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INFORMATION THAT WILL BE ADDED TO THE 4th EDITION Negative amortization occurs in loans where the payment does not cover the amount of interest that is due. Some loans have negative amortization built into the loan payments and others may have negative amortization if interest rates rise. A borrower should be cautious with a negative amortizing loan because during the loan the balance of the loan may grow substantially. --------------- 13. An estoppel clause is clause in a mortgage that compels the mortgagor to issue a statement verifying the terms of the mortgage. An investor in the secondary mortgage market in considering the purchase of a mortgage from a primary lender, may ask the lender for estoppel certificates from the mortgagors attesting as to the remaining terms of the mortgage. The estoppel certificate is considered a certificate of no defense and the mortgagor would be estopped from asserting that the terms of the mortgage were indeed different. --------------- 14. A nondisturbance clause is a mortgage clause that
may be found in many mortgages on commercial property. In the nondisturbance
clause, the lender agrees to keep intact the leases of the current
tenants should the lender foreclose on the mortgagor. To be protected by the
nondisturbance clause, the lessee cannot be in default. It should be noted, if a
lease agreement was entered into before the mortgage, the lessee’s leasehold
interest will be considered superior to the mortgagee’s interest. Judicial Foreclosure Judicial foreclosure requires the lender to bring a lawsuit against the borrower and obtain a judgment for the amount of debt the borrower owes. When the judgment is obtained, the lender will ask the court to set a date for the sale of the property to satisfy the judgment. The judge will either appoint a private selling officer or the county sheriff to sell the property. In Cook County, Attorneys Title Company and Intercounty Title are appointed in most cases. In other counties, the sheriff may handle most of the sales. The terms of the sale are set by the court, with most sales requiring either 10% or 25% by certified funds the day of the bidding and the full bid amount by certified funds the following day. The winning bidder will get a Certificate of Sale. The lender must return to court to have the sale confirmed by the court. This process may take another 7 to 30 days. If the court approves the sale, the bidder will then be given a judicial deed to the property and an order of possession. The delinquent borrowers can remain in the property for 30 days after the confirmation of the sale. If the delinquent borrowers do not vacate within the 30 days, the third party bidder can bring the Order of Possession to the sheriff for an eviction. ---------------
When buying property at a mortgage foreclosure sale, one must do their own due diligence. The selling officer will publish notice of the sale in local newspapers at least 3 times before the actual sale. During that time, a third party purchaser must research the title to the property. If the taxes on the property are delinquent and have already been sold at a tax sale, the third party purchaser will then have to redeem the property from the tax purchaser - if there is still time to redeem. If a junior lien is foreclosing, the purchaser will still be responsible for payment of any mortgages in a superior position. While foreclosure auctions may be a place to make money, they are fraught with problems for those that don’t do their due diligence. You receive no warranties of title at a foreclosure sale and there are no refunds issued. ---------------
Right of Reinstatement Borrowers in Illinois have a right of reinstatement. The reinstatement right must be exercised during the first 90 days after receiving the summons regarding the Suit of Foreclosure. The borrower need only come up with the back payments and any advances the lender might have made (payments for items such as insurance and real estate taxes) and the court costs and attorney fees. Costs around the time of summons is generally around $1500. The right of reinstatement can only be exercised once in a 5 year period. However, if the mortgage document is a FNMA uniform loan document, their reinstatement right can be exercised an unlimited number of times up to the judgment sale. Though Illinois law may limit their reinstatement rights, contractually (if in the mortgage) they may have unlimited reinstatement rights. ---------------
Right of Redemption The borrower's right of redemption allows the borrower to redeem their property by paying the lender in full. If the property is redeemed, there is no sale. In most states the equitable right of redemption allows the borrower to redeem the property up until the time of the foreclosure sale. Also, most states will have a statutory right of redemption that allows a purchaser to redeem a property for a period of time after the sale. This statutory time period varies from 2 weeks to 6 months. Illinois does not have an equitable right of redemption. In Illinois, the statutory right of redemption starts the day the borrower is served the summons (the Suit of Foreclosure). The borrower will have 7 months from receiving the summons or 3 months from the final judgment court judgment, whichever is later. In Illinois, there is no redemption after the sale. The property is not sold at auction until the redemption period expires. Distribution of the Sale Proceeds In Illinois, the items that get paid from the sales proceeds are in order: 1. the costs of sale. These will include attorney fees, court filing fees, appraisal fees, title search fees, advances for taxes or insurance and the selling officers fee, 2. the foreclosing lenders lien,. 3. any surplus to the borrower. 4. the purchaser leaves the sale still owing the taxes. In cases where a second mortgage is foreclosed on and there is a surplus, the surplus goes to the borrower, not to the first lien holder. The borrower will have to motion the court to receive the surplus, or the money will be turned over to the county. Junior lien holders, to protect their interest should attempt to have their lien added to the foreclosing lenders judgment. Anyone that has a recorded interest in the property will receive the initial summons. It is at this time, junior lien holders should move the court to protect their interest by including their interest in the foreclosing lien holders judgment. ---------------
PUTTING IT TO WORK It is important to know if the lien being foreclosed on is a first, second, third, etc. If a bidder is successful in bidding on first mortgage, the junior liens are wiped out. If it is the second mortgage lender foreclosing a successful bidder will be responsible for the first mortgage. --------------- Many mortgage bankers will borrow money to lend out at higher rates. They make loans using the borrowed money and as the loans are made they temporarily hold on to the loans or warehouse them. They warehouse the loans until the borrowed money is almost depleted and then they pool the warehoused loans and sell them to obtain new money to make more loans. --------------- Revised question #18 18. After an Illinois mortgage foreclosure sale, the money will be disbursed in the following order: A. real estate taxes, expenses of the sale, liens according to the date recorded B. real estate taxes, expenses of the sale, liens according to the date recorded, any excess to the lender C. expenses of the sale, real estate taxes, liens according to the date recorded, any excess top the borrower D. expenses of the sale, liens according to the date recorded, any excess to the borrower
answer: D
25. A clause in a mortgage that may protect the leasehold interests of the tenants in the case of a foreclosure action by the mortgagee is a(an) A. estopple clause B. nondisturbance clause C. alienation clause D. assignment of rents clause
answer: B
26. The Delaurenti Investment Group is considering purchasing a package of mortgage loans made by the Sixth National Bank. To be certain of the terms of the package, the investment group will require the Sixth National Bank to obtain from each of the mortgagors a(an) A. estoppel certificate B. nondisturbance agreement C. mortgagee pact D. defeasance clause
27. A primary lender that makes loans and temporarily holds on to the loans before selling them on the secondary mortgage market is A. subrogating loans B. subordinating loans C. wrapping loans D. warehousing loans
answer: D ---------------
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