Mortgage Theories & Promissory Notes
Under Title Theory, the lender holds the property's title until the loan is fully repaid, while the borrower has possession. In Lien Theory, the borrower holds the title, and the lender has a lien as security; the property can be seized if the borrower defaults.
The borrower receives the deed, but the lender keeps the title and owns the house, until the borrower pays off the loan.
Title Theory
Key Terms
The borrower receives the deed, but the lender keeps the title and owns the house, until the borrower pays off the loan.
Title Theory
The borrower holds the title and owns the house, but a promissory note is signed by the borrower gives the lender the right to seize and sell the house should the borrower default on the loan.
Lien Theory
A promissory note should include:
The terms of repayment including interest and principal
The length of the loan
Late fees
Any prepayment penalties
A description of the ...
A promissory note is a ____. This means the holder may transfer the right to receive payments to a third party.
negotiable instrument
A legally binding document that is a lien against a property
Mortgage
Mortgagee
The Lender
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| Term | Definition |
|---|---|
The borrower receives the deed, but the lender keeps the title and owns the house, until the borrower pays off the loan. | Title Theory |
The borrower holds the title and owns the house, but a promissory note is signed by the borrower gives the lender the right to seize and sell the house should the borrower default on the loan. | Lien Theory |
A promissory note should include: | The terms of repayment including interest and principal |
A promissory note is a ____. This means the holder may transfer the right to receive payments to a third party. | negotiable instrument |
A legally binding document that is a lien against a property | Mortgage |
Mortgagee | The Lender |
Mortgagor | The borrower |
If the borrower defaults, the lender usually has to get a court order that allows it to seize and sell the home. This process is called ____ | Judicial Foreclosure |
With a deed of trust and title theory, the trustee already holds legal title to the property, and can legally sell it if the buyer defaults. The lender just has to prove that the borrower defaulted. This process is called ____ because it bypasses the court system. | non-judicial foreclosure |
A deed of trust actually involves three parties: the borrower (or trustor), the lender (or beneficiary), and a third party (or trustee). Since the lender, holds legal title to the property, ___ theory is being employed | title theory |
Power of sale clause | lender does not need court order to foreclose |
Satisfaction of Mortgage | When borrower has paid mortgage |
Release Deed |
|
involves unscrupulous lenders who take advantage of a consumer’s naivety or circumstances to get them to sign loans with not just unfavorable but nearly impossible terms | Usury |
may be used to secure the mortgage instead of a promissory note. is used to secure property and the borrower defaults, the borrower may face foreclosure. A lender may sell a group of mortgages to an investor wrapped in one mortgage bond. The investor may collect interest on the mortgage bond for the term of the mortgage along with the principal. | A bond (also known as a mortgage bond) |
may be handwritten, typed, or preprinted. is payable on demand if no definite time is stated. may not contain any conditions for payment; it must be unconditional. If interest is charged for the money owed, the rate of interest, which may be fixed or variable, must appear either on the instrument itself or be referenced in an associated document. Signatures may be printed or stamped. | negotiable instruments |
requires the borrower to repay the loan on the property when selling or transferring ownership of the property. | due-on-sale clause |
gives the lender the right to make all monies owed immediately due and payable in the event of borrower default. | acceleration clause |
he lender agrees to discharge the mortgage once the borrower’s paid off the loan in full | defeasance clause |
The lender is required to execute this when it’s paid in full. It’s a rare and happy day in a homeowner’s life when that document’s received! | satisfaction of mortgage (a release of mortgage) |
A term that requires disclosure of other terms related to the loan; if any such term is used, all terms must be disclosed | Triggering term |