7) Mortgages / Security Devices

Question 1

mortgage: def

Answer 1

an interest in real property that is designed to secure repayment of a debt

Question 2

mortgagor: def

Answer 2

borrower, debtor. said to be the person who “issues” the mortgage

Question 3

mortgagee: def

Answer 3

creditor (bank or lender). said to be the person who “receives” the mortgage

Question 4

mortgage: formation

Answer 4

must satisfy SOF

consists of 2 docs: mortgage + note

Question 5

mortgage (doc): def

Answer 5

document that represents an interest in land

Question 6

note: def

Answer 6

represents the personal obligation of the debtor to repay the debt (aka promissory note)

Question 7

mortgage (doc) vs note: which controls?

Answer 7

mortgage follows the note –> whoever has the note has the enforceable interest in the land

Question 8

creditor remedies on default: kinds

Answer 8

1) sue in personam (sue on the note)

2) sue in rem (foreclose on the land)

Question 9

kinds of mortgages: list

Answer 9

1) deed of trust
2) purchase-money mortgage
2b) equity mortgage
3) future-advance mortgage
4) installment land-sale k
5) absolute deed

Question 10

deed of trust: def

Answer 10

debtor borrows $ and executes deed to property

third person (“trustee”) holds deed until debtor pays back the $, then debtor gets deed back

Question 11

purchase-money-mortgage: Def

Answer 11

mortgage given to cover all or part of the purchase price

Question 12

equity mortgage: def

Answer 12

mortgage obtained against equity for another purpose like remodeling the kitchen

Question 13

PMM priority rule

Answer 13

gets priority (even if unrecorded!) over other liens created prior to purchaser’s acquiring title

IF recorded, gets priority over mortgage/lien created after the purchaser acquired title

Question 14

PMM: kinds

Answer 14

1) vendor-purchase money mortgage

2) 3rd party PMM

Question 15

vendor-purchase money mortgage: def

Answer 15

mortgage is directly w seller

Question 16

third party PMM: def

Answer 16

buyer borrows $ to pay full purchase price and has mortgage w a 3rd party like bank. (must be done in one continuous operation, w/o gaps in time)

Question 17

future-advance mortgage: def + priority rule

Answer 17

line of credit where $ can be borrowed as needed

if notice is given to future lenders (ie recordation) then priority determined at time of arrangement, not time of access

Question 18

installment land-sale k: def

Answer 18

buyer buys land and pays seller installments. Buyer takes possession but seller keeps deed.

Uus time is of the essence

Question 19

installment land-sale k: waht if default

Answer 19

IF time is of the essence, then buyer making late payment = breach. Seller can keep land AND all payments so far!

courts try to get around harsh result:

1) saying TOE was just boilerplate
2) waiving TOE if seller has previously accepted late payments

Question 20

absolute deed: def

Answer 20

debtor borrows $ and then issues dee to property to the creditor, deed looks absolute on its face

if want to show that this was mortgage arrangement rather than an absolute conveyance, need extrinsic evidence to show

Question 21

what does mortgagee (the bank/lender) receive? list of theories

Answer 21

1) lien theory
2) title theory
3) intermediate theory

Question 22

lien theory: def

Answer 22

bank/lender receives only a lien on the property. Borrower retains right to possess AND RIGHTS TO RENTS + PROFITS

Question 23

title theory: def

Answer 23

bank/lender gets title

bank/lender gets rights to rents/profits

Question 24

intermediate theory: def

Answer 24

lien theory applies until default, then title theory kicks in (so before default borrower gets the rents/profits, but after default, bank/lender gets them)

Question 25

mortgage duties

Answer 25

person who has possession has duty to manage property in reasonably prudent manner, no waste

if does commit waste, other party can sue for damages or injunction

Question 26

transfers by mortgager/borrower: kinds

Answer 26

1) subject to mortgage
2) assume the mortgage
3) assume the mortgage + novation

Question 27

transfers by mortgager/borrower: subject to the mortgage: def/result

Answer 27

buyer has no responsibility to pay on the mortgage – no in personum liability

(always the m. is still on the land so can foreclose in rem)

Question 28

transfers by mortgager/borrower: assume the mortgage: def/result

Answer 28

buyer becomes personally liable for paying the mortgage (along w original borrower–secondary liability)

(always the m. is still on the land so can foreclose in rem)

Question 29

transfers by mortgager/borrower: assume the mortgage + novation: def/result

Answer 29

buyer alone is personally liable for paying the mortgage (not the orig borrower)

(always the m. is still on the land so can foreclose in rem)

Question 30

transfers by mortgager/borrower: which is it? if ambiguous language

Answer 30

1) look to facts to see if tell us

2) if not, default = subject to

Question 31

if assumption, rights of grantor v grantee

Answer 31

grantee primarily liable + grantor seconarily liable

1) debt falls into default: it creditor sues grantor, grantor can get EXONERATION (court order compelling grantee to pay debt)
2) if grantor makes payments, grantor can sue grantee for REIMBURSEMENT
3) subrogation: grantor can also pay off the whole mortgage and then grantee owes them

Question 32

due-on-sale clause: def + rule

Answer 32

gives mortgagee (creditor) the option of making entire debt due and payable upon any transfer

enforceable if mentioned in mortgage

result: taking “subject to” or assuming” the mortgage is rare

Question 33

due-on-encumbrances clause: def

Answer 33

gives mortgagee (creditor) the option of making entire debt due and payable upon any encumbrance

Question 34

transfers by mortgagee (creditor)

Answer 34

mortgagee may also transfer the note and mortgage, they travel together

Question 35

prepayment of mortgage

Answer 35

no right to do so unless terms explicitly authorize. usu there will be fees and those are upheld

Question 36

deed in lieu of foreclosure: def

Answer 36

if default, lender can give creditor the deed instead of going through foreclosure. Will stop the foreclosure process.

Lender takes subject to any other mortgages that exist on the property at the time

Question 37

kinds of foreclosure:

Answer 37

1) judicial proceeding
2) (only some js allow, and mortgage doc must specifically state it’s an option): private sale –> private party conducts public sale, still must notify all parties

Question 38

what happens when sold at foreclosure sale + multiple mortgages – default is first mortgage

Answer 38

–if first mortgage –> buyer at foreclosure sale gets property w no mortgages (bc mortgages are discharged through the sale)

–pay off mortgages in order of priority 1, 2, 3, etc.

if run out of mortgages, $ goes back to original borrower

if run out of $, the unpaid mortgages can get a “deficiency judgment”

Question 39

deficiency judgment: def

Answer 39

foreclosure sale raises less $ than the amount of the outstanding debt –> judgment issued for any portion of a debt not retired by foreclosure sale

Question 40

what happens when sold at foreclosure sale + multiple mortgages – default is NOT first mortgage

Answer 40

higher priority mortgages –> “senior interests” – unaffected by the sale, and whoever buys property theose mortgages are still attached

lower priority mortgages: junior interests – pay from sale if can, if run out of $ then deficiency jugment

Question 41

acceleration clause: def

Answer 41

makes entire debt due upon happening of an event, such as default or sale

generally upheld

Question 42

redemption

Answer 42

debtor’s remedy to foreclosure. Paying off debt (or in many js just making loan current) will stop the foreclosure

but if there was an acceleration clause, can’t do this

Question 43

redemption: kinds

Answer 43

1) equitable right

2) statutory right

Question 44

equitable right of redemption: def

Answer 44

automatically exists in interest of equity. Can’t be taken away.

exists only up until foreclosure sale (once sale happens no more equitable right)

Question 45

statuory right of redemption: def

Answer 45

only exists if there’s a statute

debtor gets limited time AFTER the forclosure sale to go to person who bought property and force them to sell it back to debtor at the foreclosure sale price