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Definitions
Unit 15: Real Estate Financing Principles
| Term | Definition |
|---|---|
| mortgage | voluntary lien on real estate. |
| mortgagor | person who borrows money and pledges the land to the Mortgagee (or lender), as security for the debt. |
| Title theory | states that mortgagor actually gives legal title to the mortgagee and retains equitable title |
| Lien Theory | States that the mortgagor (borrower) holds both legal and equitable title and the mortgagee simply holds a lien on the property. |
| Intermediate Mortgage Theory | adopted by a number of states. Based on the principle of title-theory, i.e., mortgagor owns property, but still requires the mortgagee to formally foreclose to obtain legal title |
| defeasance clause | states that title must be fully reconvened back to mortgagor when debt is repaid |
| Mortgagee | Lender |
| Hypothecation | A type of pledge where the debtor retains right to possession and control and creditor receives equitable right in the pledged property |
| promissory note | also called a note or financing instrument, is the borrower’s personal promise to repay a debt according to the agreed upon terms |
| Usury | charging interest in excess of the maximum rate allowed by law |
| Loan Origination Fees | charged by lenders to cover expenses involved in generating loans |
| Discount points | charged by calculating the difference between the interest rate and the required investor yield and how long the lender expects it to take to pay off the loan |
| prepayment penalty | a charge made by a lender against unearned portion of the interest |
| Deed of Trust | allows a third party to hold title to real estate on behalf of the lender as security for a loan |
| An acceleration clause | declares the entire outstanding balance be paid immediately |
| Assignment | allows the lender to sell the note to a third party without changing any provisions of the contract |
| Satisfaction of Mortgage | a release that returns all interest to the borrower of a mortgage that was originally conveyed to vendor |
| Release Deed | returns all interests that was given to the trustee back to the borrower of a deed of trust |
| Non-Judicial Foreclosure | procedures to be used when security instrument contains a power-of-sale clause. No court action required |
| Judicial Foreclosure | procedures to be used when security instrument requires a judgment in court in order to execute a lien |
| Deed in Lieu of Foreclosure | Lender assumes deed by mutual agreement with the homeowner instead of going through foreclosure. Lender must assume all junior liens with the deed. |
| HAMP | A government program that is intended to help delinquent homeowners modify terms of mortgage loan to an affordble level (no more than 31% of the borrower’s pretax monthly income) |
| Short Sale | Lender agrees to accept less than loan balance |
| Sheriff's Deed | On the 31st day after a court ordered sale, the owner of a "certificate of sale" receives this quitclaim deed which gives right to possession |
| Strict Foreclosure | Court awards full legal title to lender with no requirement for a court sale |
| alienation clause | prevents a future purchaser of the property from being able to assume a loan |
| beneficiary | in a deed of trust, the lender plays this role and allows the trustee to hold the lien on its behalf. |
| certificate of sale | received by the highest bidder at a court sale instead of a deed |
| deficiency judgment | may be issued and entitles the lender to a personal judgment against the borrower for the unpaid balance |
| equitable right of redemption | before a foreclosure, allows homeowner to reinstate the loan if he repays the lender the amount of default, plus costs |
| equitable title | conveys a financial interest in a property where the owner derives indirect benefit from the property |
| foreclosure | legal procedure in which property pledged as security for a loan is sold to satisfy debt and brings all liens to closure |
| negotiable instrument | transferable note that indicates the payee that will receive money at a future date or on demand |
| novation | an agreement made in writing that substitutes a new contract in place of an old one |
| sheriff’s sale | sale at which a home being foreclosed on will be sold to the highest bidder to repay debt |
| statutory right of redemption | a period of redemption of up to one year after a a court ordered sale, or foreclosure, in which a homeowner can repay debt to redeem their property |
| statutory right of reinstatement | a period of 90 days after a homeowner is served in which a homeowner may reinstate their loan by paying off debt plus any fees |
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