Modern Real Estate Practice in Pennsylvania 12th Edition Chapter 12: Principles of Real Estate Financing
Jan 20, 2018
Modern Real Estate Practice in Pennsylvania 12th Edition
Chapter 12: Principles of Real Estate Financing
2©2012 Kaplan, Inc.
12 Principles of Real Estate Financing
• Learning objectives– Describe the primary and secondary mortgage
market, and their impact on real estate financing– Identify the basic provisions in promissory
notes, mortgage documents, and land contracts– Explain the procedures involved in a foreclosure– Distinguish between methods of repayment
commonly used in real estate finance– Define key terms
12 Principles of Real Estate Financing
• Real estate financing market– Government influences — Federal Reserve
System– Primary mortgage market
• Originates loans• Income from finance charges, recurring income
(interest) and servicing loans
3©2012 Kaplan, Inc.
12 Principles of Real Estate Financing
• Major lenders in primary market– Thrifts, savings institutions, commercial banks– Insurance companies– Credit unions– Pension funds– Endowment funds– Investment group financing – Mortgage banking companies– Mortgage brokers
4©2012 Kaplan, Inc.
12 Principles of Real Estate Financing
• In Pennsylvania– Mortgage Bankers and Brokers and Consumer
Equity Protection Act• Mortgage broker is any person or company who, for a
fee, arranges or negotiates a first mortgage loan• Failure to obtain a license is felony offense of third
degree
5©2012 Kaplan, Inc.
12 Principles of Real Estate Financing
• Pennsylvania mortgage broker– At least 20 hours of education– Pass the test– Undergo a criminal background history check– Post surety bond between $50,000 to $150,000– Collecting fees in advance: post penal bond of
$100,000– Annual continuing education required
6©2012 Kaplan, Inc.
12 Principles of Real Estate Financing
• Secondary mortgage market– Helps lenders raise capital– Loans are bought and sold after being funded– Fannie Mae– Freddie Mac– Ginnie Mae
7©2012 Kaplan, Inc.
8©2012 Kaplan, Inc.
12 Principles of Real Estate Financing
Mortgagee(Lender)
Mortgagor(Borrower)
Mortgagor(Borrower)
Mortgage—TwoParties
Mortgagee(Lender)
When the Money Is Borrowed
Note andMortgage Loan $
When the Money Is Repaid
Pays theLoan $
Satisfactionof Mortgage
When the Money is Borrowed When the Money is Repaid
Mortgage — Two Parties
9©2012 Kaplan, Inc.
12 Principles of Real Estate Financing
• Mortgage law– Mortgagor = Borrower– Mortgagee = Lender– Title theory– Lien theory
12 Principles of Real Estate Financing
• Security and debt– Hypothecation– Mortgage loan instruments
• Promissory note• Mortgage
10©2012 Kaplan, Inc.
12 Principles of Real Estate Financing
• Provisions of the note– Negotiable instrument– Interest– Usury– Discount points– Loan origination fee– Prepayments– Payment plans
• Straight loans• Amortized loans
11©2012 Kaplan, Inc.
12 Principles of Real Estate Financing
• Provisions of mortgage documents– Property is security for a debt– Voluntary, specific lien– Duties of mortgagor– Provisions for default
• Alienation clause– Assignment of the mortgage– Release of the mortgage lien
• Defeasance clause• Satisfaction of mortgage
12©2012 Kaplan, Inc.
12 Principles of Real Estate Financing
• Provisions of mortgage documents– Tax and insurance reserves
• Federal flood insurance may be required• Lenders must comply
– Assignment of rents– Buying subject to or assuming a seller’s
mortgage– Alienation clause– Recording mortgages
13©2012 Kaplan, Inc.
12 Principles of Real Estate Financing
• Foreclosure– Legal process in which property pledged as security
is sold to satisfy the debt– Brings rights of all parties to a conclusion– Passes title– Foreclosure sale– Property sold free of foreclosing mortgage and all
junior liens• Homeowner Emergency Assistance Program
(HEMAP)14©2012 Kaplan, Inc.
12 Principles of Real Estate Financing
• Methods of Foreclosure– Judicial foreclosure– Nonjudicial foreclosure– Strict
• In PA failure to pay mortgage– Act 91 notice– Notice to file for HEMAP assistance– Act 6 notice
• In PA, failure to pay taxes: Act 1 notice15©2012 Kaplan, Inc.
12 Principles of Real Estate Financing
• Alternatives to foreclosure– Deed in lieu of foreclosure– Short sale– Redemption
• Equitable• Statutory (not in Pennsylvania)
– Deed to purchaser at sale– Deficiency judgment
16©2012 Kaplan, Inc.
12 Principles of Real Estate Financing
• Land contracts– Contract for deed or installment contract– Other financing may not be available– Buyer = vendee– Seller = vendor– Owner financing
17©2012 Kaplan, Inc.©2010 Kaplan, Inc.
18©2012 Kaplan, Inc.
12 Principles of Real Estate Financing
Date ofDefault
Date ofSale
End ofRedemption
Rights
Equitable Redemption(before the sale)
Statutory Redemption(after the sale)