Mortgages Flashcards
What is a mortgage?
An interest in real property designed to secure performance of an obligation, usually repayment of a debt
Interest in land, so MUST be in writing due to SoF
Mortgagor is owner and mortgagee is lender
Two instruments:
Mortgage itself is the interest in the land
Note is proffered by the lender and is the promise to repay, enforceable against debtor or land
Mortgagee can sue either on the note (against debtor personally) or on the mortgage (in rem against the land)
Other instruments: deed of trust
Debtor executes a deed to the creditor, third party fiduciary holds it while debt outstanding
Purchase-money mortgage
mortgage is used in part or full to purchase the mortgaged property
Future-advance mortgage
Line of credit where money can be borrowed as needed. “Optional” future-advance mortgage means lendor can assess mortgagor’s situation before advancing more funds
Most common issue: WHEN does mortgage attach to the property? Agreement is now but funds are later
If proper notice is given to future creditors, OBLIGATORY FAMs attach on the date that the arrangement is made
If it’s an OPTIONAL FAM, it attaches when money is actually disbursed, so another mortgage or lien could “cut in line” if it gets in before that happens - IF the FAM owner has ACTUAL NOTICE
Installment land-sale contract
Buyer buys land and agrees to pay purchase price in installments. Buyer takes possession today, but seller keeps deed til debt entirely paid
Usually have a “time is of the essence” clause - if so, seller can claim default for a missed payment, keep land and all prior payments. Courts will usually check to see if time really was of the essence - if any prior defaults waived, clause waived too
Absolute deed as disguised mortgage
Debtor borrows money then issues a deed that appears absolute. Need extrinsic evidence to demonstrate meant as a mortgage and not just giving the property away
Theories of security relationships
Lien theory: mortgagee gets lien on property, mortgagor retains rights to possess and right to rents and profits
Title theory: mortgagor retains possession until default, but mortgagee gets rights to rents and profits
Intermediate theory: lien theory until default, title theory after
Transfers by the mortgagor (borrower)
Mortgagor can make three types of sales of land encumbered by a mortgage:
- buyer takes “subject to the mortgage” - buyer has no responsibility to pay. < default mode
- buyer “assumes the mortgage” - buyer becomes personally liable, ALONG WITH original borrower
- buyer “assumes the mortgage” plus a NOVATION with the lender - buyer alone is personally liable
In each case, mortgage remains on the land - they can sue on the mortgage to foreclose the land, even out from under the new owner
Due on sale clause
Clause in mortgage agreement mandating that the entire sum must be paid off before the property can be sold
Transfers by the mortgagee
The note travels with the mortgage - if larger institution buys mortgage, they also buy right to sue in personam.
Types of foreclosure (2)
Judicial foreclosure: court proceeding w pleadings, process service, etc
Private power-of-sale: no judicial action, pursuant to power-of-sale clause in mortgage documents
Deficiency judgment
When the foreclosure raises less money than the amount of outstanding debt. “Underwater” when you owe more than the value of the property
No limit on number of mortgages on property. First in line gets paid out first - “first in time, first in right”
Acceleration clause
Makes the entire debt become due on the happening of some event, such as default or sale
Redemption
If the debtor pays off all outstanding debt, they can redeem and stop foreclosure
Without an acceleration clause, they can redeem just by taking the debt current
Equitable right exists until foreclosure sale occurs, then ends. Statutory right usually gives 6-12 months after sale to force buyer to sell back at foreclosure price
