Ass. 46 - Mortgages/ Foreclosure Flashcards
1
Q
who is the mortgagor
A
the owner/ borrower
2
Q
who is the mortgagee
A
the lender
3
Q
ARM
A
adjustable rate mortgage
4
Q
balloon payments
A
large payments generally at the end of the mortgage
5
Q
what are the 2 parts of a mortgage?
A
- promissory note
- mortgage deed
6
Q
promissory note
A
contract establishing the debt
7
Q
mortgage deed
A
establishes the debt w the property as collateral
8
Q
mortgage definition
A
the conveyance of an interest in real property as security for the performance of an obligation
- obligation is almost always a loan of money evidenced by the promissory note
9
Q
lien theory
A
- mortgage is seen as only a lien on the property
- lender merely holds a security interest in property not title, therefore not entitled to property unless foreclosed
- 2/3 of states follow
10
Q
title theory
A
- theory that the mortgage is the transfer of title to the mortgagee (lender) until the debt is repaid
- mortgagee has the theoretical right to take possession of the secured property - and thus obtain its rents and profits - w/o foreclosure
11
Q
what does the promissory note contain?
A
- identifies the borrower and lender
- contains borrowers promise to repay the loan on stated terms and conditions
- recites that its repayment is secured by mortgage
- is signed by borrower
12
Q
4 key components of promissory note
A
- the amount
- the interest rate
- the term
- the amortization schedules
13
Q
component of prom note: the amount
A
usually limited by the applicable loan to value ratio
14
Q
component of prom note: interest rate
A
- may be either fixed
(remains the same during the entire life of the loan) - or an adjustable rate
(ARM - varies over the life of the loan)
15
Q
component of prom note: the term
A
- typical loan has a term of 15, 25, or 30 years
- loan and interest must be paid by the end of the loan term
16
Q
component of prom note: amortization schedule
A
- Specifies the method by which the borrower repays the loan; sets forth the amount and due date for each loan repayment
- Most fixed-rate residential loans are fully-amortized, requiring a fixed monthly payment over the entire term
17
Q
what are the 2 types of foreclosure?
A
- judicial foreclosure
- foreclosure by power of sale
18
Q
judicial foreclosure basics
A
- available in ALL jurisdictions and dominant method in about half of the states
- specialized type of litigation
- provided by statute
19
Q
judicial foreclosure process
A
- lender, as P, begins JF process by filing complaint against the borrower, junior lienholders, and other persons holding interests in the property that are subordinate to the mortgage lender
- the complaint alleges that a default has occurred and requests that the mortgage be foreclosed in a court-supervised sale
- the sale does not generate anything close to fair market value
20
Q
judicial foreclosure sale
A
- Held in public location during normal biz hours and is usually conducted by a court-appointed officials
- Mortgagor and mortgagee and any member of the public bid at the sale
- Mortgagee (lender) enjoys an advantage: it can bid w/o case, using instead the unpaid loan balance owed to it (everyone else can only bid cash)
21
Q
foreclosure by power of sale
A
- Predominates in the other half of states
- Purely private, w/o judicial involvement
- Creates the potential for abuse
- Arises from contract
- Permitted only when authorized by the express terms of the mortgage
22
Q
ways to default on a mortgage
A
- Non payment
- Lack of insurance
- Fraud/ misrepresentation w regard to mortgage application
- Failure to keep the property up (waste)
23
Q
equity of redemption
A
the right to redeem by paying the balance of the debt before foreclosure
24
Q
can the equity of redemption be waived?
A
- borrower can never waive this as a condition to obtain a loan
- however, may be waived AFTER purchasing by handing the property back to the lender
25
statutory right of redemption
- Allows the mortgagor to buy back the property for the price bid at the foreclosure sale for a designated period (often a year) AFTER foreclosure.
- Generally allows the mortgagor to remain in possession of the property in the meanwhile
26
deed of trust
- Debtor/notemaker is the “trustor”
- Trustor gives the deed of trust to 3rd party trustee, who is usually closely connected to lender (lawyer, corp, or officer)
- In the event of default, the lender instructs the trustee to proceed with foreclosing the deed of trust by sale
27
installment land contract
- The debtor is the purchaser of the land who signs a K w the vendor, agreeing to make regular installment payments until the full k price has been paid
- At the time the vender gives a deed transferring legal title the purchaser
- In event of default, K usually contains a forfeiture clause providing that the vendor may cancel the k, retain all money paid to date and retake possession of the land
28
the use of parol evidence
- Courts will always use parol evidence in considering contentions that a purported deed is actually a mortgage
* In effect, this is an exception to the parol evidence rule
29
presumptions accompanying a deed absolute
there is a presumption that documents are what they purport to be
30
how is the priority of claims in foreclosure established?
established by the date of recording of the lien
31
order of priority of claims in foreclosure
- costs of foreclosure
- tax liens
- 1st mortgage (senior lienholder)
- 2nd mortgage (junior lienholder)
32
what does Foreclosure of senior lien do?
wipes out all junior liens secured by the property
- Debt is still there but no more security
- Does not word the other way around
33
will inadequacy of foreclosure sale price invalidate the sale?
- Normally will not invalidate a sale
- Will ONLY invalidate if the disparity btwn sale price and fair market value “shocks the conscious” or is “grossly inadequate
34
restatement view of inadequacy of foreclosure sale
will be invalidated if the sale price is less than 20% of FMV
35
defects in time of sale
if sale is conducted on a different day/hour than specified
36
defects in place of sale
normally must take place in county where property is located
37
chilled bidding
mortgagee is engaged in irregular conduct that suppressed the bidding (ex. kept from the public)
