Check Your Understanding Answers
- What is California’s position regarding late payments on a loan?
California Civil Code states late fees cannot exceed 6% of the payment due, and a 10-day grace period is required before late fees can be charged.
- Describe a lock-in clause.
A lock-in clause is a very drastic form of a prepayment clause which actually prohibits the borrower from paying the mortgage loan in full before a specific date.
- What is the main advantage and what is the main disadvantage to a borrower to purchase a property “subject to” the mortgage?
Advantage: The borrower cannot be held personally liable for the amount of the debt he or she assumed. The original owners are still personally and legally responsible for the loan and they may be held liable for any deficiency judgment that could be the result of a foreclosure sale.
Disadvantage: The borrower risks losing all the equity he or she has in the property.
- What types of transactions often include a release clause?
This clause is often used when two or more properties are pledged as collateral for a single loan, such as transactions that involve land development.
