Glossary of Distressed Real Estate – O
Origination Fee – The charge for processing a loan. It includes preparation of the loan documents, submitting and evaluating the application, verifying the borrower’s credit, and coordinating and arranging other related activities, such as the appraisal, etc. It is frequently expressed in “points” with one point equaling one percent of the loan amount.
Owner Financing – A property sale in which the seller agrees to “carry-back” or “take back” a promissory note secured by a trust deed, or mortgage, from the buyer of the subject property. The debt may be for some or all of the purchase price. Owner financing is most common when the buyer cannot qualify for a loan from a bank, or cannot come up with all of the down payment required by the bank. For example, in the case of an 80% bank loan, a buyer with only 10% down may try to get the owner to “finance” the additional 10%, by taking back a note and trust deed for that amount. [The owner does not actually pay cash to the bank on behalf of the buyer at closing.] Some lenders holding a first trust deed or mortgage may prohibit this, as they want to have the buyer fully invested up to the entire 20%. Some sellers may elect to sell on a land sale contract, in which case they continue to hold title in their own name until the contract is paid off. A land sale contract gives the seller more remedies upon a buyer’s breach than those available if the seller took back a note and trust deed.
Owner’s Policy of Title Insurance – The policy issued to the purchaser-owner of real property guaranteeing to them that they have marketable title, free and clear of any objectionable liens or encumbrances. An owner’s policy will include a list of exceptions to this guarantee for many standard items recorded against the property such as deed restrictions, utility easements, and current, but unpaid property taxes. And since the title insurance company does not physically inspect (nor survey) the property – they just review the public records – the owner’s policy also excludes those matters an inspection or survey would reveal, thus leaving it to the buyer and buyer’s experts to perform these on-site functions. The “preliminary” title report is issued at the start of the transaction, shortly after escrow is opened. It is not “insurance” and is preliminary only. The owner’s policy is issued at the end of the transaction, shortly after closing (“settlement”). It not only informs the buyer-owner of the status of record title, but it also insures them that there are no undisclosed title defects, subject only to the standard and special exceptions. In Oregon, it is customary for the seller to pay for the buyer’s owner’s policy.