Financing Flashcards
A Mortgage
A conveyance of an interest in real property as security for the performance of a loan for money
Mortgage Parties
Mortgager: the buyer. Their interest in the land is called “equity”
Mortgagee: the lender.
Deed of Trust
When a borrower (grantor) conveys title to land to a person to hold in trust to secure payment of a debt to a lender (grantee)
- Trustee is usually a third party or lender itself
- Trustee has power to sell and without going to court if borrower defaults
In order to borrow, the borrower must give the lender:
Two documents:
(1) A promissory note
(2) The Mortgage or Deed of Trust
- Texas prefers Deed of Trust
Promissory Note
- Names the parties
- Contains a promise to repay debt and terms of repayment
- Is used to extend the loan
- Is a personal obligation
Mortgage or Deed of Trust
- It secures a lien on the specific piece of real property
- Outlines obligations
- Gives details of foreclosure
- If a mortgage, court must be involved to sell/foreclose
- If a deed of trust, you can choose to go to court or not to sell/foreclose
- 0-If you do the judicial route, they won’t review the foreclosure sale afterward as much
- Property obligation
Foreclose
If Borrower fails to make payment or meet other terms, the lender may foreclose.
-Either at a private sale or under judicial supervision can have the property sold and apply the proceeds of sale to the amount due on the note
Default
Dictated by statute and lending document. Examples of default:
- Non-payment of debt
- Failure to pay property taxes
- Failure to maintain insurance
- Failure to properly maintain the property
- Failure to comply with restrictive covenants
First Notice Rule
Whether the sale after default be judicial or non-judicial, a notice of default is required
-notice officially begins
foreclosure process
Requirement of notice varies by state statute
Power of Sale
Power to sell without judicial intervention
Statutory Procedure Rules
(1) . You must follow good faith and due diligence. Ex:
- Not providing sufficient notice to potential buyers
- Setting the date of sale at weird time or during bad weather
- Chilled bidding
- incorrect date on advertisement
3 ways sale can be invalidated
(1) Requirements not followed
(2) Very low foreclosure sale price
(3) If foreclosure sale was conducted by an entity with no power to foreclose
-Borrower has the burden to
prove
Non-judicial foreclosure
Non-judicial: predominant method in states like Texas
Location and Time vary based on state law.
If the debt is not satisfied, the lender can pursue a deficiency judgment
Non-judicial foreclosure timeline
(1) Borrower defaults
(2) Notice of default
(3) Time to cure
(4) If no cure, debt accelerates
(5) Notice of Sale
(6) Sale
Judicial Foreclosure
Judicial Foreclosure Timeline
(1) Defaults
(2) Notice of default
(3) Time to Cure
(4) Debt Accelerates
(5) Suit for damages (foreclosure)
(6) Judgment entered
(7) Court orders sale
(8) Notice of sale
(9) Sale occurs
(10) Court ratifies sale
(11) Deed finalized
Statutory Right to Redeem
In some jurisdictions, the mortgagor has a right to buy back the title from the purchaser (purchaser from the auction) for the sale price within a specified period after the foreclosure sale
Deficiency Judgment
-If Sale does not bring enough money to satisfy debt, the mortgagee may get a judgment for the deficiency against the mortgager. Only granted if foreclosure sale price was fair
(also depends on if sale was judicial. if it was sale price isn’t challenged unless it shocks the conscience of the court). (If not judicial sale, court will scrutinize sale price a lot more)
Duty of Mortgagee
Mortgagee has a duty of good faith and due diligence in a foreclosure sale. They must exert reasonable effort to obtain a fair and reasonable price under the circumstances and necessary to the extent of adjoining the sale or establishing an upset price (below which no offer will be accepted)
Bad Faith
intentional disregard for for duty or purpose to injure
Due diligence test
would a reasonable man in the lender’s place have adjourned the sale or taken other measures to receive a fair price
Damages for breach of due diligence
FMV-Foreclosure sale price
Process of Invalidating a sale rule
Rule: mere inadequacy of the foreclosure price does not invalidate a sale absent fraud unfairness or other irregularity
Standards Courts use to Invalidate
Shock the Conscience
Grossly Inadequate
Process of Transferring by the Mortgagor
The mortgagor can transfer interest in the property by sale
-The transfer does not shake off
the mortgage
A purchaser of the equity can buy the mortgage equity either subject to the mortgage or assuming the mortgage
Taking Subject to the Mortgage
Purchaser does not assume any personal liability but agrees debt is to be satisfied out of the land
Taking Assuming the Mortgage
Purchaser agrees to pay off the debt but the mortgagor is still liable to the mortgagee unless:
a. the lender consents to the change
b. the mortgagor pays the debt then sues the assuming purchaser for reimbursement
Texas Contract for Deed
A contract for deed is renting to own (installment payments made to the seller. No deed is handed over until final payment
Default in payment means seller keeps property and all payments made
