Mortgages Flashcards
Terms to memorize
Mortgagor = debtor
Mortgagee = creditor/lender
Promissory note = debtor’s personal obligation
-Mortgagee is not limited to the land when seeking a remedy for default
Mortgage = agreement that says that if the mortgagor quits paying, the land can be sold to pay the mortgagee
Purchase-money mortgage
Lender’s security interest in real estate that their loan enables the debtor to acquire
-When people finance the purchase of a home
Non-purchase-money mortgage
A lien on already paid off real estate
-When people borrow against their home
Mortgage creation
Two elements:
1. Debt
2. Voluntary transfer of lien in debtor’s real property to secure debt
A legal mortgage must be in writing to satisfy the S/F
-Also called mortgage deed, sale leaseback, deed of trust, security interest in land (all mean legal mortgage for purpose of exam)
Transfer of mortgage interest
Transfer by mortgagor (much more common on exam):
-Grantee “assumes the mortgage” (personal liability)
>Grantee is primarily liable and grantor is secondarily liable
>Mortgagee can sue either on the debt
>Any subsequent modification by grantee and mortgagee discharges original mortgagor of liability
-Grantee takes the property “subject to the mortgage” (no personal liability)
>Original mortgagor remains primarily and personally liable
Transfer by mortgagee
-By indorsing (legal signature) the note and delivering it to the transferee; or
-Executing a separate document of assignment
Due-on-sale clause
Allow the mortgagee to demand full payment of the loan if the mortgagor transfers any interest in the property without the mortgagee’s consent
-If properly recorded, a grantee automatically takes the property subject to a mortgage (recording statutes protect mortgagees/lenders)
-Then determine personal liability by assumption/subject to language
>Even if no personal liability, a mortgage that remains on land can be foreclosed if payment is not made
***All recording statutes apply to mortgages as well as deeds
Foreclosure
Mortgagee must foreclose by proper judicial proceeding
-At foreclosure, the land is sold and the proceeds go to satisfying the debt
-Alternatively, a mortgagor can tender the deed in lieu of foreclosure (does not effect junior interest holders)
Deficiency action
If proceeds from a foreclosure are less than the amount owed, the mortgagee can bring a deficiency action against the debtor who is personally liable for the mortgage
Sale proceeds surplus
If the mortgage is satisfied, the remaining proceeds are paid to junior lien holders in order of priority and then to the debtor
Effect of foreclosure of various interests
A buyer at a foreclosure sale takes the title as it existed when the foreclosed mortgage was placed on the property
-All senior interests remain on the property
-All junior interests are extinguished unless they are not enjoined, in which case they remain on the property
Extinguished means paid in descending order (first in time, first in right) with the foreclosure sale proceeds
-If the proceeds run out, the junior interest holders can proceed for a deficiency judgement
-Once proceeds are distributed, the junior interest holders cannot look to the property for satisfaction
*Note on senior interest holders: buyer is not personally liable on the senior debt, but if it does not pay the senior creditor will foreclose the land again, so the buyer is incentivized to pay senior debts
Necessary parties
The necessary parties to a foreclosure action are the junior interest holders and the debtor-mortgagor
-Failure to include a necessary party results in preservation of that party’s claim on the land
Priorities
A creditor must record to have priority, which is determined by first in time, first in right
-exception: properly recorded purchase-money mortgages have first priority
*A subsequent modification of a senior mortgage is not prioritized over junior mortgages
-i.e., a first mortgage modified to be larger, the second mortgage gains priority over the increase in debt)
Subordination agreement
A private agreement where the senior creditor agrees to subordinate its priority to a junior creditor
-Permissible
Statutory redemption
Right of mortgagor to recover land after foreclosure for the foreclosure sale price
Equitable redemption
Right of mortgagor to redeem the land by freeing it of the mortgage (amount overdue + interest) any time prior to the foreclosure sale
-Debtor/mortgagor CANNOT waive right of redemption in the mortgage itself
