Chapter 8 Real Estate Finance Principles 2010©Cengage Learning. All Rights Reserved.

IN THIS CHAPTER Financing instruments such as mortgages and deeds of trust and other sources of real estate funds. Federal government regulation of lending institutions. Secondary mortgage markets. 2010©Cengage Learning. All Rights Reserved.

NOTES The note, which must be in writing, provides evidence that a valid debt exists. 2010©Cengage Learning. All Rights Reserved.

PRINCIPAL, INTEREST, AND PAYMENT PLANS Interest is the money paid for using someone else’s money. The mortgage principal is the amount of money on which interest is either paid or received. Amortizing loan is periodic payments applied first to interest and then to the principal. 2010©Cengage Learning. All Rights Reserved.

MORTGAGE Pledging property as security for the loan, called hypothecating, is accomplished through the mortgage or deed of trust instrument. Real Estate Note Deed of Trust 2010©Cengage Learning. All Rights Reserved.

Deed of Trust 2010©Cengage Learning. All Rights Reserved.

Michigan Due on Sale Clause Act provides that if the lender amends the loan contract and blends the rate for the buyer assuming the loan, the seller still retains liability on the note and the mortgage. any real estate licensee who advises a seller on how to evade the act is subject to a civil fine not to exceed $5, ©Cengage Learning. All Rights Reserved.

FORECLOSURE the liquidation of title to the real property pledged to recover funds to satisfy the mortgage debt. Judicial - requires the lender obtain a judgment. Nonjudicial – power of sale requires mortgagee to advertise the sale of the property by posting notice at the courthouse in the county where the property is located for a period of six weeks. 2010©Cengage Learning. All Rights Reserved.

Redemption Equitable - right to redeem property by paying the principal amount of the debt, accrued interest, and lender’s costs of foreclosure. Statutory - the borrower’s the right to pay the debt plus accrued interest and costs in full within 6 monthsafter the foreclosure sale, and thereby recover the property. 2010©Cengage Learning. All Rights Reserved.

Deficiency Judgment a court order stating that the borrower still owes the lender money. 2010©Cengage Learning. All Rights Reserved.

Other Aspects of Mortgages Recordation Priority and Subordination Releases 2010©Cengage Learning. All Rights Reserved.

SALES TRANSACTIONS Cash Sales New Financing Mortgage Assumption 2010©Cengage Learning. All Rights Reserved.

REAL ESTATE FINANCE Savings Banks Mutual Savings Banks Commercial Banks Mortgage Bankers Mortgage Brokers Life Insurance Companies Credit Unions REITs 2010©Cengage Learning. All Rights Reserved.

REAL ESTATE FINANCE Michigan State Housing Development Authority Individual Investors Secondary Mortgage Market Predatory Lending 2010©Cengage Learning. All Rights Reserved.

The Michigan Mortgage Brokers, Lenders, and Servicers Licensing Act became law in It requires persons who make, broker, or service one- to four-family residential first mortgage loans secured by Michigan property to be licensed or registered with the Commissioner of Financial Institutions Bureau. 2010©Cengage Learning. All Rights Reserved.

 alienation clause  amortizing loan  arrears  closed mortgage  conforming loans  deed in lieu of foreclosure  Deed of trust  defeasance clause  deficiency judgment  disintermediation  due on sale clause  acceleration clause CHAPTER TERMINOLOGY REVIEW 2010©Cengage Learning. All Rights Reserved.  Fannie Mae (FNMA)  foreclosure  formal assumption  Freddie Mac (FHLMC)  Ginnie Mae (GNMA)  hypothecating  interest  equitable redemption  judicial foreclosure  liquidity

 Michigan Due on Sale Clause Act  Michigan Mortgage Brokers, Lenders, and Servicers Licensing Act  Michigan State Housing Development Authority (MSHDA)  mortgage  mortgage assumption  mortgage bankers  mortgage broker  mortgage principal  mortgagee  mortgagor more CHAPTER TERMINOLOGY REVIEW 2010©Cengage Learning. All Rights Reserved.  nonjudicial foreclosure  open mortgage  prepayment penalty  promissory note  receiver  right of assignment  savings banks (S&Ls)  secondary mortgage  market  statutory redemption  strict foreclosure  trustee  trustor  waste