1. Florida Real Estate Principles, Practices & Law 38th Edition
Linda L. Crawford
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All rights reserved.

2. Residential Mortgages
Chapter 12
Residential Mortgages

3. Mortgage Law Lien Theory (Florida) Title Theory
Borrower retains legal title
Lender is protected with a lien
Title Theory
Title conveyed to
Lender through a mortgage deed, or
Trustee through a deed of trust
Borrower retains equitable title
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4. Loan Instruments Promissory Note Mortgage
Promise to repay; evidence of a debt
Terms of the loan
Mortgage
Pledges property as collateral
Hypothecation—pledging property as security without surrendering possession
Written instrument
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5. Parties to a Mortgage Mortgagor Mortgagee Borrower
Gives mortgage as security to repay
Mortgagee
Lender
Owns the mortgage
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6. Satisfaction of Mortgage
Release of mortgage is recorded by lender
Mortgagee must cancel the mortgage and send the recorded satisfaction to the mortgagor within 60 days
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7. Mortgage Lien Priority
Priority is normally determined by the order liens are recorded
First mortgage is the first mortgage loan to be recorded
Junior mortgage is a second mortgage or later mortgage
Subordination agreement used to voluntarily take lower priority
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8. Borrower’s Covenants and Agreements
Promise to repay
Taxes and liens
Property insurance
Occupancy
Maintenance and covenant of good repair
Covenant against removal
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9. Other Mortgage Provisions
Prepayment clause
Included in FHA and VA mortgages
Prepayment penalty clause
Acceleration clause
Upon default, accelerate entire debt due
Right to reinstate
Due-on-sale clause
Defeasance clause
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10. Loan-to-Value (LTV) Ratio
Relationship between amount borrowed and value (or sale price)
Loan Amount ÷ Price (or value) = LTV ratio
Example:
Buyer will get a loan of $234,000 with a $260,000 purchase price.
$234,000 ÷ $260,000 = .9 (90%)
LTV ratio = 90%
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11. Another Example of LTV
What is the loan amount for a property appraised for $150,000 if the lender will make a 80% LTV ratio loan? Appraised value x LTV ratio = Loan amount $150,000 x 80% = $120,000 Loan amount = $120,000
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12. Common Mortgage Features
Down payment
Loan-to-Value ratio
Equity
Current market value – mortgage debt = equity
Interest
Cost for use of borrowed funds
Escrow (impound) account
Monthly installment of property taxes and hazard insurance
Discount points
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13. Sources of Income to Lenders
Loan origination fee
Takeout commitment
Loan servicing
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14. Mortgage Discounting Discount points
Up-front fee to increase the real yield, or annual percentage rate (APR) to lender
Allows lender to increase return without increasing the contract interest rate
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15. Discount Point Cost to the Borrower
Each point is equal to 1% of the loan amount
Example: On a $120,000 loan for which the lender is charging 2 points, find the cost of the points
$120,000 x 2% = $2,400
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16. Discount Point Yield to the Lender
Known as the lender’s yield, return, or APR
Each discount point paid will increase the yield (return) to lender by 1/8%
For each point charged, add 1/8% to the stated interest rate
Example: A lender charges 2 points on a loan of $120,000 at 6% interest.
2/8% + 6% = 6¼%
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17. Assignment of Mortgage
Assignment is when ownership of a mortgage is transferred from one company or individual to another
Estoppel certificate (letter) verifies the amount of the unpaid balance, interest rate, and date to which interest has been paid prior to the assignment
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18. Two Methods of Purchasing Property Encumbered by an Existing Mortgage
Subject to mortgage
Assumption of an existing mortgage
Novation agreement makes the buyer solely responsible for a default
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19. Contract for Deed
Land contract, agreement for deed, installment sale contract
Seller financing
Usually small down payment
Buyer makes payments to seller
Seller retains legal title until loan is repaid
If recorded, buyer gets equitable title and can file for homestead tax exemption
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20. Foreclosure If the borrower defaults
Initiate a suit on the promissory note
Sue on the note, obtain a judgment, and then execute the judgment against any real or personal property
Initiate a foreclosure proceeding
Foreclose on the property
Caveat emptor applies to purchase at foreclosure sale
Deed in lieu of foreclosure
Non-judicial procedure
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21. Equity of Redemption
Mortgagor can prevent foreclosure by paying the principal and interest due plus collection expenses
Right ends once property has been sold at foreclosure sale
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22. Short Sale
Net proceeds at closing will not satisfy the payoff amount of mortgages and other liens on the property
Seller is selling the home for an amount less than the amount owed to the lender
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23. Lis Pendens
Notice recorded in public records of pending legal action involving real estate
Constructive notice
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