Foreclosure Flashcards
When can the mortgagee take possession in a lien theory state, a title theory state, and an intermediate title theory state?
Lien Theory State: the mortgagee cannot take possession prior to foreclosure because lender has a lien until foreclosure is complete.
- the mortgagor is the owner up until foreclosure
Title Theory State: the lender technically has the right, as the holder of title, to possess the property at any time
Intermediate Title Theory State: a minority of jurisdictions modify the title theory; the mortgagor retains title until default, at which point the lender can take possession
Equity of Redemption
A common law right held by the mortgagor to reclaim title and prevent foreclosure upon the full payment of the debt.
The mortgagor MUST exercise this right BEFORE the foreclosure sale.
Deed in Lieu of Foreclosure
Rather than force foreclosure, the mortgagor can convey the property to the lender in exchange for releasing her from any outstanding debt.
“Clogging” the Equity of Redemption
To “clog” is to create terms that make it hard for a borrower to exercise her equity of redemption. Courts will intervene to prevent clogging.
What is a foreclosure?
A forced sale of an asset to pay off a debt.
Judicial Sale
Sale under the supervision of a court
Power of Sale
Sale held b y the mortgagee/lender.
Deficiency
If the foreclosure sale produces less than the mortgagor owes, then a court can issue a deficiency judgment for the remaining balance, which goes after the mortgagor personally for the remaining balance.
General Rule for Priority in Foreclosure
First in Time Rule: surviving debts are satisfied chronologically
Purchase Money Mortgage Exception
The purchase money mortgage has priority over mortgages and liens created by or against the purchaser/mortgagor prior to the purchaser/mortgagor’s acquisition of the property.
Recording Act Exception
A junior mortgage that satisfies the requirements of the state recording act may take priority over the unrecorded senior mortgage.
Subordination
A senior mortgage can agree to subordinate its interest to a junior interest.
Effects of Foreclosure on Mortgagor
Foreclosure eliminates the mortgagor’s interest in the property.
Exemption: Statutory Redemption
- some states allow the mortgagor to redeem the property even AFTER the foreclosure sale
- a statute enables the homeowner to nullify the foreclosure; it ends the purchaser’s title and restores title to the homeowner
Effects of Foreclosure on the Purchaser
The purchaser of property at a foreclosure sale takes the property free and clear of any junior mortgage and subject to any senior mortgage, BUT the purchase may be subject to the mortgagor’s statutory right of redemption if one exists.
Effects of Foreclosure on Senior and Junior Interests
The rights of senior interests are generally not affected any the foreclosure sale.
The rights of junior interests are generally DESTROYED.
