11. Mortgages Flashcards
What is a mortgage?
A pledge given to a lender made up of a promissory note (the contract for the loan) and a mortgage deed(the recorded lien on the property).
When there are multiple mortgages given on a property, and none are purchase money mortgages, priority is determined according to which mortgage came first in time.
Under the doctrine of equitable subrogation,
a person other than the mortgagor who pays off a mortgage can step into the shoes of the now-paid-off mortgagee.
If the court concludes, by clear and convincing evidence, that the deed was really given for security purposes, they will treat it as an “equitable” mortgage and require that the creditor foreclose it by judicial action, like any other mortgage. This result will be indicated by the following factors:
(i) the existence of a debt or promise of payment by the deed’s grantor;
(ii) the grantee’s promise to return the land if the debt is paid;
(iii) the fact that the amount advanced to the grantor/debtor was much lower than the value of the property;
(iv) the degree of the grantor’s financial distress; and
(v) the parties’ prior negotiation
What is the purpose of recording a mortgage?
To give public notice of changes in interests in real estate.
Does a mortgage require a writing?
Yes, it must be evidenced by a writing that is properly executed and delivered.
What are the three elements of a mortgage deed?
- Identity of the parties
- Description of the property that is sufficient to put a bona fide purchaser on notice of the mortgage;
- Intent to create a security interest which can be recorded
Who is the mortgagor?
The owner of the real property who borrowed money and secured the debt with a mortgage.
Who is the mortgagee?
The lender of the money borrowed, to whom the mortgage is made.
Why should there be a sufficient description of the property in a mortgage deed?
To put a subsequent bona fide purchaser on notice of the mortgage.
What is a mortgage note?
It represents the personal obligation of the debtor to repay the debt.
What six provisions are typically included in a mortgage note?
- Loan amount
- Interest rate
- Loan term
- Pre-payment clause
- Acceleration clause
- Due on sale clause
What is an acceleration clause?
It makes the entire debt become due upon the occurrence of an event, such as default.
While typically triggered by nonpayment of the mortgage debt, they can also be triggered by the mortgagor’s failure to satisfy other conditions in the mortgage, such as timely payment of insurance premiums.
What is a ‘due on sale’ clause?
It requires the entire balance due on the note to be paid before the property can be transferred by the mortgagor/seller to a buyer.
What is a person responsible for when they sign the mortgage deed?
When a person signs a mortgage deed, they are responsible for a judgment in foreclosure and therefore will lose interest in the property.
What happens if a person does not sign the mortgage note?
If a person does not sign a mortgage note, he will be not be liable for the debt obligation, and therefore, he will not be responsible to the bank for any shortfall in monies from a foreclosure sale.
What happens when the mortgagor satisfies the mortgage note?
The mortgagee executes a document that releases the mortgage.
What is a purchase-money mortgage?
A mortgage where the proceeds are applied to the purchase price and executed as part of the same transaction.
the purchaser does not obtain title to the property and then grant the mortgage; rather, he is deemed to take the title already charged with the encumbrance.
What does a purchase-money mortgage have priority over?
Other liens arising from the buyer-mortgagor’s actions, even previously-filed judgment liens.
Is recording a purchase-money mortgage necessary?
Yes, for top priority and constructive notice to future mortgages.
What are the implications of a Purchase-Money Mortgage when the document does not specify certain terms or conditions?
Where the instruments are silent, a purchase-money mortgage given to the seller of the property will have priority over one given to a third-party lender.
What is a future-advance mortgage?
A line-of-credit or home-equity loan where money can be borrowed as needed.
What happens when a future-advance mortgage attaches to a property?
It attaches on the arrangement date with proper notice to future creditors.
What is an optional future-advance mortgage?
A mortgage where the lender has discretion to advance funds based on the mortgagor’s situation.
How does an optional future-advance mortgage lose its priority?
If the mortgagee has notice of a subsequent creditor when making an advance.
What is an obligatory future-advance mortgage?
A mortgage where the lender has a duty to advance funds without discretionary conditions.
What is the Priority of an Obligatory Future-Advance Mortgage?
An obligatory future-advance mortgage takes priority over later-filed liens, regardless of whether all loan advances have been made.
What is a Deed of Trust?
In a deed of trust, the debtor borrows money, gives a deed to a trustee who holds it until the debt is paid, and if there’s a default, the trustee conducts a foreclosure sale.
What is an Installment Land-Sale Contract?
The buyer buys land and agrees to pay off the purchase price in installments. The buyer takes possession today, the seller holds on to the deed until the debt is entirely paid.
Typically, these types of contracts contain a “time is of the essence” clause.
What happens when a buyer defaults under an installment land-sale contract?
Typically provides for forfeiture of all installments paid, allowing the lender to retake the property.
What happens when a Buyer Defaults and “time-is-of-the-essence” under an Installment Land-sale Contract?
If the contract deems time as essential, the seller can declare a breach, retaining the land and payments.
Courts try to avoid this by assessing the importance of time.
If the buyer was late before and the seller accepted payment, courts may waive the time-is-of-the-essence clause.
After-Acquired Property Clause
An After Acquired Property clause is valid between the mortgagor and mortgagee to create an interest in the subsequently acquired property. However, such a provision is treated as UNRECORDED against a third party who takes an interest in the latter property UNTIL a notice is recorded that:
i.) specifically identifies the subsequently acquired real property;
ii.) refers to the mortgage containing the provision;
iii.) is in a form that provides record notice under local law.
What are the interests held by the mortgagor and the mortgagee under a Lien Theory?
Under a Lien Theory, The mortgagee receives a lien on the property, the mortgagor retains the right to possess the property and the rights to rents and profits from the mortgaged property.
What are the interests held by the mortgagor and the mortgagee under a Title Theory?
Under a Title Theory, The mortgagor retains possession until default, the mortgagee has the right to rents and profits produced by the mortgaged property.
