REF CH 6

• Subordinate instruments

  Second and third mortgages
• Foreclosure


  The legal procedure whereby the secured property may be sold to satisfy the unpaid promissory note
• General lien


  Debt instrument which attaches to all the property of the debtor not exempt from forced sale
• Encumbrance


  A claim, lien, charge, or liability attached to and binding real property
• Common examples of Encumbrances

  Are liens, easements, encroachments, restrictions, and leases
• Lien


  is a right given by law to certain creditors to have debts paid out of the property of a defaulting debtor, usually through a court sale
• Liens can be

  Specific or General
• A Specific Lien 


  attaches to one or more specific or named properties (Example: a mortgage)
• A General Lien 


  attaches to all the property of the debtor, not exempt from a forced sale (Example: a judgment or IRS lien).
• Liens may also be categorized as voluntary or involuntary

  voluntary or involuntary and as statutory or equitable
• A voluntary lien 


  is one that is freely given usually as collateral for a loan
• a tax lien would also be categorized as a ___

  Statutory Lien
• Equitable Liens 


  arise out of common law and include seller (vendor) or buyer (vendee) liens
• A judgement for unpaid debts would be an example of a ____ against real estate.

  Statutory Lien
• The mortgage “package” actually consists of two major documents

  Promissory Note and Mortgage
• A Promissory Note


  which is also known as a real estate lien note, is the borrower’s unconditional promise to repay and includes the amount borrowed, payment amount, due date, and rate of interest. The note is not generally recorded.
• A Mortgage


  which is the document that pledges the property as security for repayment of the note, is recorded in the county in which the property is located
• A Deed Of Trust is a three-party instrument whose parties include:

  The Borrower

  The Lender

  The Trustee
• A ____also known as a land contract, is a sales contract between buyer and seller. In the contract, the buyer agrees to make regular payments to the seller. The seller retains legal title to the property, known as title retention, and the buyer acquires equitable title or equitable interest in the property

  Contract For Deed
• These ____are typically used to generate funds for the borrower

  Subordinate Instruments
• Subordination Clause


  The junior mortgage will continue in its position and will not become a first mortgage
• Acceleration Clause


  In the event of default, the entire amount of the principal become due and payable
• Release Clause


  Allows for a portion of the loan to be paid in exchange for the lender releasing part of the property from the mortgage
• Escalation clause


  Allows the lender to raise the existing interest rate
• Assumption Clause


  Allows a new borrower to take over the payments on an existing loan
• Alienation Clause

  Also known as the due on sale clause
• Exculpatory clause


  Limits the borrower’s personal liability in the event of a default on a loan, protecting other property from becoming collateral
• Nonrecourse clause


  In commercial lending, it provides that the borrower is not personally liable for repayment of a loan
• Prepayment penalty


  The lender charges the borrower if he/she pays the loan off early
• Lock-in clause


  Prohibits prepayment of the loan prior to a certain date
• An easement for ingress and egress is known as a(n) _____.

  Lien
• Which of the following types of liens is one that is freely given, usually as collateral for a loan?

  Voluntary lien
• Under a(n) _____, when the final payment is made to the seller, title transfers to the buyer.

  Contract for deed