Real Estate Financing and Mortgages
What the exam tests
Real Estate Financing and Mortgages tests loan instruments, lien priority, foreclosure, loan types, and consumer financing disclosures. Expect questions that distinguish the note from the mortgage and identify which lien wins.
Core rules
- The promissory note is the borrower’s personal obligation; the mortgage is the security instrument that creates a lien on real property.
- Pennsylvania foreclosure is judicial; the mortgagee files a complaint and obtains a sheriff’s sale. A deed in lieu of foreclosure avoids the sale but requires careful title review.
- Priority generally follows recording order; a purchase-money mortgage recorded with the deed usually has priority over later liens, while a later HELOC may be subordinate.
- Common loan types include fixed-rate, adjustable-rate, FHA, VA, and conventional; each has underwriting and occupancy rules.
- RESPA and TILA require Loan Estimate and Closing Disclosure disclosures; escrow, PMI, and servicing transfer rules apply.
Worked example
A buyer records a purchase-money mortgage for $320,000 at closing. Six months later the buyer records a home equity line of credit for $40,000. The purchase-money mortgage has priority because it was recorded first and the HELOC lender had constructive notice. If the buyer defaults, the first mortgage is paid before the HELOC from foreclosure proceeds.
Traps that cost marks
Do not say the mortgage creates personal liability; the note does. Do not assume Pennsylvania is a nonjudicial foreclosure state. Do not confuse prequalification with a commitment. Do not ignore due-on-sale clauses when advising about assumability.