Agreement for
Purchase and Sale of Note
and Mortgage
This is a contract between the buyer and seller of
the mortgage spelling out the purchase price, terms, etc. of the
proposed transaction.
Amortization
The
method by which the outstanding balance of a loan is reduced by making
equal payments on a regular schedule (usually monthly). The payments
are structured so that the borrower pays a portion of both interest and
principal with
each equal payment.
Appraisal
The
determination of property value based on recent sales information of
similar properties. Depending upon the type of property and note
purchase transaction, may require either a 'drive-by' or full appraisal.
Assignment
The
process by which ownership in some portion of future payments is
transferred from one party to another. The Assignment Form is
signed by the seller at closing, then recorded.
Balloon
Mortgage
A
fixed-rate mortgage for a set number of years (usually 15 years or
more)
which then must be paid off in full in a single "balloon" payment at a
future
earlier date (usually 3 to 10 years from the original date of the
mortgage).
Broker:
Note Broker, Cash Discounter, Note Buyer, Mortgage Broker, Paper
Broker
An
individual or company in the business of assisting in arranging funding
or negotiating contracts for a client but who does not necessarily
advance the funds himself. Brokers usually charge a fee or
receive a commission for their services.
Bulk
Purchases see Note
Pools
The
purchase of a portfolio or "pool" of mortgages by an investor,
generally
as one transaction.
Business Notes / Business
Contracts Note: We do not do these !
Notes
arising from the sale of a business from one party to
another. Typically, secured by assets other than real
estate.
Buyer:
Note Broker, Cash Discounter, Note Buyer, Mortgage Investor, Note
Investor, Note Purchaser
An
individual or company in the business of purchasing or arranging for
the purchase
of notes.
Cash
Discounters
An
individual or company in the business of purchasing or arranging for
the purchase
of notes.
Chattel Note: We do not do these !
Security
other than real estate; i.e., inventory, equipment, etc.
Closing Costs
Costs
of title search, title insurance, appraisal, recording fees, etc.
required for the transaction. May be paid by either the buyer or
seller, depending upon their prior agreement.
Closing Statement / Settlement Statement
Also
known as a HUD1. This document is prepared by the title
company or
closing attorney and details all funds received and disbursed at the
time
of purchase and closing on the property.
Commercial
Properties: For Details,
Property
Types
Contracts
The
written understanding between the parties. May be a mortgage,
land
contract, contract for deed, deed of trust, etc.
Contracts for Deed
Similar
to a mortgage in that it secures the obligation with the underlying
real
estate, it differs in that the property has not yet been transferred
(deeded
over). Transfer of the deed is contingent upon all terms of
the Contract
having first been fulfilled.
Credit Application /
Form 1003 ( Residential Uniform Mortgage
Application )
This
is the standard, most generally-accepted form used in the purchase of
residential properties.
Credit Rating / Credit Score
Persons
paying on a mortgage are rated by investors according to the borrower's
credit- worthiness or risk profile. Credit ratings are expressed as
letter
grades such as A, B, C, etc.. These ratings are based on
various
factors
such as a borrower's payment history, foreclosures, as well as the
numerical
credit scores issued by the credit bureaus.
Credit Report
A
report on the credit standing of a prospective or existing mortgagor /
payor.
Used by the investor to help determine creditworthiness.
Deed
A
legal, recorded document which shows the transfer of ownership of real
estate
from the one party to another.
Deed of Trust
Similar
to a mortgage, this is a recorded document that in conjunction with the
mortgage note creates a security interest in real property.
Default
The
failure to make payments as agree, possibly resulting in foreclosure.
Down Payment
Money
paid by a buyer from his own funds, as opposed to that portion of the
purchase price which is financed.
Documentation ( Mortgage Documents )
Doc.
Checklist
Required
documents for all mortgage purchase transactions: copies of note,
security instrument, etc. For Details,
Escrow
The
holding of funds and/or documents in trust by a third party, typically
an attorney or title company, on behalf of another party or parties.
Equity
The
difference between the current market value of a property and the
principal balance of all outstanding mortgage loans.
Fixed-Rate
Mortgage
A
mortgage where the interest rate does not change over the life of the
loan.
Flips
/ Flipping /
ReHabs Note: We
do not do these !
The
practice of buying a property generally in need of repair ( REHAB
property ) with the intent of re-selling it at a substantially higher
price in the future. Many times, these properties are initially
acquired through foreclosure or similiar circumstances and at a
below-market price. In many cases, the investor has not yet taken title
to the property before re-selling it.
Foreclosure
A
legal procedure in which real estate is sold by the lender to pay a
defaulting
borrower's mortgage loan.
Good
Faith Estimate
An
estimate of charges which a borrower is likely to incur in connection
with a loan closing for the purchase of real estate.
Hazard
Insurance
A
form of insurance in which the insurance company protects the insured
from
certain losses, such as fire, vandalism, storms and certain other
natural
causes.
Interest
Only Mortgages / Notes
Payments
are required on an interest-only (no principal payments) basis for a
set
payment schedule, with a final, or "balloon" payment at maturity.
Investment to Value Ratio
A
ratio used by investors for calculating the amount of their investment
to
the value of the property, to determine their risk factor.
Junior
Mortgages Note: We do not do these !
Any
mortgage having another mortgage ahead of it, in terms of
priority. A second mortgage is junior to a first mortgage; a
third mortgage is junior to both a first and second.
Land
Contracts
Similar
to a mortgage in that it secures the obligation with the underlying
real
estate, it differs in that the property has not yet been transferred
(deeded
over). Transfer of the deed is contingent upon all terms of
the Contract
having first been fulfilled. A land contract usually applies to the
purchase
of the land only, while a Contract for Deed typically covers structures
as well.
Loan to Value ( LTV )
The
ratio of the current
mortgage balance divided by the current property value. An $ 80,000
mortgage on a $ 100,000 property would result in an 80% LTV.
Loss Payee / Loss Payee Clause
An
additionally-named insured party to an insurance policy. At the time of
closing on a mortgage / note purchase transaction, the buyer / investor
is named as
a co-insured party.
Manufactured
Homes / Modular Homes For
Details, Property
Types
Mobile
Homes
Note:
We
do not do these !
Mortgage Brokers -
see above: Broker
Mortgage Buyers -
see above: Buyer
Mortgage Investors
Parties
buying mortgages and notes for their own account.
Mortgage Portfolios / Mortgage Pools
- for details, see Note
Pools
Mortgagee - the party
receiving the mortgage payments.
Mortgagor - the party
responsible for making the mortgage payments. Also known
as the "Payor"
Mortgagees Title Policy
A
title insursance policy protecting the holder of the mortgage against
possible defects in title.
Mortgage / Mortgages
A
recorded document that in conjunction with the mortgage note creates a
security
interest in real property. In some States, referred to as a Deed of
Trust or Trust Deed..
Note
Brokers - see:
Broker Buyer
Note Buyers -
see: Broker
Buyer Mortgage Investors
Note Investors
Parties
buying mortgages and notes for their own account.
Note Pools / Note
Portfolios see Bulk
Purchases
Note / Notes
The
underlying promissory note / obligation to pay. At times,
referred
to as "paper"
Owner-financed
- see: Privately-held
Owner-held - see:
Privately-held
Owners Title Policy
A
title insursance policy protecting the purchaser of the property
against
possible defects in title.
Paper
A
general term for the mortgage, note, and related documents.
Partial Purchase / Partial Sale
For
Details, Cash
Options
The
sale or purchase of only part of the remaining payments due on the
mortgage note. The Seller receives cash at closing, plus they also
receive the residual value, when due, of their portion of
future payments not sold initially. See also
-
Payment Streams
The
actual "flow" of mortgage payments: how much, and when to be
received.
Payors
The
party or parties obligated to pay on the note and mortgage.
Also referred to as Mortgagor(s).
Pool Purchases: see
Privately-held / Private Mortgages
A
note and mortgage taken by the seller or financier of a property, in
lieu
of cash provided by an institutional lender.
Property
Types: For
Details, Property
Types
Determined
by appraisal. For properties sold within the past year, generally the
lesser of sales price or current appraisal is used. If after one year,
current
appraised value is used.
Real
Estate Contracts
Any
document relating to the ownership, transfer or securitization of real
property.
Real Estate Notes
Any
note or obligation secured by real property.
Recorded Documents
A
document filed and officially recorded in the County recording offices,
putting all parties on notice as to ownership, etc.
ReHabs / Flips /
Flipping Note: We do not do these !
The
practice of buying a property generally in need of repair ( REHAB
property ) with the intent of re-selling it at a substantially higher
price in the future. Many times, these properties are initially
acquired through foreclosure or similiar circumstances and at a
below-market price. In many cases, the investor has not yet
taken title to the property before re-selling it.
Residential
Properties For Details, see Property
Types
Residual Value of Mortgage / Note
When
a mortgage / note is sold under a Partial Sale arrangement, the seller
of the note is entitled to receive the mortgage back when the terms of
the
assignment have been met. The amount of this 'residual
balance' may
be affected by early prepaypent, default, and other factors.
Seasoning
This
refers to the number of payments made
to-date on a mortgage
note.
A note where 25 months payments have been made, is said to be "seasoned
25 months."
Second Mortgages Note:
We do not do these !
A
mortgage junior to a first mortgage lien; i.e., put in place and
recorded after the recording of a first mortgage.
The first mortgage has priority over the second mortgage in terms of
repayment
in the event of default.
Seller-financed - see:
Privately-held
Seller-held - see:
Privately-held
Simultaneous
Closings / Simultaneous Funding
Note:
We
do not do these !
A
closing transaction where the property is sold and the seller converts
his
owner-held mortgage and note into cash all at the same time.
Title
Insurance
A
policy issued by a title insurance company protecting the parties
against
defect in title. An Owners policy protects the buyer; a Lenders policy
protects the lender.
Trust Deeds
A
recorded document that in conjunction with the note creates a security
interest
in real property. In some States, referred to as a Mortgage.
Wraparound
Mortgages / Wraps
A
junior mortgage created to "wrap around" a superior mortgage, generally
to avoid having to pay off the first mortgage at the time of sale of
the
property. Typically, this is done with a second mortgage
wrapping
around a smaller
first mortgage.
If the wraparound mortgage is sold, at which time the first mortgage is
paid
off, the wraparound mortgage then becomes a first mortgage.
