Finance Instruments

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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
Basic provisions

• 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.

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Promissory Notes
Basic provisions

• Promissory note must be signed by the maker.
• A legal description isnt required.

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Promissory Notes
Basic provisions

• Promissory note must be signed by the maker.
• A legal description isnt required.
• If promissory note meets certain requirements, it
  is a negotiable instrument.
• Right to receive payment can be transferred by
  endorsement.

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Security Instruments
Purpose

• In real estate transactions, a promissory note is
  accompanied by a security instrument
• Mortgage
• Deed of trust

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Security Instruments
Purpose

• Security instrument gives lender the right to
  foreclose on the property if borrower defaults.

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Security Instruments
Purpose

• Security instrument gives lender the right to
  foreclose on the property if borrower defaults.
• Foreclosure Lender forces sale of property and
  collects debt out of sale proceeds.

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Security Instruments
Purpose

• Even if debt unsecured (no collateral), lender
  can enforce promissory note.
• Lender sues borrower, obtains judgment.

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Security Instruments
Purpose

• Even if debt unsecured (no collateral), lender
  can enforce promissory note.
• Lender sues borrower, obtains judgment.
• But borrower may be judgment-proof.

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Security Instruments
Purpose

• Even if debt unsecured (no collateral), lender
  can enforce promissory note.
• Lender sues borrower, obtains judgment.
• But borrower may be judgment-proof.
• Secured lender much more likely to collect
  payment.
• So real estate lenders always require borrowers
  to sign a security instrument.

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Security Instruments
Mortgages

• Mortgage
• Two-party security instrument in which borrower
  mortgages his property to lender.
• Mortgagor Borrower
• Mortgagee Lender

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Mortgages
Basic provisions

• Mortgage must include
• names of parties
• accurate legal description of property
• Also must identify promissory note it secures.

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Mortgages
Covenants

• Mortgagor promises to
• pay property taxes,
• keep property insured against fire and other
  hazards, and
• maintain structures in good repair.
• Mortgagee has right to inspect property.

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Mortgages
Covenants

• If mortgagor fails to fulfill covenants imposed
  by mortgage, she is in default.
• Mortgagee could foreclose (even if payments
  are being made as agreed).

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Mortgages
Recording

• After mortgage agreement signed, mortgagee
  records document to establish priority of
  mortgagees security interest.

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Mortgages
Satisfaction

• Satisfaction of mortgage
• Document given to mortgagor by mortgagee, after
  mortgage is paid off, releasing property from
  mortgage lien.

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Mortgages
Satisfaction

• Satisfaction of mortgage
• Document given to mortgagor by mortgagee, after
  mortgage is paid off, releasing property from
  mortgage lien.
• Mortgagor records document.

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Security Instruments
Deeds of trust

• Deed of trust
• Similar to mortgage, but involves three parties,
  rather than two.
• Grantor (or Trustor) Borrower
• Beneficiary Lender
• Trustee Neutral third party
• Trustee arranges for release of property or
  foreclosure, as necessary.

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Deeds of Trust
Basic provisions

• Deed of trust usually includes same basic
  provisions found in a mortgage
• names of parties,
• property description,
• identification of promissory note,
• grantors promises to pay taxes and insure
  property, and
• beneficiarys right to inspect property.

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Deeds of Trust
Reconveyance

• Deed of reconveyance
• Document releasing property from lien.
• Executed by trustee when loan secured by deed
  of trust paid off.
• Recorded by grantor.

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Security Instruments

• Hypothecation
• Legal title
• Equitable title
• Lien
• Mortgage
• Satisfaction of mortgage
• Deed of trust
• Deed of reconveyance

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Security Instruments
Foreclosure

• Key difference between deeds of trust and
  mortgages procedures used for foreclosure.

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Foreclosure
Methods

• At one time, judicial foreclosure was only
  option.
• Lender filed lawsuit against borrower.
• Sheriffs sale ordered by court if borrower
  found to be in default.
• Alternative to judicial foreclosure was
  eventually developed.

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Methods of Foreclosure
Judicial vs. nonjudicial

• Nonjudicial foreclosure is generally associated
  with deeds of trust.
• Lender doesnt have to file lawsuit.
• Trustee arranges for property to be sold at
  trustees sale.
• Property sold to highest bidder.

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Methods of Foreclosure
Power of sale

• Nonjudicial foreclosure cant be used unless
  security instrument contains a power of sale
  clause.
• Power of sale clause authorizes trustee to sell
  the property in the event of default.
• All deeds of trust include a power of sale
  clause.
• Power of sale clause can be included in a
  mortgage, but in many states mortgages
  ordinarily dont have one.

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Methods of Foreclosure
Power of sale

• Typical power of sale clause might read
• Upon default by Grantor in the payment of any
  indebtedness secured hereby or in the performance
  of any agreement contained herein, and upon
  written request of Beneficiary, Trustee shall
  sell the trust property, in accordance with the
  Deed of Trust Act of this state, at public
  auction to the highest bidder.

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Nonjudicial Foreclosure
Steps in a nonjudicial foreclosure

1. Notice of default
2. Notice of sale
3. Cure and reinstatement
4. Trustees sale
5. Trustees deed

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Steps in a Nonjudicial Foreclosure
Notice to borrower

• 1. Notice of default
• To begin nonjudicial foreclosure, trustee must
  give notice of default to grantor.

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Steps in a Nonjudicial Foreclosure
Notice to public

• 2. Notice of sale
• Trustee must wait certain length of time after
  notice of default before issuing notice of sale.
• Usually between 3 to 6 months.
• Minimum time period also required between
  notice of sale and date of sale.

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Steps in a Nonjudicial Foreclosure
Stopping the foreclosure

• 3. Cure and reinstatement
• Grantor is allowed to cure default and reinstate
  loan by paying delinquent amounts plus costs.
• Right ends shortly before trustees sale is
  held.
• No statutory right of redemption after
  trustees sale.

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Steps in a Nonjudicial Foreclosure
Sale of property

• 4. Trustees sale
• Like sheriffs sale, trustees sale is public
  auction.
• Proceeds first applied to costs, then to debt,
  and then to junior liens.
• Any surplus goes to debtor.

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Steps in a Nonjudicial Foreclosure
No post-sale redemption period

• 5. Trustees deed
• Highest bidder receives trustees deed
  immediately after sale.
• Debtors title terminates immediately.
• Must vacate property in short period (for
  example, within 30 days).

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Nonjudicial Foreclosure
Restrictions

• State law may place restrictions on nonjudicial
  foreclosures, such as
• Requiring a post-sale redemption period for
  agricultural property.
• Prohibiting beneficiary from obtaining
  deficiency judgment after sale.

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Judicial vs. Nonjudicial Foreclosure
Lenders point of view

• Advantages of judicial foreclosure
• Borrower cant reinstate loan.
• Right to deficiency judgment.

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Judicial vs. Nonjudicial Foreclosure
Lenders point of view

• Advantages of judicial foreclosure
• Borrower cant reinstate loan.
• Right to deficiency judgment
• Advantages of nonjudicial
  foreclosure
• Quick and inexpensive.

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Judicial vs. Nonjudicial Foreclosure
Borrowers point of view

• Advantages of judicial foreclosure
• Slow process.
• Post-sale redemption.

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Judicial vs. Nonjudicial Foreclosure
Borrowers point of view

• Advantages of judicial foreclosure
• Slow process.
• Post-sale redemption.
• Advantages of nonjudicial
  foreclosure
• Right to cure and reinstate.

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Foreclosure

• Judicial foreclosure
• Equitable right of redemption
• Sheriffs sale
• Deficiency judgment
• Statutory right of redemption
• Nonjudicial foreclosure
• Power of sale
• Cure and reinstatement
• Trustees sale

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Alternatives to Foreclosure

• Three alternatives allow borrowers on the verge
  of default to avoid foreclosure

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Alternatives to Foreclosure

• Three alternatives allow borrowers on the verge
  of default to avoid foreclosure
• Loan workout

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Alternatives to Foreclosure

• Three alternatives allow borrowers on the verge
  of default to avoid foreclosure
• Loan workout
• Deed in lieu

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Alternatives to Foreclosure

• Three alternatives allow borrowers on the verge
  of default to avoid foreclosure
• Loan workout
• Deed in lieu
• Short sale

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Alternatives to Foreclosure
Lenders consent needed

• All three alternatives require lenders
  cooperation and consent.

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Alternatives to Foreclosure
Lenders consent needed

• All three alternatives require lenders
  cooperation and consent.
• Lenders incentives
• avoiding foreclosure costs
• ending money-losing situation more quickly

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Alternatives to Foreclosure
Workouts

• First step for borrower hoping to avoid
  foreclosure asking lender for a loan workout.
• Two types of workouts
• Repayment plan
• Loan modification

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Workouts
Repayment plans

• With a repayment plan, lender allows borrower to
  change the timing of a limited number of
  payments.

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Workouts
Repayment plans

• With a repayment plan, lender allows borrower to
  change the timing of a limited number of
  payments.
• For example, borrower might be allowed to
• take additional time to make one or more
  payments, or

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Workouts
Repayment plans

• With a repayment plan, lender allows borrower to
  change the timing of a limited number of
  payments.
• For example, borrower might be allowed to
• take additional time to make one or more
  payments, or
• skip one or more payments, with skipped
  payments added on to repayment period.

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Workouts
Loan modifications

• Borrower in more dire situation may need a loan
  modification permanent change in the terms of
  repayment.

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Workouts
Loan modifications

• Borrower in more dire situation may need a loan
  modification permanent change in the terms of
  repayment.
• Examples
• converting ARM to fixed-rate loan before
  payment resets higher
• reducing interest rate
• reducing principal owed

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Alternatives to Foreclosure
Deed in lieu of foreclosure

• If borrower cant negotiate a workout and will
  lose the property anyway, can offer lender a deed
  in lieu.

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Alternatives to Foreclosure
Deed in lieu of foreclosure

• If borrower cant negotiate a workout and will
  lose the property anyway, can offer lender a deed
  in lieu.
• If lender accepts deed in lieu
• borrower deeds property to lender
• debt satisfied

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Deed in Lieu of Foreclosure
Settlement of debt

• Lender agrees to release borrower even though
  property is usually worth less than amount owed.
• Lender could require borrower to sign a
  promissory note for the shortfall, but that
  isnt typical.

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Deed in Lieu of Foreclosure
Impact on borrower

• Compared to foreclosure, deed in lieu is
• simpler
• less public

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Deed in Lieu of Foreclosure
Impact on borrower

• Compared to foreclosure, deed in lieu is
• simpler
• less public
• However, borrowers credit rating suffers almost
  as much from deed in lieu as from foreclosure.

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Deed in Lieu of Foreclosure
Junior liens

• Lender who accepts deed in lieu takes title
  subject to other liens.
• Not like foreclosure, which extinguishes
  junior liens.
• Therefore lender will usually refuse deed in
  lieu if there are junior liens.

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Alternatives to Foreclosure
Short sales

• Short sale When borrower sells the property to a
  third party for less than the amount owed.

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Alternatives to Foreclosure
Short sales

• Short sale When borrower sells the property to a
  third party for less than the amount owed.
• If borrower facing foreclosure can find a buyer,
  may ask lender to approve a short sale.

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Alternatives to Foreclosure
Short sales

• Short sale When borrower sells the property to a
  third party for less than the amount owed.
• If borrower facing foreclosure can find a buyer,
  may ask lender to approve a short sale.
• Lender receives sale proceeds and releases
  lien.

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Alternatives to Foreclosure
Short sales

• Short sale When borrower sells the property to a
  third party for less than the amount owed.
• If borrower facing foreclosure can find a buyer,
  may ask lender to approve a short sale.
• Lender receives sale proceeds and releases
  lien.
• Might require borrower to sign a promissory
  note for the shortfall.

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Short Sales
Junior liens

• Like ordinary sale, short sale doesnt extinguish
  junior liens.
• If there are junior liens, short sale must be
  approved by all lienholders, not just lender
  threatening foreclosure.
• Junior lienholders unlikely to consent.

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Alternatives to Foreclosure
Obtaining lenders consent

• To arrange a workout, offer a deed in lieu, or
  request approval of a short sale, borrower
  contacts loan servicer.
• May need approval from more than onedepartment
  or entity.

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Obtaining Lenders Consent
Application process

• Borrower must demonstrate financial hardship
  (inability to make payments).
• Application and documentation required.

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Obtaining Lenders Consent
Application process

• Borrower must demonstrate financial hardship
  (inability to make payments).
• Application and documentation required.
• Some lenders wont even consider borrowers
  request until at least 90 days behind on loan
  payments.

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Obtaining Lenders Consent
Assistance for borrowers

• Borrower who wants help with process should
  contact nonprofit HUD-approved housing counseling
  service.

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Obtaining Lenders Consent
Assistance for borrowers

• Borrower who wants help with process should
  contact nonprofit HUD-approved housing counseling
  service.
• Problems in many places with predatory
  for-profit loan modification companies.

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Obtaining Lenders Consent
Assistance for borrowers

• Borrower who wants help with process should
  contact nonprofit HUD-approved housing counseling
  service.
• Problems in many places with predatory
  for-profit loan modification companies.
• Many states now have distressed property
  laws regulating these companies.

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Obtaining Lenders Consent
Securitized loans

• If loan has been securitized, can be very
  difficult to obtain consent.
• Under some MBS contracts, any purchaser
  (investor) can object and prevent loan
  modification or settlement of debt.

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Obtaining Lenders Consent
Securitized loans

• If loan has been securitized, can be very
  difficult to obtain consent.
• Under some MBS contracts, any purchaser
  (investor) can object and prevent loan
  modification or settlement of debt.
• Impossible or at least impractical to obtain
  consent of all investors.

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Alternatives to Foreclosure
Income tax implications

• IRS views debt relief (reduction in amount owed)
  as income.
• Borrower who enters into an arrangement that
  reduces amount owed on mortgage may have to
  pay income taxes on the debt relief.

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Alternatives to Foreclosure
Income tax implications

• Exceptions Debt relief not taxable if
• debt was secured by principal residence and
  forgiven since 2007, or

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Alternatives to Foreclosure
Income tax implications

• Exceptions Debt relief not taxable if
• debt was secured by principal residence and
  forgiven since 2007, or
• debtor was insolvent when debt forgiven.

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Alternatives to Foreclosure

• Loan workout
• Repayment plan
• Loan modification
• Deed in lieu
• Short sale
• Housing counseling service
• Distressed property laws
• Debt relief

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Finance Instrument Provisions

• Rights and responsibilities of borrower and
  lender may be affected by
• subordination clause,
• late charge provision,
• prepayment provision,
• partial release clause,
• acceleration clause, and/or
• alienation clause.

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Finance Instrument Provisions
Subordination clauses

• Subordination clause gives a mortgage lower
  priority than another mortgage that will be
  recorded later on.
• Common in construction financing.

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Finance Instrument Provisions
Subordination clauses

• Typical subordination clause
• Lender agrees that this instrument shall be
  subordinate to a lien to be given by Borrower to
  secure funds for the construction of improvements
  on the Property, provided said lien is duly
  recorded and the amount secured by said lien
  does not exceed 125,000.

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Finance Instrument Provisions
Subordination clauses

• Inclusion of subordination clause must be
  negotiated during the earlier transaction.
• If not, holder of earlier mortgage may be
  willing to sign a separate subordination
  agreement later on.

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Finance Instrument Provisions
Late charge provisions

• Promissory notes usually provide for late charges
  if borrower doesnt make payments on time.
• State laws may override late charge provision, to
  protect borrowers from excessive charges.

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Finance Instrument Provisions
Prepayment provisions

• Prepayment provision imposes penalty on borrower
  who repays some or all of principal before it is
  due.
• Prepayment deprives lender of some of the
  interest it expected to receive over loan term.

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Finance Instrument Provisions
Prepayment provisions

• Typical prepayment provision
• If, within five years from the date of this
  note, Borrower makes any prepayments of principal
  in excess of twenty percent of the original
  principal amount in any twelve-month period
  beginning with the date of this note or
  anniversary dates thereof (loan year), Borrower
  shall pay the Note Holder three percent of the
  original principal amount.

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Finance Instrument Provisions
Prepayment provisions

• Not standard in residential loan agreements.
• Fannie Mae/Freddie Mac promissory note gives
  borrower right to prepay.
• Prepayment penalties prohibited with FHA and VA
  loans.

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Finance Instrument Provisions
Prepayment provisions

• Prepayment provision usually allows lender to
  charge penalty only if loan is prepaid during
  first few years of loan term.
• Unreasonable prepayment penalties are considered
  a predatory lending practice.
• Some states have laws limiting penalty
  amounts and imposing other restrictions.

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Finance Instrument Provisions
Partial release clauses

• Partial release clause obligates lender to
  release part of property from lien when part of
  debt is paid.
• Typically found in deed of trust or mortgage that
  covers subdivision, allowing release of
  individual lot from lien when lot is sold.

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Finance Instrument Provisions
Partial release clauses

• Typical partial release clause
• Upon payment of all sums due with respect to
  any lot subject to this lien, Lender shall
  release said lot from the lien at no cost to
  Borrower.

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Finance Instrument Provisions
Acceleration clauses

• Acceleration clause allows lender to declare
  outstanding loan balance due immediately in the
  event of default.
• Most lenders wait 90 days before accelerating.
• Some states now have laws requiring lenders to
  wait a specified period.

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Finance Instrument Provisions
Acceleration clauses

• Typical acceleration clause
• In case the Mortgagor or Trustor fails to
  pay any installment of principal or interest
  secured hereby when due or to keep or perform any
  covenant or agreement aforesaid, then the whole
  indebtedness hereby secured shall become due and
  payable, at the election of the Mortgagee or
  Beneficiary.

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Finance Instrument Provisions
Alienation clauses

• Alienation clause is designed to prevent borrower
  from selling the security property without
  lenders permission unless loan is paid off at
  closing.
• If title transferred without permission, lender
  can accelerate loan.
• Also called a due-on-sale clause.

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Alienation Clauses
Triggered by transfer of any interest

• Most alienation clauses are triggered not just by
  transfer of title, but by transfer of any
  significant interest.
• Includes long-term leases, or leases with
  options to purchase.
• Lender cant forbid transfer, but can demand
  payment of loan.

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Alienation Clauses
Typical clause

• Typical alienation clause
• If all or any part of the Property or an
  interest therein is sold or transferred by
  Borrower without Lenders prior written consent,
  Lender may, at Lenders option, declare all the
  sums secured by this instrument to be immediately
  due and payable.

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Alienation Clauses
Transfer of title without loan payoff

• To understand purpose of alienation clause,
  consider what happens when borrower sells
  property without paying off loan.

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Alienation Clauses
Transfer of title without loan payoff

• Three possibilities
• 1. New owner takes title subject to loan but
  does not assume it.

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Alienation Clauses
Transfer of title without loan payoff

• Three possibilities
• 1. New owner takes title subject to loan but
  does not assume it.
• 2. New owner assumes loan but original borrower
  is not released.

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Alienation Clauses
Transfer of title without loan payoff

• Three possibilities
• 1. New owner takes title subject to loan but
  does not assume it.
• 2. New owner assumes loan but original borrower
  is not released.
• 3. New owner assumes loan and lender agrees to
  release original borrower.

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Transfer Without Loan Payoff
Taking title subject to loan

• If new owner takes title subject to an existing
  mortgage but does not assume it
• New owner is not personally liable for payment
  of mortgage.
• But lender still has power to foreclose
  (transfer of title doesnt extinguish lien).

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Transfer Without Loan Payoff
Assumption without release

• If new owner assumes loan
• New owner takes on primary liability for
  repaying loan.
• Unless lender agrees to a release, original
  borrower is secondarily liable.
• Original borrower can be forced to pay
  deficiency judgment if new owner doesnt.

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Transfer Without Loan Payoff
Assumption and release

• Alienation clause allows lender to evaluate
  creditworthiness of proposed buyer.
• If buyer not creditworthy, lender tells original
  borrower loan will be accelerated if sale goes
  forward.
• If buyer is creditworthy, lender approves
  assumption and releases original borrower.
• Original borrower has no further liability.

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Assumption and Release
Assumption fee

• Lender will charge new owner an assumption fee,
  which is typically as large as an origination fee.

103
Assumption and Release
Estoppel letter

• Lender will also provide an estoppel letter,
  which acknowledges transfer of ownership and
  waives lenders right to accelerate loan.
• Lender estopped from trying to enforce
  alienation clause later on.
• Lender may charge fee for estoppel letter.

104
Finance Instrument Provisions

• Subordination clause
• Late charge provision
• Prepayment provision
• Partial release clause
• Acceleration clause
• Alienation clause
• Assumption
• Estoppel letter

105
Types of Real Estate Loans
Junior or senior mortgage

• Junior mortgage
• Mortgage with lower lien priority than another
  mortgage or deed of trust against same property.

106
Types of Real Estate Loans
Junior or senior mortgage

• Junior mortgage
• Mortgage with lower lien priority than another
  mortgage or deed of trust against same property.
• Senior mortgage
• Mortgage with higher lien priority than another
  mortgage or deed of trust against same property.

107
Types of Real Estate Loans
First position mortgage

• The lien having the most senior (first) position
  is called the first mortgage.
• Junior mortgages may be referred to as second
  mortgage, third mortgage, etc.

108
Types of Real Estate Loans
Junior or senior mortgage

• Property may be encumbered with two or more
  mortgages in various situations
• Junior mortgage provides secondary financing to
  supplement primary loan.
• Purchase mortgage is subordinated to a
  construction mortgage.
• Borrower takes out home equity loan secured by
  same property as purchase loan.

109
Types of Real Estate Loans
Junior or senior mortgage

• After foreclosure, junior mortgage paid only
  after senior lender has been paid in full.
• If proceeds insufficient, junior lender
  receives nothing.
• Junior lender can still sue borrower, but debt
  is now unsecured.

110
Types of Real Estate Loans
Purchase money mortgage

• Purchase money mortgage
• Any mortgage loan used to finance the purchase of
  the property that is the collateral for the loan.
• A mortgage that buyer gives to seller in
  seller-financed transaction.

111
Types of Real Estate Loans
Home equity loan

• Home equity loan is loan secured by mortgage
  against borrowers equity in home she already
  owns.
• Equity difference between propertys
  current market value and liens against it.

112
Types of Real Estate Loans
Home equity loan

• Home equity loan may be used for
• remodeling or property improvements, or
• expenses unrelated to property (such as paying
  off credit cards).
• Interest rates on home equity loans are higher
  than rates on purchase loans.

113
Types of Real Estate Loans
Home equity loan

• Home equity line of credit (HELOC)
• Line of credit with a limit and minimum monthly
  payments that homeowners can draw upon as needed.
  
• Automatically secured by borrowers home.

114
Types of Real Estate Loans
Refinance mortgage

• Refinancing refers to a new loan used to pay off
  existing mortgage against same property.
• Often used
• to take advantage of market interest rate drop
  or
• when large balloon payment is required on
  existing mortgage.

115
Types of Real Estate Loans
Refinance mortgage

• Cash-out refinancing
• New loan amount is more than amount of existing
  mortgage balance, so borrowers receive cash from
  refinance lender.
• A way to tap into home equity while also
  refinancing.

116
Types of Real Estate Loans
Bridge loan

• Bridge loan provides cash for purchase of new
  home pending sale of old home.
• Secured by equity in old home.
• Usually has interest-only payments.
• Also called swing loan or gap loan.

117
Types of Real Estate Loans
Construction loan

• Construction loan is a short-term loan used to
  finance construction of improvements on land
  already owned by borrower.

118
Types of Real Estate Loans
Construction loan

• Construction loan is a short-term loan used to
  finance construction of improvements on land
  already owned by borrower.
• Construction loans
• are considered high-risk loans
• typically have high loan fees and interest rates

119
Types of Real Estate Loans
Construction loan

• Fixed disbursement plan typical disbursement
  schedule for construction loans.
• Calls for a series of predetermined
  disbursements (obligatory advances) at certain
  stages of construction.
• Interest starts to accrue at first disbursement.

120
Types of Real Estate Loans
Construction loan

• Once construction is completed, construction loan
  is replaced by a take-out loan.
• Borrower repays amount borrowed over specified
  term.

121
Types of Real Estate Loans
Reverse equity mortgage

• Reverse equity mortgage provides elderly
  homeowners with a source of income, without
  requiring them to sell their home.
• Homeowner borrows against equity.
• Receives monthly check from lender, rather
  than making monthly payments.
• Borrower typically required to be over a
  certain age.
• Home sold after death to repay loan.

122
Types of Real Estate Loans

• Purchase money mortgage
• Home equity loan or HELOC
• Refinancing
• Bridge loan
• Budget mortgage
• Package mortgage
• Blanket mortgage
• Construction loan
• Nonrecourse mortgage
• Wraparound mortgage
• Reverse equity mortgage