7) Mortgages / Security Devices Flashcards
mortgage: def
an interest in real property that is designed to secure repayment of a debt
mortgagor: def
borrower, debtor. said to be the person who “issues” the mortgage
mortgagee: def
creditor (bank or lender). said to be the person who “receives” the mortgage
mortgage: formation
must satisfy SOF
consists of 2 docs: mortgage + note
mortgage (doc): def
document that represents an interest in land
note: def
represents the personal obligation of the debtor to repay the debt (aka promissory note)
mortgage (doc) vs note: which controls?
mortgage follows the note –> whoever has the note has the enforceable interest in the land
creditor remedies on default: kinds
1) sue in personam (sue on the note)
2) sue in rem (foreclose on the land)
kinds of mortgages: list
1) deed of trust
2) purchase-money mortgage
2b) equity mortgage
3) future-advance mortgage
4) installment land-sale k
5) absolute deed
deed of trust: def
debtor borrows $ and executes deed to property
third person (“trustee”) holds deed until debtor pays back the $, then debtor gets deed back
purchase-money-mortgage: Def
mortgage given to cover all or part of the purchase price
equity mortgage: def
mortgage obtained against equity for another purpose like remodeling the kitchen
PMM priority rule
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
PMM: kinds
1) vendor-purchase money mortgage
2) 3rd party PMM
vendor-purchase money mortgage: def
mortgage is directly w seller
third party PMM: def
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)
future-advance mortgage: def + priority rule
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
installment land-sale k: def
buyer buys land and pays seller installments. Buyer takes possession but seller keeps deed.
Uus time is of the essence
installment land-sale k: waht if default
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
absolute deed: def
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
what does mortgagee (the bank/lender) receive? list of theories
1) lien theory
2) title theory
3) intermediate theory
lien theory: def
bank/lender receives only a lien on the property. Borrower retains right to possess AND RIGHTS TO RENTS + PROFITS
title theory: def
bank/lender gets title
bank/lender gets rights to rents/profits
intermediate theory: def
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)
mortgage duties
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
transfers by mortgager/borrower: kinds
1) subject to mortgage
2) assume the mortgage
3) assume the mortgage + novation
transfers by mortgager/borrower: subject to the mortgage: def/result
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)
transfers by mortgager/borrower: assume the mortgage: def/result
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)
transfers by mortgager/borrower: assume the mortgage + novation: def/result
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)
transfers by mortgager/borrower: which is it? if ambiguous language
1) look to facts to see if tell us
2) if not, default = subject to
if assumption, rights of grantor v grantee
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
due-on-sale clause: def + rule
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
due-on-encumbrances clause: def
gives mortgagee (creditor) the option of making entire debt due and payable upon any encumbrance
transfers by mortgagee (creditor)
mortgagee may also transfer the note and mortgage, they travel together
prepayment of mortgage
no right to do so unless terms explicitly authorize. usu there will be fees and those are upheld
deed in lieu of foreclosure: def
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
kinds of foreclosure:
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
what happens when sold at foreclosure sale + multiple mortgages – default is first mortgage
–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”
deficiency judgment: def
foreclosure sale raises less $ than the amount of the outstanding debt –> judgment issued for any portion of a debt not retired by foreclosure sale
what happens when sold at foreclosure sale + multiple mortgages – default is NOT first mortgage
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
acceleration clause: def
makes entire debt due upon happening of an event, such as default or sale
generally upheld
redemption
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
redemption: kinds
1) equitable right
2) statutory right
equitable right of redemption: def
automatically exists in interest of equity. Can’t be taken away.
exists only up until foreclosure sale (once sale happens no more equitable right)
statuory right of redemption: def
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
