Chapter 14 Real Estate Financing: Principles This financing chapter focuses on the documents and concepts involved in real estate lending.

2 ©2013 Kaplan, Inc. 14 Real Estate Financing: Principles Learning objectives –Identify the basic provisions of security and debt instruments: promissory notes, mortgage documents, deeds of trust, and land contracts –Describe the effect of discount points on yield –Explain the procedures involved in a foreclosure –Distinguish between lien and title theories –Explain the three methods of foreclosure

3 ©2013 Kaplan, Inc. 14 Real Estate Financing: Principles Mortgage, called a security deed in Georgia, is a voluntary, specific lien Mortgage (security deed) law –Mortgagor = borrower –Mortgagee = lender –Title theory –Lien theory –Intermediate theory

4 ©2013 Kaplan, Inc. 14 Real Estate Financing: Principles Security and debt –Relationship between borrower and lender –Property is collateral – security for repayment of debt –Convey as security no more than owned –Hypothecation –Promissory note Interest Usury Loan origination fee Discount points Prepayment penalty

5 ©2013 Kaplan, Inc. 14 Real Estate Financing: Principles Promissory note Interest Usury Loan origination fee Discount points Prepayment penalty

6 ©2013 Kaplan, Inc. 14 Real Estate Financing: Principles Mortgages or security deeds –Duties of the mortgagor –Default –Georgia Residential Mortgage Fraud Act –Assignment –Release –Tax and insurance reserves Flood insurance reserves –Assignment of rents –Assumption, “subject to”, or novation –Alienation –Recording and priority

7 ©2013 Kaplan, Inc. 14 Real Estate Financing: Principles Land contracts –Contract for deed or installment contract –Other financing may not be available –Buyer = vendee –Seller = vendor –Owner financing

8 ©2013 Kaplan, Inc. 14 Real Estate Financing: Principles Foreclosure –Judicial –Nonjudicial –Strict –Deed in lieu of foreclosure –Redemption Equitable Statutory (not in Georgia) –Deed to purchaser at sale –Deficiency judgment

9 ©2013 Kaplan, Inc. 14 Real Estate Financing: Principles