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Chapter 8Real Estate Finance

Principles

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.

NOTES• The note, which must be in

writing, provides evidence that a valid debt exists.

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.

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

Deed of Trust

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 $5,000.

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 in court.

• 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.

Redemption• Right to redeem property by

paying the principal amount of the debt, accrued interest, and lender’s costs of foreclosure.

• Equitable- from date of default until the foreclosure sale.

• Statutory - from date of foreclosure sale until the writ of restitution.

Deficiency Judgment

• A court order stating that the borrower still owes the lender money.

Other Aspects of Mortgages

• Recordation• Priority and Subordination• Releases

SALES TRANSACTIONS

• Cash Sales• New Financing• Mortgage Assumption

REAL ESTATE FINANCE

• Savings Banks• Mutual Savings Banks• Commercial Banks• Mortgage Bankers• Mortgage Brokers• Life Insurance Companies• Credit Unions• REITs

REAL ESTATE FINANCE

• Michigan State Housing Development Authority

• Individual Investors• Secondary Mortgage Market• Predatory Lending

• The Michigan Mortgage Brokers, Lenders, and Servicers Licensing Act became law in 1987.

• 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.

alienation clauseamortizing loanarrearsclosed mortgageconforming loansdeed in lieu of foreclosureDeed of trustdefeasance clausedeficiency judgmentdisintermediationdue on sale clauseacceleration clause

CHAPTER TERMINOLOGY REVIEW

Fannie Mae (FNMA)foreclosureformal assumptionFreddie Mac (FHLMC)Ginnie Mae (GNMA)hypothecatinginterestequitable redemptionjudicial foreclosureliquidity

Michigan Due on Sale Clause ActMichigan Mortgage Brokers, Lenders, and Servicers Licensing ActMichigan State Housing Development Authority (MSHDA)mortgagemortgage assumptionmortgage bankersmortgage brokermortgage principalmortgageemortgagor

more CHAPTER TERMINOLOGY REVIEW

nonjudicial foreclosureopen mortgageprepayment penaltypromissory notereceiverright of assignmentsavings banks (S&Ls)secondary mortgagemarketstatutory redemptionstrict foreclosuretrusteetrustorwaste