mortgage workshop

Question 1

Mortgage:

Answer 1

A conveyance of an interest in real property made to secure performance for an obligation.
The obligation often arises out of a loan of money made to facilitate the purchase or development of real
property.

Question 2

mortgage deed

Answer 2

A document that conveys an interest in real property designed to secure performance of a debt.

a mortgage must be evidenced by a writing (often a deed) that is (1) Properly executed and delivered
must identify parties

describe property

intent for security interest

Question 3

promissory note

Answer 3

iou

Loan amount;
 Interest Rate;
o Fixed  Set for the term of the loan; or
o Adjustable  May vary over the term of the loan.
 Loan term: (15 or 30 years)
 Payment Schedule

level payment fixed amount monthly payments

balloon mortgage
Relatively small monthly payments (mostly interest,
with a small portion of the principal) and
o One large final payment (balloon) at the end of the
term that satisfies the obligation in full.

Question 4

Prepayment Clause:
Acceleration Clause:
Due on Sale Clause:
Release:

Answer 4

A mortgage note may include a clause permitting prepayment but exacting as
prepayment penalty for the privilege of prepayment.

A mortgage note may include a clause that permits the mortgagee to declare the
entire amount of the mortgage obligation due and payable if the mortgagor
defaults.

Today a mortgage note often includes a “due on sale” clause, which requires the
entire balance sue on the note to be paid before the property may be transferred
by the mortgagor/seller to the potential buyer.

release When the mortgagor satisfies (pays) the mortgage, the mortgagee executes a document
that releases the mortgage.

Question 5

title theory

Answer 5

traditional= The mortgagee receives legal title to the mortgaged real property and has a right
to take possession of and to collect rents and profits from the property.
Until she repays the loan in a timely fashion, the mortgagor retains an equitable
interest only in the property.

modern Recognize that the mortgage holds title for security purposes only, and
o View the mortgagor as the owner of the land.

Question 6

lien theory

Answer 6

In a lien theory jurisdiction (Majority View),
 The mortgagee receives a lien.
 The mortgagor retains legal and equitable title and possession to the mortgaged
real property, unless and until foreclosure occurs.
 Most states now adhere to the lien theory.

Question 7

intermediate theory

Answer 7

An intermediate theory jurisdiction,
 The mortgagor retains legal title until default occurs.
 After default, legal title and possession pass to the mortgagee who may then begin
to collect rents and profits.

Question 8

severance of joint tenancies

Answer 8

title theory= if one joint tenant mortgages his interest in the property, the mortgagee receives legal title to that joint tenant’s undivided interest in the mortgaged
property.
 Because the mortgagee receives legal title in that undivided interest, the four unities are
destroyed.
 Therefore, in a title theory jurisdiction, a mortgage of one joint tenant’s interest severs the
joint tenancy.

lien theory= state, no severance occurs when the mortgage is made, because the
unities remain intact.
 However, in a lien theory state, foreclosure will sever a joint tenancy.
 The courts are split as to whether a mortgage survives if the mortgagor dies before the
foreclosure is completed and the redemption period has expired.

Question 9

Waste: Failure to Make Mortgage Payments

Answer 9

Failure to make mortgage payments may constitute waste.

A person holding a life tenancy in mortgaged property has a duty to pay the interest on
the mortgage, through the rent profits or value of rent in possesion
remainder holder no duty to pay

leasehold tenant
Absent a leasehold provision to the contrary, a tenant for years or a periodic tenant has no
common law duty to make mortgage payments.

Question 10

Waste: Other Actions

Answer 10

changes reduce value
fail to maintain or repair reasonable manner if not their fault
fail to pay property taxes
Retains rent to which the mortgagee has a right to possession.

Question 11

waste remedies

Answer 11

Foreclosure
injunction prohibiting waste or requiring fix of waste

recovery of the damages limited by the amount of the waste,

Question 12

redemption

Answer 12

At any time after the default but before foreclosure, the mortgagor has the right to redeem
the property by paying the debt due.

About one-half of the states have a fixed time period (6-12 months) after a foreclosure

Question 13

forclosure

Answer 13

Obtain a judgement against any period who is personally liable on the obligation and, to
the extent that the judgment is not satisfied, foreclose the mortgage on the real estate for
the balance, or Foreclose the mortgage and, obtain a judgment for the deficiency against any person who is
personally liable for the obligation.

Question 14

types of for-closure
for closure sale

Answer 14

strict = foreclosure, a court of equity would declare the mortgagor to be “foreclosed” forever from redeeming the property from the mortgagee if the mortgagor did not pay the debt due by a certain date.

for closure=
Power of Sale Foreclosure:  Without judicial action, pursuant to a power of sale clause included in the mortgage documents or
o Judicial Foreclosure:
 Following a judicial foreclosure proceeding.

for closure must
Be public.
o Be properly noticed.
o Be conducted in a reasonable manner (usually regulated by statute).
o Result in a “fair” sale price:
fair= mortgagees due diligence

Question 15

distribution of proceeds

Answer 15

To the costs of sale.
 To the security interest foreclosed.
 To the junior lien holders terminated by the sale.
 To the mortgagor, if any proceeds remain.

Question 16

Effect on Interests in the Property:

Answer 16

Junior interests in the property are destroyed in the foreclosure sale.
 However, a junior mortgage is not extinguished if the junior mortgagee is not made a
defendant in the judicial proceeding culminating in a foreclosure sale or the junior
mortgagee does not get notice of the foreclosure sale.
 Senior interests not participating in the foreclosure are not affected by a foreclosure sale.

Question 17

Deficiency Judgments:

Answer 17

If the proceeds of a foreclosure sale are not sufficient to cover the lien(s) foreclosed, the
mortgagee/creditors(s) may obtain a deficiency judgment against the mortgagor (or a
party that has assumed the mortgage) personally, based on the note.

some states have anti deficiency laws like
Prohibiting deficiency judgments when foreclosure is accomplished privately
through a power of sale clause;
 Requiring deficiency judgments to be sought at the same time as foreclosure;
 Scrutinizing the fairness of the foreclosure sale, particularly if the foreclosure is
accomplished by a private sale; or
 Requiring the mortgagee to set a minimum foreclosure sale price

Question 18

modification of priorities
pmm
senior mortgage

Answer 18

Purchase Money Mortgage:
A mortgage given to a vendor of the real estate or to a third party lender to the extent that the proceeds of the loan are used to:
 Acquire title to the real estate; or
 Construct improvements on the real estate if the mortgage is given as part of the same transaction in which title is acquired.
FIRst priorty

Modification of Senior Mortgage:
If a senior mortgage is modified, a junior mortgage prevails over the modification if the
modification prejudices materially the holder of the junior mortgage.
 Examples of Modifications that Materially Prejudice:
 Increase in the amount of principal.
 Increase in the interest rate (if the rate under the original mortgage was fixed).
 Examples of Modifications that Normally Do Not Materially Prejudice:
 Extension of the mortgage maturity date.
 Rescheduling installment payments.

Question 19

transfers by the mortgagor

Answer 19

Subject To:
 If the mortgagor transfers the property “subject to the mortgage” and mortgage payments
are not made:
 The mortgagee may foreclose and force the property to be sold.
 However, the transferee of the mortgage DOES NOT have any personal liability.

Assumption:
 If the transferee of real property “assumes the mortgage,” and the mortgage payments are
not made:
 The mortgagee may foreclose and force the property to be sold.
 In addition, the transferee of the mortgage DOES have personal liability.

novation
In a novation, the transferee of real property and the mortgagee agree that:
 The transferee will assume the mortgage, and
 The mortgagor will be released from liability.

Question 20

Transfers by the Mortgagee:

Answer 20

The mortgage generally follows the transfer of the mortgage note.
o If the note is negotiable, the transferee may qualify as a holder in due course, who takes:
 Free and clear of certain “personal” defenses, such as lack of consideration, duress by
non-physical threat, and fraud in the inducement, but
 Subject to “real” defenses, such as infancy, duress by physical threat, and fraud in the
factum.

Question 21

Mortgage Alternatives:

Answer 21

Deed of Trust
The debtor/note maker is the settlor, who gives a deed of trust to a trustee who is closely
connected to the lender.
 In the event of a default, the trustee is directed to proceed with the foreclosure sale.
 Deed of trust are generally treated like mortgages

Installment of Land Sale Contract
The buyer takes possession under a contract of sale and makes payments to the seller.
 The seller delivers a deed and legal title only when the payments have been completed.

Remedy
 An installment land contract usually provides for forfeiture (of all installments paid,
allowing the lender to retake the property) rather than a foreclosure.
 Some states require a foreclosure proceeding for an installment land sale contract
o Installment land sale contracts are generally treated like mortgages.

Question 22

remember

Answer 22

who ever files the forclosure gets the priority