Chapter 5 Finance Instruments - Financing Residential Real...

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Financing Residential Real Estate Lesson 5: Finance Instruments
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Introduction In this lesson, we will cover: types of finance instruments how they work common provisions
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Promissory Notes Promissory note A written promise to pay money.
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Promissory Notes Promissory note A written promise to pay money. Maker – the one who makes the promise.
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Promissory Notes Promissory note A written promise to pay money. Maker – the one who makes the promise. Payee the one to whom the promise is made.
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Promissory Notes Promissory note A written promise to pay money. Maker – the one who makes the promise. Payee – the one to whom the promise is made. Note – evidence of the debt and a promise to pay.
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Promissory Notes A promissory note can be a brief and simple document. It usually contains: names of the parties, amount of the debt, interest rate, and how/when money is to be repaid. Basic provisions
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Promissory Notes Promissory note must be signed by the maker. A legal description isn’t required. Basic provisions
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Promissory Notes Promissory note must be signed by the maker. A legal description isn’t required. If promissory note meets certain requirements, it is a negotiable instrument. Right to receive payment can be transferred by endorsement. Basic provisions
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Promissory Notes Negotiable instrument A written, unconditional promise, to pay a certain sum of money, on demand or on a certain date, payable to order or to bearer, and signed by the maker. Negotiability
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Promissory Notes Without recourse” endorsement Issue of future payment strictly between maker and third party the instrument is endorsed to. I Original payee not liable if maker fails to pay. Without recourse
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Promissory Notes Holder in due course Someone who buys a negotiable instrument: I for value, I in good faith, and I without notice of defenses. Even if maker has a defense against original payee, maker still required to pay holder in due course. Holder in due course
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Promissory Notes Promissory notes are classified according to how principal and interest are paid off. Types of notes
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Promissory Notes Promissory notes are classified according to how principal and interest are paid off. Straight note periodic payments are interest only, with principal due on maturity date. Types of notes
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Promissory Notes Promissory notes are classified according to how principal and interest are paid off. Straight note periodic payments are interest only, with principal due on maturity date. Installment note periodic payments include both principal and interest. Types of notes
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Summary Promissory Notes i Maker i Payee i Negotiable instrument i Without recourse i Holder in due course i Straight note i Installment note
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Security Instruments In real estate transactions, a promissory note is accompanied by a security instrument: I Mortgage I Deed of trust Purpose
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Security Instruments Security instrument gives lender the right to foreclose on the property if borrower defaults.
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