Financing: Notes and Mortgages Objectives Define the mortgage note Define and explain the mortgage Identify the different mortgage clauses Identify what constitutes mortgage default and foreclosure Explain alternatives to foreclosure Define and explain bankruptcy

Essential Elements of the Mortgage Note Amount borrowed Rate of interest Payment amount, due date, and term Maturity date Reference to the mortgage Default Clause Penalties for late payment

Acceleration Clause Recourse vs. Non- Recourse Assumability Alienation Clause Future Advances Release of Lien Essential Elements of the Mortgage Note Continued

The Mortgage Instrument Mortgagor and Mortgagee Promissory Note Pledge of property as security Obligation to pay

Basic Mortgage Requirements Borrower and Lender Property Description Covenants of Warranty Provision between spouses Covenants and other contractual agreements

Mortgage Clauses Impound Accounts Taxes and Insurance Taxes and other assessments Hazard Insurance

Mortgage Clauses Continued Maintenance Alienation Subordination

Mortgages- Other Characteristics “Subject to” a mortgage Mortgage Assumption Junior Mortgage Purchase Money Mortgage Trust deeds Land contracts

Mortgage Financing TWO KEY DOCUMENTS Promissory Note Deed of Trust Advantage to having two instruments gives lender more options that they can take against the borrower.

Mortgage – Transaction between lender and borrower Deeds of Trust – 3 rd party transactions: Borrower, Lender and Trustee Provides greater protection for lender Conveys title of property to a trustee, who holds it as security for the debt Empowers trustee to foreclose on your house Deed of Release – Recorded by trustee when loan is paid off, showing debt has been paid Mortgages Cont.

Trust Deeds A three party instrument Trustor- borrower Trustee- third party Beneficiary- lender

Mortgage Controversies Pre-payment Penalties Lender charges 2 – 5% fee if mortgage is paid off early Due On Sale Clauses In every deed of trust and mortgage If you sell the property you must pay the loan

PMI Private Mortgage Insurance If only have 5 – 10% down payment Started in 1920’s Stopped during Great Depressions due to defaults Until 1957 no PMI Mortgage Guarantee Insurers Corp started it back up in Wisconsin

Special Types of Mortgages Home Equity Lines of Credit Interest Only Wrap Around Blended Rate Rollover Mortgage Graduated Payment Growing Equity Shared Appreciation (SAM) Adjustable Rate (ARM) Reverse Annuity (RAM) Bi-Weekly 15 Year

Mortgage Markets Mortgage Banker Mortgage Broker Markets Primary Secondary Transaction Types Direct Sale Program Mortgage Backed Securities

Mortgage Termination Mortgage Satisfaction Mortgage Default Definition: Breach of the mortgage contract and note Lender Options Refinance Voluntary Sale Deed in Lieu Foreclosure

Mortgage Default and Foreclosure Continued Non- Judicial Foreclosure Equity of Redemption Statutory Redemption Junior liens are extinguished Deficiency judgment

Bankruptcy Chapter 7- straight bankruptcy Chapter 11- business owners Chapter 13- plan of reorganization