CHAPTER TWOCHAPTER TWO

FINANCING: NOTES AND MORTGAGES

Chapter ObjectivesChapter Objectives

• Define the mortgage note

• Define and explain the mortgage

• Identify the different mortgage clauses

• Explain and identify what constitutes mortgage default and foreclosure

Chapter Objectives Chapter Objectives ContinuedContinued

• Identify and explain alternatives to foreclosure

• Define and explain bankruptcy

Essential Elements of the Essential Elements of the Mortgage NoteMortgage Note

• Amount borrowed

• Rate of interest

• Payment amount, due date, and term

• Maturity date

• Reference to the mortgage

• Default

• Penalties for late payment

Essential Elements of the Essential Elements of the Mortgage Note ContinuedMortgage Note Continued

• Acceleration Clause

• Recourse vs. Non- Recourse

• Assumability

• Alienation Clause

• Future Advances

• Release of Lien

The Mortgage InstrumentThe Mortgage Instrument

• Mortgagor and Mortgagee

• Promissory Note

• Pledge of property as security

• Obligation to pay

Basic Mortgage RequirementsBasic Mortgage Requirements

• Borrower and Lender

• Property Description

• Covenants of Warranty

• Provision between spouses

• Covenants and other contractual agreements

Mortgage ClausesMortgage Clauses

• Impound Accounts

• Taxes and Insurance

• Taxes and other assessments

• Hazard Insurance

Mortgage Clauses ContinuedMortgage Clauses Continued

• Maintenance

• Alienation

• Subordination

Mortgages- Other Mortgages- Other CharacteristicsCharacteristics

• “Subject to” a mortgage

• Mortgage Assumption

• Junior Mortgage

• Purchase Money Mortgage

• Trust deeds

• Land contracts

Mortgage Default and Mortgage Default and ForeclosureForeclosure

• Breach of the mortgage contract and note

• Alternatives to foreclosure

• Restructuring the loan

• Transfer to a new owner

Mortgage Default and Mortgage Default and Foreclosure ContinuedForeclosure Continued

• Voluntary conveyance to the lender

• A “Friendly Foreclosure”

• Extension Agreement

• Deed in lieu of foreclosure

• Judicial Foreclosure

Mortgage Default and Mortgage Default and Foreclosure ContinuedForeclosure Continued

• Non- Judicial Foreclosure

• Equity of Redemption

• Statutory Redemption

• Junior liens are extinguished

• Deficiency judgment

Trust DeedsTrust Deeds

• A three party instrument

• Trustor- borrower

• Trustee- third party

• Beneficiary- lender

BankruptcyBankruptcy

• Chapter 7- straight bankruptcy

• Chapter 11- business owners

• Chapter 13- plan of reorganization