Mortgages Flashcards
What is the exoneration of liens doctrine?
The common-law exoneration-of-liens doctrine* applies when a devisee (the son) receives a specific devise of real property (the house) that is subject to an encumbrance (e.g., mortgage, lien). Under this doctrine, the devisee is entitled to pay off any encumbrances on that property—including a purchase-money mortgage—from the remaining assets in the testator’s estate. These remaining assets come from the residuary estate, even if such estate has been devised to someone else.
- NOTE: in most states devise takes subject to mortgage
Who has liability if a grantee assumes the mortgage after conveyance?
Both grantee and original debtor.
A grantee who assumes the mortgage expressly agrees to pay and becomes primarily liable for the debt, while the original debtor becomes secondarily liability as a surety. This gives the lender the right to sue either party upon default, and the original debtor can recover any amount paid from the grantee. the debtor is still liable on the note unless the lender releases the debtor from that obligation
What is an installment land contract and what happens when a buyer misses a payment?
An installment land contract (i.e., contract for deed) is a contract under which the seller retains title to the property until the buyer makes the final payment under an installment plan. Traditionally, a buyer who missed a single payment was deemed to have defaulted on the contract, and the seller could keep all prior installment payments and take back the property.
Today, states handle a buyer’s failure to pay in one of three ways:
(1) Allow the seller to retain ownership of the property but require some form of restitution to the buyer
(2) Offer the buyer an equitable right of redemption—i.e., the buyer can keep the property by paying the full balance of the installment contract at any time prior to the foreclosure sale
(3) Treat the installment land contract AS A MORTGAGE, so the seller MUST FORECLOSE to gain title to the property and the buyer has an equitable right of redemption and other protections
If the installment contract contains an acceleration clause, then the full balance due under the contract is due upon default and the buyer must pay it to redeem the property.
What are the due on sale exceptions?
(1) Devise, descent, or transfer to joint tenant upon death
(2) Transfer to spouse or child
(3) Transfer to ex-spouse in divorce
(4) Transfer to borrower’s living trust
(5) Creation of subordinate lien without occupancy rights
(6) Granting leasehold interest of less than 3 years without option to purchase
What is future advances mortgage?
A future-advances mortgage is given in exchange for right to receive money in the future (I.e., “line of credit”).
If obligatory advances: FAM has priority for amounts before/after FAM gets notice of subsequent mortgage.
If optional advances: subsequent mortgage has priority over amounts after FAM has notice of subsq mortgage. *includes any conditional FAMs
Split btwn jx on actual or constructive notice.
What is an equitable mortgage and when is it not enforceable?
For example, an absolute deed—one that transfers title free of all liens and encumbrances—given with the intent to secure a debt is generally enforceable as an equitable mortgage. But competing equities (e.g., good-faith purchaser) take precedence over an equitable mortgage.
What happens when a mortgagor conveys a “deed in lieu of foreclosure” to a mortgagee?
A mortgagor (debtor) may convey all interest in the mortgaged property to the mortgagee (lender) in lieu of foreclosure so long as both parties agree. This “deed in lieu of foreclosure” allows the mortgagee to take immediate possession of the property without the formalities of a foreclosure sale.
However, the mortgagee takes the property along with any junior interests attached to the property—e.g., the savings and loan association’s second mortgage. And if the mortgagee accepts a deed in lieu of foreclosure without reserving the right to foreclose (as seen here), then its mortgage is extinguished. As a result, the house remains subject only to the savings and loan association’s mortgage.
When is a debtor relieved of personal obligation to pay a mortgage loan?
The debtor is relieved of personal liability for the mortgage debt if the lender releases or impairs the mortgaged property.* In some states, a release completely discharges the debtor’s personal liability. In other states and under the Restatement, the debtor’s personal liability is discharged only to the extent of the value of the released property. Although the homebuyer executed a promissory note that was payable to the lender, the lender cannot successfully enforce the note against her after releasing its mortgage interest.
Which type of subsequent owner – a donee or a purchaser – can assert the original owner’s defenses (fraud, etc.) against a mortgage loan?
A donee can. A purchaser, when they assume the mortgage through the property price, cannot.
To what extent is a mortgage generally enforceable?
A mortgage is generally enforceable only to the extent that the underlying obligation is enforceable. Therefore, a mortgage is subject to the same defenses as the underlying obligation secured by the mortgage—e.g., mistake, duress, lack of capacity, statute of limitations.
Here, the statute of limitations provides the owner-mortgagor with a valid defense to the enforcement of the loan obligation. Therefore, he also has a valid defense to enforcement of the mortgage. For this reason, the lender will likely not prevail in its foreclosure action.
When does a PMM have priority?
A PMM only has priority over mortgages created by the mortgagor before acquiring the property.
MPQ 4, Q33
What is the Doctrine of Marshalling of Assets?
When there are junior security interests in parcels of the real property that are to be foreclosed by senior mortgage, those junior interests may petition the court for protection of their interests under the doctrine of marshaling of assets.
Under this doctrine, the holder of a senior security interest must first proceed against the property on which there are not any junior security interests, and then against the property on which the junior interest was more recently created, before proceeding against property on which the junior interest was more remotely created.
Does a Seller PMM or a 3d Party PMM take precedence over the other?
A seller-financed purchase money mortgage generally takes precedence over a third-party purchase money mortgage.
A forges a mortgage release, records such release, then sells the property to B. A defaults on mortgage. The Mortgagee comes and demands payment from B. B brings suit to quiet title. Who wins?
Mortgagee.
A forged instrument, such as a deed or release from a mortgage, is void and has no effect on property rights, even if relied upon by a bona fide purchaser. Consequently, the forged release is not effective to terminate the mortgagee’s rights, even though the release was properly recorded and relied on by the buyer.
When does the modification of a senior mortgage subordinate to a junior mortgage?
When such modification materially prejudices the junior interest.
Note: the original mortgage remains superior.
