Modern Real Estate Practice in Texas, 16th Edition
Chapter 15 Answer Key
1. a
2. d
3. b
4. c
5. b
6. b
7. b
8. b
9. a
10. d
The promissory note is a fully negotiable instrument, and the individual who
holds the note may transfer the right to receive payment to a third party. Unlike
the deed of trust which is a security instrument, the promissory note is not
recorded in the public record by the mortgagee.
The three parties involved in the deed of trust mortgage transaction are the
borrower (the mortgagor, trustor, or grantor), the lender (the mortgagee or
beneficiary), and a neutral third party (the trustee.) The “or” (the mortgagor)
gives the mortgage (the pledge of the property) to the “ee” (the mortgagee, the
one receiving the property as security.)
Previous grantors may reserve some right in the land for their own use (i.e.,
minerals, royalties, easements). The basic principle of property law—that a
person cannot convey greater rights in property than he or she actually has—
applies equally to the right to mortgage. The owner, therefore, cannot mortgage
property in which he has no rights (in this case, the minerals).
The three parties involved in the deed of trust mortgage transaction are the
borrower (the mortgagor, trustor, or grantor), the lender (the mortgagee or
beneficiary), and a neutral third party (the trustee).
$76,000 × .115 = $8,740 annual interest
$8,740 ÷ 12 = $728.33 one month’s interest
$785 – $728.33 = $56.67 month’s principal reduction
$76,000 – $56.67 = $75,943.33 balance after the first payment
Texas is a lien theory state whereby the owner, not the lender, holds title to the
property. The owner, therefore, has the normal rights of ownership, including
the right to freely rent the property and to retain the rental income even while
property is posted for foreclosure. However, the mortgagor must make timely
repayment of the debt, adequately maintain and insure the property, and avoid
disposing of hazardous waste on the property.
The deed of trust refers to the terms of the note (consideration.) Since it is a
legal document impacting on title to real property (a contract), it must be written
(Statute of Frauds). A critical element to the validity of any legal document is
the legal capacity of the parties. The deed of trust should be signed by all parties
who have an interest in the real estate. The trustee has no interest in the real
estate and does not sign the deed of trust.
Usury laws were enacted to protect borrowers from unscrupulous lenders that
charge unreasonably high interest rates.
Texas recognizes the equitable right of redemption prior to a mortgage
foreclosure sale. The mortgagor may reclaim property forfeited due to mortgage
default at any time prior to the foreclosure sale by paying the full debt plus
interest and costs. There is no statutory right of redemption after foreclosure on
a deed of trust.
If a borrower defaults, the lender has the right, through the acceleration clause,
to accelerate the maturity of the debt; that is, the lender may declare the unpaid
balance of the debt due and payable immediately.
©2014 Kaplan, Inc.
Modern Real Estate Practice in Texas, 16th Edition
11. d
12. b
13. a
14. b
15. c
16. a
17. d
The mortgage instrument for real property in Texas is a three-party instrument
called a deed of trust. When the loan has been repaid, the beneficiary (lender)
named in the deed of trust requests that the trustee convey the property back to
the grantor (borrower) by having the trustee execute a release of lien and deliver
a release deed.
Texas allows nonjudicial foreclosure procedures through the power-of-sale
clause contained in the deed of trust. This clause allows the trustee to foreclose
without going through court proceedings.
Hypothecation is the term used to describe the pledging of property as security
for payment of a loan without giving up possession of the property.
If the real property being foreclosed is the debtor’s residence, Texas requires at
least 20 days notice (not 45) to cure the default before notice of sale can be
given. If a Fannie Mae/Freddie Mac note and deed of trust were used, the
defaulting property owner must be allowed 30 days to cure the default before
the lender can accelerate the note and request the trustee to sell the property.
The deed of trust is a three-party instrument tasking the trustee (through the
power-of-sale clause) with the foreclosure proceedings. In a judicial
foreclosure, the lender’s attorney must file suit and obtain a judgment ordering
foreclosure of the lien. The property would be sold to the highest bidder at a
public sale (as with a deed of trust foreclosure).
The borrower is the trustor. The “or” (trustor, borrower) gives the deed of trust
to the “ee” (trustee).
The alienation clause, or due-on-sale clause, provides that, on the sale of the
property by the original borrower to a buyer who wants to assume the loan, the
lender has the choice of either declaring the entire loan balance immediately due
and payable or permitting the buyer to assume the loan at current market interest
rates.
©2014 Kaplan, Inc.