Mortgages Flashcards
Three Types of Mortgages
- A lender’s bank “purchase money mortgage” where the loan finances the buyer’s purchase
- A vendor’s “purchase money mortgage” where the seller finances the buyer’s purchase
- A mortgage where the existing land is used by its owner as collateral to secure a loan unrelated to the purchase of the land.
Realty as Collateral
When realty is used a collateral, the mortgagor-borrower executes two documents:
- a note promising repayment of the loan
- a mortgage to secure repayment of the loan
The lender records the mortgage in the property’s chain of title.
Once a mortgage and note are executed, the mortgagee is free to assign either the note or both instruments toghether. By assigning the note, one impliedly assigns its mortgage. The mortgage always follows the note when it is assigned. A mortgage is merely security for the repayment of the loan and cannot exist independently without the note. Thus, an assignee possessing only the executed mortgage cannot commence a foreclosure action.
What happens when the note is assigned?
Can an interest in real property be mortgaged?
An interest in real property can be mortgaged
May property owners place subsequent mortgages on their property
Property owners may place second and third mortgages on their property. Mortgages first in time have priority as long as they are recorded in the property’s chain of title to put subsequent interests on notice.
May a mortgaor pay mortgage early?
Loan Modifications
Future Advances Mortgage
A mortgage on new construction is often given for future advances conditioned on the bank’s satisfaction that the borrower is makin sufficient progress to complete the project. The bank does not immediately turn over the full amount of the loan, and instead spreads the payments out as the building progresses.
If advances are mandatory, the future payments mortgage has priority over all subsequently created interests in realty. However, if the ad. are optional, then the optional advance will not take priority over a third-party’s lien or a second mortgage filed before the advance.
Majority requires actual notice of lien but a minority only requires constructive notice so the bank should do a title search to uncover any mechanic lien’s filed in the property chain of title before it makes further advancements.
Title v. Lien
Most states recognize lien theory of mortgages were no title is conveyed upon execution. It merely creates a lien on the realty to secure repayment of the mortgage debt.
Minority: recognize a title mortgage, where title to the property passes to the mortgagee, but soley as security for the debt. If a J tenant mortgages his interest in a title mortgage jurisdiction, it converts the joint tenancy in common and extinguishes the right of survivorship even though the mortagee has no right to pre-default possession.
Due on Sale Clauses
Mortgaged property is freely transferable. However, if the mortgage contains a due-on-sale clause, then if all or any part of the property is sold w/o the lender’s prior written consent, the lender may accelerate the debt and require full payment of the mortgage. DOS clauses are designed to both (1) protect L from sale by the mortgagor to a poor credit risk or to a person likely to commit waste; and (2) allow the lender to riase the interest rate or charge an assumption fee when the property is sold.
Not triggered by a transfer to:
(1) spouse or children
(2) any relative upon the borrower’s death
(3) J tenant where the borrower dies
(5) a transfer of the realty to the B’s revocable lifetime trust
(6) a lease to a tenant for three years or less
Transfer of mortgaged real property
Decedent’s mortgage
When real property by will or intestacy, the decdent’s estate remains liable for the underlying mortgage debt as a surety by operation of law. The party inheriting the property is not personally obligated on that mortgage, but must timely pay off the debt to avoid foreclosure of the property.
Merger Doctrine
A mortgage lien vests the mortgagee with either an equitable interest or legal interest, while the mortgagor retains the other interest. If the mortgagee subsequently aquires the mortgagor’s interest, the mortgage is said to merge with the title, and the mortgagor’s personal liability on the underlying debt is discharged up to the value of the land.
Deed in Lieu of Foreclosure
The grantee of a deed containing a mortgage assumption clause becomes personally and primarily liable even though the grantee did not sign the deed. The express assumption clause is considered part of the consideration supporting the transaction.
Mortgage Default
A M Default for nonpyament may be cured by tendering the unpaid arrears plus accrued penalities and interest at any time before the mortgage debt is formally accelerated. When the note’s acceleration clause is triggered, the entire loan balance become immediately due.
Even if mortgage debt is accelerated, the M always has the right under the doctrine of Equity of Redemption, to pay off the mortgage at any time before the property is sold at foreclosure. The Borrower’s full re-payment discharges the debt and requires the M to issue a satisfaction of mortgage, which the mortgagor records in the property’s chain of title.
