B. ALIENATION CLAUSE:

This was discussed above in item #A. Borrower no longer has an interest in the property. If a borrower alienates him or herself from a property (sells it and no longer has any interest in the property, he or she is now alien to the title) the lender can force full payment of the loan at that time. It doesn’t matter if the loan has 25 years left, the borrower alienates him or herself from a property it is now, immediately due and payable in full

C. ASSUMPTION:

If the lender allows a buyer to take over responsibility for a loan and releases the original borrower from any liability, this is considered a full assumption. Lenders have the right to qualify a buyer’s financial, credit history, and anything the lender would use to approve a buyer for financing. Lenders may also charge fees, charge loan points for this assumption. If a seller wishes to be released from all liability for a loan, the seller must make sure a Novation Agreement is prepared by the lender releasing the original borrower (seller) from liability. If there is no Novation agreement, the seller will still be secondarily liable for the loan. This means that if the lender can not get money from the new buyer the lender can sue the seller. A Novation is very, very important for a seller. Licensees must be sure that sellers understand this situation. SUBJECT TO means a buyer makes the payments on a seller’s loan. The seller is still responsible for payment. It is generally not allowed in California. Most individuals when purchasing property do not assume or take loans subject to. They obtain new financing.

D. SUBORDINATION CLAUSE: This is a clause normally used when someone purchases a vacant parcel of land. The original seller carries back financing until the buyer is ready to build on the property. At this point the buyer obtains a “construction loan” to pay for the construction. Lenders do not like to be placed in a secondary position (2nd trust deed) and require that the first loan be paid off in order for the lender to become the first trust deed. Buyers usually don’t want to invest the money needed to pay off existing loans. The buyers arrange with the seller that upon obtaining the new construction loan, the seller will allow his loan to become subordinate, or second, to the new construction, or other type of loan. This is agreed upon during the original negotiations of the purchase and a “subordination agreement, or clause,” is included as part of the original agreement. Then, when the construction loan is obtained it is an easy matter to change the order of the loans. The subordination clause allows for subordination of the existing financing and the new loan takes priority in the future.

E. PREPAYMENT PENALTIES: A prepayment penalty is a charge for paying a loan off early. Lenders generally charge six (6) months, but it can be longer, interest to pay the loan off early. Penalties are covered in detail in the text. They were very popular from 1950 to 1980 where competition forced the lenders to stop charging them or lose customers. They are making a comeback and are becoming popular with Adjustable Rate loans and starting to creep into Fixed Rate loans as well.

F. IMPOUND ACCOUNTS: An impound account is a forced savings account for property taxes and insurance. Borrowers with less than twenty (20) percent down are required to make a monthly payment of 1/12 of annual property taxes and insurance charges to a special account to insure that the taxes and insurance will be paid. This is added to the normal principal and interest payment. We refer to it as: P.I.T.I (principal, interest, taxes and insurance) payment. Lenders call these “escrow accounts.” They are collecting and holding funds to pay something at a later date. They are in escrow, a neutral account as far as the bank is concerned. They can pay up to two percent (2%) interest on an escrow/impound, but not all lenders do.

G. ASSIGNMENT OF RENTS: When a borrow defaults on a loan, the lender is not receiving any money. Within a trust deed is a paragraph stating that a lender may contact tenants and collect the rents from them and apply the income to the payment due until a foreclose takes place. This clause is strictly for the benefit of a lender.

SPECIAL PURPOSE TYPES OF LOANS:
1. Graduated Payment Mortgage. A GPM loan is a type of loan where the initial interest rate is fixed (doesn’t change) at a certain amount but the beginning payments levels are set at a lower interest rate. For example; the true rate for a loan is eight percent and the payment starts at a three percent amount for the first year, four percent for the second year, and five percent for the third year. The payment rate increases by one percent until the true rate is achieved. The payments “graduate” until the full payment covers all interest due. During the period of time when the payments are lower and increase yearly the loan is a “negative” amortized loan. The difference between the payment and the interest due is added to the principal balance. Usually, after five years the borrower owes approximately five percent more than at the start of the loan. This is a good loan for first time borrowers who know their income will be increasing and it allows them to obtain housing now and when the loan reaches the full interest the borrowers will be able to handle the full payment amount.
2. Biweekly Mortgage. Instead of making one payment a month, a borrower will pay one half of the payment every two weeks. The borrower will make twenty six payments instead of twelve. This is a loan designed for those who receive paychecks every two weeks and allows them to budget for their loan obligation. As a side benefit, the loan actually pays off sooner because a teeny, tiny extra amount of principal is paid over the course of twenty six payments.
3. Fifteen (15) year Fixed and Adjustable Rate Loans. Instead of amortizing the payments over a thirty year period (360 payments), a fifteen year loan is amortized over fifteen years (180 payments). The fifteen year payments are higher but not twice as much and the loan is completed much more quickly.
4. Reverse Annuity Loans. These have been created for those  sixty two years of age and over. It is exactly what it says; the bank makes the payments to the borrower monthly instead of in one large amount. These act like an income source for the senior who receives a monthly check. The amount of money paid to the senior is all due and payable when the senior moves, dies or somehow vacates the property. Most lenders use a special FHA program for this purpose although a few lenders are creating their own reverse annuity programs for seniors.

Title I manufactured home loans are not Government loans or grants, and are not low interest rate loans. The interest rate is fixed and is generally based upon the prevailing market rate in the area at the time the loan is made. FHA does not lend money.

Purpose of the Loan

A Title I loan may be used for the purchase or refinancing of a manufactured home, a developed lot on which to place a manufactured home, or a manufactured home and lot in combination. The home must be used as the principal residence of the borrowers.

Maximum Loan Amount

• manufactured home only — $48,600
• manufactured home lot — $16,200
• manufactured home & lot — $64,800

The dollar limits for lot loans and combination loans may be increased up to 85 percent in designated high-cost areas. For further information on high-cost area limits, contact the local HUD field office.

Maximum Loan Term

• 20 years for a loan on a manufactured home or on a single-section manufactured home and lot.
• 15 years for a manufactured home lot loan.
• 25 years for a loan on a multi-section manufactured home and lot.

Manufactured homes are usually purchased through dealers or retailers that sell the homes. The names of lenders in your area which specialize in financing manufactured homes can be obtained from local retailers. These retailers are listed in the yellow pages of your telephone directory. They have the required application forms. FHA neither loans money nor gives grants to purchase homes. Also, manufactured homes must comply with the National Manufactured Home Construction and Safety Standards. The approved FHA lender can explain the mortgage credit and income eligibility requirements to qualify for a loan.

Consumer Protection

HUD provides two types of consumer protection. The borrower must sign a HUD Placement Certificate agreeing that the home has been installed and set-up to their satisfaction by the retailer before the lender can give the loan proceeds to the retailer. After moving in, the borrower can call HUD at (800) 927‑2891 to get assistance about the problems with construction of the home.

Eligible Borrowers Must:

• Have sufficient funds on hand to make the minimum required downpayment of 5 percent.
• Be able to demonstrate that they have adequate income to make the payments on the loan and meet their other expenses.
• Intend to use the manufactured home as their principal residence.
• Have a suitable site on which to place the manufactured home. The home may be placed on a rental site in manufactured home park, or on an individual homesite owned or leased by the borrowers.

An Eligible Manufactured Home Must:

• Meet the National Manufactured Home Construction and Safety Standards.
• Carry a one-year manufacturers warranty if it is a new manufactured home.
• Be installed on a homesite that meets established local standards for site suitability and has adequate water supply and sewage disposal facilities available.

The proceeds of a Title I manufactured home loan may not be used to finance furniture (for example, beds, chairs, sofas, lamps, rugs, etc.). However, built-in appliances and equipment and wall-to-wall carpeting are eligible for financing.

Equal Opportunity in Housing

The Fair Housing Act prohibits discrimination in housing and related transactions–including mortgages and home improvement loans. Lenders may not deny funds or offer less favorable terms and conditions in lending on the basis of the borrowers race, color, religion, sex, national origin, familial status (i.e., the presence or number of children in a household) or disability. In addition, lending decisions may not be based on the race, color, sex, religion, national origin, familial status or disabilities of persons associated with the borrower or with the area surrounding the property. If you believe you have been the victim of discrimination in mortgage lending on one of the prohibited bases, you may file a fair housing complaint by contacting a local fair housing advocacy group, the Office of Human Rights for your state or local government, or by calling the national Fair Housing Hotline at (800) 669‑9777 or TTY: (800) 927‑9275.