FINANCING: NOTES AND MORTGAGES CHAPTER TWO FINANCING: NOTES AND MORTGAGES

The Mortgage Instrument A mortgage is created when one party pledges real property to another party as security (collateral) Mortgagor and Mortgagee A Promissory Note is normally issued together with the mortgage Obligation to pay

Essential Elements of Mortgage Note A mortgage note is a debt contract document Amount borrowed Rate of interest fixed vs. adjustable Payment amount, due date, and term (number of payments) Maturity date Order of payment application Late charge/fees/penalties; interest; principal Reference to the real estate (mortgage)

Essential Elements of Mortgage Note Default and foreclosure Penalties for late payment and forbearance provisions (grace period) Prepayment Provisions Residential vs. commercial mortgages Acceleration Clause Recourse vs. Non- Recourse loan Assumability Alienation/“Due on Sale” Clause Assignment Clause (transfer to 3rd party)

Mortgage Clauses Future Advances Release of Lien Escrow/trust account for Property Taxes Property Insurance Mortgage insurance premium Maintenance Subordination Senior vs. junior mortgage Seller financing