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2 /A Legal Primer on Real Estate Loans 13 may also contain disclosures and other provisions required by federal or state law. A Mortgage Note Is a Negotiable Instrument Like a check, a mortgage note can be assigned and collected by whoever holds the note. As discussed in Chapter 3, mortgage notes are often bought, sold, traded, and hypothecated (pledged as collateral). Most lenders use a form of note that is approved by the Federal National Mortgage Association (FNMA, or Fannie Mae). A sample form of this note can be found in Appendix C. The note is signed (in legal terms, “executed”) by the borrower. The original note is held by the lender until the debt is paid in full, at which time the original note is returned to the borrower marked “paid in full.” A Promissory Note Is a Personal Obligation Because promissory notes are personal obligations, the history of payments will appear on your credit file, even if the debt is used for investment. If you fail to pay on the note, your credit will be adversely affected, and you risk a lawsuit from the lender. Some notes are nonrecourse, that is, the lender cannot sue you personally. Although not always possible, you should try to make sure most of your debt is nonrecourse.
14 FINANCING SECRETS OF A MILLIONAIRE REAL ESTATE INVESTOR FIGURE 2.2 Parties to a Mortgage Borrower/ Mortgagor Lender/ Mortgagee The Mortgage in Detail The security agreement executed by the borrower pledges the property as collateral for the note. Known by most as a “mortgage,” this document, when recorded (discussed below), creates a lien in favor of the lender. The mortgage agreement is generally a standardized form approved by FNMA. While the form of note is generally the same from state to state, the mortgage form differs slightly because the legal process of foreclosure (the lender’s right to proceed against the collateral) is different in each state. See Figure 2.2. The mortgage document will state that upon default of the note, the lender can exercise its right to foreclose on the property. Foreclosure is the process of lenders exercising their legal right to proceed against the collateral for the loan (discussed later in this chapter). It also places other obligations upon the borrower, such as • maintaining the property, • paying property taxes, and • keeping the property insured.
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CHAPTER8 The Lease Option The road
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CHAPTER9 Owner Financing If you’d
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9 / Owner Financing 115 FIGURE 9.1
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APPENDIXA Interest Payments Chart 1
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APPENDIXB State-by-State Foreclosur
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APPENDIXC Sample Forms Uniform Resi
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GL OSSARY abstract of title A compi
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RE SOURCES Suggested Reading Altern
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IN DEX A Acceleration clause, 118 A
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INDEX 191 blended, 73 Federal Reser
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INDEX 193 W Washington Mutual, 22 W
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