Mortgages

Question 1

Purchase Money Mortgage

Answer 1

= the mortgage that the property owners got to obtain the money for initially purchasing the property

*this first mortgage always gets priority over any additional mortgages on the property

Question 2

Redemption

Answer 2

= when owner pays off debt to prevent foreclosure

• TWO types of Redemption:
  
  • (1) Equitable Right of Redemption &
  • (2) Statutory Redemption

Question 3

Equitable Right of Redemption

Answer 3

= the time period FROM NOTICE of foreclosure TO SALE of the foreclosed property

*Equitable Right of Redemption may NOT be waived–property owner ALWAYS has this chance–EVEN IF mortgage documents say you can’t

Question 4

Statutory Redemption

Answer 4

= additional period of time AFTER foreclosure SALE when you have chance to pay off the debt on the property

*the amount of time is determined by statute – you don’t get it automatically (unlike Equitable Right of Redemption, which IS automatic)

Question 5

Lien Theory vs. Title Theory

Answer 5

• Lien Theory jurisdiction: *majority rule & Georgia law
  
  • Bank only has a LIEN
  • Owner holds the TITLE
  • *Owner CAN sell
• Title Theory jurisdiction: *minority rule
  
  • Bank holds the TITLE
  • Owner only has an equitable interest
  • *Owner canNOT sell

Question 6

In a Lien Theory state, what happens if members of a Joint Tenancy take out a mortgage on their property?

Answer 6

→ the mortgage does NOT sever their Joint Tenancy – b/c the bank just gets a lien, not the actual title

Question 7

In a Title Theory state, what happens if members of a Joint Tenancy take out a mortgage on their property?

Answer 7

→ the mortgage SEVERS their Joint Tenancy into a Tenancy in Common – b/c the bank gets the actual title from them, and this is a conveyance, which severs the parties’ interest in a Joint Tenancy

Question 8

Assuming a Mortgage

Answer 8

= new owner (Buyer) takes over original owner’s (Seller) mortgage and continues making payments

*Buyer is primarily liable for payment issues, BUT Seller is secondarily liable – UNLESS Seller & Bank execute a novation

Question 9

“Subject to” the Mortgage

Answer 9

= original owner (Seller) still liable for / must make mortgage payment

*BUT Bank CAN foreclose on the house with new owner (Buyer) in it – UNLESS novation

E.g., Jon bought house for $100k with a $100k mortgage. Market crashes. Paul buys house from him for $50k. But b/c that’s less than Jon’s $100k mortgage amount, Paul buys the house “subject to” the remaining $50k of mortgage that Jon owes on it.

Question 10

Deed in Lieu of Foreclosure

Answer 10

= where owner just signs deed over to Bank & skips foreclosure proceedings

Question 11

In a foreclosure, what happens to the mortgages that were taken out after the mortgage that’s being foreclosed on?

Answer 11

→ these junior mortgages are wiped out – SO LONG AS: (1) give junior mortgage holders Notice of the foreclosure sale, AND (2) they’re joined in the suit

Question 12

In a foreclosure, what happens to the mortgages that were taken out before the mortgage that’s being foreclosed on?

Answer 12

→ these senior mortgages stay in place, and the Buyer takes the property “Subject to” those existing mortgages

Question 13

Deficiency Judgment

Answer 13

= Bank can collect the remaining mortgage balance that was not recovered by foreclosure sale from the owner who originally took out the mortgage

E.g., Doug bought house for $200k with a $200k mortgage. Neighborhood goes downhill. Betty buys house from him for $150k. But b/c that’s less than Doug’s $200k mortgage amount, Betty buys the house “subject to” the remaining $50k of mortgage that Doug owes on it. → Bank can go after Doug for a Deficiency Judgment of $50k