Exam (elaborations)
C12 - PA Real Estate Fundamentals (1)
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- Pennsylvania Real Estate Fundamentals
C12 - PA Real Estate Fundamentals (1)
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C12 - PA Real Estate Fundamentalsacceleration clause - ANS-The mortgage typically includes an acceleration clause to
assist the lender in foreclosure. If a borrower defaults, the lender has the right to
accelerate the maturity of the debt. This means the lender may declare the entire debt
due and payable immediately. Without the acceleration clause, the lender would have to
sue the borrower every time a payment was overdue.
interest - ANS-the charge for the use of the money. Interest may be due either at the
end or beginning of each payment period.
alienation clause - ANS-(also known as a resale clause or due-on-sale clause) in the
note. An alienation clause provides that when a property is sold, the lender may either
declare the balance of the seller's debt due immediately (the buyer must obtain new
financing) or permit the buyer to assume the loan at an interest rate acceptable to the
lender. Some types of loans prohibit the use of alienation clauses.
lien theory - ANS-states in which the mortgage is viewed simply as a lien on the
property are called lien theory states. The mortgage is nothing more than collateral for
the loan. If the mortgagor defaults, the mortgagee must go through a formal foreclosure
procedure to obtain legal title. The property is offered for sale, and the funds from the
sale are used to pay all or part of the remaining debt. In some states, a defaulting
mortgagor may redeem (buy back) the property during a certain period after the sale. A
borrower who fails to redeem the property during this time loses the property
irrevocably.
amortized loan - ANS-involve systematic payments of principal along with interest, with
the result that loans are gradually paid off over time. Amortized loans are typically
long-term loans, the most common terms being 15 and 30 years. At the end of the loan
period, the full amount of the principal and all interest due is reduced to a zero balance.
The principal is directly reduced (hence the term direction reduction loan) or amortized
over the life of the loan.
loan origination fee - ANS-When a mortgage is originated, a loan origination fee (or loan
fee) is charged to cover the lender's initial cost of generating the loan. These include the
costs to process documents related to credit, appraisals, and inspections as well as
salaries and other related business expenses.
, deed in lieu of foreclosure - ANS-As an alternative to foreclosure, the lender may accept
a deed in lieu of foreclosure from the borrower. This is sometimes known as a friendly
foreclosure because it is carried out by mutual agreement rather than by lawsuit. The
major disadvantage of the deed in lieu of foreclosure is that the mortgagee takes the
real estate subject to all junior liens. In a foreclosure action, all junior liens are
eliminated. A deed in lieu of foreclosure is still considered an adverse element in the
borrower's credit history.
mortgage - ANS-security instrument, is the document that creates the lien on the
property. The mortgage exposes the real estate to claim by the mortgagee and is the
document that gives the creditor the right to sue for foreclosure.
deed of trust - ANS-the custom is to use a three-party instrument known as a deed of
trust, or a trust deed, rather than a mortgage document. In Pennsylvania, however,
deeds of trust are rarely used. A trust deed conveys "naked title," that is, title without the
right of possession. The deed is given as security for the loan to a third party, called the
trustee. The trustee holds bare title on behalf of the lender, who is known as the
beneficiary. The beneficiary is the holder of the note. The conveyance establishes the
actions that the trustee may take if the borrower (the trustor) defaults on any of the
terms.
Foreclosure procedures for default are usually simpler and faster than for mortgage
loans.
mortgagee - ANS-The borrower, or mortgagor, pledges the real estate to the lender, or
mortgagee, as security for the debt. A mortgage is considered a voluntary lien on real
estate. That is, the person who borrows money willingly gives the lender certain rights to
the property. The lender has both the borrower's personal promise to pay the debt as
well as the right to take the property if the borrower fails to meet that obligation.
defeasance clause - ANS-By the provisions of the defeasance clause in the typical
mortgage document, the mortgagee is required to execute a satisfaction of mortgage
(also known as a release of mortgage) when the note has been fully paid. This
document returns to the borrower all interest in the real estate originally conveyed to the
lender. Entering this release in the public record shows that the mortgage lien has been
removed from the property. If the mortgage has been assigned by a recorded
assignment, the release must be executed by the assignee/mortgagee.
mortgagor - ANS-The borrower, or mortgagor, pledges the real estate to the lender, or
mortgagee, as security for the debt
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