Introduction

In this section we learned the essential elements of promissory notes, mortgages, and deeds of trust. We saw the typical covenants and clauses that are generally found in deeds of trusts and mortgages. We compared and contrasted the basic mechanisms of lender protection and foreclosure in lien theory states and title theory states. We learned deeds in lieu of foreclosure and deficiency judgments. We introduced the basic terminology of real estate finance and explored the primary and secondary markets of real estate financing. We explored the differences between conventional, FHA, VA and FMHA mortgages loans. We learned that there are many different types of mortgages, suitable for varying purposes and types of property. We looked at the laws that govern real estate loans and closings. We examined the role of the real estate appraiser in determining the value of real estate and summarized the basic types of appraisal procedures. We discussed real estate property taxes, as well as federal taxes and their impact on real estate investments. Finally, we examined the culmination of real estate sales as we looked at the process of closing a real estate transaction.

Chapter 1: Mortgages, Deeds of Trust and Foreclosures

Mortgage and Deed of Trust Loans

Promissory Note (Mortgage Note)
Mortgage Contract
Deed of Trust
Bare Title
Title Theory

Covenants and Clauses in Mortgages and Deeds of Trust

Covenants to pay indebtedness
Covenants to pay insurance
Covenants to pay property taxes

Clauses in Mortgages

Acceleration Clause
Alienation Clause
Defeasance Clause
Prepayment Clause
Subordination Clause
Subordination Agreement
Power-of-sale Clause
Exculpatory Clause
Escalator Clause
Partial Release Clause

Assumption versus Subject to Mortgage

Assumption of Mortgage
Subject to the Mortgage

Satisfaction and Foreclosure in Lien Theory States

Satisfaction of Mortgage
Lis Pendens
Equity of Redemption
Statutory Redemption Law

Satisfaction and Foreclosure in Title Theory States

Bare Legal Title
Deficiency Judgment

Deed in Lieu of Foreclosure
Advantages of Deed of Trust

Chapter 2: Real Estate Finance

Finance Terminology

Reserve Account/ Reserve Fund
Secondary Mortgage
Liquidity
Intermediation
Disintermediation
The Federal Reserve Bank
Interest
Usury

The Primary Mortgage Market

Savings and Loan Associations
Commercial Banks
Mortgage Companies
Mortgage Bankers
Mortgage Brokers
Life Insurance Companies

The Secondary Mortgage Market

Fannie Mae (FNMA)
Ginnie Mae (GNMA)
Freddie Mac (FHLMC)
Mortgage Guaranty Insurance Corporation (MGIC)

Financing Concepts

Hypothecation
Qualify
Equity
Leverage
Loan-to-Value Ratio
Loan Points
Discount Points
Buydown
Reduction Certificate
Equity Loans
PITI

The Lending Process

Pre Approval / Pre Qualification
Underwriter
Extent of Risk
Loan Originator
Loan Servicing

Types of Mortgage Loans

Conventional Loans
Private Mortgage Insurance
Mortgage Guaranty Insurance Corporation
FHA Loans
VA Guaranteed Loans
Farm Service Agency
Bridge Loan
Home Buyers
Developers

Types of Mortgage Instruments

Straight Mortgages
Amortized Mortgage
Partially Amortized Mortgage
Negative Amortization
Balloon Mortgage
Adjustable rate Mortgage (ARM)
Blanket Mortgage
Graduated Payment Mortgage
Interim Mortgage
Open-End Mortgage
Package Mortgage
Renegotiable Rate Mortgage (RRM)
Reverse Annuity Mortgage (RAM)
Shared Appreciation Mortgage
Junior Mortgage
Wraparound Mortgage
Purchase Money Mortgage

Lending Laws

The SAFE Act
Reduce Fraud in the Mortgage Industry
Truth in Lending Law and Regulation Z
Finance Charge
Annual Percentage Rate (APR)
Regulation Z
Trigger Terms
Reg Z Exemptions

Equal Credit Opportunity Act
Real estate Settlement Procedures Act (RESPA)
Prohibition Against Redlining

Chapter 3: Real Estate Valuation

Appraiser Licensing Requirements
Competitive Market Analysis

Appraisal and Value Concepts

Appraisal
Fees
Cost
Market Price
Market Value

Valuation of Real Property

Essential Elements of Value

Demand
Utility
Scarcity
Transferability

Principles that Underlie Valuation of Real Estate

Highest and Best Use
Substitution
Conformity
Increasing and diminishing returns
Plottage
Anticipation
Contribution
Regression and Progression
Growth, Equilibrium and Decline
Change
Competition
Unearned Increment

The Appraisal Process

Define the problem
Inspect the property
Gather, Record and Verify Data
Apply the three approaches to Value
Reconcile the estimates of value
Prepare the appraisal report

The Uniform Residential Appraisal Report (URAR)

The Market Approach to Appraisal

Market Approach
Locating comparables
The Adjustment Process

Four Factors / Adjustment Process

Market Conditions
Location
Physical Characteristics
Financing

The Value Conclusion

The Cost Approach to Valuation

Estimating Land Value
Estimating Construction Costs
Estimating Accrued Appreciation
Physical Deterioration
Functional Obsolescence
External Obsolescence

Computing Total Property Value

Income Approach to Valuation

Estimating Potential Gross Income
Estimating Effective Gross Income
Estimating Net Operating Income
Selecting a capitalization Rate
Applying the Capitalization Rate
Formulas

Gross Rent Multiplier (GRM)

The GRM Formula
Month
Annual

Chapter 4: Real Estate Taxes and Investment

Real Estate Taxes

Ad Valorem Taxes
Special Assessment Taxes

The Ad Valorem Process

Appropriation
Assessment
Assessed Value
Tax Rate
Mill
Mill Ratio
Tax Sale
Equitable Right of Redemption
Statutory Right of Redemption
Certificate of Sale
Tax Deed

Real Estate Investment Generally

Taxable Income
Appreciation
Depreciation
Useful Life
Economic Value
Cost Basis
Leverage
Tax Benefits of Real Estate Ownership

Real Estate Investment and Federal Taxes

Capital Gains
Sale of a Principal Residence
Like Kind Exchange

Chapter 5: Real Estate Closings

The Real Estate Closing

Escrow Closing
Closing Agent
Closing Statement
The Real Estate Settlement Procedures Act (RESPA)

TILA-RESPA Integrated Disclosure Rule (TRID)

Loan Estimate
Closing Disclosure
Loan Estimate
Zero Tolerance
10% Tolerance
Unlimited Tolerance
The Closing Disclosure

Closing Costs

Insurance Premiums (prorated) – Buyer
Cost of Survey
Chattels included in sale – buyer
Title Insurance and attorney’s fees for opinion- buyer
Recording of Deed – mortgagor
Loan service fees – mortgagor
Attorney’s Fees for preparing mortgage – mortgagor
Appraisal and inspection fees – mortgagor
Assumption fees – mortgagor
Prepaid interest – mortgagor
Documentary stamps on mortgage and notes – mortgagor
Recording of Mortgage – mortgagor

Section 4: Review

Real Estate Finance and Valuation Section Quiz

Chapter 1: Mortgages, Deeds of Trust and Foreclosures

Key Terms and Definitions

Acceleration Clause — A mortgage clause stating that the entire balance of the debt becomes due and payable immediately upon default of any of the terms of the mortgage

Ad Valorem Tax — Latin term for: according to the value; the principle usage is in ad valorem taxes that are assessed in proportion to the property’s value

Adjustable Rate Mortgage — A mortgage loan on which the interest rate rises and falls with changes in prevailing rates

Adjusted Basis — The book value of a property for income tax purposes. It is the purchase price less the depreciation plus the cost of the subsequent improvement

Alienation — The transfer of rights from one person to another. Voluntary alienation: selling property of one’s own free will. Involuntary alienation: loss of property due to unpaid taxes, condemnation etc

Appreciation — Increase in value of a property due to natural or economic factors. The opposite of depreciation

Assessed Value — The valuation placed upon property by a public tax assessor as the basis for taxes.

Assumption of Mortgage — When taking title to property with an existing mortgage, assuming full personal liability for its repayment

Balloon Mortgages — A balloon mortgage requires a lump sum payment at the end

Basis — The price paid for property; used for calculating income tax

Blanket Mortgage — A mortgage covering more than one parcel of land

Buydown — A cash payment to a lender so as to reduce the interest rate a borrower must pay

Capitalization — A method of determining the present value of a future income stream

Deed in Lieu of Foreclosure — Voluntary act by borrower and lender sometimes called a friendly foreclosure

Defeasance Clause — A clause in a mortgage whereby the lender promises to give title to the borrower upon repayment of the debt

Deficiency Judgment — A General Lien on all property of a defaulting debtor; issued when the security for a debt is insufficient to satisfy the debt. In some states deficiency judgments cannot be obtained

Depreciation — Decrease in the value of property due to natural economic factors. The opposite of appreciation

Economic Life — The time remaining during which a property can be profitably and feasibly used

Equity — Market value of a property less that the debt against it

Escalation Clause — Clause in a lease providing for the adjustment of rent based on specified indexes or circumstances

Partial Release — A release of a portion of property from a mortgage

PITI — Principal – Interest – Taxes – Insurance | Most mortgage payments include the things mentioned and are simply referred to as PITI

Plottage — The appraisal principle that holds that the merging of separate owned pieces of property into one large single lot will increase the value of the separate pieces

Point — One percent of the principle or face amount of a mortgage

Power of Sale — Sale – By – Advertisement | Allows a mortgage to conduct a foreclosure sale without first going to court

Private Mortgage Insurance — Known as PMI | Insures top 20-25% of a loan to protect a lender against losses

Real Estate Settlement Procedures Act (RESPA) — A federal law that deals with procedures to be followed in certain types of real estate closings

Regulation Z — Truth in Lending | Federal laws requiring certain disclosures when extending or advertising credit

Renegotiable Rate Mortgage — A long term mortgage with a note that must be re-negotiated at 3-5 year intervals

Reverse Mortgage — The lender makes payments to a homeowner who later repays in a lump sum

Secondary Mortgage Market — A market created to provide liquidity for mortgage financing

Escrow Closing — Deposit of funds and or documents with a neutral third party along with instructions as how to conduct the closing

Functional Obsolescence — A loss in property value brought about from defects in the design or structure of a building

Graduated Payment Mortgage — A fixed interest rate loan wherein the monthly payment starts low and then increases

Hypothecate — The use of property as security for a debt without giving up possession of it

Junior Lien — A lien whose claim upon the asset is subordinate to another lien. The order of priority is usually established according to the date of recordation

Like Kind Exchange

Mill — One-tenth of a cent 1/10 …. One-thousandth of a dollar 1/1000

Millage Rate — Rate per dollar of assessed valuation. The rate of real property taxes is often expressed as millage rate

Negative Amortization — A situation wherein a loan payment is insufficient to pay the interest due and the excess is added to the balance owed

Net Income — The amount of income left after deducting operating expenses from gross income

Package Mortgage — A mortgage covering both real and personal property

Special Assessment — A special tax levied to pay for a specific improvement such as sidewalks, sewers, etc.

Subordination Agreement — A process in which the holder of a superior mortgage agrees to give up his priority position

Tax Sale (Tax Certificate) (Tax Deed) — A sale, normally an auction of a property that is in default of taxes assessed against it. Title to the property is passed by a tax certificate or tax deed; the exact procedure varies from state to state.

Usury — The lending of money in a greater than the maximum rate allowed by law

Wrap Around Mortgage — A refinancing technique in which the new lender assumes payments of the existing mortgage and gives a new increased mortgage to the borrower at the higher interest rate. The new mortgage wraps around the original mortgage

Deficiency Judgment — The money that defaulting mortgagor/ buyer still owes the lender after a foreclosure sale

Subject to the Mortgage — When a new buyer is not personally liable for repayment of the mortgage

Promissory Note — Written promise to repay money

Assumption of the Mortgage — When a new buyer agrees to pay the existing mortgage

Notice of Default — Published notice that the trustee is going to sell property when payment is in arrears

Trustees Deed — How someone who buys property through a non-judicial foreclosure takes title

Acceleration Clause — Provides that loan is due in full upon default of certain covenants in loan documents

Alienation Clause — A due on sale clause

Partial Release Clause — Used by developers to provide for release of lots upon payment of some principle

Subordination Clause — Found in junior mortgage documents, indicating that the junior lien will always remain junior to a first mortgage

Sheriff’s Deed — A deed in judicial foreclosure

Statutory Redemption Clause — Laws giving foreclosed borrower right to pay judgment in full and regain title

Study Notes

The following are contained in a security instrument:

Seisin
Quiet Enjoyment
Further Assurance

***Payment of taxes is not a contained in security instrument

The following are financing instruments:

A mortgage
A deed of trust
A note

** An option is not a financing instrument

The clause in a mortgage that terminates the lender’s interest in real property when the mortgage is paid in full is known as Defeasance

A buyer assumes a seller’s loan. The buyer defaults and the lender forecloses. In this case, the buyer and seller are both responsible for the balance owing on the loan. Assumption means both are on the hook for the liability.

A developer owns two vacant lots. The developer pledges both as security for a loan to construct houses on the lots. In this situation, the developer will more than likely get a Blanket Mortgage loans. Usually for a multiple lot financing situation for developers.

The clause in a security instrument that prevents the assumption of a loan is known as Alienation.

All mortgages are liens

In a typical loan transaction, the mortgagee (the bank) is the lender.

By including an Exculpatory Clause in a mortgage contract, the lender releases the borrower from personal liability

In order to be valid, a mortgage or deed of trust must be:

In writing
Executed by the parties
Between competent parties

A Defeasance Clause in a mortgage will take effect when the borrower repays the entire debt

A mortgage contains:

Property description
Acknowledgement
Signature of borrower(s)

** A covenant to not to compete is not in a mortgage

An agreement to waive prior rights in favor of another is Subrogation

Parties to a deed of trust are Trustor / Beneficiary / Trustee

A promissory note is best described as Written Evidence of a debt

A mortgage contract is an agreement whereby an owner pledges real property as a security for the debt. They are used in Lien Theory states. There are two parties to the contract and the lender holds no interest in the title.

A Deed of Trust contract is an agreement whereby an owner pledges real property as security for a debt, and the owner surrenders Bare Naked title to a neutral third party, known as the Trustee. The neutral third party holds the Bare Naked title to the property. These contracts are used in Title Theory states.

Mortgagee vs Mortgagor

Mortgagor receives money (or offers the money to buy)
Mortgagee gives the money (or accepts/ receives the money to buy)

A mortgage notice or promissory note must accompany a mortgage or deed of trust

The Trustor (The Borrower) is the owner of the property and is responsible for the property taxes and insurance

When a first mortgage is refinanced, a second mortgage will stay in second place position only if there is a subordination clause or agreement

If anyone other than the delinquent borrower buys the property at a foreclosure sale all junior liens are eliminated

An alternative to losing property in foreclosure and risking a deficiency judgment is a Deed in Lieu of Foreclosure

A mortgagor can be / possibly be / charged a penalty if he pays off the mortgage early, because some notes may call for a pre-payment penalty

Once a Promissory Note securing a Deed of Trust is paid in full, the lien on the property is not cancelled until satisfaction of lien is recorded in the land records

A borrower has the obligation to keep the mortgaged property in good repair for the benefit of the mortgagee

Chapter 2: Real Estate Finance

Key Terms and Definitions

FHA Financing — Government insured loans

Amortized Loans — Principle and interest paid over a period of time

Secondary Mortgage Market — Market for purchase and sale of existing mortgages

Hypothecation — Pledge of property as a security without giving up possession

VA Financing — Government Guaranteed Loans

Qualifying a Buyer — Determining a potential buyer / borrower’s ability to repay the loan

Reserve Fund or Account — Money collected by a borrower to pay taxes and insurance

Servicing a Loan — Collecting monthly loan payments, disbursing funds to pay taxes and insurance and otherwise supervising an managing the loan

Primary Mortgage Market — Direct lenders, prime lenders and loan originators

Liquid Assets — Assets that can readily be converted to cash

Federal Reserve System — A central banking system with (12) districts

Intermediation — The process by which individuals put there money in accounts in financial institutions.

Study Notes

The primary purpose of the secondary mortgage market is to ensure a flow of mortgage money to primary lenders

A loan origination fee is a fee by the lender to initiate the loan

Major participants in the secondary mortgage market:

Ginnie Mae (GNMA)
Fannie Mae (FNMA)
(FHLMC)

** The FHA is not the secondary mortgage market

Facts:

Prepayment penalties are prohibited with VA and FHA financing
The VA can make certain direct loans
Conventional loans may require PMI insurance

Not True:

HUD establishes market based interest rates for VA and FHA loans … HUD does not do this

Income is the greatest emphasis given by a lender when qualifying an applicant for a VA loan

A veteran that has a VA loan must pay off the existing loan to obtain another VA loan and even more, to convey his property he must pay off the existing loan

A veteran with full entitlement may not:

Purchase any home with no money down
Purchase an investment property through VA loans
Obtain a guaranteed VA loan regardless of income

A veteran does not have free reign with VA loans

A mortgage loan that allows for increases or decreases in the interest rate at specified periods of time is known as an adjustable rate mortgage (ARM loan)

A mortgage payment, (PITI) would normally include:

A payment towards principle of the loan
A payment towards interest of the loan
1/ 2 of the annual real property taxes

** Life insurance has no bearing on PITI

A mortgage in which payments are made from the mortgagee (lender) to the borrower (mortgagor) is called a Reverse Mortgage.

A lender making an 80% loan for the property valued at $80k and purchased for $70k would make a maximum loan of $56k.

Buyers of loans in the secondary mortgage market include:

FHLMC
FNMA
Private Investors

** the VA is not included

If an advertisement triggers Regulation Z, the advertisement must contain the following disclosures:

Cash price of the loan
Amount or percentage of the loan down payment
Number, amount or percentage and frequency of prepayment
APR
Total Payments

The following are exempt from Regulation Z, regardless of any triggers:

Dwellings of more than four family units
Construction loans to a builder
Personal loans of no more than $25,000 and loans fewer than four installments

The intent of Regulation Z is to allow consumers to compare mortgage financing terms

The Equal Credit Opportunity Act (ECOA) does not list sexual orientation as a protected class, although some states and municipalities have added sexual orientation as such

The purpose of RESPA (Real Estate Settlement Procedures Act) is to ensure that buyer and seller are fully informed as to all settlement costs

Redlining means to deny or limit the number of loans in a particular area

The annual percentage rate (APR) includes all finance charges not just the interest

The Finance Charge is the total of all costs the borrower must pay for obtaining credit

The three (3) day right of recission mandated by Regulation Z applies to Refinanced Loans

Regulation Z disclosures must be made before a contractual relationship is created between a borrower and a lender

A lender can share the profit (in the profit) of a business venture by entering into a shared appreciation mortgage (SAM).

Graduated Payment Mortgages (GPM) refers to those whose payments increase on a scheduled basis, not whose interest rates fluctuate. Fluctuations in interest are adjustable Rates.

With Negative Amortization, the loan balance increases

Valuation Notes

Cost Approach — Appraisal based on cost of improvements

Market Price — The acquisition cost of property

Market Value — Current value or worth of property

Reproduction — Exact duplication

Economic Obsolescence — Changes outside the property that cause depreciation

Functional Obsolescence — Inadequacies caused by age or design

Market Data Approach — An appraisal method that estimates market value by comparing recent sales or similar properties

Competitive Market Analysis — A method used by real estate licensees to establish a value for a residential property by using comparable sales.

Capital Outlay — The cost required to improve real estate

Appraisal — A supportable estimate of the value of real estate made for a specific purpose

Plottage — The increase in value that results from combining smaller parcels into one larger parcel

Anticipation — Buying a property based expectations of further appreciation or income

Real Estate Appraisal is:

A description or property and the appraisers opinion of value
A process by which an appraiser reaches certain conclusions about value, then documents these conclusions in a written report
An estimate or opinion of value of a particular property at a particular time

Value is best described a: The present worth of future benefits

When determining Effective Gross Income, an appraiser subtracts Vacancy Rates & bad debts from potential gross income

The Cost Approach method of appraisal is most appropriate for Special Use property

Functional Obsolescence might include – no indoor plumbing

When appraising property located on a corner lot, the appraiser would consider:

Comparable sales
Highest and best use
Zoning and deed restrictions

** acquisition cost has nothing to do with it

An example of incurable depreciation is noxious odors from a chemical plant

Plant

An appraiser would most likely use the Capitalization Approach for a restaurant that is currently rented

When using the Market Data Approach, an appraiser would make adjustments for:

Location
Market Conditions
Financing

When appraiser assigns value to the rights of future income, he or she is most likely using the Capitalization Approach

The essential elements of real estate value are:

Demand
Utility
Scarcity
Transferability

Then most significant factor in the value of real estate is location. The three steps in the market approach to appraising real estate are:

Comparable
Adjustments
Reconciliation

The Reproduction Cost is the cost of constructing real estate improvements using the same or similar materials at today’s prices, Replacement Cost is the cost of constructing a new building at today’s prices that has the same functional utility as the being appraised

Reproduction applies only to improved real estate

Depreciation for appraisal purposes is entirely different from depreciation for tax purposes

An Appraisal should take into account the highest and best use of the property

It is illegal to base an appraisal fee on a percentage value of the appraised cost/ valuation

Appraising is an art not a science

Under the principles of progression, the average price in the neighborhood will be more controlling

Being in proximity to more expensive homes will increase the value of a modest house in an expensive neighborhood

Increased profits lead to or intent to increase competition

Not all improvements will increase the value of real estate

The process of merging lots under one owner is known as Assemblage

Chapter 3: Real Estate Valuation

Key Terms and Definitions

Appreciation — Increase in the worth or value of property

Leverage — The use of borrowed funds (credit) to finance an investment

Capital Gain — Profits from the sale of assets

Assessment — The act of valuation of property by a local official to determine real estate taxes

Appropriation — The process of taxation authorized by the local taxing district (Government taxes)

Equity — An owners monetary interest in a piece of real property

Study Notes

In the event of a foreclosure, the superior lien is a tax lien (gov tax superior)

A special assessment is a tax based on the b

Economic Life is shorter than physical life

Real estate taxes are based upon assessed value

The formula to determine real estate tax is (assessed value) x (the tax rate)

For tax purposes, the initial cost of an investment property plus the cost of any improvements minus any depreciation deductions to the property represents the investment’s Adjusted Basis

When computing property basis, the following are added to acquisition cost:

Cost of adding more room
Cost of adding central air conditioning
Closing cost of purchase

** Cost of repairing air conditioning is not a factor in computing property basis

Special assessment taxes are used for local improvements such as sidewalks. Parks, and sewers (gov tax)

Owners of income producing property may offset their taxable income by deducting the property taxes paid on the specific property each year.

Long term gains (or losses) apply to investments or properties held for more than one year. All other gains or losses are short term.

Property must be inhabited for (2) of prior (5) years and the tax exempt limit is up to $250,000 for a single resident and $500,000 for married couples filing jointly.

Closing Notes

Settlement Agent — Prepares the forms and conducts the closings

Abstract of Title — Condensed history of ownership

Affidavit of Title — Affirmation of ownership and absence of judgement or liens

Closing Disclosure — Disclosure document that shows net to seller and amount due from buyer

Escrow Closing — When a disinterested third-party acts as a closing agent according to instructions provided by both buyer and seller

RESPA — Real Estate Settlement Procedures Act – Federal law regulating closings or residential, new and first mortgages

Loan Discount Points — What lenders may charge buyers to borrow money

Loan Estimate — Estimate of settlement costs that lenders must provide borrowers under RESPA

Kickbacks — Illegal rebates prohibited between lenders and other’s in real estate transaction

Second Mortgage Loan — Not covered by RESPA regulations

Prorations — Settlement costs like taxes that are shared by both buyer and seller

One of the main reasons for the enactment of RESPA is to disclose settlement costs

Residential first mortgage loans for Owner Occupied Homes are covered by RESPA

RESPA prohibits:

Kickbacks and rebates
Requiring that title insurance be purchased by an certain insurer
Allowing a lender to collect as many month’s taxes as it wants for a tax escrow account

** Allowing a settlement agent to charge a fee is an exception … settlement agents are allowed to charge a fee

After a closing all of the following are recorded:

The deed
The deed of trust
Satisfaction of the loan documents for the seller’s mortgage

** A certified copy of the HUD 1 form is not recorded

The closing disclosure lists all of the following:

The seller’s price
The earnest money deposit
The broker’s commission

** Price of the original purchase is not listed

RESPA covers all of the following loans:

Loans that use federal insurance plans
Loans that are subsidized by federal funds
Loans that might be sold on the secondary market to any federally backed agency

The HUD information booklet must be given to every person who submits a loan application to a lender over which RESPA has jurisdiction

RESPA requires lenders to give loan applicants an information booklet and must provide an estimate of settlement costs. Closing Costs are expressed as debits and credits on the closing statement. The decision as to which party pays what cost is made by agreement or custom.

RESPA prohibits all kickbacks

RESPA was designed to disclose all closing costs

RESPA was created to help buyers understand settlement processes and costs

In most states, real estate brokers may serve as escrow agents

An escrow agent is a neutral third party

In most states, title companies may be closing or escrow agents

The real estate contract is the blueprint for the closing costs

At closing, the buyer receives credits for accrued expenses owed by the seller that the buyer will have to pay after closing

Buyer == > Credits === > What the seller spent

At closing the seller receives credits for prepaid expenses related to the property

RESPA is limited to owner occupied residential property consisting of no more than four family units

Finance and Valuation Quiz

A mortgage lien is released by satisfaction

The clause in a mortgage note that allows the lender to demand immediate payment in full of the remaining balance, if payment of the note is not made as contracted is called an Acceleration Clause

When a Deed of Trust is used to pledge real property as a security for the loan, the lender is the Beneficiary

A subdivision developer obtained a construction loan to build new houses on 20 lots. He would need to request a Partial Release so that the individual lots could be unencumbered as the loan amount is paid down.

Surplus funds realized at a foreclosure sale on a mortgage in excess of the mortgage indebtedness and any other costs belong to the Foreclosed Owner

One discount point is equal to one percent of the loan amount

An interest rate that is charged on a loan that is higher than the legal limit violates Usury Laws

If a mortgage is held on three separate parcels of land, the mortgage is called a Blanket Mortgage

An ARM (Adjustable Rate Mortgage) has an interest rate that will change

If a buyer assumes a seller’s loan and the lender forecloses, both the buyer and seller are responsible for the loan

RESPA prohibits kickbacks

A lender who refused to make real estate loans in minority populated areas of a city is engaging in the illegal act of redlining

The most important factor influencing the value of real estate is location of the property

A home with an outdated kitchen suffers from Functional Obsolescence

The Capitalization Approach to property valuation is used to estimate the present value of future income

Ad Valorem taxes are based on the value of the property

When computing the basis of a property the following are added to the Acquisition Cost:

Cost of adding more room
Cost of adding central air conditioning
Closing costs of purchaser

*** Repairs are not part of computing basis of a property

An appraisal is an estimate of value

The Truth in Lending Act applies to loans for:

The purchase of a vacant lot on which a single family residence will be constructed
The purchase of a $20,000 farm
The purchase of a $250,000 residence

** The purchase of a family owned jewelry store is not applicable

Negative Amortization is a loan feature that allows the principle balance to increase because payments are insufficient to pay the interest owed.