What Clauses Are Found In A Mortgage Instrument?

A mortgage instrument refers to a document that outlines the terms of a loan used to purchase real estate. The mortgage instrument typically includes the amount of the loan, the interest rate, the maturity date, and the collateral.

The clauses which are found in a mortgage instrument include:

Security:

This protects the lender by ensuring that all necessary information is provided and that the lender has first discounts all other liens on a property before taking ownership of it.

The security consists of both a Summons and Complaint or Notice of Judgment, which sets out the name and address of the plaintiff, the writ or warrant issued by the court in which foreclosure proceedings are commenced.

This sets out certain other conditions, such as forfeiture of any other claims to real estate against an individual by reason of his defaulting in payments on a mortgage loan to secure any mortgage loans secured thereby.

Assignment:

This is also called a Deed of Trust; it is an agreement between two parties for security for a loan. It is an instrument that obligates the borrower’s heirs, executors, and assigns to pay the debt that the mortgage contract states.

When a person who is not a party to a mortgage loan forecloses on a property, they are required to send a Notice of Foreclosure by certified mail within 30 days after the last day of any regular or quarterly payment period.

Lien:

This is a legal claim against the property for payment of an obligation. It is a security or mortgage on the property owned by the borrower. The underlying purpose of this clause is to protect the lender’s interest in the property should the borrower fail to meet his obligation under these mortgage clauses and conditions.

Due diligence:

This means that a lender is obliged to investigate a borrower’s ability to repay a loan. The lender should obtain information about income, financial assets, and status as a permanent resident in the country, employment history, credit history, and credit references before giving out a loan or deciding whether or not to give out a loan.

Claim of right:

An additional term that claims a property for the debtor’s own benefit in the event of foreclosure. Sometimes this is called the mortgagee’s claim or mortgagee’s lien. The holder of this lien is entitled to make further distribution of property to other parties as judge and jury – i.e., in addition to the lender holding title.

Due on sale:

This clause makes a lender’s security interest due if the property is transferred without the lender’s consent.

Assignment:

This is a Deed of Trust that binds the heirs and assigns of a borrower to repay the debt. It describes in detail the agreements that have been made between the borrower and lender and protects his rights to sell or transfer his property to another party.

Deed in lieu of foreclosure:

This deed transfers title from an individual to a lender who has started or is about to start foreclosure proceedings against him when he cannot meet his mortgage payments. The deed can also be used as a mortgage release when the borrower wishes to transfer ownership and repayments he owes on the loan.

Mortgage clauses are used to protect lenders by making sure that borrowers do not default on payments, are held liable for their debts, cannot sell or transfer their mortgages, and do not leave the lender vulnerable to losing his rights to collect on the loan.

Loan prepayment penalty: This is a fee that is charged by a lender if a borrower pays off his loan before it comes due.

Which Clauses In A Mortgage Allow The Lender To Demand Loan Repayment If A Borrower Sells The Property?

A payment called the prepayment penalty is a fee that is charged by a lender if a borrower pays off his loan before it comes due.

Instrument: If a mortgage loan is about to end, the lender will require you to pay back any outstanding interest and principal by delivering it to the lender at closing (the time when your last payment is paid). The borrower’s only other option is to close the note before paying anything back.

Use of Prepayment Penalty: A classic example is where the borrower decides at a final settlement that he can’t afford his monthly mortgage payments, so he decides to sell his house. The prepayment penalty is why a prepayment penalty exists.

Fee: Interest charged on the entire outstanding balance of the mortgage loan.

Legal requirement: When a borrower signs the mortgage and pays closing costs, he is certifying that he has the ability to repay his loan even though it isn’t his intention to do so.

If something happens where he can’t live in his house and can’t sell it and instead wants to use it as collateral for another loan, then he would have to pay back all of this money, but without being able to sell the house first.

Which Clauses In A Conventional Mortgage Instrument Entitle The Lender To Accelerate The Loan If The Loan Is Assumed?

The assumption is a verbal or written agreement between the borrower and a new lender, where the borrower transfers his mortgage to another party with the lender’s consent.

Many lenders will automatically accelerate the loan under these circumstances, which means they will start foreclosure proceedings on the property.

Instrument: Informal assumption of a mortgage loan occurs when an existing homeowner borrows against the equity in his present home and uses those funds to purchase another residence. In this case, no new note or security deed is executed.

The existing mortgage loan is simply assigned to become a first lien on the new residence.

Use of Acceleration: A borrower may have no intention of defaulting on his loan; however, if he decides to do so, the lender will have the right to accelerate the loan and demand repayment in full.

Reasons for this clause: Acceleration gives a lender a first lien priority over other loans or creditors. If a borrower is late in making payments or files for bankruptcy, then it’s imperative that any mortgage lender get paid before other debts are repaid.

In most cases, lenders refuse to accelerate loans unless they’ve already been informed by the borrower that there will be an assumption.

What Happens When A Borrower Agrees To Pay Off His Mortgage And Then Defaults?

The lender has the right to sue the borrower in a foreclosure action. The lender is free to recover the outstanding mortgage loan, with interest and other related costs. The lender will proceed with this action against whichever party provided regular mortgage payments at the time of default.

The lender may sue the borrower to recover any deficiency between the amount of the outstanding loan, including interest and fees, and the amount of any other liens on the property.

A deficiency is money that a lender loses when a foreclosure sale does not raise enough money to cover all expenses of a foreclosure action.

Examples of clauses added to a mortgage instrument that protects a lender from being lured into providing financing for a buyer who has no intention of repaying his loan:

Mortgage rate lock-in: This clause protects lenders from giving loans to buyers who can’t obtain financing because their mortgage applications reveal too much negative information about their financial histories or credit scores.

Instrument: With an assumable note, upon default, a lender takes the title of the property as security for repayment. The loan is not assumed by another party and is not automatically accelerated for that reason; however, if there is an actual assumption and a loan is accelerated, then the title does pass.

Use of Lock-in: If a borrower takes out a loan for more than the value of his home and then decides to sell the property before paying off the loan in full, then the lender can file a foreclosure lawsuit against him.

Reasons for such a clause: The purpose of such a clause is to discourage buyers from making poor investment choices. Typically, only borrowers with excellent credit scores or who have demonstrated that they can make timely payments on their home loans will be approved for traditional financing.

A buyer who goes outside this group runs afoul of these special restrictions; therefore, lenders are less likely to approve financing without first trying to lock in an interest rate.

Which Of The Following Clauses Prevents A Buyer From Assuming An Existing Mortgage?

Examples of clauses added to a mortgage instrument that protects a borrower from being asked to assume an existing loan:

No assumption without the lender’s consent:

This clause protects borrowers from having their notes and mortgages assumed without their knowledge.

Instrument: When a loan is assigned, it is automatically accelerated. Therefore, although the borrower’s payments are being made on time, the lender can still foreclose on the property for a deficiency balance due upon sale of the property.

Use of this clause: The main purpose for asking for such protection is to avoid having a borrower sell his home with an outstanding loan and then not being able to pay off the loan immediately afterward. It protects both buyers and sellers from making poor investment choices.

Not liable for the assumption of loan by the borrower:

With this clause added to the mortgage instrument, a borrower cannot sue his lender if the property is sold at a foreclosure sale and the buyer of the property fails to assume the mortgage loan. Use of this clause: This allows buyers to assume a mortgage without needing their lenders’ consent.

It protects their attorneys, who are working with them to facilitate an assumption, from being sued by their clients because they neglected to obtain written consent from the lender before they completed an assumption action.

Definitions: The definitions section of a note states in clear terms exactly what constitutes a default under its terms. What constitutes a default depends on the terms of the mortgage. One frequently used definition is a default as defined in the note or mortgage.

Use of this clause: This allows borrowers to better understand what they’re signing and what will happen when they sign their notes.

What Clauses Are Found In A Mortgage Instrument?