Called a note or financing instrument it is a borrower's promise to repay a debt according to the agreed terms.  Executed by the borrower, it's a contract with the lender.

The borrower is the maker or payor and the lender is the payee.

Negotiable agreement.

Charging interest in excess of the maximum rate allowed by law.

Increase the lenders yield (rate of return) on its investment.  Equal to 1% of the loan amount.

Primary Mortgage Market

Original mortage loans, the first step.

Secondary Mortgage Market 

Resell the original mortage loans.

1. Fannie Mae--Conventional, VA, and FHA Loans

2. Freddie Mac--Mostly conventional loans

3. Ginnie Mae--Special Assistance Loans

A payment that's due at the end of a specified period of time.

The relationship between the amount of the mortgage loan and the value of the real estate being pledged as collateral.

A right given by law to certain creditors to have their debts paid out of property of a defaulting debtor usually by means of a court sale.

Voluntary--like a mortage

Involuntary--taxes

        Equitable-arises out of common law

        Statutory-put on by law, legislature

All sorts of liens.  They run with the land.

Priority of liens:  Taxes first otherwise they follow the order they were recorded.

Anything such as a mortage, tax, or lien; an easment; a restriction to the use of the land or an outstanding dower right that may diminish the value of the property.

Real estate property tax.  A tax levied according to value, generally used to refer to real estate tax.  i.e, SID.

Involuntary and statutory liens.

Freddie--Under the conservatorship of FHFA (Federal Housing Finance Agency)

Fannie--Private but under gov't regulation.  Buys a block of mortages.

Ginnie--Administers loans.

• 1/1000 of dollar.
• 20 mills is 2.0% or .02 times amount or 2.00 per $100.

If a property has an appraised value of $200K, secured by an 180K loan, the LTV is 90%.

180K/200K = 90%

A decree issued by a court.  Establishes the amount a debtor owes and provides for money to be awarded.

A court action that is a special notice that affects the title to or possession of land is pending (a lien).  Usually results when a court action is pending which frequently takes a long time to resolve.

Conducted by county or township tax assessors or appraisals. 

Assessed value.  Generally based on sales of comparable properties.

Equilization factor. May be applied to correct inequalities in statewide tax assessments.

Only required for loans where you put down less than 20%.  

Covers top 20-30% of the loan so that lenders can get at least 80% of the mortgage back.

Federal Tax Lien (IRS tax lien)--general, statuatory, involuntary lien on all real and personal property held by a delinquent taxpayer.

Mechanics Lien--a specific, involuntary lien that gives security to persons or companies that perform labor or furnish material to improve a property.

Special Assessment--a tax or levy customarily imposed against only those specific parcels of real estate that will benefit from a proposed public improvement like a street or sewer.

Real Estate tax lien--Two Types

    1. General real estate taxes known as Ad Valorem Tax.  Based on the value of the property being taxed and are specific, involuntary, statutory liens.

    2. Special assessment or improvement taxes.  

• Value derived from appraisals and is based on the sales price of comparable properties or other improvements. 
• Tax charged on real estate to fund public improvements to property.  Normally improves property values.  

Estate tax lien--general, statutory, involuntary lien that encumber a deceased person's real estate and personal property are normally cleared in probate proceeding.

Judgment lien--a general, involuntary, equitable  lien on both real and personal property owned by a debtor and must be filed in every county in which the judgement debtor owns property.  Note: deals with court actions.

Mortage Lien--voluntary lien given to a lender by a borrower as security for a real estate loan.

Purchase Money loan (mortage)--a note secured by a mortage or deed of trust given by a buyer, as borrower, to a seller, as lender, as part of the purchase price of the real estate.

Blanket Loan--covers more than one parcel of land or lot.  Partial release clause allows a borrower to pay off part of loan to remove the lien on one parcel at a time.

Package Loan--Includes all personal property and appliances as well as the estate.

Wraparound loan--Allows a borrower to obtain additional financing while retaining the first loan.

Open end Loan--Provides a security interest when a note is executed by the borrower to the lender, but also secures any future advances of funds made by the lender.

Construction Loan--Finance the construction of a home.

Sale and Lease Back.  Seller sells property to an invester who leases back property to seller as the leasee.

Buydown--lowers the interest rate on a mortgage or deed of trust loan.

Home Equity Loan--Loan based on equity in home.

1 grantor (seller)

2 grantee (Buyer)

3 statement of consideration

4 clause (words of conveyance)

5 legal description

6 Any relevant exceptions

7 Acknowledgment (notarized) signature

8 Delivery of the deed and acceptance by the    grantee to pass title

9 Habendum clause defines the ownership right received by the grantee (to have and to hold)

General Warranty-provides greatest protection to the buyer because the grantor is legally boud by certain covenants (promises) or warranties. Most often used.

Quitclaim Deed.  Provides grantee with the least protection.  Carries no covenants or warranties and generally conveys whatever interest the grantor may have when the deed is delivered.

Special Warranty Deed.  Contains two basic warranties:  (1) that the grantor received title and (2) property was not encumbered during the time the grantor held title.

Bargain and Sale Deed.  Implication that grantor holds title and possession.

Deed of Trust.  Conveyance from trustor to trustee.  Associated with beneficiaries.

Reconveyance Deed.  Conveyance from trustee to trustor.  Usually after a mortage is fullfilled.

Trustee's Deeds.  Conveyance from trustee to a third party.  Conveyance to anyone besides the trustor.

Transferring property without the owner's consent.

Person dies testate (with a will on how his/her real property will disposed of) [intestate (w/o a valid will)] with no heirs.  Escheat proceess.  Property goes to State or County if no heirs.

Emminent Domain- Land takes for public government agency.

Nonpayment of a debt secured by real property-Foreclosure; goes to creditor.

Adverse Possession-open, hostile and adverse use of another's property for prescriptive period.  Excludes true owner.  May take away from true owner who fails to use or inspect the property for a period of years.

Owner's.  Issued for the buyer.  Standard and extended coverage.  

Standard: defects in public records, forgeries, incorrect marital statements, incompetent grantors, and improperly delivered deeds.

Extended: Standard plus defects discovered when property inspection uncovers unrecorded right of persons in posession, examination of survey, and unrecorded liens not known by policy holder.

Lender.  Issued for the benefit of the mortgage lender and the amount of the loan determines the coverage.

Constructive Notice.  Of a document is assumed when due diligence such as a search of the records and inspection of the property would reveal its existence.

Actual.  Individual has direct knowledge of the document in the public records.

A title that a reasonably well-informed and prudent purchaser would accept because it has no serious defects and that no doubtful questions exist.

Prepared by an abstractor or an attorney and is a summary report of what the title search reveals. Includes all recorded all recorded liens and encumberances.

Triangular Prism Area = 1/2 x base x height x width

Square feet in an acre: 43,560

640 acres in a square mile

1. Generally, above avg rates of return.

2. Use leverage of borrowed money to purchase real estate.

3. Greater control over investment.

4. Tax benefits.

Disadvantages

1. Not liquid.

2. Expensive

3. Must actively manage investment.

4. High degree of risk.

Small down payment

Get something for little cash

Equity build up

Pyramiding (buying something low, fix it up, resell for more, and then reinvest the money back into real estate)

   Pyramiding through two ways:  sales and refinance

Defined as the difference between the adjusted basis of a property and its net selling price.

Basis.  Determines the amount of gain to be taxed.

Depreciation (Cost Recovery).  Allows an investor to recover the cost of an income-producing asset through tax deductions over the asset's useful life.

Money or property given to make up any difference in value or equity between two properties in an exchange.

The process by which the validity and reliability of the results of the approaches to value are weighed objectively to determine the appraisal's final opinion of value.

An appraisal is the process of collecting, analyzing and reporting the data for a real property.

Appraiser's opinion.  Follows methods established by the Appraisal Standards Board.

State the problem.

List the data needed and sources

Gather, record, verify and analyze the data

Determine highest and best use

Estimate land value

Estimate value..3 approaches

    Sales comparison approach (take off or add on each house being compared)

    The Cost Approach.  Based on the principle of substitution.  

    The Income Approach.  Value based on the present value of the right to future income.  That is, income to be generated from the property determines its value.

The increase in value that can result when two or more parcels of land are combined in the process called assemblage (combining two or more parcels of land into a larger tract). 

Not all estimates of value are made by professional appraisals.  Real Estate professionals often prepare a CMA for the buyer or seller.  Based on:

1. Recently closed properties (sold)

2. Properties currently on the market (competition for the subject property)

3. Properties that did not sell (expired listings).

Less expensive alternative of evaluating property that is often used by lenders working with home equity lines, refinancing, portfolio management, loss mitigation, and collections.

To have value the property must have the following:

Demand

Utility

Scarcity

Transferability

DUST......

Source of authority to create regulations needed to protect public health, safety and welfare.  Through enabling acts, states delegate to counties and local munincipalities the authority to enact ordinances in keeping with general laws.

The rate of return a property will produce on the owner's investment.

These can affect the value of real estate.

1. Anticipation.  Value is created by the expectation of certain events will occur.

2. Change.  No physical or economic condition remains constant.

3. Competition.  The interaction of supply and demand.

4. Conformity.  Maximum value is created when a property is in harmony with its surrounding.  Buildings should be of similar design.  

5. Contribution.  Value of any part of a property is measured by its effect on the value of the whole parcel.  Example: Kitchens and Bathrooms add more value than a swimming pool.

6. Highest and Best Use.  The most profitable single use of a property 

7. Increasing and Diminishing Returns.  Additions or improvements only add so much before their value drops off. 

Known as a master plan that pulls together the  wants and needs of the community.  Open to public discussion. 

1. Can be revised and updated frequently

2. Contains plans for specific areas

3. Strategic plans; systematic planning for orderly growth.

Contains the following elements:

1. Land use.  Residence vs industrial vs agriculture, etc

2. Housing needs to include rehabilitation and needs of the community (ie age)

3. Movement of peope and goods, including highways and public transit, parking, bike paths

4. Communicty facilities such as schools, hospitals, libraries, rec areas

5. Energy conservation to promote renewable energy sourcs and reduce energy consumption overall

Implements the comprehensive plan and regulate and control the use of land and structures with designated land-use districts, in part by separating conflicting land uses.

Zoning affects:

1. permitted uses of land

2. lot sizes

3. types of structures

4. building heights

5. set backs

6. style and appearance of structures

7. density (ratio of land area to structures)

8. proection of natural resources

• Buffer zones to ease transitions between different use areas
• Bulk zoning to control density and overcrowding
• aesthetic zoning to specify architecture
• incentive zoning to ensure certain uses are incorporated into developments such as requiring the street floor of an office building to house retail establishments

A lot or an improvement does not conform to the zoning ordinances.  Such nonconforming use may be allowed to continue legally as long as it complies with the regulations governing nonconformities in the local ordinance.  Good until the improvement/lot is torn down or no longer exists.

A property owner who wants to build a structure or alter or repair and existing building usually needs to obtain a permit.

Certificate of occupancy once the completed structure has been inspected and found satisfactory.

Subdivider is a person who buys undeveloped acreage and divides it into smaller lots for sale to individuals or developers or for the subdividers use.

Developer  who may be a subdivider improves the land, constructs homes or other buildings on the lots, and sells them.

Subdivider must go through the process of land planning.  Resulting land plan must comply with the municipality's comprehensive or master plan.

Drawn up by developer or possibly subdivider.

Private rules set up by the developer that establish standards for all the parcels within the defined subdivision or PUD.  The developer's restrictions may be imposed through a covenant in the deed or by a separate recorded declaration that is referenced in the deed.

Plat Map.  Detailed map illustrating the geographic boundaries of individual lots.  Shows the lots, blocks, sections, streets, public easements, and monuments in the prospective subdivision.

Subdivision Density.  Restricts the average number of homes per acre that may be built within a particular subdivision.

ILSA prevents fraudulent marketing schemes that may arise when land is sold without being seen by pruchases.  

Report provided to the buyer must include:

1. type of title being transferred

2. number of homes currently occupied on the site

3. availability of recreation facilities

4. distance to nearest communities

5. utility services and charges

6. soil conditions and foundation or contruction problems

Note: does not apply to subdivision with less than 25 lots or to those where each lot is 20 acres or more.

The conclusion of the real estate transaction when the title to the real estate is transferred in exchange for payment of the purchase price.

1. Closing statement is an accounting of the parties' debits and credits.

2. Examples of credits and debits (CB=Credit Buyer; DB=Debit Buyer; CS=Credit Seller; DS=Debit Seller)

• Principle amount of new mortgage CB
• Payoff of existing mortgage DS
• Unpaid principle balance if assumed mortgage CB
• Accrued interest on existing assumed mortgage CB
• Tenants security deposit CB
• Purchase money mortgage CB
• Unpad water and other utility blls CB
• Buyer's interest money CB
• Selling price of property CS DB
• Fuel oil on hand CS DB
• Prepaid insurance and/or taxes CS DB
• Refund to seller of prepaid water charges and similar utility expenses CS DB
• Prepaid general real estate taxes CS DB

3. Closing occurs at title office.

1. Buyer's issues

    a. Results of any inspections

    b. Survey (of the plot)

    c. Title Evidence (liens, encumberances)

    d. Leases 

    e. Final Property Inspection (walk through)

2. Seller's Issues

    a. Main issue is to receive payment

3. Real Estate Professionals Role at Closing

    a. Collecting the commision

    b. Could conduct the proceedings

    c. Technically ends when the real estate contract is signed

4. Lenders interest in closing is to protect themselves.  Need to ensure insurance is valid, employment, and tax.

5. Some closings may involve IRS reporting

1. Face to Face, at title office

2. Closing agent officer can be a rep of the title company or lender, the real estate professional representing one of the parties, or the buyer's/seller attorney.

3. Here's what the seller deposits:

    a. deed conveying the property to the buyer

    b. title evidence

    c. existing hazard insurance policies

    d. letter of mortgage reduction certificate from the lender

    e. affadavits of title

    f. payoff statement

    g. other intstruments or docs necessary to clear the title

4. Buyer deposits

    a. balance of the cash needed to complete the purchase, i.e. certified check

    b. loan documents (for new loans)

    c. proof of hazard insurance

    d. other necessary docs such as inspection reports

An amendment to the Truth in Lending Act (TILA) to require mortgage loan cost disclosures to consumers.  GFE (Good Faith Estimate) is an example.  Puts emphasis on the lender to provide the buyer fairness in lending procedures.

1. Prohibits certain activities but gives safe harbor in some cases to them.

2. RESPA regulations apply to a first lien residential mortgage loan made to finance the purchase of 1 - 4-family homes, cooperative or condos for investment or occupancy as well as second or subordinate liens, VHA/VA loans and to the secondary mortgage market.

3. Does not apply to:

Loans on large properties (>25 acres)

• Loans for business or agricultur
• Construction or temporary loans
• Vacant land (unless a dwelling going up within 2 yrs)
• Transaction financed solely by a purchase-money mortgage
• Contract for deed (instalment contract)
• Buyer's assumption of a seller's existing loan

4. RESPA Prohibits

• Section 8 prohibits kickbacks and fee-splitting for referrals of settlements
• Section 9 prohibits the home seller from requiring that the buyer purchase title insurance from a particular company
• Section 10 prohibits the lender from requiring excessive escrow account deposits for such items as taxes and hazard insurance

5. Purpose of RESPA:  To ensure that buyers know all settlement costs that will be charged to them.

An estimate of all closing fees that was formerly provided to a borrower within three days of the loan application as required by RESPA.

Once the GFE is issued the lender is committed to making the loan on the indicated terms.  If certain information or circumstances changes after the original GFE is issued a new GFE must be issued.  Triggers a new 3-business day waiting period.

Division of financial responsibility between the buyer and the seller for such items as real estate taxes (accrued) or fuel oil in a tank (prepaid)

Two methods for calculating Prorations

1. Banking or statutory using a 360-day year.

2. Calendar year.  Use 365 days.

Be aware that accrued goes to buyer and we work the days BACK toward Jan 1.  Prepaid goes to Seller and we go forward towards Dec 31 when calculating the amount.

PRODUCT   PERSON GIVING   RECIPIENT

Devise         Devisor                   Devisee

Deed           Grantor                   Grantee

Legacy         Legator                   Legatee

Lease           Leasor                    Lessee

Mortgage      Mortgagor               Mortgagee

Offer            Offeror makes offer  Offeree

Option          Optionor                  Optionee

Sublease        Subleasor (original lessee)  Sublessee

Trust                Trustor                           Trustee

Land Contract   Vendor                           Vendee

Owner  

The basic cost of owning a home

1. P is mortgage Principle

2. I is Interest

3. T is Taxes (real estate)

4. I is Insurance (hazard, home owners)

The part of a deed beginning with the words "to have and to hold", following the granting clause and defining the extent of ownership the grantor is conveying.  

Or to put it in terms of the grantee it defines or explains the ownership to be enjoyed by the grantee.  

1. Conditional-Use Permit.  Usually granted to a property owner to allow a special use of property that is defined as an allowable conditional use within that zone.  Examples: House of worship; day care centers in residential districts.

2. Special Use Permit.  Same as Conditional-Use Permit.

3. Variance.  Provides relief if a zoning regulation deprives an owner of the reasonable use of his property.  Example: owner's lot is level next to the road but slopes steeply 30 feet away from the road.  Zoning board may allow a variance so that owner can build closer to the road within the 30 feet setback.

1. Defeasance Clause.  The financing instrument, the lender is required to execute a "satisfaction of mortgage (also known as a release or discharge) when the note have been fully paid.  Returns all interest in the real estate back to the borrower.  Entered into public records.

2. Alientation Clause.  When the property is sold, the lender may either declare the entire debt due immediately or permit the buyer to assume the loan at an interest rate acceptable to the lender.  

3. Acceleration Clause.  Included in mortage or deed, it assists the lender in foreclosure.  If a borrower defaults, the lender has the right to accelerate the maturity of the debt.  Lender can delcare the entire principle due and payable immediately.  

4. Due on Sale Clause.  A provision in the mortgage stating that the entire balance of the note is immediately due and payable if the mortgagor transfers (sells) the property.

1. Blanket Mortgage.  A mortgage covering more than one parcel of real estate, providing for each parcel's partial release from the mortgage lien upon repayment of a definite portion of the debt.  Example:  Someone buys a lot in a subdivision.

2. Package Mortgage.  A loan used to finance the purchase of both real property and personal property such as the purchase of a new home that includes carpeting, window coverings, and appliances.

3. Purchase Money Mortgage.  A note secured by a mortgage or deed of trust given by a buyer, as the borrower, to a seller, as lender, as part of the purchase price of the real estate. (Owner financing)

4. Growing Equity Mortgage.  A loan in which the monthly payments increase annually, with the increased amount being used to directly reduce the principle balance outstanding and thus shorten the overall term of the loan.

5. Sale and Lease Back.  Seller sells the land and building to an investor and leases back the land and building from the investor as a tenant.

6. Wrap Around.  Basically, a second mortgage. Enables a borrower with an existing mortgage loan to obtain additional financing from a second lender without paying off the first loan.

1. Cost Approach.  Determined based on the cost to replace the structure.  Uses comparable houses in the area of the property adding or subtracting depending on number of rooms, amenities, etc.

2. Market Price.  The property's asking, offer, or sale price.

3. Market Value.  The most probable price a property would bring. Opinion of value based on an analysis of data of not only comparable sales but also an analysis of potential income, expenses, and replacement costs.

4. Income Approach.  Value determined by the present value of the right to future income.  It assumess that the income generated by a property will determine the property's value.

When a home loan is originated, a loan origination fee or transfer fee is charged by most lenders to cover the expenses involved in generating a loan.  

The debtor retains the right of possession and control of the secured property while the creditor receives an equitable right in the property.

Basically it's pledging property as collateral w/o giving up possession.

1.  A mortage is a lien on the real property of a debtor.

2. The borrower, or mortgagor receives a loan and in return gives a promissory note and mortgage to the lender, called a mortagee.

3. Satisfaction of Mortgage.  When the loan is paid in full, the mortgagee issues this document, filed in the public record as evidence of the removal of the security interest.  

4. Two parties (Mortgagor and Mortgagee).  Contrast to Deed of Trust which has 3 parties.

Title Theory.  Mortgagor conveys legal title to the mortgagee (or a designated individual like the trustee) but retains equitable title and the right of possession.

Lien Theory.  Mortgagor retains both legal and equitable title to the property.

1.  Three party security agreement.  A trust deed conveys bafre legal title (title w/o the right of possession) from the borrower to a third party, called the trustee.

2.  Trustee holds legal title on behalf of the lender, who holds the promisory note.  Lender is also known as the beneficiary of the deed of trust.

3. Establishes the actions that the trustee may take if the borrower, the trustor, defaults under any of the deed of trust terms.

4. Lender choses the trustee and retains the right to replace trustee.

1.  Payment of debt IAW the terms of the Promisory Note;

2. Payment of all real estate taxes on the property used as security;

3. Maintenance of adequate insurance to protect the lender if house is destroyed;

4. Maintain property in good repair at all times;

5. Receipt of lender authorization before making any major alterations to the property.

1. Straight Loan.  Known as term loan or interest-only loan.  Borrower pays off only interest for a term or period of time followed by a principle payment in full at end of term.

2. Amoritized Loan.  Each payment contributes to both interest and principal.  

3. Adjustable-Rate Mortage (ARM).  Begins at one rate of interest, then fluctuates up or down during the loan term, based on specific economic indicators.  Common components are Index, Margin, Rate caps.

1. Judicial Foreclosure.  Allows the property to be sold by court order after the mortagee has given sufficient notice.

2. Nonjudicial Foreclosure. When the security instrument contains a power-of-sale clause, no court action is required.  Beneficiary is give power of sale which is usually then conducted by the Trustee. 

3. Strict Foreclosure.  Must give notice first.  Court establishes a deadline for the balance of the defaulted debt to be paid in full.  If borrower does not pay off loan by date, the lender is given full title to the property.

NOTE:  Equitable Right of Redemption gives defaulting borrowers a chance to redeem their property.

Deed of Trust--Lending Institution handles loan.

Land Contract--Private individual handles loan, frequently the seller.

1. The primary mortgage market is made up of the lenders that originate mortgage loans.

2. Major Lenders

    a.  Savings Associations.  Thrifts and commercial banks.

    b. Insurance Companies.  

    c. Credit Unions.

    d. Pension Funds.

    e. Endowment Funds.  For Universities, hospitals, charitable organizations.

    f. Investment Group Financing.

    g. Mortgage Banking Companies.  Usually work with insurance companies, pension funds, and individuals.

    h. Mortgage Brokers.  They don't loan money but bring investors and buyers together.

1.  FHA Insured Loan.  

    a. Operates under HUD.

    b. Loan must be made through an FHA approved lending institution.

    c. FHA insures lenders against loss from borrower default.

    d. Borrower charged a mortgage insurance premium (MIP).

    e. Can be assumed by FHA qualified buyers.

2. VA Loans

    a. VA-guaranteed Loan

    b. Eligibility-meets any of the following:

        (1) At least 90 days of active service for ves of WWII, Korea, Viet Nam, and the Gulf War through now;

         (2) A minimum of 181 days of active duty during interconflict periods between 1947 - 1980;

          (3) Two full years of service during any peacetime period since 1980 or the full period (at least 181 days) for which the vet was called or ordered to active duty;

          (4)  Six or more years of continuous duty as a reservist or as a member of the Army or Air National Guard.

    c. Requires a certificate of eligibililty.

    d. Issues a Certificate of Reasonable Value (CRV).

Regulation Z enacted by the Federal Reserve Board to enforce the Truth in Lending Act.  

Requires that credit institutions inform borrowers of the true cost of obtaining credit.

Under truth and lending act a consumer must be fully informed of all finance charges and the true cost of the financing before a transaction is completed.

Regulation Z gives the borrower 3 days to rescind (cancel) the transaction by notifying the borrower.  Does NOT apply to owner occupied residential purchases or first mortgage or deed of trust loans.  Does apply to refinancing a home.