Mortages Flashcards
1
Q
MORTGAGES
A
- To secure debt, borrower gives lender a mortgage (along w/ promissory note representing the loan) on the property.
- If loan isn’t paid, lender may foreclose mortgage.
- Foreclosure involves selling property to pay debt.
2
Q
MORTGAGOR AND MORTGAGEE
A
-Borrower: mortgagor
- Lender: mortgagee.
3
Q
PROMISSORY NOTE AND MORTGAGE
A
- Mortgage transaction involves 2 docs: promissory note & mortgage.
- Note is mortgagor’s personal obligation.
- If mortgagor quits paying, plus foreclosure, mortgagee has option to sue mortgagor personally for payment of note.
- Mortgage is agreement that says that if mortgagor quits paying, land can be sold to pay the mortgagee.
4
Q
PURCHASE-MONEY V. NON-PURCHASEMONEY MORTGAGE
A
- 2 primary ways to mortgage: purchase-money mortgage & non-purchase-money mortgage.
- Purchase-money mortgage is an extension of value by lender who takes as collateral a security interest in the very real estate that its loan enables debtor to acquire.
5
Q
CREATION
A
- Our model: C, a creditor, is thinking of lending O $300,000. O offers Blackacre as collateral.
- A mortgage is the union of two elements:
Writing
- Must be in writing
TRANSFER OF INTERESTS
- Both mortgagee/mortgagor may transfer interests
6
Q
Transfer by Mortgagee`
A
- Creditor-mortgagee can transfer her interest by:
(1) Indorsing note & delivering it to transferee, or
(2) Executing separate doc of assignment - A mortgagee can freely transfer note, & mortgage automatically follows properly transferred note.
7
Q
Transfer by Mortgagor—Assumption or
Subject To
A
- When mortgagor transfers property, buyer either assumes mortgage/takes property subject to mortgage.
- If grantee assumes mortgage, they’re agreeing to be personally liable on mortgage note.
- If they take property subject to mortgage, they are not agreeing to personal liability; mortgagee’s only recourse is foreclosure (cannot bring suit against grantee).
8
Q
Effect of Assumption
A
- If grantee signs an assumption agreement, they become primarily liable to lender, while original mortgagor is secondarily liable as a surety.
- Mortgagee may opt to sue either grantee/original mortgagor on debt.
- If not signed, grantee is not personally liable on loan, & original mortgagor remains primarily & personally liable
9
Q
Tip
A
Once grantee has assumed mortgage, any mod of obligation by grantee & mortgagee discharges original mortgagor of all liability.
10
Q
Due-on-Sale Clauses
A
- Due-on-sale clauses, allow lender to demand full payment of loan if mortgagor transfers any interest in property w/o lender’s consent.
- If O, our debtor-mortgagor, sells Blackacre, which is now mortgaged, what happens to the mortgage? If recorded, it remains on the land.
- When mortgagor transfers title to the property, grantee automatically takes property subject to mortgage.
- Grantee will not be personally liable on mortgage unless they specifically assume mortgage.
- But, mortgage remains on land as long as mortgage instrument was properly recorded. (Remember: recording statutes protect mortgagees.)
- This means that while grantee is not personally liable on debt, if mortgagor defaults & mortgage instrument was properly recorded, mortgagee can foreclose on land.
11
Q
Effect of Recording Acts
A
- All recording statutes apply to mortgages & deeds.
- Thus, a subsequent buyer takes subject to a properly recorded lien.
12
Q
Who Is Personally Liable on the Debt If O,
Our Debtor-Mortgagor, Sells Blackacre to B?
A
- If B has “assumed the mortgage,” both O & B are personally liable.
- B is primarily liable, and O remains secondarily
liable. - If B takes “subject to the mortgage,” B assumes no personal liability.
- Only O is personally liable.
- But, if recorded, mortgage remains on the land.
- Thus, if O does not pay, the mortgage may be foreclosed.
13
Q
FORECLOSURE
A
- Mortgagee must foreclose by proper judicial
proceeding. - At foreclosure, land is sold.
- Sale proceeds go to satisfying debt.
Sale Proceeds Are Less/More than Amount Owed
- Junior liens: paid off in order of priority.
- Surplus goes to debtor.
14
Q
Effect of Foreclosure on Various Interests
A
- Heavily tested aspect of mortgages.
- Default rule: Priority of mortgage depends on when it was placed on property.
- First in time, first in right again.
- Buyer at foreclosure sale takes title as it existed when foreclosed mortgage was placed on property.
- All interests senior to that one remain on property, & all interests junior to that one are extinguished.
- Those interests include junior mortgages, liens,
leases, easements, & all other types of interests.
15
Q
Junior Interests
A
- Foreclosure terminates interests junior to mortgage being foreclosed but does not affect senior interests.
- Junior lienholders will be paid in descending order w/ proceeds from sale, if funds are left over after satisfaction of superior claims.
- Junior lienholders should be able to proceed for a deficiency judgment.
- But once foreclosure of a superior claim has occurred, w/ proceeds distributed appropriately, junior lienholders can no longer look to the property for satisfaction.
16
Q
Junior Interest: Necessary Parties:
A
- Debtor-mortgagor is a necessary party & must be joined, particularly if creditor wishes to proceed against debtor for personal deficiency judgment.
- If necessary party is not joined, their mortgage will remain on land.
17
Q
Senior Interests
A
- Foreclosure does not affect any interest senior to mortgage being foreclosed.
- Buyer at sale takes subject to such interest.
- Buyer not personally liable on senior debt
- But if senior mortgage is not paid, sooner/later senior creditor will foreclose against land.
18
Q
Priorities
A
- Creditors must record. No priority until recorded
- Once recorded, priority is determined by first-in-time, first-in-right.
Purchase-Money Mortgage
- A mortgage given to secure a loan that enables debtor to acquire encumbered land.
19
Q
Subordination Agreements
A
- Senior creditor may agree to subordinate its priority to junior creditor.
- Subordination agreements are permissible.
20
Q
Redemption
A
Redemption in Equity
- Equitable redemption: recognized up to date of sale.
- At any time prior to foreclosure sale debtor has right to redeem land by freeing it of mortgage.
- Once a valid foreclosure has taken place: right to equitable redemption is cut off.
21
Q
MORTGAGE ALTERNATIVES: Deed of Trust
A
- Some states call a security interest in land a deed of trust rather than a mortgage.
- Debtor/notemaker is trustor.
- Trustor gives deed of trust to 3rd-party trustee, who is usually closely connected to lender (beneficiary).
- On default, lender tells trustee to foreclose deed of trust by sale.
22
Q
MORTGAGE ALTERNATIVES: Absolute Deed
A
- Absolute deed, if given for security purposes, can be treated by ct as any other mortgage (creditor must foreclose by judicial action).
23
Q
MORTGAGE ALTERNATIVES: Installment Land K
A
- Installment purchaser obtains legal title only when full K price is paid.
- Forfeiture clauses: allows vendor on default to cancel K, retake possession, & retain all money paid
24
Q
MORTGAGE ALTERNATIVES: Equitable Vendor’s Lien
A
- Lien does not result from an agreement but rather arises by implication when seller transfers title to buyer and buyer does not pay
25
Q
MORTGAGE ALTERNATIVES: SALE-LEASEBACK
A
- Landowner may sell her property for cash & then lease it back from purchaser for a long period of time.
- Like an absolute deed, this may be treated as a disguised mortgage
