Chap 5 & 6 Flashcards
Conveyances of Mortgaged Property
Subject to v. Assume
Subject to: grantee does not agree to assume underlying debt
Assumes: does agree to be liable for underlying debt
Someone who takes subject to can assume later on
A remote grantee is only allowed to escape their liability through rescinding before the mortgagor accepts and not after.
Transfers and Assignements
When note is assigned security interest follows the note
- Superior title must be explcitly assigned meaning if you dont assign the vendors lien you cant rescind only foreclose.
-
Holder in Due Course
personal v. real defenses
effect of recording as a HDC
Means that the assignee took the note or negotiable instrument without any knowledge of any issues regarding the note
to qualify
- instrument for value
- good faith
- without notice of defenses or claims against the instrument
Protects from personal defenses but subject to real defenses
personal defenses
- Breach of Contract
- Lack of Capacity
- Fraud in the inducement
real defenses
- forgery
- duress
- illegallity
- fraud
-
recording as a HDC can prevent others from foreclosing on the property
recording does not effect status as a HDC
can be optional or auto
Acceleration Clause
SOL? Steps to Accelerate? difference between contract with no AC?
provision in a contract that allows the lender to demand immediate payment of the entire debt if the borrower misses a payment or fails to meet other obligations.
Steps to accelerate
1. Presentment
- must give oppurtunity to cure
- parties canagree or modify the agreement and abandon acceleration
- lenders cna waiver right to accelrate by not acting on their right
2. Notice of intent to Accelerate
3. Notice of Actual acceleration
SOL is 4 years at the time of notice
- Respect the Paper: Courts will respect the express language of the contract and hold the parties to their agreement.
- Drafter’s Intent: The court will consider the intent of the party that drafted the contract, particularly if one party has more negotiating power.
Power of Sale
- requirements must be followed as foreclosure is a harsh remedy.
- trustee or sheriff executes the sale
Setting aside sale
- inadequacy of price is not enough
- fraud, unfairness or irregulairity required to set aside
-
Cannot be a BFP at the foreclosure sale (can be a BFP later in the chain, if the mortgagor is estopped
from denying facts set forth in trustee’s deed, but not at the sale itself).
* Once a court takes control of property via receivership, there can be no foreclosure, except as
ordered by the court.
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Credit Bid
lender may make a credit bid at the foreclosure sale. A credit bid is a bid made by the lender in the amount of the outstanding debt. If the lender makes a credit bid and there are no other bidders, the lender will be awarded the property.
Foreclosure Remedies
Wrongful foreclosure v. Deficiency Judgments
Damages for Wrongful foreclosure - Damges = (FMV at sale) - (Outstanding secured debt)
- used when property is sold for over the amount the owner still owned
- for example if bank forecloses on the bob house and it sells for 20k but Bob only owed 10k his damages will be 10k
Deficiency judgemnets
- court order that requires a borrower to pay difference between amount owed and the amount realized from the sale of property
- some jurisdictions have anti deficency statutes - explained below
| Amount |
| — | — |
| Technical deficiency | $14,000 |
| Fair market value offset | $19,000 |
| Final amount owed | -$5,000 |
To determine the final amount owed by the borrower, subtract the fair market value offset from the technical deficiency.
If the result is:
- Negative, the borrower does not owe any money.
- Zero, the borrower owes the amount of the technical deficiency.
- Positive, the borrower owes the amount of the technical deficiency minus the fair market value offset.
Marshalling
when is it used
- Marshaling of assets takes the assets subject to a lien and arranges them in a particular foreclosure order (generally, in order to protect junior liens, when possible).
- a junior lienor may, at times, force a senior lienor to pursue property that is not subject to the junior lien prior to pursuing the property that is subject to the junior lien (and thereby force an “arrangement, assembling, or ordering of assets”).
Two funds Doctrine
is a legal principle that requires a creditor with multiple sources of payment to use the non-junior creditor’s funds first.
The purpose of the doctrine is to prevent a senior creditor from unfairly taking all the money from the only fund available to a junior creditor.
Inverse order of Alienation
The inverse-order-of-alienation doctrine is a legal principle that states thatif a mortgage or lien on a property has not been collected, the creditor can collect the debt from the parcels of the property in reverse order of their sale.
- law favors passage of time so itll proctect property held the longest
Redemption
equitable v. statutory
Junir lien?
Redemption is generally defined as the right of a homeowner in foreclosure to redeem the mortgage and keep the secured property by paying a certain amount of money within a certain period of time (by paying off the secured debt)
- The Equitable Right of Redemption – the right to redeem a mortgage and save secured property from foreclosure by paying off the entire mortgage balance, plus fees and costs, prior to the foreclosure sale (but after default).
- The Statutory Right of Redemption – some states have laws that give homeowners the right to redeem their mortgages for a period of time after the foreclosure sale, typically by paying the foreclosure sale price, plus interest and other allowable fees, to the foreclosure sale purchaser.
Junior Lienor right to redemption:
- same as regular redemption but in this case it is being done by someone with a Junior lien who redeems the property to clear off the first lean and gain a priority position
- they would like to do this in order to keep there security interest because they will loose it if first place lienholder forecloses.
How can trustee sell property to himself?
Only if the trustee if the benficiary will be assigned in the DOT
Do Trustess have a duty at a foreclosure sale to provide good title?
BFP protections?
No, One who buys property at a foreclosure sale does so at there own peril,
No BFP protections
Due on sale clause
provision in a mortgage that requires the
underlying loan to be repaid (or renegotiated)
upon a sale or conveyance of the property
that secures the mortgage.
The Court in Arnold held that a lender may impose a due on sale clause so long as the terms were reasonable. The qualification under this clause is clearly not aimed at protecting the security but gaining a significantly higher interest rate. While most due on sale clauses are standard, this one would likely not hold in court.
