In Harmonize, write a brief summary of the textbook (5 paragraphs) Chapters 7 & 8 to include the following paragraphs with headings: an overview, 3 key concepts, and a summary. Each “key concept” must include the textbook page numbers. Each paragraph needs a minimum of 3 sentences.  Use the template format provided below.  Refer to the model assignment (sample) following the template.
After writing your discussion, you must reply to at least 2 other student discussions with feedback of at least 50 words.  This is your “peer engagement” component of your grade.  NOTE: Spelling and grammar are important, so please spell-check and read your work out loud to catch and correct any errors prior to submitting.
TEMPLATE:
Overview

Key Concept from Chapter 7

Key Concept from Chapter 8

Key Concept from Chapter 7 or 8

Summary

SAMPLE:
BELOW IS A SAMPLE REFLECTION SUMMARY.  DO NOT COPY THE CONTENTS.  IT IS A SAMPLE ONLY TO ILLUSTRATE THE STRUCTURE.
Course: BRE 126, Real Estate Finance
Student Name: Ima Success
Today’s Date: 02/20/2024
Textbook Author: Huber, W.
Chapters # 7 – 8
Overview
The topics of Chapters 7 and 8 are introduction to real estate principles.  This chapter covers four important concepts for the real estate student.  First, the real estate licensing in California is discussed, along with the real estate market.  Second, the historical influence of real property is examined.  Third, the difference between real property and personal property is spelled out clearly.  And last, the chapter concludes by analyzing various methods of land description.  These concepts are important because they may be on the real estate exam for licensees.
Key Concept from Chapter 7
I learned that real estate can be a profitable professional (p. 4).  One of the reasons it can be profitable is because the compensation to agents is based on the sales price of the house.  In California, real estate values are typically high, which translates into a high commission.  The commission is always paid to the broker, but the real estate salesperson receives a portion.  Many real estate agents are using social media to promote their services.
Key Concept from Chapter 8
The second thing I learned is that property owners have a “bundle of rights” (p. 5).  It means they have control of certain things because they own the real estate.  Generally, people view it as a bundle of sticks, with each one of them being a “right” the owner has.  Their types of rights vary based on their level of ownership.  For example, homeowners have the right to possess (live in) their houses – unless they rent out the house to tenants.  In that case, the tenant now has the right to possess the house.
Key Concept from Chapter 7
The third concept I learned is the definition of real property (p. 6).  There are four things that define real property:  land, affixed to the land, appurtenant to the land, or immovable.  These items “tests” are what separates real property from personal property.  For example, a refrigerator can be moved out of the house, so it is considered personal property.  However, a fence is permanently dug into the ground so it becomes part of the real property, along with the land and the house.
Victor Valley College
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Education is the most
powerful weapon which
you can use to change
the world.
BRE – 126 Real Estate Finance
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? Reflection Summary
due by beginning
of EACH class
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Finance Instruments
“Educating Generations, Building Communities”
I.
Hypothecation – Property as Collateral
II.
Promissory Notes
III.
The Deed of Trust
IV.
Default and Foreclosure of a Trust Deed
V.
Mortgages
VI.
Land Contracts
VII. Typical Clauses in Security Instruments
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Part I.
Hypothecation – Property as
Collateral
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“Educating Generations, Building Communities”
? Real estate finance is based on the principle of hypothecation
? To HYPOTHECATE is to provide title to a property as security for a
loan without giving up possession
? The person does NOT surrender the use or possession of the
property
? Most buyers must finance at least part of the purchase, so a good
rule to remember is, “If you can’t finance a property, you probably
can’t sell it later.”
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Part II.
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Promissory Notes
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“Educating Generations, Building Communities”
? Before a lender will finance the purchase of a house, the
borrower must promise to repay the funds.
? A PROMISSORY NOTE is a written promise to pay money.
?
MAKER
?
PAYEE
? The promissory note is the basic evidence of debt: it shows who
owes
how much money to whom.
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Finance
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“Educating Generations, Building Communities”
? NEGOTIABLE INSTRUMENTS are promissory notes that are freely
transferable
? The promissory note is almost always accompanied by a security
instrument
? A SECURITY INSTRUMENT gives the creditor the right to have the security
property sold to satisfy the debt if the debtor fails to pay the debt
according to the terms of the agreement
? The security instrument may be either a deed of trust or a mortgage
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Part III.
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The Deed of Trust
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“Educating Generations, Building Communities”
? The DEED OF TRUST (or TRUST DEED) is a commonly used
security device
?
?
?
GRANTOR or TRUSTOR
BENEFICIARY
TRUSTEE
? The deed of trust (lien) gives the creditor the right to force
the sale of the property if the debtor defaults on the
obligations under the promissory note or the trust deed
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“Educating Generations, Building Communities”
? To be valid, a deed of trust must contain certain provisions. These
include:
1.
A statement pledging the property as collateral for a debt (a
granting clause).
2.
A complete and unambiguous property description.
3.
The amount of the debt.
4.
The maturity date of the debt.
5.
A defeasance clause (stating that the trust deed will be
cancelled when the debt is paid).
6.
A power-of-sale clause.
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“Educating Generations, Building Communities”
? When the debt is paid in full, the beneficiary directs the trustee to
reconvey the title to the trustor.
? A DEED OF RECONVEYANCE returns full title to the maker of the debt.
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“Educating Generations, Building Communities”
? A deed of trust allows the beneficiary to foreclose the lien
without the burden of bringing a legal action.
? This is called a NONJUDICIAL FORECLOSURE, which is foreclosure
without having to go to court.
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“Educating Generations, Building Communities”
?
The deed of trust contains a power-of-sale clause that authorizes
the trustee to sell the property without court supervision if the
debtor defaults.
?
A typical power-of-sale clause might read as follows:
If the default is not cured on or before the date specified in the notice,
lender, at its option, may require immediate payment in full of all sums
secured by this security instrument without further demand and may
invoke the power of sale. If lender invokes the power of sale, lender shall
execute or cause trustee to execute a written notice of the occurrence of
an event of default and of lenders election to cause the property to be
sold.
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“Educating Generations, Building Communities”
?
At the direction of the beneficiary, the trustee conducts an out-ofcourt sale, or auction, called a TRUSTEE’S SALE.
?
The proceeds from the sale are used to pay off the trustor’s debt.
?
However, before the trustee can sell the property, certain legal
requirements must be met.
?
NOTICE OF DEFAULT
?
A NOTICE OF SALE
?
TRUSTEE’S DEED
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“Educating Generations, Building Communities”
?
The trustee applies the sale proceeds in the following order:
1. To pay the trustee’s costs and sale expenses.
2. To satisfy the beneficiary’s debt.
3. To junior lien holders in order of priority.
4. To the debtor, if any surplus.
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Part IV.
Default and Foreclosure of a
Trust Deed
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“Educating Generations, Building Communities”
?
The trust deed is a lien on the property involved
?
A GRACE PERIOD is a set number of days in which a lender will allow a
payment to be late without any penalty
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“Educating Generations, Building Communities”
?
The REINSTATEMENT PERIOD (3 MONTHS) is the time within which
the trustor may pay all past due payments
?
To do this, the trustor must pay the beneficiary the following:
1.ALL PAST DUE PAYMENTS, PENALTIES, TAXES & INTEREST
2.ANY OTHER COSTS TO THE BENEFICIARY
3.ALL COSTS AND FEES OWED TO THE TRUSTEE
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“Educating Generations, Building Communities”
?
After recording a “notice of default, and election to sell” a
trustee must wait 90 days before publishing a “notice of sale”
? The NOTICE must be published in a newspaper of general
circulation once a week during a 21 day publishing period
?
The TRUSTEE’S SALE is a nonjudicial foreclosure under the “power
of sale” clause in the deed of trust and promissory note, held at
the time and place stated in the notice of sale
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“Educating Generations, Building Communities”
1. JUDICIAL COURT FORECLOSURE FOR A TRUST DEED (RARE)
2. DEED IN LIEU OF FORECLOSURE
3. SHORT SALE
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“Educating Generations, Building Communities”
?
For the creditor, the main advantages of the deed of trust are the
quick and inexpensive nonjudicial sale process with no postsale right of redemption for the borrower
?
The primary disadvantage is that the deficiency judgment is
unobtainable after a nonjudicial foreclosure
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Part V.
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Mortgages
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“Educating Generations, Building Communities”
?
?
A MORTGAGE is a two-party instrument in which the borrower
mortgages his or her property to the lender.
?
MORTGAGOR
?
MORTGAGEE
For the most part, lenders prefer the deed of trust to the
mortgage.
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“Educating Generations, Building Communities”
?
A foreclosure under a mortgage requires a court-ordered sale
conducted by the sheriff or other court-appointed official.
•
JUDICIAL FORECLOSURE
•
FORECLOSURE ACTION
•
ORDER OF EXECUTION
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“Educating Generations, Building Communities”
?
At any time up until the sheriff’s sale, the debtor may save the
property by paying the mortgagee what is due.
?
This right to save or redeem the property before the sale is called
the EQUITABLE RIGHT OF REDEMPTION.
?
The debtor may also be obligated to pay delinquent interest,
court costs, attorney’s fees, and sheriff’s fees in order to redeem
the property.
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“Educating Generations, Building Communities”
?
The SHERIFF’S SALE is a public auction, normally held at the
courthouse door, and anyone can bid on the property.
?
The property is sold to the highest bidder and the proceeds are
used to pay for the costs of the sale and to pay off the
mortgage.
?
As with the trust deed, any surplus goes to the debtor.
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“Educating Generations, Building Communities”
?
If the property does not bring enough money at the sale to pay
off the mortgage, the debtor may be able to obtain a deficiency
judgment against the debtor for the remaining debt.
?
In some states, such as California, deficiency judgments are
prohibited if the mortgage secured a loan to purchase a one-tofour-unit personal residence occupied by the owner.
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“Educating Generations, Building Communities”
?
After the sale, the debtor has another opportunity to save or
redeem the property.
?
The debtor can do this by paying the purchaser the amount paid
for the property plus accrued interest from the time of the sale.
?
This right to redeem the property following the sheriff’s sale is
called the STATUTORY RIGHT OF REDEMPTION.
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“Educating Generations, Building Communities”
?
For the creditor, the main advantage of a mortgage is the right
to obtain a personal judgment against the debtor for any
deficiency if the property does not bring enough at the sheriff’s
sale to satisfy the debt.
?
The main disadvantages to the creditor concern the time and
expense involved in executing a judicial foreclosure.
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“Educating Generations, Building Communities”
?
The advantage of a mortgage for the debtor is slow court
proceedings. A mortgagor usually has the time to get the
money together to prevent the foreclosure than a trust deed
borrower.
?
On the other hand, a disadvantage the mortgagor faces is the
possibility of a deficiency judgment and a portion of the debt
may have to be repaid.
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Part VI.
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Land Contracts
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“Educating Generations, Building Communities”
?
Land contracts are also called contracts for deed, installment sales
contracts, conditional sales contracts, and land contracts
?
Land contracts differ significantly from mortgages and deeds of trust
?
Under a LAND CONTRACT, the seller (VENDOR) retains legal title until
the buyer (VENDEE) pays off the entire contract
?
During the period the purchaser is paying on the contract, which may
be many years, the purchaser has the right to possess and enjoy the
property, but is not the legal owner
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“Educating Generations, Building Communities”
?
For the seller, one advantage of a land contract is the personal
satisfaction or security that the seller may feel by remaining the
title owner
?
?
A QUIET TITLE
The main disadvantage for the vendor is the expense and time
required for terminating the contract and retaking possession of
the property
A serious disadvantage for the vendee under the land contract
is the fact that the vendor remains the legal owner, unlike
mortgages
or deeds of trust
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Finance
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39
Part VII.
Typical Clauses in Security
Instruments
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“Educating Generations, Building Communities”
?
Almost all promissory notes, mortgages, deeds of trust, and
many real estate contracts contain an acceleration clause
?
An ACCELERATION CLAUSE allows the creditor or seller to
accelerate the debt, that is, to declare the entire outstanding
balance immediately due and payable in the event of default
?
Most lenders will wait until payments are at least 90 days
delinquent before they enforce an acceleration clause
Under California law, if the loan is secured by owner-occupied
residential property, the borrower must be allowed to prepay up
to
20% of the original loan amount in one year without penalty
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41
“Educating Generations, Building Communities”
?
Many conventional loans have prepayment provisions
?
The basic effect of a prepayment provision is to charge the
debtor for paying off the loan too early and depriving the lender
of receiving the anticipated interest
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“Educating Generations, Building Communities”
?
Alienation refers to transfer of ownership
?
ALIENATION CLAUSES in loan documents limit the debtor’s right to
transfer the property without the creditor’s permission
?
DUE ON SALE CLAUSE
In California, a lender may not enforce the alienation clause and
also the prepayment penalty on one-to-four-unit dwellings
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?
“Educating Generations, Building Communities”
?
Generally, the priority among mortgages, trust deeds, and real
estate contracts is determined by the date of recording, the first
recorded instrument being the first in priority
?
In some situations, however, the parties may desire that a later
recorded instrument have priority over an earlier recorded
instrument
?
This is particularly common in construction financing
A SUBORDINATION CLAUSE states that the instrument in which it is
contained will be subordinate (junior) to a construction loan lien
(mortgage
or deed of trust) to be recorded later
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?
“Educating Generations, Building Communities”
?
A PARTIAL RELEASE, SATISFACTION, OR RECONVEYANCE CLAUSE
obligates the creditor to release part of the property from the lien
when part of the debt has been paid
? Example: A real estate contract for the purchase of five acres
of land may contain a clause stating that when the vendee
has paid 20% of the purchase price, the vendor will execute
a deed to the vendee for one acre of the land. This would
allow the vendee to acquire clear title to one acre, which
may then be used to build upon
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“Educating Generations, Building Communities”
?
Such clauses are also frequently found in blanket mortgages or
trust deeds covering subdivisions in the process of being
developed and sold
? PARTIAL RELEASE (for real estate contracts)
? PARTIAL SATISFACTION (for mortgages)
? PARTIAL RECONVEYANCE (for trust deeds)
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“Educating Generations, Building Communities”
I. Hypothecation – Property as Collateral
II. Promissory Notes
III. The Deed of Trust
IV. Default and Foreclosure of a Trust Deed
V. Mortgages
VI. Land Contracts
VII. Typical Clauses in Security Instruments
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“Educating Generations, Building Communities”
? Read Next Chapter
? Write Reflection Summary
? Study for Quiz
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“Educating Generations, Building Communities”
? Schedule 1 hour of study every day
? Plan to be early!
? Always be ready
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Only what you put into it!
? Take Notes
? Stay Engaged
? Think of How to Apply
? Ask Questions
? Participate / Share
? Do Activities
? Be Grateful
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“Educating Generations, Building Communities”
? Educate yourself by attending class
? Assignments & Activities
? Read every day
? Never stop learning!
“The more you LEARN the more you EARN.”
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Student Learning Objectives met
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Victor Valley College
Victor Valley College
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The whole purpose of
education is to turn
mirrors into windows.
BRE – 126 Real Estate Finance
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? Reflection Summary
due by beginning
of EACH class
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Overview of the Loan
Process
“Educating Generations, Building Communities”
I.
The Loan Process
II.
Filling Out the Loan Application
III. Loan Application Checklist
IV. Forms and Stacking Order
V. Escrow Procedures
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The Loan Process
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“Educating Generations, Building Communities”
? The first step in obtaining a real estate loan is to fill out the
loan application
? The home buyer sets up an appointment with mortgage
loan originator (MLO)
? The buyer will attend this appointment armed with a good
deal of personal and financial data, which will be the basis
of the MLO’s decision whether or not to make the loan
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“Educating Generations, Building Communities”
? During the initial interview, the buyer will learn about the
various types of financing programs offered by the MLO
? The MLO will also require a deposit to cover the expenses
that must be paid up front
? The purchase agreement will be examined at this interview
as well
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“Educating Generations, Building Communities”
?
CREDIT SCORING give lenders a fast, objective measurement of
your ability to repay a loan or make credit payments
?
Factors that are used to calculate your score include:
? Payment History
? Amounts Owed
? Length of Credit History
? New Credit
? Types of Credit Use
?
FICO SCORES
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“Educating Generations, Building Communities”
?
Once the application has been properly filled out, the lender
can begin gathering other pertinent information on the buyer
? CREDIT REPORT
? APPRAISAL
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“Educating Generations, Building Communities”
?
After examining the application, the lender may also ask the buyer to
submit further information, including:
1. a copy of any divorce decree (to verify any child support or
alimony obligations and any settlement agreement that may be
the source of the down payment);
2. an investment account record;
3. pension plan documentation;
4. tax returns (if the buyer is self-employed or retired and living on
investment income); and
5. any other documentation that may have an effect on the
BRE – 126 Real Estate Finance buyer’s income or credit status.
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“Educating Generations, Building Communities”
? The federal EQUAL CREDIT OPPORTUNITY ACT (ECOA)
prohibits discrimination based on age, sex, race, marital
status, color, religion, or national origin
? Senior citizens, young adults, and single persons must be
considered on the basis of income adequacy, satisfactory
net worth, job stability, and satisfactory credit rating
? Lenders must apply their credit guidelines to each potential
borrower in the same manner
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“Educating Generations, Building Communities”
?
When the credit report, verification forms, preliminary title report,
and appraisal have all been received by the MLO, a loan
package is put together and submitted to the underwriting
department
?
The loan underwriter thoroughly examines the loan package
and then makes the decision to approve it, reject it, or approve
it under certain conditions
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“Educating Generations, Building Communities”
?
A conditional approval usually requires the submission of
additional information, such as:
1. the closing statement from the sale of the buyer’s previous
home;
2. pay stubs to verify employment;
3. a final inspection report; and
4. a commitment for private mortgage insurance (PMI) if the
down payment is less than 20% of the purchase price.
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“Educating Generations, Building Communities”
?
After the conditions are met, all the necessary documents are
prepared for closing
?
The mechanics of closing are normally the responsibility of the
escrow agent.
?
If there are no unforeseen problems during closing, the loan
papers are signed and sent to the funding department.
?
The loan funds are then disbursed to the proper parties.
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BRE – 126 Real Estate Finance
Filling Out the Loan
Application
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“Educating Generations, Building Communities”
? As mentioned earlier, the buyer fills out a loan application
at the initial interview with the MLO
? Lenders expect the loans they make to be repaid without
collection, loan servicing, or foreclosure problems
? Therefore, employment stability, income potential, history of
debt management, and net worth are important
considerations to the lender
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“Educating Generations, Building Communities”
? The MLO notes the type of loan provided, i.e., Conventional,
FHA, VA, as well as the loan amount, and the interest rate.
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?
The application begins with a section on the property. Questions
as to the type of loan sought, the terms of the loan, location and
legal description of the property, the property’s value, and the
manner of taking title must be completed.
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Loan Application Checklist
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“Educating Generations, Building Communities”
?
In order to properly fill out the loan application, the borrower will
need to know a variety of information that may not be easily
recalled from memory.
?
To ensure that all necessary data is at the borrower’s fingertips, it
would be wise for him or her to take the following information to
the initial interview:
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“Educating Generations, Building Communities”
1.
The purchase agreement.
2.
A residence history.
3.
Employment history.
4.
Income.
5.
A list of assets.
6.
A copy of a gift letter.
7.
A list of liabilities.
8.
A Certificate of Eligibility for VA loans.
9.
If there is to be the sale of a present home.
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Forms and Stacking Order
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“Educating Generations, Building Communities”
?
?
If a loan may be resold on
the secondary mortgage,
the lender will be extremely
particular as to the loan
application packet including
proper forms and their order
of stacking in the packet
BRE – 126 Real Estate Finance
The stacking order is:
1. FORMS
2. VERIFICATIONS
3. PAYOFF DEMAND
4. SUBMISSION SHEET
5. BROKER AGREEMENTS
6. TABLE FUNDING
7. QUALITY CONTROL
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Escrow Procedures
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“Educating Generations, Building Communities”
?
ESCROW is where a neutral third party holds the items deposited by the
parties in a transaction and disburses them after the conditions of the
transaction have been met
?
Every state has laws governing the operation of escrow agents
?
The key function of the escrow process is the recordation of
documents
?
An escrow agent can ONLY act on the written instructions of ALL
parties to the transaction
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“Educating Generations, Building Communities”
?
Escrow is opened when the escrow agent is provided with the
preliminary escrow instructions
?
Once the instructions are prepared and signed, the escrow
agent will order a preliminary title report
?
Note that the escrow instructions MUST correspond to the
lender’s terms
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“Educating Generations, Building Communities”
?
A request for demand for payoff is sent
?
Pest inspections/repairs completed
?
Appraisal obtained
?
Loan approval and TRID
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“Educating Generations, Building Communities”
?
The TRID rule mandates that a CLOSING DISCLOSURE be received
by the borrower no later than 3 business days before
consummation of the loan
?
A SETTLEMENT STATEMENT is a listing of all the amounts involved in
a transaction
? DEBIT
? CREDIT
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“Educating Generations, Building Communities”
?
RESPA applies to the sale of 1 to 4 unit properties that involve
financing from institutional lenders where the purchase loan is
secured by a first trust deed or mortgage
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It does NOT apply to purchases of vacant land, 25 or more acre
purchases, or transactions where a borrower assumes an
existing first trust mortgage
?
RESPA prohibits all kickbacks and unearned fees
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“Educating Generations, Building Communities”
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Each state has different required disclosures. The following is
California’s specific list:
?
?
?
?
?
?
?
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REAL ESTATE TRANSFER DISCLOSURE
PEST CONTROL INSPECTION REPORT
DISCLOSURE OF GEOLOGIC HAZARDS
DISCLOSURE OF HAZARDOUS WASTE DEPOSITS
THERMAL INSULATION DISCLOSURE
SPECIAL FLOOD AREA DISCLOSURE
CITY AND COUNTY ORDINANCES
CONDOMINIUM DOCUMENTS DISCLOSURE
DISCLOSURE FOR REAL PROPERTY LOANS
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“Educating Generations, Building Communities”
I.
The Loan Process
II.
Filling Out the Loan Application
III. Loan Application Checklist
IV. Forms and Stacking Order
V.
Escrow Procedures
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“Educating Generations, Building Communities”
? Read Next Chapter
? Write Reflection Summary
? Study for Quiz
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“Educating Generations, Building Communities”
? Schedule 1 hour of study every day
? Plan to be early!
? Always be ready
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Only what you put into it!
? Take Notes
? Stay Engaged
? Think of How to Apply
? Ask Questions
? Participate / Share
? Do Activities
? Be Grateful
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“Educating Generations, Building Communities”
? Educate yourself by attending class
? Assignments & Activities
? Read every day
? Never stop learning!
“The more you LEARN the more you EARN.”
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Student Learning Objectives met
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Victor Valley College