Mortgages Flashcards
What is a mortgage? What is foreclosure?
A mortgage is a loan given by a bank/institution to someone to pay for real estate.
Mortgager = person borrowing, mortgagee = person lending
If the loan isn’t paid back properly, the lender may foreclose the mortgage, i.e. sell the property to pay the debt.
What two documents are involved in a mortgage transaction?
(1) the promissory note - which is the mortgagers personal promise to pay the loan
(2) the mortgage - the agreement that gives lender right to foreclose if the mortgager stops payments
Note: lender can sue the borrower on the note in addition to foreclosing
What are the two types of mortgages?
(1) a purchase-money mortgage: one in which the lender takes a security interest in the mortgaged property as collateral, i.e. its the mortgage is on the very land/thing which it is being used to purchase
(2) a non-purchase-money mortgage: security interest is in something else (e.g. have loan for business but use home as collateral)
Note: purchase money mortgages get super priority
What is req’d to make mortgage valid?
Signed writing, per SoF.
How can a mortgagee (lender) transfer their interest in the mortgage?
By either (a) endorsing the note and delivering it to the transferee or (b) executing a separate doc of assignment
What happens when a mortgager (borrower) transfers their property?
the new buyer will either (a) assume the mortgage or (b) take the property subject to the mortgage. (Generally, they automatically take title subject to the mortgage).
(a) if they assume, then are personally liable for mortgage note and become the primarily liable lender (old borrower is secondary), lender may opt to sue either
(b) if they don’t assume, i.e. take the property subject to the mortgage, then the original borrower is still primarily, personally liable - in this case lender’s only remedy is foreclosure
What is a due on sale clause?
Allows lender to demand full payment of mortgage loan if the mortgager transfers property without lender consent.
In order for a mortgage to run with the land, i.e. pass to next buyer, the mortgagee must ____.
Properly record it. Same recording rules apply as with deeds, so it depends on the jdx. E.g., in a notice state, a BFP will NOT be subject to a mortgage if, when they bought property, mortgagee had not yet recorded.
What happens when mortgager defaults on the loan and is the only one liable on the mortgage?
Lender must foreclose by proper judicial proceeding - sell land & put proceeds towards debt.
Surplus goes to debtor. If proceeds are insufficient, lender goes after debtor for a deficiency judgment.
What happens when there are multiple mortgages on one property and one or all of them foreclose?
When all foreclose, they are paid off in order of priority. (first come, first serve - so mortgages created first are first in priority).
When one mortgage forecloses, it will terminate the interests junior to it but not senior to it. That means that if mortgages 1, 2, 3 exist, and 2 forecloses then 3 will be paid with any surplus from 2 or will be terminated and allowed to pursue deficiency judgment against the mortgager. BUT, 2 foreclosing will not affect 1, so 1 will maintain a mortgage on the land.
In this case, the buyer of the land will NOT be liable to 1 for payment, but 1 can foreclose on land still.
Note: necessary parties must be joined in foreclosure actions - e.g. mortgager in deficiency action. Also, if junior lender is not joined their mortgage will remain on land.
What must a creditor do to establish their priority?
Record the mortgage properly.
What is a subordination agreement? Are they valid?
A subordination agreement is a private agreement in which one lender agrees to be second in priority to another. They are valid.
What is equitable redemption?
Equitable redemption allows a debtor to free the land from the mortgage at any point before sale. At sale, this right terminates.
