Chapter 14 Real Estate Financing Principles This financing

Chapter 14 Real Estate Financing: Principles This financing chapter focuses on the documents and concepts involved in real estate lending.

14 Real Estate Financing: Principles • Learning objectives – Identify the basic provisions of security and debt instruments: promissory notes, mortgage documents, deeds of trust, and land contracts – Describe the effect of discount points on yield – Explain the procedures involved in a foreclosure – Distinguish between lien and title theories – Explain the three methods of foreclosure © 2013 Kaplan, Inc. 2

14 Real Estate Financing: Principles • Mortgage, called a security deed in Georgia, is a voluntary, specific lien • Mortgage (security deed) law – – – Mortgagor = borrower Mortgagee = lender Title theory Lien theory Intermediate theory © 2013 Kaplan, Inc. 3

14 Real Estate Financing: Principles • Security and debt – – – Relationship between borrower and lender Property is collateral – security for repayment of debt Convey as security no more than owned Hypothecation Promissory note • • • © 2013 Kaplan, Inc. Interest Usury Loan origination fee Discount points Prepayment penalty 4

14 Real Estate Financing: Principles Promissory note • Interest • Usury • Loan origination fee • Discount points • Prepayment penalty © 2013 Kaplan, Inc. 5

14 Real Estate Financing: Principles • Mortgages or security deeds – – – Duties of the mortgagor Default Georgia Residential Mortgage Fraud Act Assignment Release Tax and insurance reserves • Flood insurance reserves – – Assignment of rents Assumption, “subject to”, or novation Alienation Recording and priority © 2013 Kaplan, Inc. 6

14 Real Estate Financing: Principles • Land contracts – – – Contract for deed or installment contract Other financing may not be available Buyer = vendee Seller = vendor Owner financing © 2013 Kaplan, Inc. 7

14 Real Estate Financing: Principles • Foreclosure – – – Judicial Nonjudicial Strict Deed in lieu of foreclosure Redemption • Equitable • Statutory (not in Georgia) – Deed to purchaser at sale – Deficiency judgment © 2013 Kaplan, Inc. 8

14 Real Estate Financing: Principles © 2013 Kaplan, Inc. 9