Mortgages Flashcards
Mortgage
A conveyance of an interest in real property made to secure performance of an obligation (e.g. $ loan). Typically evidence by two documents: a mortgage deed and a promissory note.
Mortgage Deed
Document that conveys an interest in real property designed to secure performance of a debt. Must be properly executed and delivered to the mortgagee. The mortgage deed is the document that gives the mortgagee the right to go after the land.
Required Elements of a Mortgage Deed
- The identity of the parties (including mortgagor and mortgagee)
- A description of the property (detailed enough to notify bona fide purchaser of mortgage)
- The intent to create a security interest
Promissory Note
Creates personal liability in the mortgagor (without a note, mortgagee would be left with foreclosure).
Typical Provisions of a Promissory Note
Include:
- The loan amount
- The interest rate, which may be fixed or adjustable
- The loan term
- A clause permitting prepayment but exacting a penalty for the privilege or prepayment
- Acceleration Clause (where entire obligation will be due upon default)
- Due on sale clause (requires entire balance be paid if mortgagor tries to transfer property)
Whose Performance Does a Mortgage Have to Secure?
A mortgage is a security for the performance of an act, the performance may be by the mortgagor or by some other person. Therefore, a mortgage can involve a mortgage deed of one person’s property and personal liability from another party.
Creditor/Mortgagee’s Remedies
In personam- sue on the note or
In rem- foreclosing on the land through the mortgage
Purchase-Money Mortgages (PMM)
A mortgage that covers part, or all, of the purchase price.
PMM’s Superiority Over Other Liens
Whether the PMM is recorded or unrecorded, it is entitled to priority over other liens on the property arising through the actions of the buyer-mortgagor, even those recorded earlier PMM, but only if the PMM was executed prior to the acquisition of title.
-Furthermore, where the instruments are silent, a PMM given to the seller (vendor-purchase money mortgage) will have priority over one given to a third-party lender.
PMM’s Superiority Over Other Mortgages
The PMM receives top priority over all other mortgages. However, to maintain the top priority, the PMM has to be recorded to give constructive notice to future mortgagees.
Future-Advance Mortgages (FAM)
Mortgage executed at the present time, but the funds are not accessed until a future date. Usually used to finance construction when the funds are needed.
Obligatory FAM
When the lender has a duty to advance the funds (when the lender commits to making future advances without discretionary conditions)
Optional FAM
When the lender has discretion whether to make future advances based on the mortgagor’s financial situation.
Obligatory FAM Superiority
If a future advance is obligatory, the priority date is when it is made. The mortgage securing that advance takes priority over creditors who file liens after the mortgage is recorded, even if all advances on the loan have not actually been made.
Optional FAM Superiority: Notice
In an optional FAM, if a lien is imposed before an advance is made, the lien has priority if the mortgagee has notice of the subsequent lien when it makes the advance. Majority view holds that actual notice is required while the minority view is that constructive notice is sufficient.
Mechanic’s Lien
A lien that is created against real property as the result of materials being supplied or labor being performed that improves the property (important because of the relating back feature)
Deed of Trust (Mortgage Alternative)
Where the debtor/note-maker borrows money from the creditor and executes a deed to the property. This deed is given to a trustee who holds on to the deed and will not return the deed to the debtor until the debt is paid.
Installment Land-Sale Ks
When the buyer takes possession under a K of sale and makes payment to the seller. The seller delivers a deed and legal title only when the payments have been completed.
Installment Land Ks: What if there is a Default?
- If the K has a time is of the essence clause, the seller can declare that the buyer breached the K and the seller keeps the land and all payments to date.
- But courts will interpret such clauses strictly because of the harshness of the result. Furthermore, if the buyer was previously late and the seller accepted payment, courts will waive the clause.
Time is of the Essence Clause
Is often included in an installment land-sale Ks.
Absolute Deed
A debtor borrows money then issues a deed to the property to the creditor that looks absolute on its face. Extrinsic evidence would be required to establish that this was not meant to be an absolute conveyance, rather a disguised mortgage arrangement.
