1. Modern Real Estate Practice in Illinois
Chapter 15: Real Estate Financing: Principles

2. © 2008 Dearborn Real Estate Education
Mortgage Law
A mortgage is a voluntary lien on real estate
Title-theory states
Mortgagor gives legal title to mortgagee and retains equitable title
Lien-theory states
Mortgagor retains legal and equitable title; mortgagee has a lien on the property as security for the mortgage debt
Intermediate-theory states
Mortgage and deeds of trust convey only qualified title to lender as security for loan during existence of the debt
© 2008 Dearborn Real Estate Education

3. © 2008 Dearborn Real Estate Education
Security and Debt
Mortgage Loan Instruments
Promissory note is borrower’s promise to repay debt
Mortgage (security instrument) creates lien on the property
Hypothecation
Deeds of trust
© 2008 Dearborn Real Estate Education

4. © 2008 Dearborn Real Estate Education
Provisions of the Note
A promissory note is the borrower’s promise to pay. It is the primary evidence of debt
Interest
Usury
Loan origination fee
Discount points
Prepayment
© 2008 Dearborn Real Estate Education

5. Provisions of the Mortgage Document or Deed of Trust
Duties of the Mortgagor or Trustor
Provisions for Default
Assignment of the Mortgage
Release of the Mortgage Lien
© 2008 Dearborn Real Estate Education

6. Provisions of the Mortgage Document or Deed of Trust
Tax and Insurance Reserves
Flood insurance reserves
Assignment of Rents
Buying “Subject to” or “Assuming” Existing Financing (Mortgage or Deed of Trust)
Alienation Clause
© 2008 Dearborn Real Estate Education

7. Provisions of the Mortgage Document or Deed of Trust
Recording a Mortgage or Deed of Trust
Priority of a Mortgage or Deed of Trust
© 2008 Dearborn Real Estate Education

8. Provisions of Land Contracts
Installment Land Contract
Buyer (vendee) agrees to make a down payment and a monthly loan payment that includes interest and principal directly to seller
Seller (vendor) retains legal title to the property during contract term, and the buyer is granted equitable title and possession
Once entire debt is paid, the seller delivers the title
© 2008 Dearborn Real Estate Education

9. © 2008 Dearborn Real Estate Education
Foreclosure
Methods of foreclosure
Nonjudicial foreclosure
Judicial foreclosure
Strict foreclosure
Deed in lieu of foreclosure
Redemption
Deficiency judgment
© 2008 Dearborn Real Estate Education