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47 Cards in this Set
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Security instrument
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A legal document given by the borrower to hypothecate (pledge) the property to the lender as collateral for the loan
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Hypothecation
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A legal arrangement that allows a borrower to remain in possession of a property secured by a loan
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Collateral
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Something of value given as security for a debt
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Security instrument
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At the same time the promissory note is signed, the borrower is required to execute the security instrument. A security instrument is a separate agreement from the promissory note. The promissory note can stand alone without the security instrument. It is a personal, unsecured note at that point. However, the security instrument needs the note to validate its existence. If there is a conflict between the terms of a note and the security instrument, the provisions of the note prevail
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Parties to the Security Instrument
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Borrower. Depending on the type of security instrument, the borrower is called the mortgagor, trustor, or grantor.
Lender. Depending on the type of security instrument, the lender is called the mortgagee, beneficiary, or grantee. Trustee. Only a deed of trust has a trustee |
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Periodic payment
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Regularly scheduled amount due for principal and interest under the note plus escrow amounts, if any
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Rider
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An addition or amendment separate from but attached to the original document. Typical riders to security instruments include the Adjustable Rate Rider, Balloon Rider, Condominium Rider, and Biweekly Payment Rider
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Covenant of seisin
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The borrower’s promise that he or she has the right to grant and convey the property and that the property is unencumbered except for encumbrances of record
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Escrow items
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Include fees or assessments that must be paid in addition to the periodic payment of principal and interest. These include taxes, assessments, leasehold payments, ground rents, insurance premiums, and mortgage insurance premiums, if any
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Mortgage insurance
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Insurance that protects the lender against the nonpayment of, or default on, the loan
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Property Insurance
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The borrower must provide adequate homeowner and hazard (i.e., fire, flood, and earthquake) insurance coverage for improvements on the property. The lender may require the amount (including deductible levels) of the insurance and has the right to approve the insurance carrier providing the insurance. This coverage is called force placed insurance
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Occupancy
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If the loan is for the borrower’s personal residence, the borrower must occupy the property for at least one year unless the lender agrees otherwise in writing. If the borrower states on the loan application that the property will be the principal residence but the statement is false, the borrower is in default
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Lender’s Right to Protect its Interest in the Property
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The lender may do whatever is reasonable to protect its interest in the property. The lender may secure the property and change the locks. The lender may (but is not required to) make repairs, replace or board up doors and windows, drain water from pipes, eliminate building or other code violations or dangerous conditions, and have the utilities turned on or off. Any money spent by the lender to protect its interest in the property will be added to the borrower’s debt that is secured by the security instrument. The borrower must repay these amounts plus interest when asked to do so by the lender
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Joint and Several Liability
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Each borrower who signs the security instrument agrees to be jointly and severally liable. However, a borrower who co-signs the security instrument but not the note only conveys his or her interest in the property under the terms of this security instrument and is not personally obligated to pay the sums in the note
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Acceleration or Due on sale clause
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Gives the lender the right to demand full payment of the loan secured by the security instrument if the borrower transfers the property without the lender’s permission
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Reinstate
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Means to bring current or to restore. Borrowers in default can avoid foreclosure by bringing the loan to a current status
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Foreclosure
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A legal procedure in which the borrower’s property is sold to satisfy the debt
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Equity of redemption
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In order to reinstate the loan the borrower must pay the lender all sums due under the note as if no acceleration occurred. In addition, the borrower must cure any default of any other covenants and pay all expenses incurred by the lender in enforcing the security instrument (i.e., attorneys’ fees, property inspection, valuation fees, etc.). Under a mortgage, the right of a mortgagor who is in default on the loan to recover the property BEFORE a foreclosure sale is called _______
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Change of Loan Servicer
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The lender may retain or sell the servicing rights to the note. Any time the loan servicer changes, the borrower must be given written notice of the change. The notice will state the name and address of the new loan servicer, the address to which payments should be made, and any other information the Real Estate Settlement Procedures Act (RESPA) requires in connection with a notice of transfer of servicing
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Hazardous substances
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Include gasoline, kerosene, other flammable or toxic petroleum products, toxic pesticides and herbicides, volatile solvents, materials containing asbestos or formaldehyde, and radioactive materials. This does not apply to small quantities of cleaning supplies, paint, and materials used to maintain residential property
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Number of parties, title, satisfaction, foreclosure, statutory redemption, deficiency judgment, and statute of limitations
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Although mortgages and deeds of trust share many of the same covenants, they differ in
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Mortgage
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A security instrument that secures the payment of a promissory note. A mortgage is a two-party security instrument and is, in fact, a contract for a loan. This loan contract (mortgage) is commonly recorded to secure real property. A mortgage is held by the lender for the life of a loan or until the borrower pays it off
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Mortgagor (borrower) and mortgagee (lender). The mortgagor (borrower) receives a loan from the mortgagee (lender) and signs a promissory note and mortgage
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The two parties in a mortgage are
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Mortgagor
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Borrower
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Mortgagee
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Lender
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Lien theory and title theory
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There are two theories of how title follows a mortgaged property
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Lien theory state
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Title to real property is vested in the borrower. The borrower gives only a lien right to the lender during the term of the loan
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Title theory state
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title to real property is vested in the lender. In a title theory state, the mortgage states that title reverts to the borrower once the loan is paid. Whether the state is a lien theory or title theory state, possession of the property remains with the borrower
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Modified lien theory state
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One in which the mortgage is a lien unless the borrower defaults. In this case, the title is automatically transferred to the lender. In any case, the borrower enjoys possession of the property during the full term of the mortgage no matter who holds title
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Defeasance clause
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Cancels the mortgage upon repayment of the debt in full. The title to the property transfers back to the mortgagor and the lender’s interest in the property terminates
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Satisfaction of a mortgage, or payment in full
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Requires that the lender deliver the original note and mortgage to the party making the request. This release should be recorded to give public notice that the mortgage encumbrance has been paid in full
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Power of sale clause
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A clause in a mortgage or deed of trust that gives the holder the right to sell the property in the event of default by the borrower
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Statutory Redemption
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Some mortgages allow statutory redemption, which is the statutory right of a mortgagor to recover the property AFTER a foreclosure sale
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Deficiency judgment
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A personal judgment against a borrower for the balance of a debt owed when the security for the loan is insufficient to repay the debt. If the proceeds of the foreclosure sale are insufficient to satisfy the debt, the lender may get a deficiency judgment against the borrower that will be effective for 10 years
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Statute of limitations
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Limits the period of time during which legal action may be taken on a certain issue
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Deed of trust (trust deed)
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A security instrument that secures a loan on real property
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The borrower (trustor), the lender (beneficiary), and a neutral third party (trustee)
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When a promissory note is secured by a deed of trust, three parties are involved:
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Trustor
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Borrower (deed of trust)
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Beneficiary
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Lender (deed of trust)
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Trustee
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Neutral third party (deed of trust)
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Lien
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A claim on the property of another for the payment of a debt
After being signed by the trustor, the deed of trust (not the note) is recorded in the county where the property is located. The recorded deed of trust and the note are sent to the lender to hold for the life of the loan. Recording creates a lien against the property and gives public notice of the existence of a debt owed on the property |
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Parties
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The parties in a deed of trust are the borrower (trustor), the lender (beneficiary), and a neutral third party (trustee). The beneficiary (lender) holds the note and deed of trust until reconveyance or until the debt is paid in full. In most states, a title or trust company, escrow holder, or the trust department of a bank perform the duties of a trustee
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Equitable title
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The right to obtain absolute ownership to property when legal title is held in another’s name. As equitable owner, the borrower has all the usual rights that go with ownership, such as the right to possess, will, encumber, and transfer
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Bare legal title
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Title that lacks the usual rights and privileges of ownership. The bare legal title held by the trustee allows the trustee to do only two things: reconvey the property to the borrower upon final payment of the debt or foreclose if the borrower defaults on the loan
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Deed of reconveyance
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Conveys title to the property from the trustee to the borrower (trustor)
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Trustee’s sale or judicial foreclosure
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Under a deed of trust, the lender has a choice of two types of foreclosure
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Power of sale clause
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Gives the trustee the right to foreclose, sell, and convey ownership to a purchaser of the property if the borrower defaults on the loan. The trustee can start the sale without a court foreclosure order because the borrower has already given bare legal title to the trustee in the deed of trust. Additionally, the power of sale clause in the deed of trust gives the trustee the authority to sell the property
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