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Unformatted text preview: tion against the trustor. If the property’s value is higher than the total amount owed on the first TD, it is a wise move for the second TD holder to start his or her own default and sale action. Source of Funds - Private individuals were for a long time the primary source of funds for junior loans, but financial deregulation of the Institutional lenders, combined with income tax law changes, have led to extensive marketing of junior loans by banks and savings and loan associations. EQUITY LOANS
The loans generally marketed as “equity loans” are junior loans (second mortgages) of certain amounts, usually at adjustable interest rates, usually amortized over fixed periods of time, such as 15 or 20 years, and secured by the borrower's equity in the property. They may even be insured by FHA Title I if the money is borrowed for home improvements. Except for the adjustable interest rate feature, these Institutional loans are similar to the loans made for generations (and still made) by private lenders, usually negotiated by and sometimes serviced by loan brokers. These loans from private lenders arc sometimes referred to in the vernacular of loan brokers as “hard money loans,” although that term generally means any cash loan, as distinguished from credit extended by a seller. HOME EQUITY LINES OF CREDIT
Another relatively new type of junior loan being marketed by banks and S&Ls is the “home equity line of credit.” The line of credit is an extension of open credit up to certain agreed limits, secured by a second mortgage on the home. The borrower simply writes checks against the credit line and pays interest on only that amount of credit actually used (funds borrowed). Payments are made according to terms set by the lender, terms that often are subject to change by the lender from time to time. Dynasty School (www.dynastySchool.com) 9-35 REAL ESTATE FINANCE SELLER CARRY–BACK
An owner who has a considerable equity in the home is often asked to “take back a second” as part of the purchase price of the property. This procedure enables a buyer to acquire the property with a smaller cash down...
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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.
- Spring '10