Financing

Question 1

A Mortgage

Answer 1

A conveyance of an interest in real property as security for the performance of a loan for money

Question 2

Mortgage Parties

Answer 2

Mortgager: the buyer. Their interest in the land is called “equity”

Mortgagee: the lender.

Question 3

Deed of Trust

Answer 3

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

Question 4

In order to borrow, the borrower must give the lender:

Answer 4

Two documents:

(1) A promissory note
(2) The Mortgage or Deed of Trust
- Texas prefers Deed of Trust

Question 5

Promissory Note

Answer 5

• Names the parties
• Contains a promise to repay debt and terms of repayment
• Is used to extend the loan
• Is a personal obligation

Question 6

Mortgage or Deed of Trust

Answer 6

• 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

Question 7

Foreclose

Answer 7

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

Question 8

Default

Answer 8

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

Question 9

First Notice Rule

Answer 9

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

Question 10

Power of Sale

Answer 10

Power to sell without judicial intervention

Question 11

Statutory Procedure Rules

Answer 11

(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

Question 12

3 ways sale can be invalidated

Answer 12

(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

Question 13

Non-judicial foreclosure

Answer 13

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

Question 14

Non-judicial foreclosure timeline

Answer 14

(1) Borrower defaults
(2) Notice of default
(3) Time to cure
(4) If no cure, debt accelerates
(5) Notice of Sale
(6) Sale

Question 15

Judicial Foreclosure

Question 16

Judicial Foreclosure Timeline

Answer 16

(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

Question 17

Statutory Right to Redeem

Answer 17

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

Question 18

Deficiency Judgment

Answer 18

-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)

Question 19

Duty of Mortgagee

Answer 19

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)

Question 20

Bad Faith

Answer 20

intentional disregard for for duty or purpose to injure

Question 21

Due diligence test

Answer 21

would a reasonable man in the lender’s place have adjourned the sale or taken other measures to receive a fair price

Question 22

Damages for breach of due diligence

Answer 22

FMV-Foreclosure sale price

Question 23

Process of Invalidating a sale rule

Answer 23

Rule: mere inadequacy of the foreclosure price does not invalidate a sale absent fraud unfairness or other irregularity

Question 24

Standards Courts use to Invalidate

Answer 24

Shock the Conscience

Grossly Inadequate

Question 25

Process of Transferring by the Mortgagor

Answer 25

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

Question 26

Taking Subject to the Mortgage

Answer 26

Purchaser does not assume any personal liability but agrees debt is to be satisfied out of the land

Question 27

Taking Assuming the Mortgage

Answer 27

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

Question 28

Texas Contract for Deed

Answer 28

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