Title Theory of mortgages

• this is the oldest form of mortgaging originated in under English common law.  Under this system, the borrower temporarily conveyed ownership to the lender for the duration on the loan period.  if they defaulted, the lender took possession of the property

Lien Theory of mortgages

• Allows the borrower to retain the ownership of the property during the loan period.  the lender records the mortgage, creating a lien against the property.  in default, the borrower is given the right to cure the default instead of forfeiting the property.  
• observed in Florida

Hypothecation

• The pledge of property as security for a loan

A Valid Mortgage must:

• in writing
• signed by mortgagor
• conform to the same requirements as any valid contract
• contain legal description of the property
• be witnessed by two persons

Elements of a Mortgage

• Insurance clause
• Tax clause
• Escrow
• Maintenance clause
• Defeasance clause
• Prepayment clause
• Acceleration clause
• Alienation clause
• Open-end clause
• Escalator clause
• Subordination clause
• Receivership clause
• Exculpatory clause
• Release clause
• Cognovit clause

Defeasance Clause

• provides protection for the mortgagor as it requires the lender to acknowledge performance by the borrower
• lender's rights are held in check as long as the borrower performs as agreed in the note and mortgage.
• it is the only legally necessary clause in a mortgage

Exculpatory Clause

• limits the lender's rights in a foreclosure to the amount received from the sale of the foreclosed property.  if the balance of the note has not been paid in full from the proceeds of sale, the lender cannot obtain a deficiency judgment for the unsatisfied amount.
• referred to as non-recourse financing - lender has no recourse against the borrower fro the unsatisfied portion of the loan.

Loan Origination Fees

• expressed in points, 1 point is 1% of the amount borrowed expressed in dollars.
• ex.  75,000 loan with 1point =

75,000

x .01

$750

Effective Yeild