6. Mortgages Flashcards
Mortgage
A mortgage is a security interest in land that serves as collateral for the repayment of a loan.
♣ Writing requirement: Must be in writing to satisfy the SoF
♣ Mortgagee: creditor
♣ Mortgager: debtor/borrower/landowner
Lien Theory vs. Title Theory
♣ Lien Theory: (majority) mortgager has title and the right to possession absent foreclosure. Mortgagee has lien, conferring a right to take action for ownership of the land if the mortgagor defaults on the loan
♣ Title Theory: (minority) mortgagee has title to the property during loan term
Equitable Mortgage
Equitable mortgage:
Debtor gives creditor deed to his land as collateral for debt.
A mortgagee (creditor) can transfer her interest by:
♣ Endorsing the mortgage note and delivering it to transferee
♣ Executing a separate assignment of the mortgage interest
Holder in Due Course
♣ A holder in due course takes a mortgage note free of any personal defenses mortgagor could have raised against original mortgagee (e.g. lack of consideration, fraudulent inducement)
♣ He still remains subject to real defenses (e.g. material alteration, duress, fraud, incapacity, infancy, illegality, insolvency).
o Requirements for holder in due course status:
♣ 1. Negotiable note – note must be negotiable, made payable to the named mortgagee
♣ 2. Endorsed and signed – note must be endorsed or signed by the name mortgagee
♣ 3. Delivered – note must be delivered to the transferee; and
♣ 4. Good faith and value paid – transferee must take the note in good faith (e.g. without notice of illegality) and pay value
Foreclosure:
Mortgagee Rights to Property
♣ Mortgagee can satisfy debt through foreclosure by judicial action.
♣ Assumes the risk of accounting for rents, managing property and tort liability to third parties.
♣ Deficiency judgment:
• If debt exceeds sale proceeds, mortgagee can file suit against mortgagor for debt balance
♣ Redemption in Equity:
• At any time prior to foreclosure sale, mortgagor can redeem property by paying amount due.
o Multiple Creditors/Interests
♣ Priority of creditors
• Recorded interests take priority in order recorded
• Creditors must record their interests
• Purchase money mortgages (PMM): superior to all interests
Land Support
o Lateral Support
♣ Right to have land supported in its natural state by adjoining land
• Negligence: If adjacent landowners excavation causes damage to developed land, excavating owner is only liable if he acted negligently
• Strict liability: P must show his land would have collapsed even in its natural state, due to D’s excavations
o Subjacent Support
♣ Underground structures must support surface structures existing when the subjacent estate was created (e.g. of subjacent structures mines, tunnels)
• Negligence: Negligent for failing to support subsequently contructed buildings.
• Strict liability: subjacent owners are strictly liable for failing to support surface land and pre-existing surface structures
Water Rights
o Riparian Doctrine
♣ Water belongs to those who own land bordering the watercourse.
• Reasonable Use Theory: (majority) Riparian owners share rights to reasonable use and are liable to other owners if their use reasonably interferes with other owner
• Natural flow Theory: (minority) Riparian owners may be enjoined for any use resulting in a substantial or material reduction in others’ water quantity or quality.
o Prior Appropriation Doctrine
♣ Water rights are originally acquired by actual use.
Ground Water and Surface Water
o Ground Water
♣ Water beneath the surface not confined to a known channel (e.g. water in wells)
♣ Surface owner is entitled to make reasonable use of groundwater, but must not be wasteful
o Surface Water
♣ Water from rain, springs, or other runoff that has not yet reached a natural watercourse
♣ Landowner can generally use surface water as they please but may be liable for interrupting its flow
• Natural flow Theory: owner cannot unreasonably alter natural drainage
• Common Enemy Theory: owner can do anything to change drainage or combat flow unless it causes unnecessary damage to others land
• Reasonable Use Theory: utility of use is balanced against the gravity of the harm from that use
