3. Mortgage

Question 1

Which of the following statements correctly describes the mortgagee’s rights upon the failure of the principal obligor to perform the obligation that the mortgage secures?
Question 1Answer

a. The mortgagee may cause the property to be seized and sold in the manner provided by law to have the proceeds applied toward the satisfaction of the obligation in preference to the claims of others.

b. The mortgagee becomes owner of the mortgaged property by operation of law.

c. The mortgagee has the right to take immediate possession of the mortgaged property.

d. All of the above.

Answer 1

a. The mortgagee may cause the property to be seized and sold in the manner provided by law to have the proceeds applied toward the satisfaction of the obligation in preference to the claims of others.

Question 2

The mortgagee enjoys the right to the proceeds of the judicial sale ahead of the claims of unsecured or inferior-ranking creditors. This right of the mortgagee is referred to as the right of ________.

Question 2Answer

a. priority

b. pursuit

c. preference

d. superiority

Answer 2

c. preference

Question 3

The mortgagee enjoys the right to enforce its mortgage even when the mortgaged property is transferred by the mortgagor to a third person. This right of the mortgagee is referred to as the right of ______.

Question 3Answer

a. preference

b. trailing

c. entailment

d. pursuit

Answer 3

d. pursuit

Question 4

Which of the following items of property is not susceptible of mortgage under Louisiana law?

Question 4Answer

a. a servitude of right of use with the rights that the holder of the servitude may have in the buildings and other constructions on the land

b. the lessee’s rights in a lease of an immovable with his rights in the buildings and other constructions on the immovable

c. a usufruct of a corporeal immovable

d. a corporeal immovable with its component parts

e. the lessor’s rights in the lease of an immovable

Answer 4

e. the lessor’s rights in the lease of an immovable

Question 5

In Carriere v. Bank of Louisiana, the Louisiana Supreme Court held:

Question 5Answer

a. Louisiana law does not recognize the mortgage of a “leasehold estate,” which is a form of mortgage recognized only in common law tradition.

b. A mortgage of a “lease” and mortgage of a “leasehold estate” are identical in every respect under Louisiana law.

c. A mortgagee of the mortgage of a lease can foreclose on the lease, purchase the lease at judicial sale, then step into the shoes of the lessee to occupy the leased premises without acquiring the obligation to pay rent.

d. Whereas the mortgage of a lease includes the lessee’s rights and duties under the lease, the mortgage of a “leasehold estate” includes only the lessee’s right of occupancy, use, and enjoyment, and does not include the duties of the lessee/mortgagor.

Answer 5

d. Whereas the mortgage of a lease includes the lessee’s rights and duties under the lease, the mortgage of a “leasehold estate” includes only the lessee’s right of occupancy, use, and enjoyment, and does not include the duties of the lessee/mortgagor.

Question 6

What is not a correct statement about conventional mortgage?

Question 6Answer

a. A conventional mortgage must always state the amount of debt secured or state a maximum amount of indebtedness that the mortgage may secure.

b. A conventional mortgage need not contain a description of the property burdened by the mortgage.

c. The consent of the mortgagee to a conventional mortgage is presumed and the mortgagee need not even sign the instrument creating the mortgage.

d. A conventional mortgage may be made by act under private signature, without the necessity of witnesses or a notary.

Answer 6

b. A conventional mortgage need not contain a description of the property burdened by the mortgage.

Question 7

Is a mortgage executed electronically enforceable between parties?
Question 7Answer

a. No, never.

b. Yes, always.

c. Yes, but only if the parties agree in advance to transact electronically.

Answer 7

c. Yes, but only if the parties agree in advance to transact electronically.

Question 8

What is a correct statement of the legal standard for a valid property description for a conventional mortgage to be valid between the parties?

Question 8Answer

a. The act of mortgage must contain a description of the property using the U.S. Public Land System of describing property.

b. The act of mortgage must contain a property description that is clear and unambiguous in every respect.

c. The property description must not be so inaccurate as to be misleading.

Answer 8

c. The property description must not be so inaccurate as to be misleading.

Question 9

True or false: an omnibus description (all of a person’s property in a particular parish or other geographic area) is never sufficient for a valid mortgage.

Question 9Select one:
True
False

Answer 9

True

Question 10

True or false: a promissory note evidencing any indebtedness secured by a mortgage must be paraphed for identification with the mortgage that secures it.

Question 10Select one:
True
False

Answer 10

False

Question 11

A, the owner of Blackacre, grants a mortgage in Blackacre to Big Bank. A house, built by A, exists on Blackacre at the time the mortgage is created, but is not mentioned specifically in the Act of Mortgage. True or false: the mortgage automatically extends to and burdens the house?

Question 1Select one:
True
False

Answer 11

True

Question 12

In Ewing v. Small Business Administration, the court held:

Question 2Answer

a. Federal law governed the enforceability of an “after-acquired property” clause in an SBA mortgage and that under federal law the clause in question was enforceable.

b. Louisiana law governed the enforceability of an “after-acquired property” clause in an SBA mortgage and Louisiana law rendered the clause in question invalid.

c. Louisiana law governed the enforceability of an “after-acquired property” clause in an SBA mortgage and under Louisiana law the clause in question was enforceable.

d. Federal law governed the enforceability of an “after-acquired property” clause in an SBA mortgage and federal law rendered the clause in question invalid.

Answer 12

b. Louisiana law governed the enforceability of an “after-acquired property” clause in an SBA mortgage and Louisiana law rendered the clause in question invalid.

Question 13

A, the owner of Blackacre, grants a mortgage in Blackacre to Big Bank. A later builds a house on Blackacre. The house was never mentioned in the Act of Mortgage. True or false: the mortgage automatically extends to and burdens the house?

Question 3Select one:
True
False

Answer 13

True

Question 14

Which of the following statements is not a correct statement about conventional mortgages?

Question 4Answer

a. An act of mortgage may provide that the mortgagee’s recourse for the satisfaction of the obligation is limited to the property over which the mortgage is established.

b. As a general rule, if the mortgagor and the principal obligor are the same person, the mortgagor can raise the mortgagor/principal obligor’s lack of capacity (i.e., his own incapacity) at either the time of the creation of the principal obligation or the time of the creation of the mortgage as a defense to the enforcement of the mortgage.

c. A conventional mortgage may only be established to secure performance of an obligation to do; obligations to give and obligations not to do may not be secured by a conventional mortgage.

d. A conventional mortgage may be granted to secure a principal obligation owed by someone other than the mortgagor.

Answer 14

c. A conventional mortgage may only be established to secure performance of an obligation to do; obligations to give and obligations not to do may not be secured by a conventional mortgage.

Question 15

A conventional mortgage that states that the mortgaee’s recourse is limited to the property over which the mortgage has been established:

Question 5Answer

a. is discouraged in the practice because of the questionable enforceability of a provision of this type under Louisiana law.

b. prevents the mortgagee from enforcing the mortgage through foreclosure.

c. is absolutely null.

d. is known in the practice as an “in rem” mortgage, a “collateral-only” mortgage, or a “non-recourse” mortgage.

Answer 15

d. is known in the practice as an “in rem” mortgage, a “collateral-only” mortgage, or a “non-recourse” mortgage.

Question 16

In PAMI v. Pirogue Cove Apartments, the court held:

Question 6Answer

a. the mortgage in question was an in rem mortgage, and the mortgagee as a result had no right to enforce the mortgage through foreclosure.

b. the proper interpretation of the mortgage was that the mortgagee had agreed to take absolutely no recourse of any kind against the obligor, including judicial sale of the property.

c. the mortgage in question was an in rem mortgage, and although the mortgagee agreed not to hold the obligor personally liable in the event of default, the mortgagee had the right to enforce the mortgage through ordinary process.

d. the mortgage in question was not an in rem mortgage, and thus the mortgagee did not agree not to hold the obligor personally liable in the event of default.

Answer 16

c. the mortgage in question was an in rem mortgage, and although the mortgagee agreed not to hold the obligor personally liable in the event of default, the mortgagee had the right to enforce the mortgage through ordinary process.

Question 17

A judicial mortgage is (select the best answer):
Question 7Answer

a. a mortgage securing a judgment for the payment of money.

b. a mortgage that burdens only specific property of the mortgagor, as indicated in the judgment creating the mortgage.

c. a mortgage that arises by operation of law, without any affirmative act required of either the mortgagor or the mortgagee.

d. a mortgage created by a judge.

Answer 17

a. a mortgage securing a judgment for the payment of money.

Question 18

A legal mortgage is (select the best answer):

Question 8Answer

a. a mortgage created by a judge.

b. a mortgage that burdens only specific property of the mortgagor, as indicated in the judgment creating the mortgage.

c. a mortgage securing a judgment for the payment of money.

d. a mortgage established by operation of law.

Answer 18

d. a mortgage established by operation of law.

Question 19

In Dorries v. Linder, the court held:

Question 9Answer

a. (1) The Dorrieses were entitled to annul the sale of certain property by Earle to X-Sell by virtue of the revocatory action; and (2) the Dorries’ judicial mortgage attached to the same property.

b. (1) The Dorrieses were not entitled to annul the sale of certain property by Earle to X-Sell by virtue of the revocatory action, but (2) the Dorries’ judicial mortgage did attach to the same property.

c. (1) The Dorrieses were not entitled to annul the sale of certain property by Earle to X-Sell by virtue of the revocatory action, and (2) the Dorries’ judicial mortgage did not attach to the same property.

d. (1) The Dorrieses were entitled to annul the sale of certain property by Earle to X-Sell by virtue of the revocatory action, but (2) the Dorries’ judicial mortgage did not attach to the same property.

Answer 19

a. (1) The Dorrieses were entitled to annul the sale of certain property by Earle to X-Sell by virtue of the revocatory action; and (2) the Dorries’ judicial mortgage attached to the same property.

Question 20

Which is not a method for the extinction of a mortgage?

Question 10Answer

a. destruction of the thing mortgaged

b. incapacity of the mortgagor after the mortgage is established

c. consent of the mortgagee

d. confusion as a result of the obligee’s acquiring ownership of the thing mortgaged

Answer 20

b. incapacity of the mortgagor after the mortgage is established

Question 21

Sally borrows $500,000 from Big Bank to start her new small business. As security for the loan, Big Bank requires Sally to grant Big Bank a mortgage in her home. Assume that the mortgage is valid in every respect and properly recorded. Assume further that Sally also owes Carl Creditor, whose debt is unsecured, $100,000. When Sally fails to pay Big Bank, Big Bank enforces its mortgage by having Sally’s home seized and sold at judicial sale. The sale price at the judicial sale is $300,000. How will the proceeds of the sale be distributed?

Question 1Answer

a. $300,000 to Big Bank; $0 to Carl Creditor; $0 to Sally

b. $150,000 to Big Bank; $150,000 to Carl Creditor; $0 to Sally

c. $0 to Big Bank, $0 to Carl Creditor; $300,000 to Sally, who is now legally obligated to remit payment to Big Bank

d. $100,000 to Big Bank; $100,000 to Carl Creditor; $100,000 to Sally

Answer 21

a. $300,000 to Big Bank; $0 to Carl Creditor; $0 to Sally

Question 22

Sally borrows $500,000 from Big Bank to start her new small business. As security for the loan, Big Bank requires Sally to grant Big Bank a mortgage in her home. Assume that the mortgage is valid in every respect and properly recorded. Assume that Sally then sold her home to Betty for $400,000. Sally then defaults on the debt, having never paid a penny to Big Bank. Which of the following statements regarding this state of affairs is correct?

Question 2Answer

a. Big Bank lost its right to enforce its mortgage against the home because the home has been sold to Betty, a third person to the mortgage.

b. Big Bank can have the property seized and sold and be paid out of the proceeds of the judicial sale.

Answer 22

b. Big Bank can have the property seized and sold and be paid out of the proceeds of the judicial sale.

Question 23

The following facts are relevant to Questions 3 and 4.

Warren and his brother Wade together owned a business in St. Tammany Parish, W&W LLC, that specialized in car repairs. A few years ago, Warren sold his residence to W&W LLC, reserving the usufruct of the home to himself for the remainder of his lifetime. Recently, W&W LLC borrowed $250,000 from Capital One Bank to finance an expansion of its workspace. As a condition of the loan, Capital One required W&W LLC to grant Capital One a mortgage on all real estate owned by W&W LLC and required Warren and Wade to each grant Capital One mortgages on their own valuable immovable property.

W&W LLC, through Wade and Warren, signed a promissory note evidencing the indebtedness and granted a mortgage in favor of Capital One burdening “all of the immovable property owned by W&W LLC in St. Tammany Parish.” The Act of Mortgage was written and executed by Wade and Warren as representatives of W&W LLC and by a representative of Capital One. However, it was not executed before a notary or any witnesses. The Act of Mortgage stated that the mortgage secured the indebtedness of W&W LLC “as evidenced by the promissory note executed by W&W LLC in favor of Capital One on this day in the amount of $250,000.” You should assume that Wade and Warren have full legal authority to transact on behalf of W&W LLC.

Wade did not sign the promissory note in his personal capacity, but did personally grant a mortgage in favor of Capital One burdening his usufruct of the residence. The property itself was specifically described using a full and legal property description that was obtained from a title abstractor. The Act of Mortgage was written and signed by Warren, but not by a representative of Capital One. Warren did, however, sign in the presence of a notary and two witnesses, who also signed the Act of Mortgage. The Act of Mortgage also provided that the mortgage secured the indebtedness of W&W LLC “as evidenced by the promissory note executed by W&W LLC in favor of Capital One on this day in the amount of $250,000.”

The promissory note executed by W&W LLC was not paraphed for identification with either mortgage.

Which of the following statements regarding W&W LLC’s mortgage is correct?

Question 3Answer

a. The mortgage is invalid because it contains a legally deficient property description.

b. The mortgage is invalid because it purports to encumber property that is not susceptible of mortgage under Louisiana law.

c. The mortgage is invalid because the promissory note that it purports to secure was not paraphed for identification with the mortgage.

d. The mortgage is invalid because it was not executed in authentic form.

e. The mortgage is invalid for more than one of the reasons listed above.

f. The mortgage is valid and enforceable in every respect.

Answer 23

A. The mortgage is invalid because it contains a legally deficient property description.

Question 24

Same facts as above. Which of the following statements regarding Warren’s mortgage is correct?

Question 4Answer

a. The mortgage is invalid because the property that it purports to encumber is not susceptible of mortgage under Louisiana law.

b. The mortgage is invalid because it was not signed by a representative of Capital One.

c. The mortgage is invalid because a mortgage may not be established over the property of a person who is not the principal obligor.

d. The mortgage is invalid because the promissory note that it purports to secure was not paraphed for identification with the mortgage.

e. The mortgage is invalid for more than one of the reasons listed above.

f. The mortgage is valid and enforceable in every respect.

Answer 24

f. The mortgage is valid and enforceable in every respect.

Question 25

Assume now that W&W LLC’s mortgage of the naked ownership of Warren’s residence was valid and enforceable in every respect. Assume further that W&W LLC leases the premises upon which it operates its business from Larry Landlord. Assume that in the same Act of Mortgage, W&W LLC also granted Capital One a mortgage in its lease of the property, specifically stating that what was mortgaged was “the GROUND LEASE between W&W LLC and Larry Landlord.” The Act of Mortgage contained a full and valid legal description of the leased property. Applying the rationale and holding of Carriere v. Bank of Louisiana, which of the following is correct?

Question 5Answer

a. If W&W LLC defaults on the promissory note, Capital One may foreclose on the mortgage and have sold at judicial sale W&W LLC’s rights and obligations in the lease at judicial sale, after which the purchaser at foreclosure will have the right to occupy the premises and will be obligated under the lease to pay rent to Larry Landlord.

b. The mortgage does not burden W&W LLC’s rights in the lease because this is not a type of property susceptible of mortgage.

c. If W&W LLC defaults on the promissory note, Capital One may foreclose on the mortgage and have sold at judicial sale W&W LLC’s rights in the lease at judicial sale, after which the purchaser at foreclosure will have the right to occupy the premises, but W&W LLC (not the purchaser at foreclosure) will be obligated to under the lease to pay rent to Larry Landlord.

Answer 25

a. If W&W LLC defaults on the promissory note, Capital One may foreclose on the mortgage and have sold at judicial sale W&W LLC’s rights and obligations in the lease at judicial sale, after which the purchaser at foreclosure will have the right to occupy the premises and will be obligated under the lease to pay rent to Larry Landlord.

Question 26

Archibald executed a conventional mortgage in favor of Big Bank to secure a debt of $100,000. The act of mortgage stated that the mortgaged property was Archibald’s residence in East Baton Rouge Parish (and contained a full and complete legal property description of Archibald’s residence), “together with any and all immovable property that Archibald might acquire in the future.” Three years later, Archibald acquired a tract of land in Bossier Parish that he planned to use as a hunting camp. Assuming that the mortgage was valid and enforceable in every respect (at least with respect to the East Baton Rouge Parish property), does the mortgage also encumber the Bossier Parish land?

Question 6Answer

a. Yes; an after-acquired property clause like the one in this mortgage is valid and enforceable.

b. No; a mortgage of the mortgagor’s future property is enforceable only when the mortgage specifically describes the future property.

c. No; a mortgage of the mortgagor’s future property is never enforceable.

d. Yes; a conventional mortgage is a “general mortgage,” which means that it burdens all present and future property of the mortgagor.

Answer 26

b. No; a mortgage of the mortgagor’s future property is enforceable only when the mortgage specifically describes the future property.

Question 27

Mary Louise and David lived together for over thirty years, but never married. The home they lived in was initially owned solely by Mary Louise; however, Mary Louise eventually donated a one-half interest in the house to David so that they co-owned the property. Thereafter, Mary Louise borrowed $300,000 from First Finance to pay operating expenses for her business. To secure the debt, First Finance required a mortgage of the home. When First Finance learned that Mary Louise co-owned the home with David, First Finance required David to also sign the mortgage as “Mortgagor.” Assume that Mary Louise and David both signed the Act of Mortgage, and that the Act of Mortgage was valid in every respect - with the sole questions being the enforceability of the mortgage and the principal indebtedness against David. Which of the following is true?

Question 7Answer

a. David’s mortgage of his half of the home is valid and enforceable, and should Mary Louise default on the debt, David’s half may be seized and sold at judicial sale along with Mary Louise’s half.

b. David’s mortgage of his half of the home is invalid because one cannot grant a mortgage in an undivided interest in an immovable under Louisiana law.

c. By signing the Act of Mortgage, David has obligated himself as a solidary co-obligor of the indebtedness along with Mary Alice, and David is therefore personally bound for the entire debt.

d. Both a and c are correct.

Answer 27

a. David’s mortgage of his half of the home is valid and enforceable, and should Mary Louise default on the debt, David’s half may be seized and sold at judicial sale along with Mary Louise’s half.

Question 28

Same facts as above. Assume now that the mortgage executed by David was valid and enforceable at the time of execution. Assume further that following the execution of the mortgage, Mary Alice declared bankruptcy and the obligation that she owed to First Finance was discharged in bankruptcy. Which of the following is correct?

Question 8Answer

a. David can raise Mary Alice’s discharge in bankruptcy as a defense to any action by First Finance to enforce its mortgage against David’s half of the home.

b. First Finance may foreclose on its mortgage against David’s half of the home despite Mary Alice’s discharge in bankruptcy because David remains personally and solidarily bound for the entire debt.

c. First Finance may foreclose on its mortgage against David’s half of the home despite Mary Alice’s discharge in bankruptcy because David may not raise Mary Alice’s discharge in bankruptcy as a defense to First Finance’s action to enforce the mortgage.

d. Both b and c are correct.

Answer 28

c. First Finance may foreclose on its mortgage against David’s half of the home despite Mary Alice’s discharge in bankruptcy because David may not raise Mary Alice’s discharge in bankruptcy as a defense to First Finance’s action to enforce the mortgage.

Question 30

After Andi rear-ended Lee Ann’s car in the parking lot at work, Lee Ann filed a lawsuit against Andi for negligence and was awarded damages in the amount of $10,000. Lee Ann would like to secure this money judgment with a mortgage in Andi’s immovable property in East Baton Rouge Parish. What must Lee Ann do to create this mortgage?

Question 9Answer

a. record her money judgment in the mortgage records of East Baton Rouge Parish, and no more.

b. In addition to properly recording her money judgment, Lee Ann must convince Andi to grant Lee Ann a conventional mortgage securing the judgment that specifically describes any property owned by Andi in East Baton Rouge Parish (good luck, Lee Ann!).

c. record her judgment in the conveyance records of East Baton Rouge Parish, and no more.

d. record her money judgment with the Louisiana Secretary of State, and no more.

Answer 30

a. record her money judgment in the mortgage records of East Baton Rouge Parish, and no more.

Question 31

Same facts as above. Assume that Andi is successful in creating a judicial mortgage against Andi’s immovable property in East Baton Rouge Parish. Which of the following statements about this mortgage is correct?

Question 10Answer

a. It is a special mortgage; i.e., it burdens only the property in East Baton Rouge Parish that is specifically described in the judgment, whether owned by Andi or acquired by her in the future.

b. It is a general mortgage; i.e., it burdens all of Andi’s property in East Baton Rouge Parish that is susceptible of mortgage, whether owned by Andi now or acquired by her in the future.

c. It is a special mortgage; i.e., it burdens only the property in East Baton Rouge Parish that is specifically described in the judgment, but it will not encumber property in East Baton Rouge Parish acquired by Andi in the future.

d. It is a general mortgage; i.e., it burdens all of the property in East Baton rouge Parish that Andi currently owns, but it will not encumber property in East Baton Rouge Parish acquired by Andi in the future.

Answer 31

b. It is a general mortgage; i.e., it burdens all of Andi’s property in East Baton Rouge Parish that is susceptible of mortgage, whether owned by Andi now or acquired by her in the future.

Question 32

A mortgage is not effective against third persons unless it is filed for recordation:

Question 1Answer

a. In the mortgage records of any parish in the state.

b. In the mortgage records of the parish where the immovable is located.

c. In either the mortgage or conveyance records of the parish where the immovable is located (either will do).

d. In either the mortgage or conveyance records of any parish in the state (any records will do).

Answer 32

b. In the mortgage records of the parish where the immovable is located.

Question 33

Debtor, the owner of Blackacre, grants Big Bank a mortgage on Blackacre to secure a debt of $300,000 on Monday. Assume the mortgage is valid and enforceable between Debtor and Big Bank. On Tuesday, Debtor grants Baby Bank a mortgage, on the same house to secure a debt of $100,000. Assume this mortgage is valid and enforceable between Debtor and Baby Bank. On Wednesday, Baby Bank properly records its mortgage. On Thursday, Big Bank properly records its mortgage. Assume that Debtor defaults on both debts, owing the entire amount due on both, and that both creditors foreclose on their mortgages. Blackacre is sold at judicial sale for $100,000. How are the proceeds distributed?

Question 2Answer

a. Big Bank - $100,000; Baby Bank - $0

b. Big Bank - $50,000; Baby Bank - $50,000

c. Baby Bank - $25,000; Big Bank - $75,000

d. Baby Bank - $100,000; Big Bank - $0

Answer 33

d. Baby Bank - $100,000; Big Bank - $0

Question 34

Debtor, the owner of Blackacre, grants Creditor a mortgage on Blackacre to secure the debt of $100,000 on Monday. Creditor does not record its mortgage. On Tuesday, Debtor sells Blackacre to Buyer. Debtor tells Buyer, “this property is encumbered by an unrecorded mortgage,” but Buyer neither assumes Debtor’s obligation to pay Creditor nor purchases the property “subject to” the mortgage. Buyer properly records his act of sale in conveyance records of the parish where Blackacre is located. Later Creditor seeks to foreclose on the mortgage and have Blackacre seized and sold. Is Creditor entitled to enforce its mortgage against Balckacre?

Question 3Answer

a. No; because Creditor failed to record its mortgage, the mortgage is not enforceable against third persons, including Buyer, even though Buyer had actual knowledge of the unrecorded mortgage.

b. No; a mortgage is never enforceable after the property is sold to a third person by the mortgagor.

c. Yes; a mortgagee always has the right of pursuit over the thing mortgaged.

d. Yes; because Buyer had actual knowledge of the mortgage, it is effective against Buyer despite the fact that it was not recorded.

Answer 34

a. No; because Creditor failed to record its mortgage, the mortgage is not enforceable against third persons, including Buyer, even though Buyer had actual knowledge of the unrecorded mortgage.

Question 35

In McDuffie v. Walker, the Court held:

Question 4Answer

a. A third person to an unrecorded instrument affecting an immovable is not bound by that instrument, even if the third person had actual knowledge of it.

b. A third person to an unrecorded instrument affecting an immovable is not bound by that instrument, even if the third person commits fraud by inducing a party not to record an instrument.

c. A third person to an unrecorded instrument affecting an immovable is not bound by that instrument, unless the third person had actual knowledge of it.

d. Although mortgages must be recorded to have effects against third persons, act of sale, do not.

Answer 35

a. A third person to an unrecorded instrument affecting an immovable is not bound by that instrument, even if the third person had actual knowledge of it.

Question 36

Which of the following is a third person to act of mortgage according to the law of registry?

Question 5Answer

a. a witness to the act of mortgage.

b. a notary before whom the mortgage was executed.

c. an heir of either the mortgagor or the mortgagee.

d. all of the above.

e. none of the above.

Answer 36

a. a witness to the act of mortgage.

Question 37

In Wade v. Niche Marketing the Supreme Court held:

Question 6Answer

a. when the clerk filed the plaintiff’s money judgement against the defendant in the conveyance records rather than the mortgage records, a judicial mortgage was created but was not effective against third persons (here, the person who purchased the property in question from the defendant).

b. the clerk’s error (improperly recording the plaintiff’s money judgement against the defendant in the conveyance records rather than the mortgage records) did not impact the effect of recordation.

c. a judicial mortgage, unlike a conventional mortgage, need not be recorded to have effects against third persons.

d. when a clerk filed the plaintiff’s money judgement against the defendant in the conveyance records rather than the mortgage records, a judicial mortgage never came into existence.

Answer 37

d. when a clerk filed the plaintiff’s money judgement against the defendant in the conveyance records rather than the mortgage records, a judicial mortgage never came into existence.

Question 38

As a general rule, when does a properly recorded mortgage cease to have effects against third persons? See La. Civ. Code art. 3357.

Question 7Answer

a. on the date the mortgage is extinguished, and not before.

b. ten years from the date of recordation (the date the mortgage was recorded).

c. ten years from the date of the creation of the secured obligation.

d. ten years from the date of the instrument (the date the mortgage was executed).

Answer 38

d. ten years from the date of the instrument (the date the mortgage was executed).

Question 39

Debtor grants Big Bank a mortgage to secure a debt of $100,000. The debt is evidenced by a promissory note, according to which the entire debt is due on January 1, 2030. Both the promissory note and the Act of Mortgage were signed January 1, 2020. The Act of Mortgage states that it “secures that promissory note executed by Debtor on this day for the sum of $100,000, full payment of which is due January 1, 2030.” The mortgage was properly recorded on February 1, 2020. On what date will the mortgage cease to have effects as to third persons?

Question 8Answer

a. February 1, 2030.

b. January 1, 2030.

c. January 1, 2039.

d. January 1, 2036.

Answer 39

d. January 1, 2036.

Question 40

Big Bank obtained a money judgement against Debtor on January 1, 2015. The judgement was properly recorded on January 1, 2017. On what date will the effects of recordation of the judgement cease?

Question 9Answer

a. January 1, 2025.

b. January 1, 2027.

c. January 1, 2022.

d. January 1, 2035.

Answer 40

a. January 1, 2025.

Question 41

Debtor granted a mortgage in favor of Big Bank to secure a debt of $100,000. Assume the mortgage is valid and enforceable in every respect. Assume that both the mortgage and the promissory note evidencing the debt were signed on January 1, 2020, and that the promissory note states that the debt is due in a single balloon payment on January 1, 2032. Assume that the mortgage does not describe maturity date of the indebtedness. On February 1, 2020, Big Bank properly recorded the Act of Mortgage. On June 1, 2029, Big Bank properly filed a notice of reinscription of the mortgage. When will the mortgage cease to have effects against third persons?

Question 10Answer

a. January 1, 2040.

b. February 1, 2040.

c. January 1, 2042.

d. June 1, 2039.

Answer 41

d. June 1, 2039.

Question 42

Which of the following statements is correct?

Question 1Answer

a. A third person who is legally or conventionally subrogated to the mortgagee’s rights in the principal obligation is automatically subrogated to the mortgagee’s rights in the mortgage.

b. A third person who acquires property burdened by a recorded mortgage is automatically (i.e., by virtue of acquisition of the property) personally bound for the principal obligation.

c. A third person who acquires property burdened by a recorded mortgage is not bound by that mortgage unless he or she assumes the principal obligation of the debtor.

d. A mortgagee may conventionally subrogate a third person to its rights in the mortgagee without transferring to the subrogee any right to collect the principal obligation.

Answer 42

a. A third person who is legally or conventionally subrogated to the mortgagee’s rights in the principal obligation is automatically subrogated to the mortgagee’s rights in the mortgage.

Question 43

Debtor borrows $100,000 from Baby Bank and grants Baby Bank a mortgage over Blackacre. later, Baby Bank assigns its right to collect $75,000 (a portion of the loan) to Big Bank. Debtor defaults on the debt and the two mortgagees foreclose. Assume that Blackacre is worth $40,000. How will the price be apportioned between the two mortgagees?

Question 2Answer

a. Baby Bank - $0; Big Bank - $40,000

b. Baby Bank - $20,000; Big Bank - $20,000

c. Baby Bank - $40,000; Big Bank - $0

d. Baby Bank - $10,000; Big Bank - $30,000

Answer 43

d. Baby Bank - $10,000; Big Bank - $30,000

Question 44

Debtor borrows $100,000 from Baby Bank and grants Baby Bank a mortgage over Blackacre. The mortgage is properly recorded. Later, Debtor and Baby Bank agree to a release of the mortgage, but the mortgage is not canceled from the public records. Baby Bank then assigns its rights in the loan to Big Bank. Is the release of the mortgage effective as to Big Bank?
Question 3Answer

a. No: A transferee of an obligation secured by a mortgage is not bound by any unrecorded act releasing, amending, or otherwise modifying the mortgage if he is a third person with respect to the unrecorded act.

b. No: the release, amendment, or modification of a mortgage is never enforceable against third persons.

c. Yes: a transferee of an obligation secured by a recorded mortgage is automatically bound by any release, amendment, or other modification of that mortgage.

d. Yes: a person may not assign to another greater rights than he has against the mortgagor.

Answer 44

a. No: A transferee of an obligation secured by a mortgage is not bound by any unrecorded act releasing, amending, or otherwise modifying the mortgage if he is a third person with respect to the unrecorded act.

Question 44

Debtor borrows $100,000 from Baby Bank and grants Baby Bank a mortgage over Blackacre. The mortgage is recorded in the public records. Later, Baby Bank transfers its right to collect the debt to Big Bank. Big Bank does not record any evidence of the transfer in the public records. Baby Bank later transfers the same rights in the principal obligation to Massive Bank, who records his assignment. Who now has the right to foreclose upon the property: Big Bank or Massive Bank?

Question 4Answer

a. Big Bank: a person may not assign to another greater rights than he has against the mortgagor.

b. Massive Bank: the unrecorded transfer to Big Bank had no effect against Massive Bank, and Massive Bank’s assignment, once recorded, is effective against third persons, including Big Bank.

Answer 44

b. Massive Bank: the unrecorded transfer to Big Bank had no effect against Massive Bank, and Massive Bank’s assignment, once recorded, is effective against third persons, including Big Bank.

Question 45

A third possessor is:

Question 5Answer

a. A person who acquires property burdened by a recorded mortgage but who is not personally bound for the secured obligation.

b. A person who acquires property burdened by a recorded mortgage and assumes or is otherwise personally bound for the secured obligation.

c. A person who takes possession of mortgaged property without acquiring ownership of it.

Answer 45

a. A person who acquires property burdened by a recorded mortgage but who is not personally bound for the secured obligation.

Question 46

Debtor borrows $100,000 from Baby Bank and grants Baby Bank a mortgage in Blackacre. The mortgage is properly recorded. Later, Debtor sells Blackacre to Tom, who does not personally assume the principal obligation. If Debtor defaults on the debt, which is correct?

Question 6Answer

a. Tom is personally bound to pay the entire debt.

b. Baby Bank can foreclose on the mortgage and have Blackacre seized and sold at judicial sale.

c. (a) and (b) are correct.

d. None of the above is correct.

Answer 46

b. Baby Bank can foreclose on the mortgage and have Blackacre seized and sold at judicial sale.

Question 47

Same facts as above. Assume that Baby Bank forecloses on the mortgage and that the property is sold at judicial sale for $75,000. Which is correct?

Question 7Answer

a. Neither Tom nor Debtor is liable for the deficiency: Baby Bank suffers this loss.

b. Debtor alone is personally bound for the deficiency, or $25,000.

c. Tom alone is liable for the deficiency, or 25,000.

d. Debtor and Tom are solidarily liable for the deficiency, or $25,000.

Answer 47

b. Debtor alone is personally bound for the deficiency, or $25,000.

Question 48

Debtor borrows $150,000 from Baby Bank and grants Baby Bank a mortgage in Blackacre. The mortgage is properly recorded. Later, Debtor sells Blackacre to Tom, who was not aware of the mortgage at the time of the sale. Tom discovers the mortgage and allows the building on Blackacre to fall into disrepair. Debtor defaults on the debt; Baby Bank forecloses. The property, valued at $100,000 at the time Tom acquired it, sells at judicial sale for only $50,000. Does Tom owe any personal obligation to Baby Bank?

Question 8Answer

a. No: a third possessor is never personally liable to the mortgagee.

b. No; a third possessor is not liable for deterioration of the property unless he knew of the mortgage at the time of the sale.

c. Yes: Tom is liable for 100,000; by virtue of his neglect of the property. Tom is now liable for the entire principal obligation.

d. Yes: Tom is liable for $50,000, the amount that the mortgagee has been prejudiced by virtue Tom’s neglect of the property.

Answer 48

d. Yes: Tom is liable for $50,000, the amount that the mortgagee has been prejudiced by virtue Tom’s neglect of the property.

Question 49

Debtor borrows $150,000 from Baby Bank and grants Baby Bank a mortgage in Blackacre. The mortgage is propery recorded. Later, Debtor sells Blackacre to Tom. When Debtor defaults on the secured obligation, Baby Bank seeks to foreclose on Blackacre. Tom pays the debt to avoid foreclosure. Which is correct?

Question 9Answer

a. Tom is out of luck; a third possessor who pays the debt has no recourse against the principal obligor.

b. Tom is entitled to contribution from Debtor in the amount of one half of the debt (here $75,000).

c. Tom, though not subrogated to Baby Bank’s rights against Debtor, may nevertheless seek “reimbursement” from Tom.

d. Tom is subrogated to Baby Bank’s rights against Debtor and may proceed against Debtor to collect the debt.

Answer 49

d. Tom is subrogated to Baby Bank’s rights against Debtor and may proceed against Debtor to collect the debt.

Question 50

When a third possessor pays the secured obligation, is the mortgage fully extinguished?

Question 10Answer

a. No, the mortgage is not fully extinguished when a third possessor pays the secured obligation.

b. Yes, the mortgage is fully extinguished through confusion because the third possessor, now subrogated to the rights of the mortgagee against he debtor, is now both mortgagee and mortgagor.

c. Yes, the mortgage is fully extinguished through performance of the principal obligation.

Answer 50

a. No, the mortgage is not fully extinguished when a third possessor pays the secured obligation.

Question 51

Historically, the “problem” with indeterminate future advance mortgages was that:

Question 1Answer

a. payment of the secured obligation extinguished the mortgage pro tanto; thus the same mortgage could not be used to secure additional future advances.

b. because a mortgage cannot exist without a principal obligation, a mortgage executed to secure funds not yet advanced is a legal impossibility.

c. unlike single-advance mortgages, indeterminate future advance mortgages rank against third persons from the date of the advance(s) made.

d. all of the above were “problems” with indeterminate future advance mortgages prior to 1992.

Answer 51

a. payment of the secured obligation extinguished the mortgage pro tanto; thus the same mortgage could not be used to secure additional future advances.

Question 52

In Thrift Canal, Inc. v. Foy, the court applied the “old” law of indeterminate future advance mortgages to hold:

Question 2Answer

a. The 1963 mortgage was properly classified as a “collateral mortgage” and therefore it secured additional sums lent by the mortgagee to the debtor in 1966.

b. The 1963 mortgage did not secure the additional sums lent by the mortgagee to the debtor in 1966 because under the law in effect at that time, a mortgagee could not be made to secure a future advance of any kind.

c. The 1963 mortgage secured the balance of the original indebtedness and additional sums lent by the mortgagee to the debtor in 1966 because the amount secured as recited by the mortgage ($10,000) was more than the combined amounts due on the 1963 and 1966 notes (roughly $9,000).

d. The 1963 mortgage was partially extinguished by the debtor’s payments on the 1963 loan and could not be revived to secure additional sums lent by the mortgagee to the debtor in 1966.

Answer 52

d. The 1963 mortgage was partially extinguished by the debtor’s payments on the 1963 loan and could not be revived to secure additional sums lent by the mortgagee to the debtor in 1966.

Question 53

Prior to January 1, 1992, a “collateral mortgage” was required to secure a revolving line of credit with a mortgage. True or false: a “collateral mortgage” is still required today to secure a revolving line of credit with a mortgage.

Question 3Select one:
True
False

Answer 53

False

Question 54

Prior to January 1, 1992, a “collateral mortgage” was required to secure a revolving line of credit with a mortgage. True or false: it is not possible to create a “collateral mortgage” under current Louisiana law.

Question 4Select one:
True
False

Answer 54

False

Question 55

Question 5
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Question text
Diamond Services Corp v. Benoit is a significant opinion because:

Question 5Answer

a. The court held that the maker of a collateral mortgage note is always personally bound to the bearer for the full amount states on the face of the collateral mortgage note.

b. The court held that the maker of a collateral mortgage note is personally bound to the bearer for the lesser of the amount stated on the face of the collateral mortgage note or the amount owed in connection with the hand note secured by the collateral mortgage note.

c. The court held that the maker of a collateral mortgage note who pledges that note as security for the debt of a third person is not personally liable to the bearer for more than the amount of the mortgaged property; this holding reaffirmed the long-held view that the collateral mortgage note is a fictitious debt designed to facilitate the pledge to secure the actual debt.

Answer 55

c. The court held that the maker of a collateral mortgage note who pledges that note as security for the debt of a third person is not personally liable to the bearer for more than the amount of the mortgaged property; this holding reaffirmed the long-held view that the collateral mortgage note is a fictitious debt designed to facilitate the pledge to secure the actual debt.

Question 56

Claire owns a tract of land in Grant Parish, Louisiana. In 2020, she borrowed $50,000 from a local bank (“Bank”). The loan is evidenced by a promissory note dated August 1, 2020, with interest -only payments due monthly over a seven-year term beginning on September 1, 2020, and final balloon payment of all outstanding principal and unpaid interest due on August 1, 2027. To secure this promissory note, Claire executed a written mortgage, valid in form, which states that it secured “that promissory note executed by Claire on August 1, 2020, in favor of Bank in the amount of $50,000 plus interest, due in full on August 1, 2027.” This mortgage was executed by Claire and a representative of Bank on August 1, 2020, and recorded in the mortgage records of Grant Parish on August 15, 2020. No payments or legal demands have ever been made on the promissory note, and the mortgage has never been reinscribed. Which of the following is the correct date upon which the mortgage will cease to have effects against third persons?

Question 1Answer

a. August 1, 2030

b. August 1, 2033

c. August 15, 2033

d. August 15, 2030

Answer 56

a. August 1, 2030

Question 57

On what date will the action to collect the first interest payment (due September 1, 2020) prescribe?

Question 2Answer

a. August 1, 2037

b. September 1, 2033

c. September 1, 2025

d. August 1, 2025

Answer 57

c. September 1, 2025

Question 58

On what date will the action to collect the balance of the debt (due August 1, 2027) prescribe?

Question 3Answer

a. August 1, 2037

b. August 1, 2027

c. August 1, 2025

d. August 1, 2032

Answer 58

d. August 1, 2032

Question 59

Ehimen borrowed $100,000 from Stephen and granted a valid mortgage in her Baton Rouge residence to Stephen to secure the debt. The mortgage was executed in the form of an authentic act. It was signed by Ehimen was mortgagor, Stephen was mortgage, Missy, as notary, and Erica and Syndie, as witnesses. Following the execution of the mortgage, Stephen recorded it in the East Baton Rouge Parish conveyance records (East Baton Rouge Parish being the Parish where Ehimen’s residence was located). Following this, Ehimen sold the same home to Missy for a price of $150,000. Missy did not contractually assume Ehimen’s obligation on the secured indebtedness at the time of the acquisition of the residence. Which of the following is correct?

Question 4Answer

a. If Ehimen defaults on the loan, Stephen may seize and sell the residence, even though ownership of it has been transferred to Missy.

b. Ehimen and Missy are a solidarity bound to Stephen for the principal indebtedness.

c. If Ehimen defaults on the loan, Stephen may not seize and sell the residence because ownership of it has been transferred to Missy, who is a third person to the unrecorded mortgage.

d. More than one of the above statements is correct.

Answer 59

a. If Ehimen defaults on the loan, Stephen may seize and sell the residence, even though ownership of it has been transferred to Missy.

Question 60

Debtor grants Big Bank a valid mortgage to secure a debt of $100,000. The debt is evidenced by a promissory note, according to which the entire debt is due on January 1, 2030. Both the promissory note and the Act of Mortgage were signed on January 1, 2020. The Act of Mortgage states that it “secures that promissory note execute by Debtor on this day for the sum of $100,000, full payment of which is due on January 1, 2030.” The mortgage was properly recorded on February 1, 2020. The mortgage was then reinscribed on January 1, 2035. When will this mortgage cease to have effects against third persons?

Question 5Answer

a. January 1, 2045

b. January 1, 2046

c. February 1, 2030

d. January 1, 2036

Answer 60

a. January 1, 2045

Question 61

Sally obtained a money judgment against Ron in the amount of $100,000 on June 1, 2011. Sally recorded the money judgment in the St. Tammany Parish mortgage records on July 1, 2011. In 2015, Rom purchased a home in St. Tammany Parish. He sold the home to Tammy in 2018. In 2019, Sally filed a notice of reinscription of the judicial mortgage. Sally has never filed an action to revive the judgment against Ron. Which of the following statements are correct?

Question 6Answer

a. Sally’s judicial mortgage ceased to burdens Ron’s home when he transferred ownership of it to Tammy.

b. Sally’s judicial mortgage ceased to burden Ron’s home when the judgement that it secured prescribed on June 1, 2021.

c. Sally’s judicial mortgage never burdened Ron’s home because he did not own the home at the time she recorded her judgment in the mortgage records of St. Tammy Parish.

d. Sally’s judicial mortgage continues to burden the home as of today’s date.

Answer 61

b. Sally’s judicial mortgage ceased to burden Ron’s home when the judgement that it secured prescribed on June 1, 2021.

Question 62

Debtor borrows $100,000 from Baby Bank and grants Baby Bank a mortgage in Blackacre. Later, Baby Bank assigns its right to collect $75,000 (part of the loan) to Big Bank. Debtor defaults on the debt and the mortgagees foreclose. Assume that Blackacre is worth $40,000. How much will Baby Bank receive? How much will Big Bank receive?

Question 7Answer

a. Baby Bank - $20,000; Big Bank - $20,000

b. Baby Bank - $40,000; Big Bank - $0

c. Baby Bank - $10,000; Big Bank - $30,000

d. Baby Bank - $0; Big Bank - $40,000

Answer 62

c. Baby Bank - $10,000; Big Bank - $30,000

Question 63

Elizabeth borrowed $400,000 from Local Bank and secured the debt with a valid mortgage in a tract of undeveloped land owned by her in Lafourche parish. The mortgage was executed on January 1, 2020, and properly recorded on the same date. Following the sale, in January 2021, she sold the land to Franklin. Assume that when Franklin purchased the property, her bought it from Elizabeth for its fair market value, which at the time of the sale was $300,000. At the time of the sale, Franklin was entirety unaware of the existence of the mortgage. Assume further that through no fault of Franklin’s the price of real restate in Lafourche Parish plummeted. Then, Elizabeth defaulted on her debt, which she owes in full. Local Bank had the property seized and sold at judicial sale, but because of the decline in market value, the property only fetched a price of $100,000.

Question 8Answer

a. Franklin is liable to Local Bank for $300,000 because property decreased in value to the prejudice of the Local Bank while Franklin was the owner of it.

b. Elizabeth, not Franklin, is liable to Local Bank for the deficiency of $300,000.

c. Franklin and Elizabeth are solidarity bound for the deficiency because Franklin, through his acquisition of the property burdened by a recorded mortgage, assumed Elizabeth;’s obligation on the secure indebtedness.

d. Franklin is liable to Local Bank for $200,000 because the property decreased in value to the prejudice of the Local Bank while Franklin was the owner of it.

Answer 63

b. Elizabeth, not Franklin, is liable to Local Bank for the deficiency of $300,000.

Question 64

Same facts as above, but assume now that when Franklin bought the house from Elizabeth its fair market value was $150,000 and that it did not thereafter decrease in value. Instead, after purchasing the property, Franklin decided to build a home on the land, which he did at his cost of $125,000. The addition of the home raised the value of the property by $150,000, so that the fair market value of the property (as developed) is now $300,000. Finally, assume that Elizabeth defaulted on the $400,000 debt (which is still due in full) and Local bank had the property seized and sold at judicial sale for a price of $300,000. How will this price be apportioned?

Question 9Answer

a. Local Bank $300,000; Franklin $0.

b. Local Bank $175,000; Franklin $125,000.

c. Local Bank $100,000; Franklin $200,000.

d. Local Bank $150,000; Franklin $150,000.

Answer 64

b. Local Bank $175,000; Franklin $125,000.

Question 65

Same facts as above, but assume now that after Franklin bought the house and before he commenced construction of the house he learned of the existence of the mortgage and paid Local Bank the full amount of the outstanding debt ($400,000) to extinguish the secured indebtedness. Assume further that he also discovered a second-ranked mortgage on the property held by Baby Bank securing an outstanding indebtedness of $100,000. Franklin has not paid anything to Baby Bank. Which of the following statements is correct?

Question 10Answer

a. Franklin may recover $400,000 from Elizabeth as a result of his subrogation to Local Bank’s rights against her, and he occupies the position of first mortgagee on the property.

b. Franklin may recover $400,000 from Elizabeth as a result of his subrogation to Local Bank’s rights against her, and he now occupies the position of second mortgagee on the property (ranked behind Baby Bank).

c. Franklin may not recover $400,000 from Elizabeth because he did not obtain from Local Bank a conventional subrogation of its rights against Elizabeth.

Answer 65

a. Franklin may recover $400,000 from Elizabeth as a result of his subrogation to Local Bank’s rights against her, and he occupies the position of first mortgagee on the property.

Question 66

Which of the following is not a correct statement of current Louisiana law?

Question 1Answer

a. A mortgage securing future, uncertain advances is not extinguished in part through payment of a portion of the secured indebtedness.

b. As to future advances, a conventional mortgage ranks from the later of the date the mortgage is recorded and the date on which funds are advanced.

c. A conventional mortgage may be used to secure a single advance made contemporaneously with the mortgage, future certain advances, and future uncertain advances, or any combination thereof.

d. A mortgage securing future, uncertain advances may be terminated by the mortgagor or his successor giving reasonable notice to the mortgagee when an obligation does not exist and neither the mortgagor nor the mortgagee is bound to the other or to a third person to permit an obligation secured by the mortgage to be incurred.

Answer 66

b. As to future advances, a conventional mortgage ranks from the later of the date the mortgage is recorded and the date on which funds are advanced.

Question 67

A conventional mortgage contains language stating that “This mortgage secures any and all obligations of the Mortgagor to the Creditor up to the principal limit of $100,000, whether such obligations are past, present, or future.” This language—

Question 2Answer

a. Prevents the mortgage from being extinguished by payments made by the principal obligor toward one or more advances.

b. Invalidates the mortgage because the mortgage does not state with precision the amount of the secured obligaton(s).

Answer 67

a. Prevents the mortgage from being extinguished by payments made by the principal obligor toward one or more advances.

Question 68

True or false: If a mortgage secures future, indefinite obligations with a maximum limit on their aggregate balance from time to time, the mortgage is not extinguished in whole or in part by the obligor’s performance of the secured obligations.

Question 3Select one:
True
False

Answer 68

True

Question 69

In In re Hari Aum, LLC, the court held:
Question 4Answer

a. The mortgage granted to First Guaranty Bank of Hammond by Hari Aim was not a “multiple indebtedness mortgage” and could not be used to secure future advances to Hari Aum.

b. The multiple indebtedness mortgage granted to First Guaranty Bank of Hammond by Hari Aum did not secure a future debt incurred by Hari Aum because the promissory note evidencing that debt was not properly recorded in the public record, nor was an amendment to the original mortgage filed to reflect the additional advance.

c. A multiple indebtedness mortgage granted to First Guaranty Bank of Hammond by Hari Aum, LLC secured a debt incurred by a related entity, Mississippi Hospitality Services, either because Hari Aum was personally obligated on the debt or because Hari Aum agreed that the multiple indebtedness mortgage secured the debt of Mississippi Hospitality Services.

Answer 69

c. A multiple indebtedness mortgage granted to First Guaranty Bank of Hammond by Hari Aum, LLC secured a debt incurred by a related entity, Mississippi Hospitality Services, either because Hari Aum was personally obligated on the debt or because Hari Aum agreed that the multiple indebtedness mortgage secured the debt of Mississippi Hospitality Services.

Question 70

In Keybank National Association v. Perkins Row Associates, LLC, the court held:

Question 5Answer

a. The Wachovia bank Mortgage secured Perkins Rowe’s indebtedness to Keybank, Wachovia’s successor, and outranked the construction liens, even though no funds were advanced by Keybank until long after construction liens were established.

b. Because Wachovia Bank never loaned any money to Perkins Rowe, the Wachovia Bank Mortgage never came into existence.

c. The promissory note executed by Perkins Rowe in favor of Wachovia Bank was a “sham” note that prevented Wachovia Bank from assigning its rights in the Wachovia Bank Mortgage to Keybank.

Answer 70

a. The Wachovia bank Mortgage secured Perkins Rowe’s indebtedness to Keybank, Wachovia’s successor, and outranked the construction liens, even though no funds were advanced by Keybank until long after construction liens were established.