real estate finance - full book (500 pgs)

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Unformatted text preview: eriod. This late payment fee is imposed to encourage promptness and to offset the extra bookkeeping costs that delinquent accounts entail. Most lenders are not disturbed by payments made within grace periods, but they will take remedial action when an account consistently incurs late charges or when a borrower exceeds a 30–day delinquency period. DEFAULT IN MAINTAINING PROPERTY To protect the trustee holder of the property, most trust deed requires the trustor to maintain the property in a good condition. This will preserve the value of the property as a collateral for the repayment of the loan. DEFAULT IN FIRE INSURANCE PAYMENT Again, to protect the security of the loan, most trust deed requires the trustor to maintain a basic fire insurance policy. The policy includes a “mortgage loss payee” clause in favor of the beneficiary. When a trustor/borrower fails to maintain the insurance policy in force to satisfy the beneficiary, the beneficiary may obtain a policy and charge the premium to the trustor. If a borrower fails to make such “advance” payment, the lender has the option to accelerate the loan, call the principal immediately due and payable. Again, the impounding technique prevents most of the possible difficulties in this area, but some real estate loan arrangements allow the borrower the flexibility to pay insurance premiums independently. In such case, the borrower is obligated to make the premium payments on time to prevent any lapse of coverage and is usually required to provide the lender with a copy of the evidence of insurance. DEFAULT IN PROPERTY TAXES PAYMENT Another frequently encountered default with real estate loans is the nonpayment of property taxes. Although this situation is not too prevalent with residential loans due to the effectiveness of the impounding technique, it becomes a more serious problem with commercial real estate financing in which impounds are generally not required. The nonpayment of property taxes is a technical default under a real estate loan. Property taxes represent a priority lien over most existing liens on real estate. If a tax lien...
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This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.

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