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California Real Estate Finance Bond, McKenzie, Fesler & Boone Ninth Edition. Chapter 11 Foreclosures and Other Lending Problems. Objectives. After completing this chapter, you should be able to: Explain the major provisions outlined in a typical promissory note and deed of trust.

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california real estate finance bond mckenzie fesler boone ninth edition

California Real Estate FinanceBond, McKenzie, Fesler & BooneNinth Edition

Chapter 11

Foreclosures and Other Lending Problems

objectives
Objectives

After completing this chapter, you should be able to:

Explain the major provisions outlined in a typical promissory note and deed of trust.

Outline the steps in a foreclosure procedure.

Demonstrate why lenders in California prefer trust deeds over mortgages as security for their loans.

List five ways a borrower and lender can minimize the possibility of a default and foreclosure.

Discuss how private and government mortgage insurance has reduced the lender’s risk in granting real estate loans.

Calculate the mechanics of insurance coverage under PMI for 90 percent loans.

Describe the controversial practice known as redlining.

Explain the role of the Community Reinvestment Act (CRA).

outline
Outline

Collateral Provisions of Deeds of Trust

Default and Foreclosure

Minimizing Loan Defaults

Other Lending Problems

collateral provisions of deeds of trust
Collateral Provisions of Deeds of Trust

Maintenance of the property

Hazard insurance

Fire

Windstorm

Property taxes and other liens

Assignment of rents

If borrower defaults, lender can lease and apply to loan

default and foreclosure slide 1 of 3
Default and Foreclosure(Slide 1 of 3)

Trustee’s Sale

Allowed by power of sale clause in trust deed

Notice of Default (three months before sale)

Send to trustor within 10 days

Could reinstate by paying all back debts and resuming payments (right of reinstatement up to 5 days before sale)

Notice of sale (two weeks before sale)

Post on property 20 days before

Final sale

Highest bidder (except for trustee)

Cash or equivalent

Surplus funds given to trustor (former owner)

No right of redemption

default and foreclosure slide 2 of 3
Default and Foreclosure (Slide 2 of 3)

Judicial Sale (foreclose as mortgage not trust deed)

Procedure

Serve complaint

Trial held

Judgment entered

Right of reinstatement

Sale

Highest bidder

Debtor has one year right of redemption (pay off all debt) if deficiency exists

Deficiency judgments

If sale is not sufficient to pay loan, former owner still owes

California’s Anti-deficiency Law is the exception

Except for FHA and DVA

default and foreclosure slide 3 of 3
Default and Foreclosure (Slide 3 of 3)

Deed in Lieu of Foreclosure

Or quitclaim deed from borrower to lender

No deficiency claim

Voluntary conveyance from borrower to lender

Any of these look bad on the credit report

minimizing loan defaults slide 1 of 3
Minimizing Loan Defaults (Slide 1 of 3)

Impound accounts (aka escrow account or loan trust fund)

Property taxes

Insurance

Forbearance

Moratorium on payments

Waiver of principal payments

Deferring of interest

Partial payments

Prior prepayments now used

Recasting

Change in loan terms

Extended term

Increase of debt

Reduction of interest

Reduction of principal

minimizing loan defaults slide 2 of 3
Minimizing Loan Defaults (Slide 2 of 3)

Mortgage Guaranty Insurance

Cost borne by borrower

Through MIP or MMI

Government insured

FHA

Indemnifies lender

Takes over property

Sells either refurbished or “as is”

Or HUD takes over loan

DVA

Pays lender up to insurance level

Subrogates against borrower

FHLMC

Three months to cure deficiency

California Veterans Farm and Home Purchase Act Assistance

Life and disability insurance for borrowers

Private Mortgage Insurance (Discussed in Chapter 5)

minimizing loan defaults slide 3 of 3
Minimizing Loan Defaults (Slide 3 of 3)

Automatic payment plans

Consumer protection laws and regulations

Truth in Lending (aka Consumer Credit Protection Act

Full disclosure of all borrowing charges

Home Warranties

Cover major home components

Plumbing

Electrical

HVAC

Walls, roof & foundation

Usually one year

other lending problems slide 1 of 3
Other Lending Problems(Slide 1 of 3)

Usury

Max rate is 10% or

5% above Federal Reserve discount rate

Not applied to seller carrybacks

Redlining

Refuse loans in high risk areas

Illegal

Community Reinvestment Act

Lenders must disclose lending data

other lending problems slide 2 of 3
Other Lending Problems(Slide 2 of 3)
  • Community Reinvestment Act (CRA) and The Financial Institutions Reform, Recovery and Enforcement Act (FIRREA)
    • Lenders report on
      • Race
      • Gender
      • Income
      • Census tract
    • Grades each institution
  • Home Mortgage Disclosure Act (HDMA)
    • Annual report of applications and loans granted
other lending problems slide 3 of 3
Other Lending Problems(Slide 3 of 3)
  • Short Sales
    • Upside down
    • The Mortgage Debt Forgiveness Act of 2007
      • Retroactive for sales from January 2007
      • Debt forgiveness for <$2M for personal residence
      • Effective through 2012
    • Eliminated 100% financing and other high LTV loans
web help
Web Help

www.hud.gov

www.freddiemac.com

www.ftc.gov

www.mbaa.org

www.mortgagemag.com

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