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Real Estate - 270
Financing Mortgages and Land Installment Contracts
| Question | Answer |
|---|---|
| protection in a contract | 1.why should there be a contingency 2.why is it so detailed 3.must it be?-not every state is as strict as WI on contingencies |
| look at Duncan V Rossuck | Karp p.441 |
| mortgage process steps | 1.application 2.underwriting 3.loan commitment 4.Loan terms 5.multiple liens 5.subsequent advances 6. sales of mortgaged property to investors 7. payment |
| application terms | 1.usury 2. 3.truth in lending |
| RESPA Real Estate Settlement Procedures Act | source for many of the rules applicable to some residential transactions |
| RESPA includes | 1. good faith estimate of closing costs 2. other HUD forms |
| truth in lending | supposed calculation of an annual percentage rate that can allow consumers to compare mortgage proposals as apples to apples |
| underwriting | analysis of personal creditworthiness and appraisal of property's ability to support the debt |
| loan commitment | 1.written and enforceable contract - watch for condition on the lender's performance 2. gov and private mortgage insurance - residential loans only |
| loan terms (mort = mortgage) | 1.promissory note-liability-Recourse/Non-recourse,Co-obligors & Guarantors 2.security agreement-Mort or Deed of Trust & Assignment of Rents 3.Fixed Rate v Adjustable Rate 4. Balloon Payment 5.Open-End 6. Neg Amortization or Reverse Annuity |
| multiple liens - priority | 1.consider subordination 2. remember favoritism for purchase money mortgages - Garrett Tire Center |
| subsequent advances - priority | 1. are advances mandatory or optional under note and mortgage 2. necessary to preserve the property 3.priority for negative amortization loans |
| assignment of mortgages - Ohio, volume of foreclosures very high, foreclosure cases where lenders could not show ownership of debtors’ notes have caused a stir | In October,2007, Boyko, federal judge in Cleveland,dismissed 14 such foreclosures when Deutsche Bank could not prove it was lawful holder of note |
| sales of mortgaged property | 1.Due on Sale clauses 2.Assumption (Recourse Liability 3.Taking the property "Subject to" the Mortgage (Non-Recourse Liability 4.Novations |
| mortgages have two sides - debt and real estate interest | 1. Cancellation of the Promissory Note 2. Release of Satisfaction of Mortgage (or reconveyance for a Deed of Trust either full or partial) |
| land installment contracts - Been There/Done That | 1.agreement by buyer to make periodic payments to seller&promise by seller to convey property title on receipt of last installment 2.Like a purchase contract, but intention is that buyer be allowed possession & all rights when contract is made-see Eq.Conv |
| principle of Equitable Conversion | While legal title remains with the seller, equitable or beneficial ownership passes to the buyer |
| land installment contracts - advantages to the buyer | 1.financing where conventional lenders might balk 2. note the use by developers, with negotiated release payments for portions of the property that are ready for development |
| land installment contracts - advantages to the seller | 1.attract more potential buyers 2. financial and tax breaks-– recognition of capital gain in proportion to principal payments, with interest figured on before-tax amounts (not available for dealers in real estate) |
| title problems | 1.When contract is unrecorded and seller encumbers or sells property, installment contact buyer may be without remedy 2.Land contracts are often entered into with less formality than mortgage 3.Land contract sellers can have mortgages on the property. |
| Land contracts are often entered into with less formality than mortgage transactions; | liens that attach before the creation of the installment contract may go unnoticed if the buyer fails to investigate the title beforehand |
| Land contract sellers can have mortgages on the property. Sellers are usually limited so that a buyer can divert payments to satisfy the seller’s obligations and avoid foreclosure (RM 7039 | Sellers are usually limited so that a buyer can divert payments to satisfy the seller’s obligations and avoid foreclosure (RM 7039) |
| problem of after acquired title | 1.The seller may not even have title at time of entering into contract, but could subsequently acquire it and be in a position to complete the contract 2.Ex.Karp p.500 {5th Ed. 488} – tenant with option to purchase property under the terms of the lease |
| see RM 7037-7040 for an example of a land contract | |
| seller's remedies | Specific Performance – court order mandating payment 1.Forfeiture,strict foreclosure 2.Judicial Foreclosure – as for a mortgage (more common than Karp indicates)3.watch for required redemption opportunities-grace periods and equitable protection of buyers |
| Forfeiture (or strict foreclosure) -- | contract often contains forfeiture clause, which provides that in the event buyer fails to abide by terms of the contract, the seller has the right to terminate the contract, retake possession of the property, and retain all prior payments (see RM 7039) |
| land installment contract- more characteristics | 1.specific performance to compel sellers performance 2.damages for failure by seller to abide by the terms of the contract |
Created by:
rainesv