Real Estate Financing and Foreclosure Overview

What happens to a property that is encumbered by both a senior and junior loan if it is sold at foreclosure after costs?

What can your client do when purchasing an apartment building to assume the existing mortgage at the original interest rate, given that there is no due-on-sale clause?

Why are rollover loans considered advantageous to lenders?

What can a borrower do after receiving a notice of foreclosure for a note and mortgage?

Which clause in the note and mortgage or deed of trust should be examined for its economic impact when selling an apartment complex in Year Four of the mortgage loan?

What is the likely outcome for a property with both senior and junior loans if it is sold at foreclosure after costs are deducted?

When a buyer assumes an existing mortgage without a due-on-sale clause, what advantage does this provide?

What is a potential disadvantage for lenders concerning rollover loans?

What action can a borrower take after receiving a notice of foreclosure?

Which clause is most significant to review when selling an apartment complex that has long-term financing in place?

Foreclosure

Senior loans receive payment first
Junior loans are paid after senior loans

Due-on-sale clause

A due-on-sale clause gives the lender the right to call the loan due if the property is sold.
The lack of a due-on-sale clause allows the buyer to assume the mortgage at the original interest rate

Rollover Loans

They are advantageous to lenders because they can make the original terms of the loan more financially attractive.
Rollover loans allow lenders to adjust the terms of the loan when they mature.

Foreclosure notice

Borrowers can file a bankruptcy to stop the foreclosure process, even after the notice of foreclosure.

Loan Documents

The due-on-sale clause in the note, mortgage or deed of trust should be examined when a property with long-term financing is sold.
The due-on-sale clause can restrict the owner's ability to sell the property or force them to pay a penalty.

Foreclosure of Encumbered Property

Senior loans have priority over junior loans in foreclosure.
Proceeds from the sale cover foreclosure costs first.
Any remaining funds are distributed based on loan seniority.

Assumption of Existing Mortgage

A due-on-sale clause prevents assumption of an existing mortgage.
Without this clause, the buyer can assume the existing mortgage at the original rate.

Rollover Loans

Rollover loans are beneficial for lenders because they create a steady stream of recurring income.
This allows for long-term investment and profit generation for the lender.

Notice of Foreclosure and Borrower Rights

After receiving a notice of foreclosure, the borrower may still attempt to negotiate with the lender.
Options include loan modification, partial payment, or sale of the property to avoid foreclosure.

Due-on-Sale Clause

This clause allows the lender to demand full payment of the loan if the property is sold.
This can significantly impact the economic feasibility of the sale for the owner.

This quiz covers essential concepts related to real estate financing, including foreclosure, due-on-sale clauses, and rollover loans. It aims to enhance understanding of how these elements affect property transactions and borrower rights. Test your knowledge about loan documents and their implications in real estate deals.