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MBE Property > 11. Mortgages > Flashcards

11. Mortgages Flashcards

1
Q

What is a mortgage?

A

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).

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2
Q

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

a person other than the mortgagor who pays off a mortgage can step into the shoes of the now-paid-off mortgagee.

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3
Q

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:

A

(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

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4
Q

What is the purpose of recording a mortgage?

A

To give public notice of changes in interests in real estate.

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5
Q

Does a mortgage require a writing?

A

Yes, it must be evidenced by a writing that is properly executed and delivered.

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6
Q

What are the three elements of a mortgage deed?

A
  1. Identity of the parties
  2. Description of the property that is sufficient to put a bona fide purchaser on notice of the mortgage;
  3. Intent to create a security interest which can be recorded
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7
Q

Who is the mortgagor?

A

The owner of the real property who borrowed money and secured the debt with a mortgage.

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8
Q

Who is the mortgagee?

A

The lender of the money borrowed, to whom the mortgage is made.

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9
Q

Why should there be a sufficient description of the property in a mortgage deed?

A

To put a subsequent bona fide purchaser on notice of the mortgage.

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10
Q

What is a mortgage note?

A

It represents the personal obligation of the debtor to repay the debt.

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11
Q

What six provisions are typically included in a mortgage note?

A
  1. Loan amount
  2. Interest rate
  3. Loan term
  4. Pre-payment clause
  5. Acceleration clause
  6. Due on sale clause
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12
Q

What is an acceleration clause?

A

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.

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13
Q

What is a ‘due on sale’ clause?

A

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.

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14
Q

What is a person responsible for when they sign the mortgage deed?

A

When a person signs a mortgage deed, they are responsible for a judgment in foreclosure and therefore will lose interest in the property.

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15
Q

What happens if a person does not sign the mortgage note?

A

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.

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16
Q

What happens when the mortgagor satisfies the mortgage note?

A

The mortgagee executes a document that releases the mortgage.

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17
Q

What is a purchase-money mortgage?

A

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.

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18
Q

What does a purchase-money mortgage have priority over?

A

Other liens arising from the buyer-mortgagor’s actions, even previously-filed judgment liens.

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19
Q

Is recording a purchase-money mortgage necessary?

A

Yes, for top priority and constructive notice to future mortgages.

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20
Q

What are the implications of a Purchase-Money Mortgage when the document does not specify certain terms or conditions?

A

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.

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21
Q

What is a future-advance mortgage?

A

A line-of-credit or home-equity loan where money can be borrowed as needed.

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22
Q

What happens when a future-advance mortgage attaches to a property?

A

It attaches on the arrangement date with proper notice to future creditors.

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23
Q

What is an optional future-advance mortgage?

A

A mortgage where the lender has discretion to advance funds based on the mortgagor’s situation.

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24
Q

How does an optional future-advance mortgage lose its priority?

A

If the mortgagee has notice of a subsequent creditor when making an advance.

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25
What is an obligatory future-advance mortgage?
A mortgage where the lender has a duty to advance funds without discretionary conditions.
26
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.
27
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.
28
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.
29
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.
30
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.
31
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.
32
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.
33
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.
34
What are the interests held by the mortgagor and the mortgagee under an Intermediate Theory?
In an Intermediate theory, the mortgagor retains legal title until default occurs. After default, legal title and possession pass to the mortgagee, who may then begin to collect rents and profits.
35
What is a duty of a person holding a remainder in mortgaged property?
A person holding a remainder in mortgaged property has a duty to pay the principal.
36
What is the duty of a life tenant in mortgaged property?
To pay the interest on the mortgage.
37
How is the life tenant’s duty in mortgaged property capped?
The life tenant's duty is limited to rents and profits from a third party in possession or the reasonable rental value if they stay.
38
What are the five ways that a mortgagor or a life tenant of mortgaged property could commit waste on a property?
The mortgagor or life tenant commits waste by: 1. not paying property taxes or assessments with lien priority; 2. Makes physical changes to the real property, negligently or intentionally, that reduces the value of the property; 3. not reasonably maintaining the property (except for casualty damage); 4. not complying with mortgage covenants; or 5. keeping rents owed to the mortgagee without permission.
39
What are the three remedies of a mortgagee when a mortgagor or life tenant commits waste?
The mortgagee has three remedies for waste: 1. foreclosure or other mortgage default remedies if waste impairs mortgagee’s security; 2. an injunction to prevent or correct waste that impairs mortgagee’s security; and 3. damages limited to the extent of waste impairing mortgagee’s security.
40
Does a Tenant for a Term of Years or a Periodic Tenant have a duty to make mortgage payments?
No, Neither have to make mortgage payments.
41
What is a mortgagor's redemption before foreclosure?
The right to redeem the property by paying the debt due after default but before foreclosure.
42
What happens to the Foreclosure sale after a Mortgagor’s Redeems?
The foreclosure sale is canceled and the parties return to their former relationship of mortgagor-mortgagee.
43
Can the right to redeem be waived?
No, it may not be waived at the time the mortgage is created.
44
What are the three types of sales a mortgagor can make to a buyer of land encumbered by a mortgage?
1. Subject to the mortgage 2. Assumes the mortgage 3. Assumes the mortgage plus contract novation
45
What happens when the buyer takes 'subject to the mortgage'?
The buyer has no responsibility to pay on it, either before or after foreclosure. Even if buyer voluntarily made payments for a few months, buyer is under no contractual obligation to do so and is still not responsible.
46
What happens when the buyer 'assumes the mortgage'?
The buyer becomes personally liable, along with the original borrower who is secondarily liable and will be subject to a deficiency judgment in the event that a foreclosure sale does not satisfy the debt. “grantee expressly assumed and agreed to pay the mortgage obligation as part of the consideration for the purchase”
47
True or False: If a grantee does not sign the deed but still accepts and records it, grantee agrees to the mortgage assumption AND accepts all conditions in the deed.
True. However, the mortgagee may opt to sue either the grantee or the original mortgagor on the debt. If the mortgagee and grantee modify the obligation, the original mortgagor is completely discharged from liability.
48
What is an option for the original borrower if a creditor sues him for the debt going into default after the assumption?
If the debt falls into default, the creditor can sue the original borrower and the original borrower can get an exoneration, compelling the buyer to pay the debt paid by the original borrower.
49
What are the original borrower’s remedies against the buyer after an assumption?
If, following the assumption, the original borrower has made any payments on the mortgage, the original borrower can sue the buyer for reimbursement under the law of suretyship.
50
Can the original borrower pay off the debt without assistance from buyer?
Original borrower can pay off the debt and can then be subrogated to the mortgage and note, allowing them to sue the grantee in personam or in rem.
51
What is a deficiency judgment?
A deficiency judgment is a court order that holds a borrower liable for the remaining debt after a foreclosure sale does not satisfy the mortgage debt. It allows creditors to pursue the borrower for the balance owed.
52
What does it mean when a grantee expressly assumes a mortgage obligation?
It means the grantee agrees to pay the mortgage obligation as part of the consideration for the property purchase.
53
What happens if a grantee does not sign the deed but accepts and records it?
The grantee agrees to the mortgage assumption and accepts all conditions in the deed.
54
Who can a mortgagee sue for debt if the mortgage goes into default?
The mortgagee can sue either the grantee or the original mortgagor on the debt.
55
What is the outcome if the mortgagee and grantee modify the obligation?
The original mortgagor is completely discharged from liability.
56
What can the original borrower do if a creditor sues them for debt going into default?
The original borrower can seek exoneration, compelling the buyer to pay the debt.
57
What remedies does the original borrower have against the buyer after an assumption?
The original borrower can sue the buyer for reimbursement under the law of suretyship.
58
Can the original borrower pay off the debt without assistance from the buyer?
Yes, the original borrower can pay off the debt and be subrogated to the mortgage and note.
59
What occurs when the buyer assumes the mortgage plus a contract novation with the lender?
The buyer alone is personally liable for paying the mortgage.
60
What does it mean if a deed instrument is silent regarding the mortgage?
The grantee is treated as taking the property 'subject to' the mortgage.
61
Can a mortgagee transfer the mortgage?
Yes, the mortgagee may transfer both the note and the mortgage.
62
What is a holder in due course?
A holder in due course is a transferee who takes a negotiable note free and clear of certain personal defenses such as lack of consideration, duress by nonphysical threat, and fraud in the inducement.
63
Is there a requirement to prepay a mortgage debt early?
No, there is no absolute right to prepay a mortgage debt early without it being specified in the mortgage.
64
What is a Deed in lieu of Foreclosure?
A deed in lieu of foreclosure is when a financially distressed homeowner voluntarily transfers property ownership to the lender to satisfy the mortgage debt and avoid foreclosure. A deed in lieu of foreclosure does not extinguish the subsequent mortgage on the property. A mortgagor’s later-executed mortgage generally can be extinguished only by foreclosure.
65
What fee is included if the mortgage allows for early payment?
A prepayment fee, which compensates the creditor for loss of interest income.
66
What happens to the mortgagor's interest in the property after a foreclosure sale?
The foreclosure sale terminates the mortgagor's interest in the mortgaged property.
67
What are the two remedies for a mortgagee when their mortgage goes into default?
1. Obtain a judgment and foreclose the mortgage for the balance. 2. Foreclose the mortgage and obtain a deficiency judgment if necessary.
68
What are the two types of foreclosure sales?
1. Judicial Foreclosures 2. Private Sale/Power-of-Sale
69
What is a judicial foreclosure sale?
A judicial foreclosure sale must be: 1. public; 2. properly noticed; 3. conducted reasonably; and 4. result in a fair sale price.
70
What constitutes a fair price in a foreclosure sale?
A fair price is not necessarily the fair market price but results from the mortgagee’s due diligence.
71
When can a foreclosure sale be set aside for inadequacy of sale price?
A foreclosure sale will only be set aside for inadequacy if the inadequacy shocks the conscience.
72
What is a power-of-sale foreclosure?
A power-of-sale foreclosure occurs without judicial action, pursuant to a power-of-sale clause in the mortgage.
73
What is a senior mortgage?
A senior mortgage is a primary mortgage or lien on a property, typically the first taken out.
74
What is the priority of a senior mortgage?
Senior mortgages have the highest priority in repayment during foreclosure or sale.
75
What happens when a senior mortgage forecloses and property is sold?
The purchaser buys the property free and clear of any junior mortgage interests.
76
What are junior interests?
Junior interests are second or later mortgages on a property.
77
How are junior interests terminated in a foreclosure sale?
Junior interests are destroyed by a foreclosure sale.
78
When is a junior interest not terminated in a foreclosure sale?
If the junior mortgagee is not made a defendant in the foreclosure proceeding or does not receive notice.
79
Are senior interests affected in a foreclosure sale?
Senior interests not participating in the foreclosure are not affected.
80
When does a junior mortgage prevail over a modification of a senior mortgage?
When the modification materially prejudices the holder of the junior mortgage.
81
What senior mortgage modifications do not materially prejudice junior mortgages?
1. Extension of mortgage maturity date 2. Rescheduling installment payments
82
How are proceeds of a mortgage foreclosure sale distributed?
1. Costs of the sale 2. Security interest foreclosed 3. Junior lienholders 4. To the mortgagor, if any proceeds remain
83
What is a deficiency judgment?
A deficiency judgment is obtained when the proceeds of a foreclosure sale are insufficient to cover the lien(s) foreclosed.
84
What is a debtor’s statutory right of redemption?
It is a limited time (6-12 months) following the foreclosure sale for the debtor to force the buyer to sell the property at the foreclosure price.

MBE Property (13 decks)

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