Chapter 4 of 158% of exam
Financing
Financing makes most purchases possible, so licensees must understand loan instruments and default remedies. Loan structure affects the entire transaction.
Loan Instruments and Default
A mortgage or deed of trust secures a promissory note against the property. If a borrower defaults, the lender may accelerate the debt and pursue foreclosure to force a sale. The borrower's equity of redemption allows reclaiming the property by paying the debt within allowed time.
Assumptions and Novation
A buyer may assume an existing loan, taking over payments, but the original borrower can remain secondarily liable. A novation substitutes the buyer for the seller with the lender's consent, releasing the seller. Federal lending laws such as Regulation Z and ECOA govern disclosures and prohibit discrimination.