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					REAL ESTATE FINANCING (Chapter 7)
HOW DOES BUYER PAY FOR THE HOUSE?




   Cash????
   Loans from banks, credit unions, special mortgage banks, mom and
    dad, or the government:
       Conventional private lender without government insurance.
                Private mortgage insurance requirement
       Government Insured or Guaranteed Loan.
              FHA Insured loan: Approved lenders make the loan with
                a guarantee of payment by the FHA. (97% loan to value
                ratio).
              VA Guaranteed Loan: Approved lenders make the loan to
                approved veteran borrowers. 60% of the loan is
                guaranteed up to a loan to value ratio of 100%. VA
                doesn’t require a down payment, but the lender may.
              SBA loan for small businesses. Guarantee is for between
                75 and 80% of the loan value made by a private lender.
              FMHA Insured loan for farmers to buy a home.
              Government insured loans usually require stricter
                appraisals and stricter rules regarding good condition of
                the property.

                                                      Real Estate Lecture Chapter 7:
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    What kind of payment plans are out there?
             Fixed rate loan – a constant periodic payment is made,
               where the amount of the payment is credited first to
               interest, with the balance to the unpaid principal. Sample
               “amortization” on p. 177.
             Interest only loan – periodic payments of interest only,
               with the unpaid balance (“balloon”) due at the end of the
               loan. Usually for construction or bridge loans.




            
             Graduated payments – Lower monthly payments in the
              first few years of the loan, with “balloon” due at the end.
             Variable rate loan (“Adjustable Rate Mortgage” aka
              “ARM”) – the loan is recalculated to permit the lender to
              increase or reduce interest rates during the life of the
              loan, resulting in an annual change of the periodic
              payment.
             Reverse annuity loan – borrower with equity in the house
              takes out loan not based on income but based on equity.
               Lenders recover their principal plus interest when the home is sold, and the
               remaining value of the home goes to you or your heirs.


         So what is SUBPRIME LENDING?
         http://www.cbsnews.com/video/watch/?id=2599048n

       What’s the Secondary Market?
       The primary market is the provider of funds for purchasers of
        the real estate.
       The secondary market provides funds to the primary lenders by
        sales or servicing arrangements with the primary lender.
       Who/What are Fannie Mae and Freddie Mac?

      So how did the secondary market and subprime lending cause
      foreclosure chaos?


                                                                  Real Estate Lecture Chapter 7:
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To get payment the bank wants




       1.     a promissory note
And
       2.     security (mortgage, etc.)


PROMISSORY NOTE
   Ex. p. 173
    Definition: An unconditional promise to pay a sum certain on a
      time certain.
    A written promise to pay money to another party (“maker” and
      “payee”).
    Capable of negotiation by the “holder” (could be a person other
      than the payee). Endorsement (/s/ on back or attachment to the
      note ordering that $ be paid to the order of the new owner of the
      note.) No excuses for non-payment.
    Co-makers: Joint and several liability.
    No prepayment capability unless provided otherwise in the note.
    No notary.
    Demand note v. Time note. Note for payments. Acceleration
      clause.
    Cancellation: JUST BECAUSE YOU SELL THE HOUSE DOESN’T
      GET YOU OFF THE HOOKON THE $.
    Deficiency Judgment (Run!)

http://www.youtube.com/watch?v=scceqHVBNCI&feature=related



                                                             Real Estate Lecture Chapter 7:
                                                                                Page 3 of 5
MORTGAGES, DEEDS OF TRUST, SECURITY DEEDS
 Security Documents:
   Mortgage: Mortgagor, Mortgagee
   Deed of Trust A trustee holds technical legal title with fiduciary
    duties to the lender and buyer. In Oregon, buyer is treated as the
    person with true legal title. Trustee holds in trust with power to sell
    property and use proceeds to pay off loan.

 Features: All Security documents:
   Requirements of a mortgage. Must meet all deed formalities:
    parties, words of conveyance, description of property, execution with
    notary, and delivery.
   parties: mortgagor, and mortgagee: The borrower/buyer of the
    property is the mortgagor. The lender/secured party is the
    mortgagee. Need all the owners to sign the mortgage
   secured debt: There must be a valid debt., with a precise amount
    and a precise date due or final maturity date.

 Rights:
   assignment: Freely assignable, usually with the transfer/assignment
    of the note.
   transfer of property encumbered by mortgage: Due on sale clause
   Distinction: “Subject to” or “assumption.”
     Subject to: Buyer doesn’t have personal responsibility for debt.
       Just make payments as needed to protect the property from
       foreclosure. New owner cannot be personally sued on the debt.
     Assumption: The buyer assumes the debt and becomes
       personally liable on the debt. The originally owner, however,
       remains liable on the debt.
   Cancellation or satisfaction: Automatic release by full payment. But
    the mortgagee has a duty of filing a satisfaction/cancellation of the
    mortgage, or executing a deed.
   UCC & Financing Statement – need for fixtures.

What’s the difference between a “deed of trust” and a “trustee’s deed”?




                                                         Real Estate Lecture Chapter 7:
                                                                            Page 4 of 5
Miscellaneous Financing Terms:
   Accelleration clause & Due on Sale clause
   Points
   Prequalification/Commitment
   Equity
   Appraisal & Market Value




                                                Real Estate Lecture Chapter 7:
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