Texas Real Estate Prep Questions with Correct Answers 100% Verified By Experts| Latest
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A deed of trust or trust deed is a deed wherein legal title in real property is transferred to a
TRUSTEE, which holds it as security for a loan (debt) between a borrower and lender. The
equitable title remains with the borrower. The trustee is an independent third party that holds
"bare" or "legal" title to the property.
Assumption When the buyer not only purchases the property, but assumes and agrees to
pay the seller's debt, the buyer becomes personally obligated for the payment of the entire
debt. The buyer agrees to assume the seller's existing loan with the lender's permission and
agreement. The original borrower (seller) is released from liability, and the new buyer becomes
responsible for the remaining balance of the loan.
Subject To When the property is sold subject to the mortgage (a form of assumption), the
purchaser is not personally obligated to pay the debt in full. Upon default, the original borrower
is still liable. Most mortgages contain an alienation clause to prevent this.
Conventional A loan that is NOT underwritten by a federal agency. May be "conforming" or
"non-conforming."
Conforming Loans that meet the FNMA or FHLMC guidelines so they can be sold in the
secondary market.
Non-conforming Loans can be made by any lender to be held in its own portfolio or sold to
private mortgage packagers that specialize in areas not serviced by FNMA or FHLMC or GNMC.
Does not meet the secondary market guidelines.
Non-conventional A loan that IS BACKED by the federal government.FHA, VA, and USDA
mortgages are three primary types of non-conventional home loans.
Lien Theory Mortgagor (borrower) holds interest in the title while the mortgagee holds the
lien. Texas is a lien theory state.
,It may be more difficult for a bank to foreclose on a property because the bank does not hold
the title.
Title Theory A property-law doctrine that a mortgage transfers title to a property to the
mortgagee, who holds it until the mortgage has been paid off, at which time title passes to the
mortgagor. The bank holds the title to the property until the mortgage is paid off.
Lender Beneficiary
Borrower Trustor - Retains equitable title to the property.
Duties of a Trustee Duties include:
1) Release the lien upon satisfaction of the debt or foreclosure in the event of default.
Power of Sale Clause The deed of trust allows for non-judicial foreclosure under this clause
contained in the document; the lender does not have to go to court. If the borrower defaults
the beneficiary (lender) directs the trustee to offer the property for sale to extinguish the debt.
Deficiency Clause Clause in the deed of trust that allows the lender to seek an additional
judgement against a borrower who defaults if the liquidation foreclosure sale fails to extinguish
the debt. Primary difference between the deed of trust mortgage used in Texas and the 2-party
mortgage used in other states. Recording the mortgage creates the LIEN.
Judicial Foreclosure A foreclosure proceeding where the lender must file a suit in a court of
law to obtain a judgement ordering a foreclosure of the lien.
Non-judicial Foreclosure Foreclosure procedures through the power-of-sale clause
contained in the deed of trust allowing the trustee to satisfy the debt without going through
court proceedings.
, Deed in Lieu of Foreclosure A borrower who is about to be foreclosed on may negotiate
with lender to transfer the title of the property to the lender. This will avoid a deficiency
judgement.
Deficiency Judgement If the foreclosure sale of real estate securing a deed of trust does not
produce enough money to repay the loan plus all penalties and interest, the lender may file a
personal judgement against the borrower for the balance. Only found in a deed of trust in Texas
and not in a 2-party mortgage.
Primary Mortgage Market The market where borrowers borrow money to finance property.
Banks, credit unions, and mortgage loan companies are a part of the primary mortgage market.
The loans originating in this market are sold to the secondary mortgage market.
Secondary Mortgage Market The primary responsibility of this market is to maintain an
active market for mortgages. Three giants of this market are:
1) FNMA Federal National Mortgage Association
2) GNMA Government National Mortgage Association
3) FHLMC Federal Home Loan Mortgage Corporation
Federal National Mortgage Association FNMA exchanges mortgage-backed securities for
pools or blocks of mortgages.
Federal Housing Administration FHA Provides mortgage INSURANCE on loans made by FHA-
approved lenders in the US. It INSURES mortgages on single-family and multifamily homes
including manufactured homes. Provides Protection for the lender agains losses as a result of
homeowner default on the mortgage loans.
Veteran's Administration VA Available to United States Veterans, Service Members and not
remarried spouses. Loans are issued be QUALIFIED lenders and GUARANTEED by the US
Department of Veteran Affairs (VA).
Update Guaranteed Success
A deed of trust or trust deed is a deed wherein legal title in real property is transferred to a
TRUSTEE, which holds it as security for a loan (debt) between a borrower and lender. The
equitable title remains with the borrower. The trustee is an independent third party that holds
"bare" or "legal" title to the property.
Assumption When the buyer not only purchases the property, but assumes and agrees to
pay the seller's debt, the buyer becomes personally obligated for the payment of the entire
debt. The buyer agrees to assume the seller's existing loan with the lender's permission and
agreement. The original borrower (seller) is released from liability, and the new buyer becomes
responsible for the remaining balance of the loan.
Subject To When the property is sold subject to the mortgage (a form of assumption), the
purchaser is not personally obligated to pay the debt in full. Upon default, the original borrower
is still liable. Most mortgages contain an alienation clause to prevent this.
Conventional A loan that is NOT underwritten by a federal agency. May be "conforming" or
"non-conforming."
Conforming Loans that meet the FNMA or FHLMC guidelines so they can be sold in the
secondary market.
Non-conforming Loans can be made by any lender to be held in its own portfolio or sold to
private mortgage packagers that specialize in areas not serviced by FNMA or FHLMC or GNMC.
Does not meet the secondary market guidelines.
Non-conventional A loan that IS BACKED by the federal government.FHA, VA, and USDA
mortgages are three primary types of non-conventional home loans.
Lien Theory Mortgagor (borrower) holds interest in the title while the mortgagee holds the
lien. Texas is a lien theory state.
,It may be more difficult for a bank to foreclose on a property because the bank does not hold
the title.
Title Theory A property-law doctrine that a mortgage transfers title to a property to the
mortgagee, who holds it until the mortgage has been paid off, at which time title passes to the
mortgagor. The bank holds the title to the property until the mortgage is paid off.
Lender Beneficiary
Borrower Trustor - Retains equitable title to the property.
Duties of a Trustee Duties include:
1) Release the lien upon satisfaction of the debt or foreclosure in the event of default.
Power of Sale Clause The deed of trust allows for non-judicial foreclosure under this clause
contained in the document; the lender does not have to go to court. If the borrower defaults
the beneficiary (lender) directs the trustee to offer the property for sale to extinguish the debt.
Deficiency Clause Clause in the deed of trust that allows the lender to seek an additional
judgement against a borrower who defaults if the liquidation foreclosure sale fails to extinguish
the debt. Primary difference between the deed of trust mortgage used in Texas and the 2-party
mortgage used in other states. Recording the mortgage creates the LIEN.
Judicial Foreclosure A foreclosure proceeding where the lender must file a suit in a court of
law to obtain a judgement ordering a foreclosure of the lien.
Non-judicial Foreclosure Foreclosure procedures through the power-of-sale clause
contained in the deed of trust allowing the trustee to satisfy the debt without going through
court proceedings.
, Deed in Lieu of Foreclosure A borrower who is about to be foreclosed on may negotiate
with lender to transfer the title of the property to the lender. This will avoid a deficiency
judgement.
Deficiency Judgement If the foreclosure sale of real estate securing a deed of trust does not
produce enough money to repay the loan plus all penalties and interest, the lender may file a
personal judgement against the borrower for the balance. Only found in a deed of trust in Texas
and not in a 2-party mortgage.
Primary Mortgage Market The market where borrowers borrow money to finance property.
Banks, credit unions, and mortgage loan companies are a part of the primary mortgage market.
The loans originating in this market are sold to the secondary mortgage market.
Secondary Mortgage Market The primary responsibility of this market is to maintain an
active market for mortgages. Three giants of this market are:
1) FNMA Federal National Mortgage Association
2) GNMA Government National Mortgage Association
3) FHLMC Federal Home Loan Mortgage Corporation
Federal National Mortgage Association FNMA exchanges mortgage-backed securities for
pools or blocks of mortgages.
Federal Housing Administration FHA Provides mortgage INSURANCE on loans made by FHA-
approved lenders in the US. It INSURES mortgages on single-family and multifamily homes
including manufactured homes. Provides Protection for the lender agains losses as a result of
homeowner default on the mortgage loans.
Veteran's Administration VA Available to United States Veterans, Service Members and not
remarried spouses. Loans are issued be QUALIFIED lenders and GUARANTEED by the US
Department of Veteran Affairs (VA).
