CHAPTER TWO FINANCING NOTES AND MORTGAGES Chapter Objectives

CHAPTER TWO FINANCING: NOTES AND MORTGAGES

Chapter 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 Continued • Identify and explain alternatives to foreclosure • Define and explain bankruptcy

Essential Elements of the Mortgage 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 Mortgage Note Continued • • • Acceleration Clause Recourse vs. Non- Recourse Assumability Alienation Clause Future Advances Release of Lien

The Mortgage Instrument • Mortgagor and Mortgagee • Promissory Note • Pledge of property as security • Obligation to pay

Basic Mortgage Requirements • • • Borrower and Lender Property Description Covenants of Warranty Provision between spouses Covenants and other contractual agreements

Mortgage Clauses • Impound Accounts • Taxes and Insurance • Taxes and other assessments • Hazard Insurance

Mortgage Clauses Continued • Maintenance • Alienation • Subordination

Mortgages- Other Characteristics • • • “Subject to” a mortgage Mortgage Assumption Junior Mortgage Purchase Money Mortgage Trust deeds Land contracts

Mortgage Default and Foreclosure • Breach of the mortgage contract and note • Alternatives to foreclosure • Restructuring the loan • Transfer to a new owner

Mortgage Default and Foreclosure Continued • • • Voluntary conveyance to the lender A “Friendly Foreclosure” Extension Agreement Deed in lieu of foreclosure Judicial Foreclosure

Mortgage Default and Foreclosure Continued • • • Non- Judicial Foreclosure Equity of Redemption Statutory Redemption Junior liens are extinguished Deficiency judgment

Trust Deeds • A three party instrument • Trustor- borrower • Trustee- third party • Beneficiary- lender

Bankruptcy • Chapter 7 - straight bankruptcy • Chapter 11 - business owners • Chapter 13 - plan of reorganization