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Reliance on borrowed capital more than on equity funds would be known as the use of

secondary mortgage markets. hypothecation. disintermediation. leverage.

The real estate cycle begins anew when

supply equals demand. supply exceeds demand. demand exceeds supply. supply and demand are ignored.

demand exceeds supply.

A fundamental aspect of real estate finance is the ability of borrowers to remain in possession and control of their property. This is defined as

a lien. collateral. leverage. hypothecation.

hypothecation.

Real estate finance is basically a manifestation of our

supply and demand economic system. ability to pay cash for our property. government sponsored home ownership program. credit system economy.

credit system economy.

One way to increase a property’s value without adding any physical improvements is to

lease it. rezone it. sell it. refinance it.

The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) was designed to

minimize the potential for fraudulent lending activities. control interstate real estate transactions. reduce the popularity of adjustable rate mortgages. eliminate the use of leverage in real estate investing.

minimize the potential for fraudulent lending activities.

The fact that a 1,500 square foot house sells for $300,000 in Los Angeles, $85,000 in Fresno, and $45,000 in El Centro is based on the property’s fixity and its being subject to the economies of which of the following markets?

Local International National Regional

Lenders having a cash surplus in a low demand area would most likely

lower interest on deposits to reduce their surplus. purchase loans in the secondary market. raise the interest rates on new loans to raise profits. sell loans in t

purchase loans in the secondary market.

Disintermediation occurs when

savings withdrawals exceed savings deposits. healthy banks acquire defunct thrift institutions. the nation’s rate of savings declines. supply exceeds demands.

savings withdrawals exceed savings deposits.

The demographics of a real estate cycle would probably include all of the following inputs except the population’s

ages. location. family structure. religion.

Economic stability is linked with the supply and costs of money. Thus, all of the following statements are correct, except the

lower the costs of money, the greater the economic activity. more money in circulation, the greater the economic activity. higher the costs of money, the greater the economic activity. less money in circulation, the less the economic activity.

higher the costs of money, the greater the economic activity.

The Federal Reserve is

controlled by the Federal Deposit Insurance Corporation. under the Department of Housing and Urban Development. a central banking system. a public stock corporation.

a central banking system.

decrease financial activities.

Deposits in banks and thrifts are insured by the

CLIC. SAIF. OTS. FDIC.

provides its members with a national market for their securities. p.52

All of the following statements about the FDIC are true, except that it

may merge failed institutions with other institutions. has been eliminated. controls the Deposit Insurance Fund. insures depositors accounts.

Has been eliminated

The California Bureau of Real Estate

deals with franchising of businesses. settles commission disputes. investigates complaints against licensees. provides legal advice to complainants.

investigates complaints against licensees.

The Federal Reserve is currently responsible for all of the following operations except

counteracting inflationary and deflationary movements. stabilizing values. maintaining sound credit conditions. printing money.

Printing money

From an economic theory point of view, money can best be described as a

value unto itself. standard of value. commodity. measurement of inflation.

Standard of value

Federal Deposit Insurance Corporation.

Commercial banks tend to make loans for

construction activities. mobile homes. the purchase of land. subdivision improvements.

Construction activities

The pension funds tend to invest in which of the following types of real estate investments?

Mortgage-backed securities Personal property loans Farm loans Home loans

Mortgage-backed securities

State-chartered savings and loan associations regulated by the California Department of Savings and Loans are authorized to lend up to what percent of the appraised value of the collateral for a real estate mortgage loan?

100% 70% 80% 90%

Life insurance companies become partners with project developers through the use of commercial loans called

participation loans. home purchase loans. bridge loans. home equity loans.

Participation loans

Which of the following institutional lenders is increasing its participation in real estate finance?

Thrifts Credit unions Life insurance companies Commercial banks

Credit unions

All of the following sources of funds for real estate finance are considered financial intermediaries except

savings institutions. commercial banks. sellers as lenders. life insurance companies.

Sellers as lenders

Which of the following statements is true regarding life insurance companies?

Their costs of funds are higher than other fiduciaries. Their lending policies are subject to federal control. They are more concerned with safety than with liquidity. They prefer small loans for diversity.

They are more concerned with safety than with liquidity.

Savings institutions, major providers of home mortgage loans, are also referred to as

co-ops. credit unions. trusts. thrifts.

The department in a commercial bank that manages relatively large quantities of money and property for their beneficiaries is the

escrow department. treasury department. mortgage-lending department trust department.

Trust department

Which institutional lender has the most flexibility in mortgage lending activities?

thrifts. credit unions. life insurance companies. commercial banks.

Mortgage banking services include providing

trust departments. savings accounts. checking accounts. real estate loans.

Real estate loans

Mortgage brokers assume a large part of the responsibility for

appraisals. loan underwriting. insuring loans. qualifying borrowers.

Qualifying Borrowers

Mortgage brokers earn most of their profits from

collection fees. loan interest. placement charges. insurance premiums.

Placement charges

Mortgage bankers

specialize in commercial lending. manage real estate loans. originate home mortgage loans. match borrowers with lenders.

Manage real estate loans

Individuals participate as lenders in real estate mainly by creating

senior loans. junior loans. insured loans. guaranteed loans.

junior loans.

The payments on revenue bonds come from

income from developments. property taxes. income taxes. special assessments.

income from developments.

Private loan companies deal mainly in

senior financing. FHA-insured home loans. junior financing. owner carry-back loans.

Junior financing

Real estate investment trusts are created for all of the following reasons except to

limit personal liability. pool funds for larger investments. avoid double taxation. avoid probate costs.

Avoid probate costs

The payment for the entire amount of principal due at the end of a mortgage loan term is called a(n)

zero coupon. equity. balloon. balance.

All of the following terms are associated with a syndicate except

limited partner. active income. general partner. blue-sky laws.

Active income

A veteran’s total monthly obligations equal $1,500. What is the gross monthly income required to qualify for the loan?

$5,172 $4,166 $3,658 $1,500

The FHA is responsible for which of the following actions?

Guaranteeing new loans Issuing new loans Refinancing existing loans Insuring new loans

Insuring new loans

All of the following statements describe the advantages of the FHA, except:

there are different loan types. they have high L/V ratios. it has lower than market interest rates. there is no prepayment penalties.

it has lower than market interest rates.

According to Fannie Mae and Freddie Mac guidelines, private mortgage insurance is required on conventional loans when the loan-to-value ratio is in excess of

20% 80% 40% 60%

Which document stipulates the DVA loan amount that establishes the maximum loan available on a specific property?

Certificate of entitlement Certificate of eligibility Borrowers’ financial statement Certificate of reasonable value

Certificate of reasonable value

Most loans today are

DVA loans. FHA loans. owner carry-back loans. conventional loans.

conventional loans.

The FHA allows second mortgages to be acquired on the collateral property, but the second mortgage must not contain

maturities in excess of five years. variable payments. a prepayment penalty. loan-to-value limits.

A prepayment penalty

Under the CAL-VET program, during the period that the veteran is living in the home and making payments, the veteran

is party to a land contract. has full legal title. has no equitable interest in the property. is a tenant in a leasehold estate.

Is party to a land contract

Property serving as collateral for an FHA-insured loan

cannot be valued at $250,000 or above. must meet certain minimum standards of acceptability. need not be appraised must be located within a 50-mile radius of the lender.

must meet certain minimum standards of acceptability

A conventional guaranteed loan may be insured by

a private insurance company. the DVA. the FHA. a title insurance company.

A private insurance company

All of the following developments are exempt from the provisions of the Interstate Land Sales Full Disclosure Act except

residential subdivisions sold exclusively in one state. cemetery land. subdivisions of 25 or more lots to be sold nationally. subdivisions of five acres or more.

subdivisions of 25 or more lots to be sold nationally.

Farm and ranch loans are unique types of real estate finance because their success depends to a large degree on the

nation’s economic circumstances. borrower’s credit. property’s productivity. local zoning ordinances.

Property’s productivity

The Department of Housing and Urban Development includes all of the following functions except the

management of the FHA. Supervision of the FDIC. supervisor of the GNMA. member of the President’s cabinet.

Supervision of the FDIC

The required property reports delivered to potential buyers of lots in subdivisions under HUD’s jurisdiction must include information on all of the following items except

roads. schools. churches. utilities.

The Community Reinvestment Act is designed primarily to

require banks to meet the needs of all residents in the neighborhoods. require banks to make subprime loans. require banks to make low interest rate loans. finance urban renewal projects.

require banks to meet the needs of all residents in the neighborhoods.

Which of the following types of loans is NOT exempt from California’s usury ceilings?

Credit union loans Loans from real estate brokers secured by real property Business loans Mortgage loans made by savings associations

Business loans

The USDA Rural Development Program aims to

reverse the trend of job loss. protect rural areas from rezoning. restrict the import of agricultural products. stabilize credit costs to ranchers.

reverse the trend of job loss.

The federal regulator of the Farm Credit System is the

U.S. Treasury. Department of Housing and Urban Development. Farm Credit Administration. Farmers Home Administration.

Farm Credit Administration.

Community Redevelopment Agencies are sometimes funded by which of the following programs?

State income taxes Tax-increment financing Rental overrides Federal income tax rebates

Tax-increment financing

Which of the following entities controls the Farm Credit System?

Its members HUD The Fed The U.S. Treasury

It’s members

Lenders solicit borrowers for home equity loans because they can mitigate the risks of these loans by controlling the interest rate and

periodically checking the value of the collateral. requiring private loan insurance. obtaining priority lien position. limiting loan terms to 12 months.

periodically checking the value of the collateral.

Equity in one’s home is generally acquired through a paydown of the first mortgage balance or a(n)

decrease in the property’s value. decrease in general interest rates. increase in general interest rates. increase in the property’s value.

increase in the property’s value.

When home equity loans become due, borrowers usually

sell their property. refinance the entire property. have adequate funds to repay both loans. seek junior loans.

refinance the entire property.

Some lenders provide combinations of first and second mortgages which are known as

split loans. piggy-back loans. jumbo loans. convertible loans.

Piggy-back loans

A lifting clause in a junior loan contract allows the

borrower to refinance without disturbing the status of the junior loan. lender to raise the interest rates periodically. borrower to sell the property subject to the balance of the loan. lender to sell the loans.

borrower to refinance without disturbing the status of the junior loan.

Unlike other types of home equity loans, home improvement loans may have

longer repayment terms. lower-than-market interest rates senior lien position. no collateral requirements.

Longer repayment terms

Land developers sometimes use junior financing to pay for

foreclosed property. unimproved land. offsite improvements. their own offices.

Offsite improvements

A property seller may choose to carry back a portion of the sale price when the buyer

pays for private mortgage insurance. does not qualify for a conventional mortgage loan. has another outstanding mortgage . has insufficient cash for the entire down payment.

has insufficient cash for the entire down payment.

Home equity loans are popular among borrowers because the interest they pay on these loans is

limited by federal usury laws. deductible on federal income taxes. limited by federal and California state usury laws. exempt from federal income taxes.

deductible on federal income taxes.

The risk inherent in junior finance is that the

collateral property value will increase over time. owner of the property will sell it before the junior loan is repaid. underlying loan will be repaid before the junior loan. senior lender will get all the money at a foreclosure.

senior lender will get all the money at a foreclosure.

A completion bond for a construction loan is generally issued by

municipal governments. a savings and loan. an insurance company. Freddie Mac.

An insurance company

When two or more properties are pledged as collateral for one loan, one of the properties may be removed from the obligation through the loan contract’s

blanket mortgage. completion bond. lease-option. release clause.

release clause.

Borrowers are attracted to 15-year mortgages because they allow them to

save money on interest. suspend making payments for two-month periods. borrow with zero downpayments. qualify with even poor credit history.

save money on interest.

A three-year adjustable-rate loan

has annual interest rate adjustments for three years. must be renewed every three years. has its interest adjusted every three years. is due in full in three years.

has its interest adjusted every three years.

A graduated payment loan with less than interest-only payments results in

negative amortization. a high risk of default. the interest rate being adjusted frequently. the principal balance being reduced quickly.

Negative amortization

A construction lender requires all of the following activities to take place before advancing any draws except that the

lender will inspect the construction to confirm that it conforms with the plans and specifications. builder will provide a take-out commitment for a permanent loan. builder will deliver lien waivers for the work accomplished during the period. builder will pay additional points at each draw to offset the time value of money.

builder will pay additional points at each draw to offset the time value of money. p.229

Under HUD’s Home Equity Conversion Mortgage, monthly payments are paid to borrowers for

as long as equity is available. ten years. as long as they live in the home. five years.

as long as they live in the home.

Under an open-end loan calling for obligatory future advances, the borrower is able to secure additional funds

only after the original loan advance is repaid. under the terms of the original mortgage. through a piggy-back loan at a higher interest rate. by signing an addendum to the mortgage.

under the terms of the original mortgage.

An adjustable rate loan drawn at 8% with an annual interest rate cap of 2% and an overall interest rate cap of 4% can be adjusted to which of the following rates in the second year?

8% 12% 11% 10%

The initial interest rate is 8%. It can only have a 2% max increase annually. Therefore, the first year is 8%, the second year can be increased by 2%, making it 10% total.

A lender’s annual return on a $100,000 wraparound loan drawn at 10% interest-only for five years, subject to an existing $65,000 loan at 7.5% interest is

p.235 Step 1. The lender’s return (profit) of 100K at 10%, however they have existing loan (debt) of 65K at 7.5%

Step 2. Let’s take the 65K. Although they are paying 7.5 (debt) on this 65K, they are also receiving 10% (profit) on it. The difference is 2.5% profit on the 65K (10%-7.5%=2.5%), written as: 65,000 × 0.025 = 1,625

Step 3. We figured the profit for the 65K, now we will calculate the profit for the remaining balance of the total 100K (100K-65K= 35K). This remaining 35K is receiving a full 10%, written as: 35,000 × 0.10 = 3,500

Step 4. Add both profits. Reminder, the first 65K at 7.5% debt is covered (blanket) by the 10% profit, leaving only 2.5% of profit for the 65K. The remaining 35K receives the full 10%. 3,500 + 1,625 = 5,125

Step 5. That additional 35K that the lender provided will bring them a return of $5125. The percent of return would be written as $5,125/35K $5125 divided by 35K= 0.1464= 14.64%

The inclusion of a Due-On-Sale clause in a loan contract

requires the owners to subordinate to a new loan. is now prohibited by law. requires the lender’s permission for its assumption. creates an agreement for future advances.

requires the lender’s permission for its assumption.

A charge against a property wherein the property itself is made security for the performance of a certain act describes a(n)

lease. easement. lien. license.

The note executed for a loan

is a lien on real property. requires an accompanying mortgage. is a recordable instrument. is a fully enforceable promise to pay.

is a fully enforceable promise to pay.

A Covenant of Seisin in a loan document

stipulates that the borrower has the authority to pledge the property as collateral. eliminates the statutory redemption period. allows the lender to dispossess a delinquent borrower. accelerates the loan balance in a default.

stipulates that the borrower has the authority to pledge the property as collateral.

When a property is purchased ”subject-to” the balance of an existing loan, all of the following statements are true except that the

loan terms remain the same. buyer becomes personally liable for the loan. buyer must now make the loan payments. seller remains personally liable for the loan.

buyer becomes personally liable for the loan.

A mortgage is a(n)

promise to pay. lien on the property. right in a property held by one who is not the legal owner of the property. right in a property being held by one party for the benefit of another.

lien on the property.

Where possible, lenders prefer to use the deed of trust as a financing instrument primarily because it

transfers legal ownership to the beneficiary. allows the loan to be paid off sooner. avoids the time and costs of a judicial foreclosure. allows a higher rate of interest to be charged.

avoids the time and costs of a judicial foreclosure.

Covenants that “run with the land” mean that they

must be renewed each time title changes. expire automatically when a home is built on the land. expire when the land is sold. endure no matter how many times the property sells.

endure no matter how many times the property sells.

The power of sale clause in a trust deed in a nonjudicial foreclosure allows the lender

a share in the delinquent borrower’s other assets. a lien against the property. a shorter foreclosure period. immediate title upon the borrower’s default.

a shorter foreclosure period.

The provisions of a real property sales contract

allow the vendor to charge a high rate of interest to offset the risks involved. retain title in the name of the vendor. prohibit the vendee from selling the collateral. pass legal title to the vendee.

retain title in the name of the vendor.

Credit scoring reflects a borrower’s

willingness to repay. preferences regarding borrowing. credit risk factors. financial and social habits.

Credit risk factors

Underwriting a loan for real estate finance includes all of the following procedures except checking the

borrower’s ability to make payments. borrower’s past credit history. value of the property being pledged as collateral. willingness of the lender to make the loan.

willingness of the lender to make the loan.

Under a conventional loan with principal, interest, taxes, insurance, and homeowners fees totaling $850 per month, a borrower must earn at least which of the following gross monthly incomes to qualify (refer to the table on page 324 in your Finance textbook)?

$2,361 $2,073 $3,035 $2,931

What is meant by the phrase “net worth is anything you want it to be, while cash is king”?

Net worth is the determining factor in credit evaluation. Value is in the eye of the beholder. Lenders place great weight upon a borrower’s cash position. Assets must exceed liabilities.

Lenders place great weight upon a borrower’s cash position.

Borrowers are considered good credit risks and eligible for real estate loans when their

liabilities exceed their assets. assets equal their liabilities. current ratio is 2:1. assets are increasing compared to their liabilities.

current ratio is 2:1.

When creating a loan for 50 percent of a collateral property’s value, most of the underwriting will be focused on the

borrower’s past credit history. property’s location. value of the collateral. borrower’s ability to pay.

value of the collateral.

The income approach estimate of value for an apartment project generating $200,000 gross annual income with a total of 40% used for operating expenses and a 10% market capitalization rate is

$80,000. $120,000. $1.2 million. $2.0 million.

$1.2 million

p.306 $200,000 X 40% = $80,000 operating expenses.

$200,000 – $80,000 = $120,000 Net Operating Income

(Formula on pg. 306): Value = Net Income / Capitalization rate

$120,000/10% = $1,200,000 Answer as stated is correct.)

In the example on page 306 , Operating Ratio Reciprocal (55%) merely states the percentage of expenses that are deducted from Gross Annual Income (maximum income) to arrive at the Net Operating Income. As an aside, many investors look at the percentage of Operating Ratio Reciprocal, looking for it to not exceed more than a certain percentage that they would be comfortable with before purchasing income property. The 10% capitalization rate is the required rate of return hoped for by the potential investor.

When checking on a loan applicant’s employment circumstances, all of the following items will be questioned except

length of employment. wages. job qualifications. prognosis for continued employment.

Job qualification

The cost approach estimate of the value of a 10-year old house (50-year life expectancy, straight line depreciation), with 2,500 square feet at an $82 replacement cost per square foot, and a lot value of $15,000 is

$15,000. $164,000. $205,000. $179,000.

If an appraiser finds that the market, cost, and income approaches indicate values of $100,000, $105,000 and $110,000, and they are weighted 50%, 30% and 20% respectively, then the reconciliation value will be

$105,000. $103,500. $110,000. $100,000.

The two-point discount on the sale of a $175,000 home subject to a new $150,000 loan is

$300. $3,500. $350. $3,000.

Which of the following items is usually charged to the buyer?

Impound fund balance on assumed loan Proration of unpaid property taxes Documentary transfer tax Owner’s title policy premium

Impound fund balance on assumed loan

In real estate finance, an abstract is a(n)

plot plan of a parcel of land. opinion of title. title insurance policy. synopsis of the recorded history of a property.

synopsis of the recorded history of a property.

In order to remove a cloud from a property’s title, the owner must file a(n)

suit to quiet title. lis pendens suit. eviction suit. suit to foreclose.

Suit to quiet title

If the property taxes and insurance premiums are due in November and a new loan closes on the following first day of January, how many months’ impounds will be charged to the borrower?

3 months 9 months 2 months 6 months

In the real estate lending business, assignment refers to

sale of a loan on the secondary market. changing the interest rate on a loan. substitution of one borrower for another. transferring the servicing of a loan.

sale of a loan on the secondary market.

Title insurance guarantees the validity and accuracy of the

title search. real estate transfer disclosures. borrower’s loan application. homeowner’s insurance policy.

Title search

All of the following items are categorized as actual notices except a(n)

tenant in possession. recorded lien. unrecorded lien. encroachment.

Unrecorded lien

Which of the following amounts is the interest adjustment on a new $100,000 loan at 7% issued on March 20th, if the first payment is not due until May 1? (Use 360 days)

The reason for the use of 41 days is that “mortgage interest payments are normally paid in arrears.” (Please See page 341 of California Real Estate Finance, ninth edition, paragraph entitled Interest Adjustments). Thus, add the 11 days for March, and the 30 days for April totaling 41 days times $19.4444, daily proration, equals $797.22 interest adjustment. The first full mortgage payment is not due until May 1st and that payment is for the 30 days in May (in arrears).

Which of the following items is usually charged to the seller?

Loan origination fees Lender’s title policy Proration of prepaid insurance premiums Prepayment penalties

Prepayment penalties

Freddie Mac is a(n)

sub-agency of the DVA. originator of junior loans. insuring agency of the FHA. secondary market player.

secondary market player.

When Fannie Mae purchases mortgage loans from lending institutions, they are packaged into

debentures. mortgage-backed securities. real estate mortgage investment conduits. pass-through certificates.

mortgage-backed securities.

Which agency guarantees that investors will receive timely payments of principal and interest on mortgage-backed securities backed by the FHA or DVA?

Freddie Mac Fannie Mae Federal Home Loan Bank Ginnie Mae

Which of the following types of loans do lenders generally keep in their own investment portfolios rather than sell on the secondary market?

Adjustable-rate Jumbo Reverse mortgage Conventional

The Federal Housing Finance Agency (FHFA) regulates

HUD, FHA, and Cal-Vet. HUD, FHA, and the Federal Reserve. Fannie Mae, Freddie Mac, and the FHLB. FHLB, FHA, and DVA.

Fannie Mae, Freddie Mac, and the FHLB.

Loan originators that sell mortgages to Fannie Mae can

continue to count the loans as assets in their portfolios. follow their own underwriting standards. repurchase the loans at a later date. continue to service the loans.

continue to service the loans.

Fannie Mae is a

a quasi-private corporation with government oversight government agency regulated by the Fed. branch of the U.S. Treasury. sub-agency of HUD.

A quasi-private corporation with government oversight

Fannie Mae currently buys loans at

par. a free market auction. an administered price. a premium.

An administered price

All of the following agencies are participants in the secondary mortgage market except

CalHFA. Fannie Mae. Freddie Mac. Ginnie Mae.

The term used to describe loans that conform to the Fannie Mae/Freddie Mac qualifying guidelines is

regular. conforming. standard. conventional.

After a foreclosure of an FHA insured loan, the lender will receive compensation in the form of

10% of the balance owed. 5% of the balance owed. the balance owed plus costs. title to the property.

the balance owed plus costs.

Recasting a real estate loan involves all of the following activities except

clearing any mechanic’s or materialman’s liens. forgiving any delinquent payments. designing a new loan to take the place of the old. clearing any junior liens.

forgiving any delinquent payments.

Most foreclosures occur as a result of the nonpayment of

insurance premiums. principal and interest. needed repairs. property taxes.

principal and interest.

Under a DVA foreclosure, the lender usually recovers the

top portion of the loan balance. property’s title. full amount of the loan balance. nothing.

top portion of the loan balance.

In California, borrowers pay a fee for a service company that track the borrowers’ payments of

hazard insurance premiums. utility payments. private mortgage insurance. property taxes.

property taxes.

A judicial foreclosure involves all of the following actions except

lis pendens. strict forfeiture. judgment decree. public auction.

Strict forfeiture

Prior to actually foreclosing, many lenders attempt all of the following strategies except a(n)

payment moratorium. workout. advance of more funds. loan recasting.

advance of more funds.

The clause in a real estate loan that triggers a foreclosure in the event of a default is the

acceleration clause. escalation clause. call clause. due-on-sale clause.

acceleration clause.

As a practical matter, a foreclosure should occur only when the I. market value of the collateral is less than the balance of the loan. II. borrowers can no longer make the payments.

Both I and II Neither I nor II I only II only

Both I and II

A Deed in Lieu of Foreclosure accepted by the lender

ends the borrower’s liability to the rights of third parties having an interest in the property. completely clears the borrower’s credit record. is valid to avoid the inclusion of the property as an asset in a bankruptcy. ends the borrower’s liability for the loan balance.

ends the borrower’s liability for the loan balance.

In an equity participation agreement, lenders assume a second role as

tenant. insurer. owner. manager.

Under a split-fee financing agreement, a lender purchases land, leases it to a developer, and then

shares development and management decisions. sells it to the developer at the end of the lease term. finances the improvements to be constructed. sells securities representing interests in the development.

finances the improvements to be constructed.

The portion of realized capital gain that is subject to income tax in the year received is called

liability gain. net gain. recognized capital gain. retained capital gain.

Recognized capital gain

A sale-leaseback offers the property owner an opportunity to

avoid paying real estate transfer fees. retain ownership over the property. refinance at a lower interest rate. free capital for other investments.

free capital for other investments.

Investors who use pyramiding anticipate that the

demand for property will decline. lender will consolidate loans. interest rates will fall. original property will increase in value.

original property will increase in value.

In real estate finance, a kicker refers to a(n)

discount. low interest rate. bonus payment. unseen risk.

bonus payment.

If the lease in a sale-leaseback is written for 30 years or longer, the IRS tends to consider the transaction a(n)

equity participation. 1031 exchange. seller refinance. prohibited transaction.

1031 exchange

Money acquired by refinancing is

subject to capital gains tax. not taxable until the property is sold. subject to taxes upon the completion of the refinance process. subject to ordinary income tax .

not taxable until the property is sold.

An investor who periodically refinances owned properties and then uses proceeds from the new loans to purchase new properties is

exchanging. pyramiding. prorating. split-fee financing.

A seller might refinance a property prior to a planned sale in order to secure a loan

with an adjustable rate of interest. that can be assumed by the buyer. with a lower interest rate. that requires a lower down payment.

that can be assumed by the buyer.

Which of the following single deposits must be made to accumulate $10,000 in five years at 8% interest (refer to the table on page 450 of the Finance textbook)?

$2,504.57 $6,000.00 $6,805.96 $1,704.56

Using the rule-of-thumb approach, which of the following amounts will a 15% investor pay for a one-year old, three-year loan for $10,000 payable at 10% interest only?

$10,000 $9,000 $8,500 $7,000

p.When buying a loan, sometimes referred to as paper, the rule-of-thumb approach states, “take the difference of the nominal interest rate (the interest rate named on the loan) and the expected rate (the discount rate) and multiply it by the number of years the loan has to run.” (page 446) Pg. 446 The difference between the nominal rate of 10% and the discount rate of 15% is 5%. The loan has two years remaining. Five percent difference times two years = 10% discount factor. Ten percent times $10,000 = $1,000. $10,000 minus the discount of $1,000 = $9,000. Thus, the investor buys a $10,000 loan for $9,000. However, the borrower must pay back the full amount of the $10,000 loan to the investor. Therein lies the potential for the investor’s profit.

Simple interest is described as interest paid on

interest earned. the total loan. the principal balance only. savings accounts.

the principal balance only.

Which of the following regular annual deposits must be made to accumulate $10,000 in ten years at 8% (refer to the table on page 450 of the Finance textbook)?

$1,000.00 $4,631.98 $1,490.31 $690.29

When points are charged to make a loan, the effective rate of interest is

equal to the nominal rate. reported to Fannie Mae. higher than the nominal rate. lower than the nominal rate.

higher than the nominal rate.

What is the interest portion of the first payment on a $2,500 loan to be repaid in 12 equal monthly payments at 9% interest?

$225.00 $18.75 $208.33 $227.08

The present value of money to be received in the future is worth

more than its face value. less than its face value. whatever the market indicates. exactly its face value.

less than its face value.

Which of the following annual payments is required to amortize a $10,000 loan at 8% interest for 15 years (refer to page 450 of the Finance textbook)?

$368.29 $3,152.48 $1,168.30 $666.66

When employing an add-on interest schedule, the effective rate of interest is

discounted. doubled. waived. halved.

Compound interest is described as interest paid on

the total principal owed. installment loans. interest earned. the principal balance only.

Interest earned

List types of concurrent ownerships.

• Tenants in common
• Partnerships
• Community property
• Community property with right to survivorship
• Joint tenancy

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Mortgage Assignment Laws and Definition

(This may not be the same place you live)

  What is a Mortgage Assignment?

A mortgage is a legal agreement. Under this agreement, a bank or other lending institution provides a loan to an individual seeking to finance a home purchase. The lender is referred to as a creditor. The person who finances the home owes money to the bank, and is referred to as the debtor.

To make money, the bank charges interest on the loan. To ensure the debtor pays the loan, the bank takes a security interest in what the loan is financing — the home itself. If the buyer fails to pay the loan, the bank can take the property through a foreclosure proceeding.

There are two main documents involved in a mortgage agreement. The document setting the financial terms and conditions of repayment is known as the mortgage note. The bank is the owner of the note. The note is secured by the mortgage. This means if the debtor does not make payment on the note, the bank may foreclose on the home. 

The document describing the mortgaged property is called the mortgage agreement. In the mortgage agreement, the debtor agrees to make payments under the note, and agrees that if payment is not made, the bank may institute foreclosure proceedings and take the home as collateral .

An assignment of a mortgage refers to an assignment of the note and assignment of the mortgage agreement. Both the note and the mortgage can be assigned. To assign the note and mortgage is to transfer ownership of the note and mortgage. Once the note is assigned, the person to whom it is assigned, the assignee, can collect payment under the note. 

Assignment of the mortgage agreement occurs when the mortgagee (the bank or lender) transfers its rights under the agreement to another party. That party is referred to as the assignee, and receives the right to enforce the agreement’s terms against the assignor, or debtor (also called the “mortgagor”). 

What are the Requirements for Executing a Mortgage Assignment?

What are some of the benefits and drawbacks of mortgage assignments, are there any defenses to mortgage assignments, do i need to hire an attorney for help with a mortgage assignment.

For a mortgage to be validly assigned, the assignment document (the document formally assigning ownership from one person to another) must contain:

• The current assignor name.
• The name of the assignee.
• The current borrower or borrowers’ names. 
• A description of the mortgage, including date of execution of the mortgage agreement, the amount of the loan that remains, and a reference to where the mortgage was initially recorded. A mortgage is recorded in the office of a county clerk, in an index, typically bearing a volume or page number. The reference to where the mortgage was recorded should include the date of recording, volume, page number, and county of recording.
• A description of the property. The description must be a legal description that unambiguously and completely describes the boundaries of the property.

There are several types of assignments of mortgage. These include a corrective assignment of mortgage, a corporate assignment of mortgage, and a mers assignment of mortgage. A corrective assignment corrects or amends a defect or mistake in the original assignment. A corporate assignment is an assignment of the mortgage from one corporation to another. 

A mers assignment involves the Mortgage Electronic Registration System (MERS). Mortgages often designate MERS as a nominee (agent for) the lender. When the lender assigns a mortgage to MERS, MERS does not actually receive ownership of the note or mortgage agreement. Instead, MERS tracks the mortgage as the mortgage is assigned from bank to bank. 

An advantage of a mortgage assignment is that the assignment permits buyers interested in purchasing a home, to do so without having to obtain a loan from a financial institution. The buyer, through an assignment from the current homeowner, assumes the rights and responsibilities under the mortgage. 

A disadvantage of a mortgage assignment is the consequences of failing to record it. Under most state laws, an entity seeking to institute foreclosure proceedings must record the assignment before it can do so. If a mortgage is not recorded, the judge will dismiss the foreclosure proceeding. 

Failure to observe mortgage assignment procedure can be used as a defense by a homeowner in a foreclosure proceeding. Before a bank can institute a foreclosure proceeding, the bank must record the assignment of the note. The bank must also be in actual possession of the note. 

If the bank fails to “produce the note,” that is, cannot demonstrate that the note was assigned to it, the bank cannot demonstrate it owns the note. Therefore, it lacks legal standing to commence a foreclosure proceeding.

If you need help with preparing an assignment of mortgage, you should contact a mortgage lawyer . An experienced mortgage lawyer near you can assist you with preparing and recording the document.

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How To Navigate The Real Estate Assignment Contract

What is assignment of contract?

Assignment of contract vs double close

How to assign a contract

Assignment of contract pros and cons

Even the most left-brained, technical real estate practitioners may find themselves overwhelmed by the legal forms that have become synonymous with the investing industry. The assignment of contract strategy, in particular, has developed a confusing reputation for those unfamiliar with the concept of wholesaling. At the very least, there’s a good chance the “assignment of contract real estate” exit strategy sounds more like a foreign language to new investors than a viable means to an end.

A real estate assignment contract isn’t as complicated as many make it out to be, nor is it something to shy away from because of a lack of understanding. Instead, new investors need to learn how to assign a real estate contract as this particular exit strategy represents one of the best ways to break into the industry.

In this article, we will break down the elements of a real estate assignment contract, or a real estate wholesale contract, and provide strategies for how it can help investors further their careers. [ Thinking about investing in real estate? Register to attend a FREE online real estate class and learn how to get started investing in real estate. ]

What Is A Real Estate Assignment Contract?

A real estate assignment contract is a wholesale strategy used by real estate investors to facilitate the sale of a property between an owner and an end buyer. As its name suggests, contract assignment strategies will witness a subject property owner sign a contract with an investor that gives them the rights to buy the home. That’s an important distinction to make, as the contract only gives the investor the right to buy the home; they don’t actually follow through on a purchase. Once under contract, however, the investor retains the sole right to buy the home. That means they may then sell their rights to buy the house to another buyer. Therefore, when a wholesaler executes a contact assignment, they aren’t selling a house but rather their rights to buy a house. The end buyer will pay the wholesale a small assignment fee and buy the house from the original buyer.

The real estate assignment contract strategy is only as strong as the contracts used in the agreement. The language used in the respective contract is of the utmost importance and should clearly define what the investors and sellers expect out of the deal.

There are a couple of caveats to keep in mind when considering using sales contracts for real estate:

Contract prohibitions: Make sure the contract you have with the property seller does not have prohibitions for future assignments. This can create serious issues down the road. Make sure the contract is drafted by a lawyer that specializes in real estate assignment contract law.

Property-specific prohibitions: HUD homes (property obtained by the Department of Housing and Urban Development), real estate owned or REOs (foreclosed-upon property), and listed properties are not open to assignment contracts. REO properties, for example, have a 90-day period before being allowed to be resold.

What Is An Assignment Fee In Real Estate?

An assignment fee in real estate is the money a wholesaler can expect to receive from an end buyer when they sell them their rights to buy the subject property. In other words, the assignment fee serves as the monetary compensation awarded to the wholesaler for connecting the original seller with the end buyer.

Again, any contract used to disclose a wholesale deal should be completely transparent, and including the assignment fee is no exception. The terms of how an investor will be paid upon assigning a contract should, nonetheless, be spelled out in the contract itself.

The standard assignment fee is $5,000. However, every deal is different. Buyers differ on their needs and criteria for spending their money (e.g., rehabbing vs. buy-and-hold buyers). As with any negotiations , proper information is vital. Take the time to find out how much the property would realistically cost before and after repairs. Then, add your preferred assignment fee on top of it.

Traditionally, investors will receive a deposit when they sign the Assignment of Real Estate Purchase and Sale Agreement . The rest of the assignment fee will be paid out upon the deal closing.

Assignment Contract Vs Double Close

The real estate assignment contract strategy is just one of the two methods investors may use to wholesale a deal. In addition to assigning contracts, investors may also choose to double close. While both strategies are essentially variations of a wholesale deal, several differences must be noted.

A double closing, otherwise known as a back-to-back closing, will have investors actually purchase the home. However, instead of holding onto it, they will immediately sell the asset without rehabbing it. Double closings aren’t as traditional as fast as contract assignment, but they can be in the right situation. Double closings can also take as long as a few weeks. In the end, double closings aren’t all that different from a traditional buy and sell; they transpire over a meeter of weeks instead of months.

Assignment real estate strategies are usually the first option investors will want to consider, as they are slightly easier and less involved. That said, real estate assignment contract methods aren’t necessarily better; they are just different. The wholesale strategy an investor chooses is entirely dependent on their situation. For example, if a buyer cannot line up funding fast enough, they may need to initiate a double closing because they don’t have the capital to pay the acquisition costs and assignment fee. Meanwhile, select institutional lenders incorporate language against lending money in an assignment of contract scenario. Therefore, any subsequent wholesale will need to be an assignment of contract.

Double closings and contract assignments are simply two means of obtaining the same end. Neither is better than the other; they are meant to be used in different scenarios.

Flipping Real Estate Contracts

Those unfamiliar with the real estate contract assignment concept may know it as something else: flipping real estate contracts; if for nothing else, the two are one-in-the-same. Flipping real estate contracts is simply another way to refer to assigning a contract.

Is An Assignment Of Contract Legal?

Yes, an assignment of contract is legal when executed correctly. Wholesalers must follow local laws regulating the language of contracts, as some jurisdictions have more regulations than others. It is also becoming increasingly common to assign contracts to a legal entity or LLC rather than an individual, to prevent objections from the bank. Note that you will need written consent from all parties listed on the contract, and there cannot be any clauses present that violate the law. If you have any questions about the specific language to include in a contract, it’s always a good idea to consult a qualified real estate attorney.

When Will Assignments Not Be Enforced?

In certain cases, an assignment of contract will not be enforced. Most notably, if the contract violates the law or any local regulations it cannot be enforced. This is why it is always encouraged to understand real estate laws and policy as soon as you enter the industry. Further, working with a qualified attorney when crafting contracts can be beneficial.

It may seem obvious, but assignment contracts will not be enforced if the language is used incorrectly. If the language in a contract contradicts itself, or if the contract is not legally binding it cannot be enforced. Essentially if there is any anti-assignment language, this can void the contract. Finally, if the assignment violates what is included under the contract, for example by devaluing the item, the contract will likely not be enforced.

How To Assign A Real Estate Contract

A wholesaling investment strategy that utilizes assignment contracts has many advantages, one of them being a low barrier-to-entry for investors. However, despite its inherent profitability, there are a lot of investors that underestimate the process. While probably the easiest exit strategy in all of real estate investing, there are a number of steps that must be taken to ensure a timely and profitable contract assignment, not the least of which include:

Find the right property

Acquire a real estate contract template

Submit the contract

Assign the contract

Collect the fee

1. Find The Right Property

You need to prune your leads, whether from newspaper ads, online marketing, or direct mail marketing. Remember, you aren’t just looking for any seller: you need a motivated seller who will sell their property at a price that works with your investing strategy.

The difference between a regular seller and a motivated seller is the latter’s sense of urgency. A motivated seller wants their property sold now. Pick a seller who wants to be rid of their property in the quickest time possible. It could be because they’re moving out of state, or they want to buy another house in a different area ASAP. Or, they don’t want to live in that house anymore for personal reasons. The key is to know their motivation for selling and determine if that intent is enough to sell immediately.

With a better idea of who to buy from, wholesalers will have an easier time exercising one of several marketing strategies:

Direct Mail

Real Estate Meetings

Local Marketing

2. Acquire A Real Estate Contract Template

Real estate assignment contract templates are readily available online. Although it’s tempting to go the DIY route, it’s generally advisable to let a lawyer see it first. This way, you will have the comfort of knowing you are doing it right, and that you have counsel in case of any legal problems along the way.

One of the things proper wholesale real estate contracts add is the phrase “and/or assigns” next to your name. This clause will give you the authority to sell the property or assign the property to another buyer.

You do need to disclose this to the seller and explain the clause if needed. Assure them that they will still get the amount you both agreed upon, but it gives you deal flexibility down the road.

3. Submit The Contract

Depending on your state’s laws, you need to submit your real estate assignment contract to a title company, or a closing attorney, for a title search. These are independent parties that look into the history of a property, seeing that there are no liens attached to the title. They then sign off on the validity of the contract.

4. Assign The Contract

Finding your buyer, similar to finding a seller, requires proper segmentation. When searching for buyers, investors should exercise several avenues, including online marketing, listing websites, or networking groups. In the real estate industry, this process is called building a buyer’s list, and it is a crucial step to finding success in assigning contracts.

Once you have found a buyer (hopefully from your ever-growing buyer’s list), ensure your contract includes language that covers earnest money to be paid upfront. This grants you protection against a possible breach of contract. This also assures you that you will profit, whether the transaction closes or not, as earnest money is non-refundable. How much it is depends on you, as long as it is properly justified.

5. Collect The Fee

Your profit from a deal of this kind comes from both your assignment fee, as well as the difference between the agreed-upon value and how much you sell it to the buyer. If you and the seller decide you will buy the property for $75,000 and sell it for $80,000 to the buyer, you profit $5,000. The deal is closed once the buyer pays the full $80,000.

Assignment of Contract Pros

For many investors, the most attractive benefit of an assignment of contract is the ability to profit without ever purchasing a property. This is often what attracts people to start wholesaling, as it allows many to learn the ropes of real estate with relatively low stakes. An assignment fee can either be determined as a percentage of the purchase price or as a set amount determined by the wholesaler. A standard fee is around $5,000 per contract.

The profit potential is not the only positive associated with an assignment of contract. Investors also benefit from not being added to the title chain, which can greatly reduce the costs and timeline associated with a deal. This benefit can even transfer to the seller and end buyer, as they get to avoid paying a real estate agent fee by opting for an assignment of contract. Compared to a double close (another popular wholesaling strategy), investors can avoid two sets of closing costs. All of these pros can positively impact an investor’s bottom line, making this a highly desirable exit strategy.

Assignment of Contract Cons

Although there are numerous perks to an assignment of contract, there are a few downsides to be aware of before searching for your first wholesale deal. Namely, working with buyers and sellers who may not be familiar with wholesaling can be challenging. Investors need to be prepared to familiarize newcomers with the process and be ready to answer any questions. Occasionally, sellers will purposely not accept an assignment of contract situation. Investors should occasionally expect this, as to not get discouraged.

Another obstacle wholesalers may face when working with an assignment of contract is in cases where the end buyer wants to back out. This can happen if the buyer is not comfortable paying the assignment fee, or if they don’t have owner’s rights until the contract is fully assigned. The best way to protect yourself from situations like this is to form a reliable buyer’s list and be upfront with all of the information. It is always recommended to develop a solid contract as well.

Know that not all properties can be wholesaled, for example HUD houses. In these cases, there are often anti-assigned clauses preventing wholesalers from getting involved. Make sure you know how to identify these properties so you don’t waste your time. Keep in mind that while there are cons to this real estate exit strategy, the right preparation can help investors avoid any big challenges.

Assignment of Contract Template

If you decide to pursue a career wholesaling real estate, then you’ll want the tools that will make your life as easy as possible. The good news is that there are plenty of real estate tools and templates at your disposal so that you don’t have to reinvent the wheel! For instance, here is an assignment of contract template that you can use when you strike your first deal.

As with any part of the real estate investing trade, no single aspect will lead to success. However, understanding how a real estate assignment of contract works is vital for this business. When you comprehend the many layers of how contracts are assigned—and how wholesaling works from beginning to end—you’ll be a more informed, educated, and successful investor.

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Wholetailing: A Guide For Real Estate Investors

What is chain of title in real estate investing, what is a real estate fund of funds (fof), reits vs real estate: which is the better investment, multi-family vs. single-family property investments: a comprehensive guide, what is reverse wholesaling: a guide for real estate investors.

Assignment of Lease vs. Mortgage of Lease

This article may only be applicable in certain jurisdictions.

When lenders consider their real property security options, their analysis often goes beyond simply taking a mortgage from a debtor who owns real estate. A debtor's interest in real property leases (whether as landlord or tenant) means a lender often obtains either an Assignment of Lease or a Mortgage of Lease as additional security. Like any other specific security agreement, these agreements facilitate the orderly and more effective enforcement of the Lender's security in the underlying debtor asset.

Assignment of Lease

In cases where the debtor owns real property but does not occupy it, the revenue stream from third party leases is a significant asset that should be secured. Although most mortgage standard charge terms include at least a brief paragraph related to assignment of leases, they do not provide the benefit of the more fulsome provisions typically contained in a stand alone specific Assignment of Lease (in cases where there may be a significant tenant) or a general Assignment of Lease (securing all present and future leases without reference to a specific tenant).

The debtor's interest as landlord is secured by registration against title to the debtor's real property, typically immediately following the registration of the mortgage of land. It should be noted that in order to register a specific Assignment of Lease, there first requires the registration of a Notice of Lease in respect of the lease that is being specifically assigned. The Assignment of Lease also has a personal property component that cannot be overlooked. The rents and leases that are secured by the Assignment of Lease fall within the definition of personal property under the personal property security legislation; and as such require the registration of a financing statement against the debtor.

An Assignment of Lease document includes certain generally accepted provisions.

The debtor assigns to the lender (as collateral security for the payment of principal and interest under the mortgage of land) all rents and other monies due to it by tenants and the benefit of all tenant covenants under all current and future leases.

The debtor typically covenants to not collect rent more than one month in advance (to ensure that the normal revenue stream is available to the lender on enforcement) and not amend any material terms of the leases without the lender's approval. In the case of a specific Assignment of Lease, it is prudent to also obtain similar covenants from the tenant itself and an acknowledgement that the tenant will attorn to the Lender in the event of default by the debtor.

The debtor is permitted to continue to collect rent according to the terms of the leases until an event of default occurs pursuant to the mortgage of land, after which the Lender may give notice to the tenants to pay all future rents to the lender directly.

Mortgage of Lease

In cases where the debtor does not own real estate but rents space instead, the right to occupy the premises may be a key asset of the debtor that is secured. Although it is typical that a general security agreement includes a reference to leasehold interests in the description of the charged collateral, the general security agreement does not provide the benefit of the more complete language in a stand alone specific Mortgage of Lease document.

The debtor's interest as tenant is secured by registration against title to the debtor's leasehold interest in the real property. This requires the prior registration of a Notice of Lease in respect of the lease that is being secured.

It should be noted that if there is a real property mortgage on title granted by the owner/landlord to another lender prior to the lease, and if the tenant/debtor or tenant's lender has not obtained a non-disturbance agreement from the owner/landlord, the Mortgage of Lease will be no better security than the lease itself (i.e., subject to being terminated at the option of the prior mortgagee in the event of default under the real property mortgage). Most leases will contain a prohibition against mortgaging the lease, so it will be necessary to obtain the landlord's consent to a Mortgage of Lease.

A Mortgage of Lease document typically contains some basic standard provisions.

As in a mortgage of land, the Mortgage of Lease specifies a principal amount, interest rate, payment dates, and contains charging language whereby the debtor's leasehold interest is security for payment of the principal and interest.

Similarly, in the event of default, the lender has the ability to exercise a power of sale and sublease or assign the leasehold interest to a third party.

The debtor covenants to not pay rent more than one month in advance, to not amend any material terms of the leases without the lender's approval, to not terminate or surrender the term of the lease and to hold possession of the premises in trust for the lender.

Most lender mortgage standard charge terms contain flexible language that contemplates use of the terms for both cases where the chargor owns a freehold interest in the property or a leasehold interest in the property.

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Assignee: What it is, How it Works, Types

Michelle P. Scott is a New York attorney with extensive experience in tax, corporate, financial, and nonprofit law, and public policy. As General Counsel, private practitioner, and Congressional counsel, she has advised financial institutions, businesses, charities, individuals, and public officials, and written and lectured extensively.

Ariel Courage is an experienced editor, researcher, and former fact-checker. She has performed editing and fact-checking work for several leading finance publications, including The Motley Fool and Passport to Wall Street.

What Is an Assignee?

An assignee is a person, company, or entity who receives the transfer of property, title, or rights from another according to the terms of a contract. The assignee receives the transfer from the assignor. For example, an assignee may receive the title to a piece of real estate from an assignor.

Key Takeaways

• An assignee is a person, company, or entity who receives the transfer of property, title, or rights from a contract.
• The assignee receives the transfer from the assignor.
• An assignee may be the recipient of an assignment, a liability, or appointed to act in the stead of another person or entity.
• The assignee typically will hold the rights of power of attorney only for a specified time or for particular circumstances.
• Once the time has expired or the circumstances have been resolved, the assignee would automatically relinquish those rights.
• Not all assignment contracts are required to be made in writing, but they often are.

How an Assignee Works

An assignee may be the recipient of an assignment, a liability, or appointed to act in the stead of another person or entity. For example, an executor of an estate may be appointed through a will left by a decedent.

Types of Assignees

Assignee in real estate.

An assignee is the recipient of a title when a deed is signed to confer ownership of property in a transaction. A tenant might choose to transfer their property rights to an assignee who would assume duties for paying rent and tending to the property. There may be limits to the rights and liabilities that are granted to an assignee based on the nature of the transfer or assignment of rights.

For example, an assignee might take on the property rights from a tenant who vacated a rental property, but the tenant may still be liable if the assignee does not make rent payments on time. An assignee who takes title and ownership of real estate might not have certain rights to use the property any way they wish. There may be rights of ingress and egress that must be negotiated with adjacent property owners who hold surrounding land parcels. The assignee could receive certain rights that run with the land when they are granted the title.

Assignment by Power of Attorney

Power of attorney may be assigned to a person to tend to certain affairs for a person while they are out of the country or not capable of taking action for themselves. The assignment of power of attorney can grant broad rights or be limited in scope by the terms set by the assignor. The rights could be for the specific handling of a contract or business deal that the assignor cannot be present for.

The assignee typically will hold the rights of power of attorney only for a specified time or particular circumstances. Once the time has expired or the circumstances have been resolved, the assignee would automatically relinquish those rights. It is possible that the terms of power of attorney might allow an assignee to act in their self-interest rather than for the interests of the assignor.

Assignee in an Insurance Policy

In the context of a life insurance policy, interest in a policy can be transferred from the policyholder to a lender or relative by assignment of the policy. In this case, the policyholder is the assignor and the person in whose favor the policy has been assigned is called the assignee.

Assignee in a Contract

When one party to a contract—the assignor—hands off the contract's obligations and benefits to a different party—the assignee—this is known as an assignment of contract. In this situation, the assignee assumes all the rights and responsibilities of the contract from the assignor. All, or a portion, of a letter of credit can be assigned to a third party to pay vendors and suppliers.

Assignee in a Loan

An assignee is a person or a company that buys your loan. For example, an auto dealer that extends credit to individuals may sell their loans to a bank. In this case, the bank is the assignee and the auto dealer is the assignor. If your loan has been sold, you owe money to whoever owns your loan. In the event that responsible parties fail to meet their loan obligations, the assignee has a lien on the vehicle and can repossess it.

Not all assignment contracts are required to be made in writing, but they often are. Assignment contracts may also need to be notarized and witnessed in order to be valid. The assignment of property and collateral for loans must be in writing. Note that not all rights, contracts, or other property are assignable; many contracts, particularly real estate leases and personal service agreements, explicitly prohibit assignment. 

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