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© 2009 Rockwell Institute
1
California Real Estate Law
© Copyright 2007 Rockwell Publishing, Inc.
Lesson 13:Real Estate Financing
© Copyright 2007 Rockwell Publishing, Inc.
Introduction
This lesson will discuss:
l liens
l security instruments
l key provisions in loan agreements
l foreclosure
l protecting the borrower
© Copyright 2007 Rockwell Publishing, Inc.
Liens
Encumbrance: an interest held by someone other than property owner or tenant
l nonpossessory interest
l may be financial or nonfinancial
Financial encumbrance also known as lien.
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Liens
Lien: creditor’s claim against real property that is owned by the debtor
l If debtor fails to pay, creditor can foreclose.
Secured creditor: creditor who holds a lien
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Liens
Liens don’t prevent owner from selling or transferring property.
l However, new owner takes title subject to liens.
l Creditors still have right to foreclose.
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Liens
Liens classified as:
l general or specific
l voluntary or involuntary
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Liens
Voluntary: property owner gives lien voluntarily to creditor, usually to secure loan
l Example: mortgage
Involuntary: also called statutory lien; attaches without owner’s consent
l Example: property taxes
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Liens
General: lien attaches to all debtor’s property, real and personal
Specific: lien attaches only to particular piece of property
Mortgages and deeds of trust are voluntary, specific liens.
Summary
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Liens
l Financial encumbrance
l Secured creditor
l General lien
l Specific lien
l Voluntary lien
l Involuntary lien
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Security Instruments
In loan transaction, loan agreement consists of two documents:
l promissory note
l security instrument
Promissory note establishes borrower’s obligation to pay; security instrument makes real property collateral for the debt.
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Security Instruments
Promissory note: written promise to pay money
l basic evidence of debt
l shows who owes money to whom
Security instrument: mortgage or deed of trust
l turns real property into collateral (security) for the loan
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Security Instruments
Security property can be:
l property borrower already owns
l property borrower plans to purchase with loan funds
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Security Instruments
Earliest form of lending:
l borrower gave lender personal property
l lender held property until loan repaid
Example still exists today: pawnshop
Hypothecation
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Security Instruments
However, when land is used as collateral, transferring possession is:
l complicated and inconvenient
l unnecessary, since borrower can’t hide collateral (the land)
Hypothecation
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Security Instruments
Hypothecation: offering property as collateral without giving up possession
l borrower transfers title
l lender holds title until debt repaid
l borrower remains in possession of land
Hypothecation
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Security Instruments
Hypothecation led to development of security instruments.
Two ways in which security instruments work:
l title theory
l lien theory
Hypothecation
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Security Instruments
Title theory: security instrument transfers legal titleto lender or trustee
l borrower keeps possession and equitable title
l generally associated with deed of trust
Hypothecation
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Security Instruments
Lien theory: security instrument only gives lender lien against property
l until loan is paid off, borrower keeps both possession and legal title
l generally associated with mortgage
Hypothecation
7
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Security Instruments
Title theory vs. lien theory:
l little practical difference between them today
l rights of borrower/lender depend on type of security instrument used
Hypothecation
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Security Instruments
Mortgages and deeds of trust serve same basic purpose: to secure debtor’s obligation to repay loan.
l difference is foreclosure procedure
Mortgages vs. deeds of trust
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Security Instruments
Mortgage: two-party security instrument
l borrower (mortgagor)
l lender (mortgagee)
Mortgages vs. deeds of trust
8
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Security Instruments
Deed of trust: three-party security instrument
l borrower (grantor or trustor)
l lender (beneficiary)
l independent third party (trustee)
Mortgages vs. deeds of trust
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Security Instruments
Mortgage foreclosure process (judicial foreclosure) involves:
l court proceeding
l court-supervised auction
Mortgages vs. deeds of trust
© Copyright 2007 Rockwell Publishing, Inc.
Security Instruments
Deed of trust foreclosure process (nonjudicial foreclosure) involves:
l trustee’s auction
l no court supervision
Nonjudicial foreclosure requires power of sale clause in security instrument.
Mortgages vs. deeds of trust
9
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Security Instruments
Power of sale clause:
l authorizes trustee to sell property if borrower defaults
l standard in deed of trust
l can also be used in mortgage (less common)
Mortgages vs. deeds of trust
© Copyright 2007 Rockwell Publishing, Inc.
Security Instruments
Deeds of trust:
l more common than mortgages
l preferred by lenders
Mortgages vs. deeds of trust
Summary
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Security Instruments
l Promissory note
l Security instrument
l Hypothecation
l Title theory
l Lien theory
l Power of sale clause
10
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Key Provisions in a Loan Agreement
Terms of loan agreement are contained in:
l promissory note (amount borrowed, interest rate, etc.)
l security instrument (lender’s rights, borrower’s obligations, etc.)
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Key Provisions in a Loan Agreement
Key provisions include:
l taxes, insurance, and maintenance clauses
l acceleration clause
l alienation clause
l late payment penalty provision
l prepayment provision
l subordination clause
l defeasance clause
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Key Provisions in a Loan Agreement
Various clauses in security agreement require borrower to:
l pay property taxes (to prevent tax foreclosure)
l keep property insured (to prevent uninsured destruction)
l perform adequate maintenance (to prevent waste)
Taxes, maintenance, and insurance
11
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Key Provisions in a Loan Agreement
Acceleration clause: provision in loan agreement that allows lender to accelerate loan if borrower defaults
Accelerate: to declare entire remaining loan balance due immediately, including interest and penalties
l also referred to as “calling the note”
l if borrower doesn’t pay off, lender begins foreclosure
Acceleration clause
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Key Provisions in a Loan Agreement
Alienation clause: allows lender to demand full payment of loan if borrower sells or otherwise transfers security property (or interest in it) to someone else
l also known as due-on-sale clause
Alienation: any transfer of an interest in real property
Alienation clause
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Key Provisions in a Loan Agreement
Alienation clause doesn’t prohibit borrower from selling property.
l but does require payment of loan in full if borrower sells
Alienation clause
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Key Provisions in a Loan Agreement
Lender may allow buyer to assume loan.
Assumption: new owner agrees to take on primary liability for loan
l original borrower remains secondarily liable (unless lender releases the borrower)
Alienation clause
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Key Provisions in a Loan Agreement
Under Civil Code, certain restrictions on alienation clause if security property is 1- to 4-unit residential property:
l clause is enforceable only if contained in both promissory note and security instrument
l certain transfers can’t trigger alienation clause (example: if borrower’s spouse becomes co-owner)
Alienation clause
© Copyright 2007 Rockwell Publishing, Inc.
Key Provisions in a Loan Agreement
Lender can charge late payment only if loan agreement provides for it.
California law limits late penalties on single-family, owner-occupied housing:
l 6% of overdue principal and interest, or $5.00, whichever is more
l can’t charge unless payment is at least ten days overdue
Late payment penalty
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Key Provisions in a Loan Agreement
Prepayment: when borrower repays all or portion of loan before payment is due
Some loan agreements allow lender to charge prepayment penalty, to compensate lender for interest it wasn’t able to collect.
Prepayment provision
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Key Provisions in a Loan Agreement
California law limits prepayment penalty on owner-occupied residential property with up to four units:
l allowed only during first 5 years of loan
l borrower may prepay 20% of loan amount in any 12-month period without penalty
l if prepayment exceeds 20% of loan, penalty only permitted on excess
Prepayment provision
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Key Provisions in a Loan Agreement
Subordination clause: gives loan agreement lower priority than another security instrument that will be recorded later
l common with loans to buy vacant land, since lenders often require construction loans to have first lien position
First lien position: highest priority
Subordination clause
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Key Provisions in a Loan Agreement
Defeasance clause: requires lender to release property from lien when debt has been fully repaid
Once mortgage is paid off, lender must record certificate of discharge (also called satisfaction of mortgage) within 30 days.
Defeasance clause
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Key Provisions in a Loan Agreement
Once deed of trust is paid off, beneficiary (lender) must submit request for reconveyance to trustee within 30 days.
l Trustee then has 21 days to record deed of reconveyance.
Defeasance clause
Summary
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Key Provisions in a Loan Agreement
l Acceleration clause
l Alienation clause
l Subordination clause
l Defeasance clause
l Certificate of discharge
l Request for reconveyance
15
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Foreclosure
Main difference between mortgage and deed of trust is foreclosure procedure.
l mortgage: judicial foreclosure
l deed of trust: nonjudicial foreclosure
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Foreclosure
When borrower defaults on mortgage:
l Step 1: accelerate loan
l Step 2: initiate lawsuit called foreclosure action
Judicial foreclosure
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Foreclosure
Foreclosure action: legal proceeding asking judge to order seizure and sale of property
l must be filed in county where property is located
Judicial foreclosure
16
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Foreclosure
Parties to lawsuit include:
l borrower (mortgagor)
l junior lienholders
Junior lienholders: creditors who have liens against the property with lower priority than the foreclosing lender’s mortgage; junior liens will be eliminated by foreclosure sale
Judicial foreclosure
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Foreclosure
When foreclosure lawsuit is started, mortgagee (lender) also records lis pendens.
Lis pendens: document stating that property is subject to foreclosure action
l gives constructive notice to potential buyers or lenders
Judicial foreclosure
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Judicial Foreclosure
In some states, only way borrower can stop foreclosure is through equitable right of redemption.
Equitable right of redemption: right to redeem property by paying off entire outstanding balance (not just missed payments) plus interest, penalties, and costs
l stops foreclosure
l satisfies debt
l terminates lender’s interest in property
Cure and reinstatement
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Judicial Foreclosure
California has replaced equitable right of redemption with:
l right to cure default
l right to reinstate loan
Cure and reinstatement
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Judicial Foreclosure
To cure default, borrower must:
l pay delinquent amount, plus interest, penalties, and costs
l rectify breach of covenants (example: pay taxes, if unpaid)
Cure and reinstatement
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Judicial Foreclosure
Once default has been cured, foreclosure is terminated:
l loan reinstated
l parties back to where they were before default
Cure and reinstatement
18
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Judicial Foreclosure
Default can be cured at any time:
l while judicial foreclosure action is pending
l up until court issues decree of foreclosure
Decree of foreclosure: court order directing sheriff to seize and sell property
l issued by judge if borrower fails to cure and reinstate
Cure and reinstatement
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Judicial Foreclosure
Once decree of foreclosure is issued, next step is notice of levy.
l sheriff records notice; serves it on mortgagor and other parties
Decree and sale
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Judicial Foreclosure
At least 20 days before sale date, notice of salemust be:
l posted on property
l posted in public place
l published in newspaper of general circulation once a week for three weeks
l mailed to the parties
l mailed to anyone who has submitted request for notification
Decree and sale
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Judicial Foreclosure
Sheriff’s sale: public auction (sometimes called execution sale)
l usually held at county courthouse
l anyone may bid
l highest bidder receives certificate of sale
Decree and sale
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Judicial Foreclosure
Statutory right of redemption: right to redeem property following sheriff’s sale
l borrower must pay purchaser amount paid for property, plus interest accrued from time of sale
Post-sale redemption
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Judicial Foreclosure
In California, length of post-sale redemption period varies:
l three months: if sale proceeds enough to pay off debt, plus interest, costs, and fees
l one year: if proceeds weren’t enough to fully pay off amount owed
Post-sale redemption
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Judicial Foreclosure
During post-sale redemption period, mortgagor is still entitled to possession.
l must pay reasonable rent to holder of certificate of sale
Post-sale redemption
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Judicial Foreclosure
At end of post-sale redemption period, holder of certificate of sale receives sheriff’s deed.
Sheriff’s deed: transfers title and right of possession to new owner
Post-sale redemption
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Judicial Foreclosure
Deficiency judgment: personal judgment against borrower to recover difference between amount owed and foreclosure sale proceeds
To obtain judgment, lender must apply to court within three months after foreclosure sale.
l court will determine amount of deficiency and enter judgment
Deficiency judgments
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Deficiency Judgments
Anti-deficiency rules: California rules prohibit deficiency judgments in certain types of foreclosures
l purpose: to protect defaulting property owners
1. Deficiency judgments are never allowed in nonjudicial foreclosures.
Anti-deficiency rules
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Deficiency Judgments
2. In judicial foreclosure, deficiency judgment not allowed when:
l property’s fair market value is greater than amount of debt;
l security instrument is purchase money mortgage given to seller (seller financing) for all or part of purchase price; or
Anti-deficiency rules
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Deficiency Judgments
l security instrument is mortgage given to third-party lender to finance purchase of owner-occupied residential property with up to four dwelling units
Result: Lender can’t sue for deficiency judgment after foreclosure on a typical home purchase loan.
Anti-deficiency rules
22
Summary
© Copyright 2007 Rockwell Publishing, Inc.
Judicial Foreclosure
l Foreclosure action
l Lis pendens
l Equitable right of redemption
l Cure and reinstate
l Decree of foreclosure
l Statutory right of redemption
© Copyright 2007 Rockwell Publishing, Inc.
Foreclosure
When trustor (borrower) defaults on deed of trust, foreclosure process is different.
l Beneficiary (lender) isn’t required to file lawsuit or obtain court order.
Nonjudicial foreclosure
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Foreclosure
Instead, beneficiary asks trustee appointed in deed of trust to arrange for property to be sold at trustee’s sale.
Trustee’s sale: public auction where trustee sells property to highest bidder, on beneficiary’s behalf
l sheriff and court not involved
Nonjudicial foreclosure
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Foreclosure
Nonjudicial foreclosure:
l less expensive
l faster
l only permitted if security instrument contains power of sale clause
Nonjudicial foreclosure
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Nonjudicial Foreclosure
To foreclose deed of trust nonjudicially, trustee must follow certain steps.
1. Trustee must:
l record notice of default and election to sell
l mail copy to trustor, junior lienholders, anyone who requested notification
Notices of default and sale
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Nonjudicial Foreclosure
2. At least three months after notice of default and at least 20 days before sale, trustee must issue notice of trustee’s sale.
Notice must be:
l recorded
l sent to everyone who received notice of default
l posted on property and public place
l published in newspaper once a week for three weeks
Notices of default and sale
24
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Nonjudicial Foreclosure
Borrower has right to cure default and reinstate loan, up to 5 days before trustee’s sale.
During 5 days before trustee’s sale, borrower can redeem by paying whole debt, plus costs, penalties, fees, etc.
Reinstatement
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Nonjudicial Foreclosure
Statutory right of redemption (after sheriff’s sale in judicial foreclosure) doesn’t apply to trustee’s sale.
l highest bidder obtains title immediately, through trustee’s deed
Reinstatement
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Foreclosure
Lenders usually choose to foreclose nonjudicially.
l saves time
l saves money
l no statutory redemption period after sale
Choosing between judicial/nonjudicial
25
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Foreclosure
Lenders usually only choose judicial foreclosure when:
l lender thinks sale will result in deficiency
l deficiency judgment would be allowed
Choosing between judicial/nonjudicial
Summary
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Nonjudicial Foreclosure
l Trustee’s sale
l Notice of default and election to sell
l Notice of trustee’s sale
l Reinstatement
l Trustee’s deed
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Protecting the Borrower
Laws intended to help protect borrowers:
l Truth in Lending Act
l California financing disclosure laws
l predatory lending laws
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Protecting the Borrower
Truth in Lending Act (TILA): federal law that went into effect in 1969, designed to help consumers compare financing offers from competing lenders
Statute is implemented by Federal Reserve Board’s Regulation Z.
Regulation Z: requires disclosure of interest rates or other finance charges to consumer
Truth in Lending Act
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Truth in Lending Act
Consumer loans: loans used for personal, family, or household purposes
TILA applies to consumer loans if they are:
l to be repaid in more than four installments;
l subject to finance charges;
l for $25,000 or less; or
l secured by real property
Types of loans covered
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Truth in Lending Act
TILA does not apply to:
l loans for business, commercial, or agricultural purposes
l seller financing
Types of loans covered
27
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Truth in Lending Act
TILA requires lenders to provide residential mortgage loan applicants with disclosure statement containing good faith estimate of:
l total finance charge
l annual percentage rate
Disclosure statement must be provided within 3 days after written application received.
Disclosure statement
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Truth in Lending Act
Total finance charge: sum of all charges borrower will pay in connection with loan
Includes interest on loan plus:
l origination fee
l discount points
l finder’s fee
l service fees
l mortgage broker’s commission
l mortgage insurance premiums
Disclosure statement
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Truth in Lending Act
Annual percentage rate (APR): yearly cost of financing expressed as percentage of loan amount
l APR usually higher than quoted interest rate
Disclosure statement
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Truth in Lending Act
TILA disclosure statement must also include:
l identity of lender
l amount financed
l payment schedule (number, amounts, timing)
l total of payments
l prepayment penalties and late charges (if any)
l loan’s assumption policy
Disclosure statement
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Truth in Lending Act
When security property is borrower’s principal residence, borrower may rescind loan agreement anytime within three days after (whichever happens last):
l signing the loan documents
l receiving a disclosure statement
l receiving notice of the right of rescission
Right of rescission
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Truth in Lending Act
If borrower doesn’t receive disclosure statement or rescission notice ? right of rescission lasts for three years.
Right of rescission
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Truth in Lending Act
Right of rescission doesn’t apply:
l when proceeds are for purchase or construction of borrower’s principal residence
l to refinance of principal residence when lender made original loan
Right of rescission
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Truth in Lending Act
TILA governs advertising by:
l lenders
l mortgage brokers
l anyone else who advertises consumer credit (including real estate brokers)
Advertising under TILA
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Truth in Lending Act
Legal:
l stating cash price or APR in ad
l using general terms such as “low interest rate”
But if any other particular loan terms are mentioned (downpayment, interest rate, monthly payment amount, etc.), full disclosure required in ad.
Advertising under TILA
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Protecting the Borrower
California financing disclosure laws include:
l Mortgage Loan Broker Law
l seller financing disclosure law
California financing disclosure laws
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California Financing Disclosure Laws
In California, real estate agent who negotiates loan for compensation is considered to be acting as mortgage broker and must comply with Mortgage Loan Broker Law.
Mortgage Loan Broker Law:
l requires agents to provide disclosure statement
l restricts size of commissions and costs
l restricts balloon payments
Mortgage Loan Broker Law
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Mortgage Loan Broker Law
Disclosure statement contains:
l all charges associated with loan
l amount of loan proceeds remaining after charges deducted
Disclosure statement
31
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Mortgage Loan Broker Law
Must be delivered to borrower no later than three days after (whichever comes first):
l lender’s receipt of loan application
l borrower signing loan agreement
Disclosure statement
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Mortgage Loan Broker Law
Real estate agents must:
l use disclosure form whenever negotiating loan or providing other services for borrowers or lenders in connection with financing
l keep a copy of statement on file for three years
Disclosure requirement applies to both residential and commercial property.
Disclosure statement
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Mortgage Loan Broker Law
Commission and fee limits apply to loans secured by residential property (up to four units) when lien is:
l first position deed of trust (for under $30,000)
l junior deed of trust (for under $20,000)
No commission limits on larger loans.
Commissions and costs
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Mortgage Loan Broker Law
Commission limits are tiered.
For loans in first lien position:
l loan term under three years: commission can’t exceed 5% of principal
l loan term over three years: commission can’t exceed 10%
Commissions and costs
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Mortgage Loan Broker Law
For loans in junior position:
l loan term of two years or less: commission can’t exceed 5%
l loan term of more than two years but less than three years: commission can’t exceed 10%
l loan term over three years: commission can’t exceed 15%
Commissions and costs
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Mortgage Loan Broker Law
Borrower’s costs for loans (appraisal fees, escrow fees) cannot exceed $390 or 5% of loan (whichever is greater) up to maximum of $700.
l Charges can’t exceed actual costs incurred.
Commissions and costs
33
© Copyright 2007 Rockwell Publishing, Inc.
Mortgage Loan Broker Law
Balloon payment: loan payment that is significantly larger than regular loan payment (more than twice size of smallest required loan payment)
l illegal in loans of less than 3 years if secured by real property
l illegal in loans of less than 6 years if secured by owner-occupied real property
Balloon payment prohibition doesn’t apply to seller financing.
Balloon payments
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California Financing Disclosure Laws
If seller finances all or part of purchase price for one- to four-unit residential property, and arranger of credit is involved in negotiating or setting up transaction:
l borrower entitled to loan disclosures similar to those required in conventional financing
Arranger of credit: someone who negotiates or sets up financing; includes real estate agents
Seller financing disclosure law
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California Financing Disclosure Laws
Seller financing disclosure statement includes:
l copy or description of promissory note and security instrument
l warning regarding balloon payments (if one is required)
l explanation of title insurance
l information about buyer’s employment and financial status
Seller financing disclosure law
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California Financing Disclosure Laws
Arranger of credit is responsible for making sure buyer and seller receive disclosure statement before signing offer, acceptance, or other binding agreement.
Seller financing disclosure law
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Protecting the Borrower
Predatory lending: practices used by mortgage lenders and mortgage brokers to profit from unsophisticated borrowers
Predatory lending
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Predatory Lending
Predatory practices may be:
l practices that are always abusive
l ordinary practices and loan terms used for predatory purposes
Predatory practices
35
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Predatory Practices
Predatory steering: steering buyer to more expensive loan when buyer could qualify for less expensive loan
Predatory steering
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Predatory Practices
Fee packing: charging interest rates, points, or processing fees that far exceed norm and are not justified
Fee packing
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Predatory Practices
Fraud: using fraudulent means to induce borrower to enter into loan agreement
l misrepresenting unfavorable loan terms or fees
l concealing unfavorable loan terms or fees
l falsifying documents
Fraud
36
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Predatory Practices
Property flipping: not automatically illegal, but considered predatory when agent, appraiser, or lender commits fraud in order to make buyer believe property is worth more than it is
Property flipping
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Predatory Practices
Loan in excess of value: loaning home buyer more than appraised value of property
l usually involves fraudulent appraisal
l may involve collusion between lender and appraiser
l may involve collusion between mortgage broker and appraiser
Loan in excess of value
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Predatory Practices
Unaffordable payments result from:
l failure to use appropriate qualifying standards
l borrower convinced to commit mortgage fraud
Mortgage fraud: providing inaccurate information to lender in order to get a larger loan; usually backfires on borrower
Unaffordable payments
37
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Predatory Practices
Impound waiver: not requiring borrower to make monthly deposits for property taxes/insurance
l encourages home buyers to borrow more than they can afford
l result: borrower often unable to pay taxes/insurance when due
Impound waivers
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Predatory Lending
Predatory lending targets borrowers who aren’t able to understand transaction or don’t know of better alternatives.
Includes:
l elderly
l limited education
l speak limited English
l low income
l poor or no credit history
Targeted victims
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Predatory Lending
Subprime lenders: make riskier loans than prime lenders
l Predatory issues often overlap with fair lending issues.
Targeted victims
38
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Predatory Lending
Predatory lending laws include:
l federal law (HOEPA)
l state law
Predatory lending laws
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Predatory Lending Laws
Home Ownership and Equity Protection Act (HOEPA): applies to high-cost home equity loans
l secured by applicant’s principal residence
l high APR or points and fees
HOEPA
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Predatory Lending Laws
If a loan is covered by HOEPA:
l lender must regard applicant’s ability to repay
l disclosure statement must explain that defaulting applicant could lose home
l interest rate can’t be raised on default
HOEPA
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Predatory Lending Laws
California’s predatory lending law is broader than federal version.
l applies to purchase loans as well as home equity loans
State law
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Predatory Lending Laws
Under state predatory lending law:
l Loan applicants can’t be steered to subprime loan if they qualify for standard financing.
l Loan applicants must be given disclosure statement.
l Loan agreement can’t include discretionary acceleration clause (acceleration without default).
State law
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Predatory Lending Laws
l Lender can’t charge prepayment penalty if loan is accelerated by default.
l Refinancing is prohibited unless there’s identifiable benefit to borrower.
State law
40
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Predatory Lending Laws
Predatory lending laws enforced by:
l Department of Financial Institutions (certain lenders)
l Department of Corporations (other lenders, mortgage brokers)
l Department of Real Estate (real estate agents)
State law
© Copyright 2007 Rockwell Publishing, Inc.
Predatory Lending Laws
Penalties for willful and knowing violation of law:
l civil penalty up to $25,000 per violation
l damages to consumer
l disciplinary action
l loss of license
State law
Summary
© Copyright 2007 Rockwell Publishing, Inc.
Protecting the Borrower
l Truth in Lending Act (TILA)
l Annual percentage rate (APR)
l Mortgage Loan Broker Law
l Seller Financing Disclosure Law
l Predatory lending
l HOEPA
l California predatory lending law
Legal Aspects of Real Estate Lesson 13 Cumulative Quiz
1. A lien is:
A. a financial encumbrance and a nonpossessory interest B. a financial encumbrance and a possessory interest C. a nonfinancial encumbrance and a nonpossessory interest D. a nonfinancial encumbrance and a possessory interest
2. Which document makes a property collateral for repayment of a debt?
A. Deed of trust B. Mortgage C. Promissory note D. Either A or B
3. The lender in a deed of trust is the:
A. beneficiary B. mortgagee C. trustee D. trustor
4. What type of clause in a security instrument is necessary to be able to foreclose nonjudicially?
A. Acceleration B. Alienation C. Power of sale D. Subordination
5. A borrower fails to make a monthly payment on a mortgage. The lender demands that the borrower repay the entire loan balance immediately, pursuant to the:
A. acceleration clause B. alienation clause C. defeasance clause D. prepayment penalty
6. A late payment penalty is allowed under state law only if the payment is how many days overdue?
A. 6 B. 10 C. 14 D. 30
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7. A construction loan receives higher priority than the deed of trust used to purchase the land where the house will be constructed, despite the fact that the deed of trust was recorded first. The deed of trust must contain a/an:
A. acceleration clause B. alienation clause C. defeasance clause D. subordination clause
8. Which of the following is not related to a judicial foreclosure?
A. Lis pendens B. Sheriff's sale C. Statutory redemption period D. Trustee's sale
9. In California, a borrower has the right to reinstate a:
A. deed of trust B. mortgage C. Both A and B D. Neither A nor B
10. The statutory redemption period following a sheriff's sale is:
A. one year, if the sale proceeds were adequate to pay off the debt plus costs B. six months, if the sale proceeds were adequate to pay off the debt plus costs C. three months, if the sale proceeds were adequate to pay off the debt plus costs D. three months, if the sale proceeds were not adequate to pay off the debt plus costs
11. The statutory redemption period following a trustee's sale is:
A. six months, if the sale proceeds were adequate to pay off the debt plus costs B. three months, if the sale proceeds were adequate to pay off the debt plus costs C. three months, if the sale proceeds were not adequate to pay off the debt plus costs D. There is no statutory redemption period in a nonjudicial foreclosure
12. In which scenario would a deficiency judgment be allowed?
A. Debt owed on commercial building is greater than its fair market value B. Fair market value of commercial building is greater than the debt owed on it C. Mortgage for purchase of owner-occupied house D. Seller-financed transaction
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13. Which type of loan would be covered by the Truth in Lending Act?
A. Home equity loan B. Loan for business purposes C. Loan for $50,000 to purchase boat D. Seller-financed loan
14. Which of the following best describes a loan's annual percentage rate?
A. Cost of credit expressed as a yearly rate B. Good faith estimate of finance charges associated with loan C. Nominal interest rate for loan D. Sum of all fees and charges borrower will pay over loan's life
15. Which of the following, if it appeared in an advertisement, would not be a trigger term that requires disclosure of all loan terms?
A. Annual percentage rate B. Downpayment C. Interest rate D. Monthly payment amount
16. Which of the following is a California state law, rather than a federal law?
A. Home Ownership and Equity Protection Act B. Mortgage Loan Broker Law C. Real Estate Settlement Procedures Act D. Truth in Lending Act
17. What is the absolute maximum amount of costs that may be charged by a real estate agent for mortgage brokering services, under the Mortgage Loan Broker Law?
A. $390 B. $700 C. $10,000 D. $20,000
18. Which of the following is the term for charging interest rates or fees that exceed the norm and are not justified by the actual cost of services provided?
A. Fee packing B. Impound waivers C. Predatory steering D. Property flipping
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19. The Home Ownership and Equity Protection Act is limited to high-cost:
A. business and agricultural loans B. home equity loans C. residential purchase loans D. seller-financed loans
20. Which of the following activities concerning high-cost loans is not prohibited under state predatory lending laws?
A. Charging a prepayment penalty if the loan is accelerated because of default B. Purchasing a home for more than its fair market value C. Refinancing when there is no identifiable benefit to the consumer D. Steering loan applicants to subprime loans when they could qualify for a standard loan
© 2009 Rockwell Publishing 4
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