1. Texas Real Estate Contracts 4 th Edition © 2015 OnCourse Learning

2. Chapter 12: Financing Real Estate © 2015 OnCourse Learning

3. Mortgages Mortgages are a type of encumbrance on property. And as an encumbrance, the mortgage burdens title to the real estate. © 2015 OnCourse Learning

4. Mortgages cont. A mortgage is also a type of lien on the property. A lien is a claim on the property for payment of a debt. Texas is a lien theory state which means that a bank with a mortgage on property merely holds a lien on the property during the term of the debt while the purchaser holds legal title to the property. © 2015 OnCourse Learning

5. Mortgages cont. When a real estate purchaser obtains financing from a third party lender, certain documents are necessary to protect the lender from loss. The two documents involved in a financing situation are the promissory note and the security interest. © 2015 OnCourse Learning

6. Mortgages cont. The promissory note (real estate lien note) is a written promise by the maker to pay a specified sum at a specified time to a person named in the agreement, the payee. This document is a contract between the lender and the borrower. Since this document is merely a contract, it is not typically recorded. © 2015 OnCourse Learning

7. Mortgages cont. A security interest is a form of interest in property which provides that the property may be sold if the purchaser defaults on his or her debt for the property as agreed to in the promissory note. The security interest in Texas is referred to as a deed of trust. © 2015 OnCourse Learning

8. Loan Programs Texas Veterans Land Board Texas Veterans Housing Assistance Program © 2015 OnCourse Learning

9. Assumptions An assumption transaction is the purchase of real property subject to a mortgage whereby the purchaser accepts liability under an existing note, and the seller remains liable to the lender. © 2015 OnCourse Learning

10. Loan Assumption Addendum The loan assumption addendum is used anytime the property is obtained through an assumption. © 2015 OnCourse Learning

11. Seller Financing A seller financing transaction is a transaction in which the seller, rather than a lending institution, finances the transaction. For a seller financing transaction, the real estate professional must use the Seller Financing Addendum © 2015 OnCourse Learning

12. Third-Party Financing The most common type of financing is third party lender financing. For third party lender financing, the real estate professional must use the promulgated Third Party Financing Addendum for Credit Approval © 2015 OnCourse Learning

13. Installment Land Contracts This type of financing is usually seen with people who can not obtain financing, for instance, because of a bad debt, no down payment, or they won't qualify for a loan. The seller promises to convey title, in the form of a deed, to the buyer once the purchase price is paid. © 2015 OnCourse Learning

14. Home Equity Conversion Mortgage (HECM) for Purchase A traditional reverse mortgage, or home equity conversion mortgage (HECM), is a loan secured by a homeowner‘s equity in his or her home similar to a home equity loan. © 2015 OnCourse Learning

15. Loan Approval Process loan application along with credit report, employment verification, bank fund verification loan package will then be compiled and presented to the underwriter for approval once approved, the prospective purchaser will be notified of the approval and any requirements that must be satisfied before the loan will close lender will draft the promissory note and deed of trust documents and send them to the title company for signature at closing once the prospective purchaser signs the loan documents at closing, the lender will fund the loan. © 2015 OnCourse Learning

16. Financing Legislation Federal financing legislation is found in Section I of the Federal Consumer Credit Protection Act, the Truth in Lending Act. © 2015 OnCourse Learning

17. Foreclosure and other Alternatives Foreclosure Short Sales © 2015 OnCourse Learning

18. Foreclosure The typical deed of trust provides a power of sale clause, which authorizes the trustee to sell the property at public auction in case the debtor defaults on payment of the loan. © 2015 OnCourse Learning

19. Short Sales A short sale is used when the seller must sell the property for less than the total debt remaining on the loan. During negotiations, the promulgated Short Sale Addendum should be used. © 2015 OnCourse Learning

20. Liens Property (Ad Valorem) Tax Liens Mechanic’s, Contractor’s or Materialman’s Liens Preexisting Indebtedness © 2015 OnCourse Learning

21. Property (Ad Valorem) Tax Liens A property (ad valorem) tax lien is a lien on real property to secure payment of property taxes. © 2015 OnCourse Learning

22. Mechanic’s, Contractor’s, or Materialman’s Liens A materialman’s lien is a lien that can be attached to real property to secure payment for a house, building or improvements to the property. © 2015 OnCourse Learning

23. Preexisting Indebtedness A lien for preexisting indebtedness attaches to real property for nonpayment of a debt that arose prior to the acquisition of the homestead. © 2015 OnCourse Learning