration clause is put into place. What is the acceleration clause? What are the remedies to the clause? And if not recovered what happens next?
-Acceleration clause: The clause in a mortgage or trust deed or note that can be enforced to make the entire amount of principal and interest due immediately if the mortgagor (borrower) defaults on an installment payment or other covenant.
-prior to acceleration, remedies consist of giving the notice that specifies: the default, the action required to cure, a date (not less than 30 days) for the default to be cured by, and action (acceleration) if not cured by date; sale of property. The notice also lets the borrower know their rights, such as reinstatement after acceleration, right to bring to court and other.
-If there is no cure the power-of-sale clause will take affect: lender or trustee give notice of the time, place, and terms of sale 21 days prior to sale, public venue.
Without the acceleration clause the lender would have to ____ the borrower every time a payment was in default.
sue
If an uncurable default comes to the power-of-sale clause, the trustee shall apply the proceeds from the sale in the following order:
1. to all expenses of the sale, including reasonable trustee's and attorney's fees
2. to all sums secured by this security instrument (property payoff)
3. any excess to the person or persons legally entitled to it
assignment
the transfer in writing of interest in a contract, mortgage, lease, or other instrument.
When a lender sells a loan to an investor, the lender is under no obligation to notify the borrower unless the servicing rights are sold.
true: RESPA requires the lender to inform the mortgagor 15 days prior and the new loan servicer 30 days after transfer.
What is the defeasance clause in the mortgage document?
-states that if the loan has been paid off or paid in full the mortgagee is required to execute a release of lien or satisfaction of mortgage. All lender and trustee rights are transferred to the borrower, and is recorded in the county clerk's records.
Buying "Subject to" or assuming a seller's loan secured by a mortgage or deed of trust is what? Who is responsible for defaults?
-subject to is a person who purchases real estate and takes over payments of the original loan.
-the courts hold that the purchaser is not personally obligated to pay the debt in full; on default the lender will foreclose and pay of property debt; the purchaser is NOT liable for the difference, however the original BORROWER is; unless the lender agrees to release the original borrower completely from the debt.
-The grantee no only purchases the property but assumes and agrees to pay the seller's debt.
What is a good example of assuming a loan?
when someone have to relocate because of job, and interest rates are high, but the property was purchased during a time when rates were low, this may be very appeaseing to buyers.
Lenders don't want borrower to be assuming their loans because of the low or original interest rates, therefor the lenders include an _________________ in the note or deed of trust. This states that if the borrower wishes to assume the loan to a new buyer, the lender can either declare the entire loan balance be paid immediately or permit the buyer to assume the loan at current market interest rates.
alienation clause
Most conventional loans sold to Fannie Mae or Freddie Mac are not assumable and therefore, have an alienation clause in the deed of trust. FHA and VA loans are assumable, they do not contain an alienation clause.
true
What other terms does the alienation clause go by?
due-on-sale clause
resale clause
The deed of trust to secure assumption is a document developed to protect the seller who allows someone to assume the loan. If the buyer defaults the seller is obligated to pay the delinquent sums to the original lender. What can the seller do if a buyer defaults? Why might the buyer be warry of the deed of trust to secure assumption?
-demand reimbursement from the buyer; if not repaid, the seller may foreclose under the power-of-sale clause in the deed of trust to secure assumption.
-buyer may be warry because it creates a second lien on the property.
Why are second mortgages, second deed of trust, or second liens (junior-liens) risky to lenders?
-the second lien is subject to the first mortgage or deed of trust; meaning if the property is foreclosed on the first is priory to the second. The priory liens don't have to tell the second liens of the foreclosure taking place; if a second lien want to preserve its interest in the property it must buy off the first mortgage during a foreclosure.
**reasons why second mortgages have higher interest rates.
The priority of mortgage or deed of trust liens may be changed by the execution of a _______________, in which the first lender subordinates his lien to that of the second lender.
subordination agreement
Foreclosure is the legal procedure whereby the property that is pledged as security in the mortgage document or deed of trust is sold to satisfy the debt. When property is sold, it is free of mortgage and all junior liens, but it is not free of ____________.
unpaid taxes
What are the two types of foreclosure proceedings recognized in Texas? What is the difference between them?
1. Judicial Foreclosure: sold by court order after the mortgagee gives sufficient public notice; lender may accelerate the due date of all remaining monthly payments; lender files suit with attorney and obtains a judgement to foreclose.
2. Nonjudicial Foreclosure: has the power-of-sale clause contained in the DEED OF TRUST; allows the trustee to conduct a foreclosure sale without going through court proceedings; eliminates court costs; lender will put off pre-foreclosure until borrower has defaulted on two or more payments; lender gives notice of acceleration 20 days (Fannie Mae and Freddie Mac 30 days) to cure default; if default is not cured lender requests trustee to conduct sell in property.
--Trustee role: must give written notice of the sale at lease 21 days preceding the date of sale by 1. filing it with county clerk, 2. sending it by mail to each debtor obilaged to pay the debt, and 3. posting it in the courthouse; board, computer, etc. Notice states date and location of sale.
Foreclosure sales occur on the _________ of each month between the hours of ___ and ____. They are public auctions conducted by the trustees named in the deed of trust. A successful bidder is required to pay most likely in _____, without delay or within an agreed timeframe.
first Tuesday 10am-4pm
cash
Texas recognizes the equitable right of redemption, but not the statutory right of redemption.
true; accepts statutory redemption under special cucumstances.
What is the equitable right of redemption?
-period after default, but before foreclosure, the borrower or other person in interest pays the lender the amount in default, plus costs, the debt will usually be reinstated.
Under Texas law, the statutory right of redemption is usually not recognized. However there are two main exceptions to this, what are they?
-if the foreclosure sale is held to satisfy a tax lien on a homestead residence; two year statutory period after sale
-if foreclosure occurs on a homeowners association at the sale, there is a 90 day statutory period.
If the foreclosure sale of real estate securing a deed of trust does not produce enough money to pay off balance and other costs, the lender may be entitled to a ______________. This is ordering the borrower to pay the rest of the debt. However, if a lender has agreed to ___________ and mortgage, the lender would not be able to seek payment for lack of coverage of debt.
deficiency judgement
**Deficiency judgements must be sought within two years after the foreclosure sale; if there is a surplus in proceeds, the proceeds go to the borrower.
-Nonrecourse note: equity and reverse-annuity morgages are made without recours to borrower.
Lenders and borrower both benefit from avoiding foreclosure. The federal government has established programs to help borrowers avoid foreclosure when they fall behind in their payments. What are these programs?
-mortgage modification: lender changes the basic terms of the mortgage to make the payments more affordable; less then 31% of gross monthly income; reducing interest rate and/or stretching the loan to a longer period so that the borrower can afford the new lower payments.
--Forbearance: borrower has experienced a verifiable loss of income or an increase in living expenses:
---payments are less or skipped until borrower cures situation; resume full payments and skipped and late fees due later in lump sum.
---reducing the principal; reduction of principal is due in a balloon payment when loan is payed off.
-Forgiveness: reducing part of the loan; new loan, new lower payments
-short sale
-deed in lien of foreclosure
If a loan modification or refinance is not possible, a short sale may enable a quick private sale of the property. What is a short sale and what are the qualifications to conduct a short sale?
-A short sale is a transaction where the lender accepts less than the balance due on the mortgage laon
-Qualifications: home's market value is less than the unpaid balance on the loan; the mortgage is in or near default status; the seller has encountered extenuating circumstances that create hardship (loss of job); and/or the seller has no assets with which to pay the shorted difference.
A short sale will show up on the borrower's credit report as a pre-foreclosure that has been redeemed.
true
Another way to avoid foreclosure is through a deed in lieu of foreclosure. What is this? What are the disadvantages of this for the lender?
-giving the keys to the lender; borrower voluntarily transfers title to lender; aka friendly foreclosure
-borrower's FICO score drops similar to foreclosure
-disadvantages for lender: take the real estate subject to all junior liens; may lose rights pertaining to FHA or private mortgage insurance or VA guarantees, unless a prearrangment agreement is reached with the mortgage insurer/grantor.
____________ is a counseling service in an alliance between counselors, mortgage companies, and investors, on foreclosure avoidance; troubles borrowers should seek information.
Hope Now
What is the MARS rule?
-Mortgage Assistance Relief Services (MARS) Rule: bands private mortgage assistance relief services from charging up-front fees; bans collecting any fees (appraisal, application, processing fee, etc.) until the homeowner has signed a written agreement with the lender that includes the desired relief; if the homeowner rejects the lenders written offer, there are no fees payable to the mortgage assistance relief service.
****Real estate agents who assist consumers in obtaining a short sale from their lenders or services do not have to comply with the MARS rule.
The person who obtains a real estate loan and signs a mortgage (deed of trust) is called the
mortgagor
The lender under the deed of trust is know as the
beneficiary
A borrower obtains a $76,000 mortgage loan at 11.5% interest. If the monthly payments of $785 are credited first on interest and then on principal, what will the balance of the principal be after the borrower makes the first payment?
$75,943.33
Signature of trustee is not a necessary element of deed of trust mortgage.
true
The clause in a note that gives the lender the right to have all future installments become due on default is the
acceleration clause
What document is given to the trustor when the deed of trust debt is completely repaid?
release deed
Which allows a mortgagee to proceed to a foreclosure sale without having to go to court first?
power-of-sale
Pledging property for a loan without giving up possession is..
hypothecation
In a foreclosure through a power-of-sale clause, who actually conducts the foreclosure?
trustee
A homeowner wants to sell his house to someone who will assume his loan. If the lender wants to prevent the assumption, which clause in the deed of trust would the lender invoke?
