Mortgages Flashcards
Types of Security Devices
- Mortgages
- Deed of Trust
- Purchase- Money Mortgage (PMM)
- Future-Advance Mortgage
- Installment Land-Sale Contract
Mortgages
- two instruments that make up
- creditors remedies
- Mortgage (reps interest in land) AND Note (reps personal obligation of the debtor (mortgagor) to repay the debt. mortgage follows the note
- choice to sue either: inpersonam (sue on the note) OR in rem (foreclosing on the land through the mortgage)
Deed of Trust
Debtor (settlor) borrows money from creditor and executes deed to property. Deed is given to a TP (trustee) who holds deed and will not return until the debt is paid.
Purchase-Money Mortgage
PMM
A mortgage that covers part, or all, of the purchase price. If recorded has priority over other types of M’s.
Two types:
1. Vendor-purchase money mortgage
2. buyer borrows money from a TP
- Vendor- purchase money mortgage
sellor issues mortgage to secure payment, sellor now mortgagee
- buyer borrows money from a TP
(TP typically a bank) to pay off the purchase price and gives a mortgage. Has to be one continuous operation, no gaps in time
Future - Advance Mortgage
Any line of credit (i.e. construction loan) or home-equity loan where money can be borrowed as it is needed.
- Two types: optional and obligatory
Optional Future-Advance Mortgage
- if the lender has discretion to advance funds depending on Mortgagors financial situation (discretionary)
- if Mortgagee has notice when it makes the advance that a subsequent creditor has filed, the the future-advance mortgage loses its priority. (actual notice typicaly required in maj. minority view constructive notice is sufficient.)
Obligatory Future-Advance Mortgage
- opposite, know getting money in the future
- If proper notice is given to future creditors, the mortgage interest attaches on the date that the obligatory future adv m arrangement is made, not on the date they’re actually accessed.
Installment Land-Sale Contract
Buyer buys land and agrees to pay off the purchase price installments. Buyer takes possession today, seller holds on to the deed until debt is entirely paid.
- “time of the essence clause”
Time of the essence clause and default/material breach
If in the contract then bank is entitled to keep payments made. Court will examine this clause closely
Absolute Deed
A debtor borrows money then issues a deed to the prop to the creditor that looks absolute on fact.
- extrinsic ev would be required to est that this was not meant to be an absolute conveyance, rather a disguised mortgage arrangement.
Security Relationship Theories (what does a mortgagee receive? and duties?)
- Lien Theory
- Title Theory
- Intermediate Theory
- Duties: A person in poss has duty to manage prop in a Rly prudent manner (avoid waste)
Lien Theory
The M’ee receive a lien on the prop, M’or retains right to poss and rights to rents and profits from the mortgaged prop
Title Theory
M’or retains possession until default, then M’ee has right to rents and profits produced by the mortgaged prop.
Intermediate Theory
Lien theory deemed to apply until default and then title theory kicks in.
- Prior to default: M’or retains right to poss and rents/profits
- Upon default: M’ee entitled to poss and rents/profits
Transfers by Mortgagor***
M’or can make three types of sales of land encumbered by a mortgage:
- subject to mortgage
- assumes the M
- assumes the M plus a novation
Subject to the M
buyer has no responsibility to pay on it, either before or after the foreclosure
- default assumption
Assumes the M
Buyer becomes personally responsible for it, along w/ the OG borrower. theory of privity of ct
Assumes the M, plus a novation (new ct)
buyer alone is personally liable for paying the M.
Subrogation
Grantor is secondarily liable. Can pay off debt to debtor, and then be subrogated to mortgage and note. Substituted for, step into shoes of subrogee and then is required to paay off the remaining balance to subrogor.
Due-on-sale Clause
Gives the M’ee the option to require the entire debt be due and payable upon any transfer (enforceable if in the M).
Transfer by the M’ee
M’ee (lender) may transfer the note and the M, which travel together.
Prepayment of M
There is no right to prepay M debt unless terms of the M expressly authorize such payment.
- If prepay is permitted, it is usually accompanied by prepayment fees, which are routinely upheld.
