Mortgages

Question 1

Mortgage Definition

Answer 1

Security device used to secure payment for a debt

Question 2

Two components of of mortgage

Answer 2

1. Note
2. Mortgage

Question 3

Note

Answer 3

Borrowers promise to repay the loan/debt

Question 4

Mortgage

Answer 4

Instrument that provides security for the note

Question 5

If borrowers default son the loan

Answer 5

Lender can force a foreclosure sale to satisfy the outstanding debt

Question 6

Mortgagor

Answer 6

Borrower

Question 7

Mortgagee

Answer 7

Lender

Question 8

Types of mortgages

Answer 8

1. Purchase money mortgage
2. Future advance mortgage

Question 9

Purchase money mortgage

Answer 9

A person takes out a loan for the purpose of purchasing a property

Question 10

Future advance mortgage

Answer 10

A line of credit used for home equity, construction, business, and commercial loans

Often referred to as a second mortgage

Question 11

Lien State v. Title State

Answer 11

Majority: Lien State - treats mortgages as a lien that does not severe joint tenancy

Minority: Title State - A mortgage does sever a joint tenancy and converts it into a tenancy in common

Question 12

Alternatives to Mortgages - Equitable Mortgages

Answer 12

1. Deed of Trust
2. Installment land contract
3. Absolute Deed
4. Conditional Sale and Repurchase

Question 13

Deed of trust

Answer 13

Operates like a mortgage but uses a trustee to hold title the benefit of the lender

Question 14

Installment Land Contract

Answer 14

The seller finances the purchase; the seller retains title until the buyer makes the final payment on an installment plan.

Traditional rule: If the buyer breaches (i.e., misses a payment), the seller keeps the installment payments made and the property.

Modern approaches: States are trying to assist defaulting buyers:

Some treat installment contracts as a mortgage, requiring the seller to foreclose

Question 15

Mortgagor remains personally liable for mortgage after transfer unless

Answer 15

1. Lender releases mortgagor or
2. Lender modifies the transferee’s obligation

Question 16

Due-on-sale clause

Answer 16

Lender has the option to demand immediate full payment upon transfer. Think of this like an acceleration clause that allows lender to spend up payment when property is transferred

Question 17

Due on encumbrance Clause

Answer 17

an acceleration clause when the mortgagor obtains a second mortgage or otherwise encumbers the property