Chapter 7 junior loans

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Chapter 7 junior loans

  1. 1. Junior Loans in Real Estate FinanceChapter 71
  2. 2. Junior and Senior Liens• Distinguishing first and junior lien by date and time of recording• Junior financing by thrifts and commercial banks• Junior financing provides funds for land developers to pay for offsite improvements2
  3. 3. Anatomy of a Second Mortgage/Deed of Trust• Second deed of trust is in junior position to an existing senior loan• Junior loan holder in higher-risk position• In event of default, senior lender will usually give junior lender a chance to make delinquent payments• Clauses protect junior lien holder’s position against that of senior lender• Junior loan risks• Junior loan interest rates and usury3
  4. 4. Home Equity Loans• Offered by many lenders• Interest is tax deductible, unlike interest on consumer debt, which is not• Attractive interest rates, sometimes for only short period of term• Face high default rates when economy slows• Freddie Mac has program for purchase of secured home improvement loans4

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