We discuss whether a Debtor in bankruptcy is required to make monthly mortgage payments.
In Los Angeles, many individuals are often confused with real estate terms such as “Note, “mortgage”, “Deed of Trust”, “principal and interest” and “escrow.” We though it would be useful if we summarize what each of these terms mean, in simplified form, without getting into technical words. Often, our Los Angeles attorneys at Katz Law encounter issues involving real estate law and real estate finance in California. We think it is important for one to know the meaning of common terms before understanding the issues that they may be facing.
What is a Note?
Without any consideration to real estate or real estate law, the word Note means “a brief record of facts, topics, or thoughts, written down as an aid to memory.” However, in the real estate, the word “Note” or “Promissory Note” means a written contract where a borrower (person who lends money from the bank (or another creditor)) agrees to repay the lender at terms that the parties agree on. For example, if the bank is lending you $100,000.00 at 5 percent interest, the Note will specify that, and will also indicate what happens if you do not make your payments (as well as other terms). It is important to read all of the terms of the Note so that you know what you are in for when borrowing money.
What is a Mortgage or a Deed of Trust?
A Mortgage or a Deed of Trust is the security instrument that secures the Note. What does that mean? it is the piece of paper that allows the bank to put a lien on a property. This is also the instrument that allows a lender to foreclose on a property because of its lien if there is a default on payments.
People in California often use the word “mortgage” when the documents they are describing are a “deed of trust” or a “note. The big differences between a mortgage and a deed of trust are the parties involved, and the manner in which a lender can foreclose in case of a default.
The Mortgage Payment – Principal and Interest Component and the Escrow Component
The monthly mortgage payment that a borrower in Los Angeles has to pay normally includes several components: a principal component, an interest component and an escrow component. We will explain each of those component.
The principal component of the payment is the amount that you pay each month toward the original amount that you borrowed from the bank. So, in the example above, that would mean that portion of the payment that will go to pay the $100,000 originally borrowed.
The interest component of the payment is the amount that you pay each month toward the interest on the original amount that you borrowed. In other words, this is the portion of the payment that goes to pay the bank its fees to letting you borrow money.
The escrow component of the monthly mortgage payment is the portion of the payment that is used to pay for the property taxes and property insurance on your home. While you have the option to pay property taxes and insurance directly, many people choose to have the bank pay those through an “escrow account” (and then charge you monthly for it). Additionally, borrowers are entitled to receive yearly reports (or “Escrow Analysis Disclosure Statements” that advise how much money the bank is paying for the property taxes and insurance, and how much will the escrow component of the payment be.
While a loan in Los Angeles may be a “fixed interest” loan, and thus the principal and interest component remains the same, the escrow component of the payment often charges yearly.
Consult With A Qualified Los Angeles Attorney Now!
If you are an owner of a property and need assistance with a real estate matter, contact our qualified attorneys at Katz Law now! We are California attorneys located in Los Angeles who have experience dealing with mortgage-related issues.
If you are a landlord and your tenant filed a bankruptcy to try and delay an eviction, there are steps that must be taken before you can resume the eviction. Read more to learn what those steps are.
Here we examine what needs to be done if a bankruptcy is filed preventing a completion of a foreclosure sale.
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Many of us had a time that we pondered whether we should retain an attorney in order to resolve a conflict that we are facing or draft a contract. With respect to contract drafting, retaining an attorney can be costly, and thus, people often resort to drafting their own. They often do so by finding a template online, and then modifying the template to incorporate specific terms that are applicable to them. The result is sometimes satisfactory, but sometimes it is not. Unfortunately, the later happens frequently.
A client approached me last week to assist with a potential breach of contract claim. The client had lent a “friend” money, and the “friend” had promised to reimburse the client the entire amount borrowed, plus interest. But, you guessed it, the “friend” did not pay back the promised amount. The document that my client relied on for her potential breach of contract claim was a written contract that the parties had drafted themselves, without the help of an attorney. The result? One big disaster. The contract was not an enforceable contract, meaning that the client could not recover her money back based on the written agreement that she though she had.
What Are the Requirements of a Contract?
There are three (3) requirements for every contract: 1) offer, 2) acceptance, and 3) consideration. The following is a brief explanation of each:
- Offer – One of the parties made a promise to do or refrain from doing some specified action in the future.
- Acceptance – The offer was accepted unambiguously. Acceptance may be expressed through words, deeds or performance as called for in the contract.
- Consideration – Something of value was promised in exchange for the specified action or non-action. This can take the form of a significant expenditure of money or effort, a promise to perform some service, an agreement to refrain from doing something, or reliance on the promise. Consideration is the value that induces the parties to enter into the contract.
In addition to the following three (3) requirements, some contracts must also be in writing. For example, all contracts for the purchase of real estate and for rent of a property for more than one (1) year must be in writing.
What If the Contract Does Not Meet Those Requirements?
If a contract does not meet the above requirements, it may not be enforceable in a court of law. This means that if you ever have an issue with the terms of the the agreement, or the other party fails to perform according to the agreement, you will have a hard time trying to prove that a contract in fact existed. You may also have difficulty in seeking damages for the breach. Contracts are very important, as they are often the only evidence of a promise by one party to another. No matter how big or small the subject of the contract is, you should have a professional take a look at it.
What Should You Do The Next Time You Need a Contract Drafted?
Retain an attorney to either draft the contract for you, or review the contract that you drafted yourself. If you need assistance with a contract, KatzLaw is here to help you! Contact us now and speak to our attorney.
Call (844) KATZ-LAW before it is too late!