Real Estate Exam 2 Review - CHAPTER 10: Deed of Trust I....

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CHAPTER 10: Deed of Trust I. Deed of Trust—shows property title conveyed by the borrower to a trustee which remains in effect until an underlying promissory note on the property is paid in full; if the debt is not repaid, property sold and proceeds applied to balance owed. (trustee’s title is considered naked/bare title, borrower still retaining the right to occupy/use/sell property a. Borrower—Trustor b. Lender—Beneficiary c. Neutral Third Part—Trustee (one who holds property in trust for another) II. Reconveyance (Release Deed)—used to reconvey title from the trustee back to the property owner once the debt has been paid a. Full repayment occurs and: i. Lender sends to the trustee the note, the deed of trust, and a request for reconveyance. ii. The trustee cancels the note and issues to the borrower a reconveyance that reconveys title back to the borrower. iii. Borrower records the reconveyance document at the courthouse. b. Borrower Default: i. Lender delivers the deed of trust to the trustee with instructions to sell the property and pay the balance due on the note; power of sale clause in the trust deed provides the authority w/o court ordered foreclosure c. Trustee: i. Title company, escrow company, trust company, trust department of a bank, or an individual (depending on state) d. Does the power of sale clause in trust deed prohibit the trustee from using a court ordered foreclosure? i. No, especially if the rights of the parties involved, including junior debt holders and other claimants, are not clear III. Assignment of rents clause—Right to collect rents in the event of default; lender is allowed to gather the rental income and preserve the value of the property (physical maintenance and negotiating any new leases) IV. Typical state law regarding power of sale foreclosure with a deed of trust V. Proceeds from deed of trust distributed according to when filed at courthouse VI. Deed of trust IS a customary security instrument in MO VII. Deed of trust functions best: a. When it is well established that a trust deed does convey title to the trustee upon default b. When the trustee does indeed have the power of sale
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c. When there is no statutory redemption VIII. Advantages of a deed of trust: a. If a borrower defaults, the lender can take possession of the property to protect it and collect the rents b. The time between default and foreclosure is relatively short (90-180 days) c. The foreclosure process under the power of sale provision is far less expensive and complex than a court-ordered foreclosure d. Title is already in the name of the trustee, thus permitting the trustee to grant title to the purchaser after the foreclosure sale e. Once the foreclosure sale takes place, there is usually no statutory redemption IX. Deed of trust can be subordinated and are partial releases are possible
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CHAPTER 11: Lending Practices I. Term (Straight) Loan-- requires only interest payments until end of loan, then full loan is due II. Amortized Loan—requires regular equal payment during the life of the loan of sufficient size/number to pay all interest
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This note was uploaded on 09/27/2011 for the course FINANCE 266 taught by Professor Owens during the Spring '10 term at Missouri State University-Springfield.

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Real Estate Exam 2 Review - CHAPTER 10: Deed of Trust I....

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