2. Key Questions… What? – Identify key terms and concepts that are important to real estate finance decisions Why? – Explain why those terms are important How? – Illustrate how those terms and concepts are applied in practice

3. The Basics Mortgages Traditional Finance Methods Alternative Finance Vehicles Fixed rates, variable, CPM, reverse annuity, price level, risks, yields, incremental costs, LTV, refinancing, prepayment Residential, underwriting, closing, settlement, corporate real estate, project and land development financing Course Map Notes, mortgages, default, foreclosure, bankruptcy, time value of money, compounding, yield, IRR Ventures, syndicates, secondary market, pass through securities, CMOs, MBS, CMBS You Are Here !!!

4. Schedule 4

5. Open House Today Informal – drop by my office (N-305) 2:30 – 4:30 Learn more Yummy Snacks 5

6. Real Estate Club The BEST club at MTSU Open to ALL majors Learn things that apply to the rest of your life Make some awesome friends Hang out with creative, entrepreneurial dudes Limited space, act now, while supplies last! 6

7. Homework… Bring your resume and post PDF to course discussion by next class

8. Today More Introductions So, what the heck is “real estate finance” and why do we care about it? Articles / News Chapter 2 – Intro Dynamic Terminals 8

9. Introductions Index Cards – Name and nickname – Major / Minor – When you graduate – Interests and what you do for fun – Home town – Your interest and/or background in real estate Speak up!!! 9

10. Notes Evidence of Debt Major Provisions – Amount borrowed – Rate of interest – Dollar amount, due dates, # of payments – Maturity date – Reference to security for the loan – Application of payments

11. Notes Major Provisions – Default – Penalties for late payment and forbearance provisions – Provisions for unscheduled payments – Notification of default and acceleration clause – Nonrecourse clause Note that even if there is a nonrecourse clause, loans are generally with “recourse” if the “bad boy” provisions are violated. For example, if the borrower willfully damages the asset, the borrower will generally be held personally responsible for the damage.

12. Notes – Loan assumability – Assignment clause – Future advances – Release of lien by lender

13. Mortgage Instrument Note & Mortgage – Note: Obligation to pay – Mortgage: Pledges property as security The mortgagor is the borrower. The mortgagee is the lender. Try to keep this straight.

14. Mortgage Instrument Appropriate identification of mortgagor and mortgagee Proper description of the property serving as security for the loan Covenants of seisin and warranty Provision for release of dower rights Any other desired covenants and contractual agreements

15. Mortgage Instrument Important Clauses – Funds for Taxes & Insurance – Charges & Liens – Hazard Insurance – Preservation and Maintenance of the property – Transfer of property or a beneficial interest in borrower (“Due on sale clause”)

16. Mortgage Instrument Important Clauses – Borrower’s Rights to Reinstate – Right of Entry: Lender in Possession – Future Advances – Subordination Clause

17. Additional Mortgage Concepts Assumption – Liability – Release of grantor from assumed debt “Subject to” a Mortgage – Liability

18. Additional Mortgage Concepts Property Covered – Land – Improvements – Easements – Fixtures Special case of trade fixtures – Mineral Rights – After-acquired property

19. Additional Mortgage Concepts Senior & Junior Mortgages Recording Mortgages – Protect Lien Priority Seller Financing – Purchase Money Mortgage – Use of Subordination Clause

20. Additional Mortgage Concepts Land Contract – Seller retains naked title – Purchaser has equitable title – Seller conveys title when purchaser completes the performance obligations Default – Breach of mortgage contract Technical default

21. Workouts Restructure the loan – Recasting – Extension Agreement – Alternatives Transfer – Subject to Purchase an Option on Property Value

22. Workouts Voluntary Conveyance – Deed in Lieu of Foreclosure This can be tricky. For example, the presence of a 2 nd mortgage will make it problematic for the borrower to simply give a deed in lieu of foreclosure to the 1 st mortgage holder. In that case, the 2 nd mortgage would remain in effect and would not be extinguished by a deed in lieu of foreclosure. Friendly Foreclosure Prepackaged Bankruptcy Short Sale

23. Foreclosure Judicial Foreclosure – Judgment Lien Redemption – Equity of Redemption Prior to foreclosure – Statutory Right of Redemption After foreclosure Not in every state

24. Foreclosure Property Sale – Fixing a Price by public auction Upset price – Trust Deed: Trustor, Trustee, Beneficiary Power of Sale Clause – Court authority not necessary Used in a Limited Number of States – Purchaser Buys Any Title Defects

25. Foreclosure Parties – Senior & Junior Lien Claimants Deficiency Judgment – Property price does not cover claim – Several states limit the applicability of deficiency judgments Tax in Default – Tax sales

26. Bankruptcy Chapter 7 – Liquidation Chapter 11 – Available to business owners – Reorganization – Cramdown Chapter 13 – Reorganization

27. Banker Request 27 To finish my credit memo and complete the risk grading process we perform to move to commitment, can you gather and forward the following information (for each partner): An electronic copy (preferably a PDF file) of the package you sent me (at least the project related sections) Authorization to pull your personal credit (simply reply affirming to this email) Complete tax returns for the last two years Verification of stated liquidity on your PFS (12/31 bank/brokerage acct statements would be terrific) Land purchase and sale agreement and any brokerage agreement Fully executed lease (including all exhibits, including SNDA) Survey Proposed contractor and qualifications (when you're ready) We'll eventually need the final plans but we'll cover those items closer to closing.