15. Mortgages

Question 1

What type of mortgages are there?

Answer 1

Legal mortgage

Equitable mortgage

Question 2

What is required for legal mortgage?

Answer 2

1) Writing
2) Debt (represented by Note)
3) Voluntary transfer of security interest

Question 3

What types of legal mortgage are there?

Answer 3

Purchase-money mortgage
- Real estate to be acquired becomes collateral

Subordination agreement
- Senior Creditor subordinates priority to Junior Creditor

Question 4

What is required for equitable mortgage?

Answer 4

NOT all elements of legal mortgage satisfied

Question 5

What can Creditor do if Debtor defaults on debt?

Answer 5

Creditor can take lien (possession of property until Debtor discharges debt)

Lien theory

• Creditor becomes holder of ‘security interest’
• Debtor remains owner of land until foreclosure

Title theory

• Creditor is entitled to possession
• Debtor remains holder of legal title until foreclosure

Intermediate theory

• Creditor is entitled to possession
• Debtor remains holder of legal title until default (NOT foreclosure)

Question 6

How can mortgages be transferred?

Answer 6

By Creditor

• Indorsement of Note + Delivery of Note to Transferee; or Assignment
• Transferee becomes Holder in Due Course (free of personal defences, NOT free of real defences, e.g. Duress, illegality, insolvency)

By Debtor
- If Transferee ‘takes subject’ to mortgage => DEBTOR is liable (MOST states)!!!
If Transferee ‘assumes’ mortgage => (1) TRANSFEREE is primarily liable; (2) DEBTOR is secondarily liable (Joint liability - Creditor can sue BOTH, NOT either) (FEW states)!!!
- Notice Statute: If Transferee has record notice of lien => Transferee takes subject to lien
- Race-Notice Statute: If Transferee has record notice of lien + Creditor won race to record => Transferee takes subject to lien

Question 7

What is the rule for multiple mortgages?

Answer 7

If Debtor/Grantee satisfies/NOT forecloses 1st mortgage => Debtor/Grantee is still subject to other mortgages