Mortgages

Question 1

Mortgage - Definition

Answer 1

A mortgage is a security interest in land that serves as collateral for the repayment of a loan (a.k.a. “mortgage deed”)

Writing Required: Must be in writing under SoF

Mortgagor = debtor/borrower/landowner

Mortgagee = creditor

Question 2

Parties’ Rights - Lien Theory (Majority)

Answer 2

Mortgagor has title and the right to possession absent foreclosure

 - Mortgagee has a lien, conferring a right to take action for ownership. of land if the mortgagee has title to the property

Unless told otherwise APPLY LIEN THEORY

Question 3

Parties’ Rights - Title Theory (Minority)

Answer 3

Mortgagee has title to the property during loan term, not mortgagor-borrower

Question 4

Parties’ Rights - Intermediate Theory (Minority)

Answer 4

Mortgagor has title and right to possession until default occurs per the mortgage; after default mortgagee has title and right to possession

Question 5

Parties’ Rights - Intermediate Theory

Question 6

Equitable Mortgage

Answer 6

Debtor gives creditor a deed to his land as collateral for the debt (instead of executing a mortgage)

Question 7

Acceleration Clauses

Answer 7

Terms in loan agreements that require mortgagor to pay off full loan immediately if certain conditions are met (e.g. if mortgagor misses too many payments)

Question 8

Mortgagor Transfer

Answer 8

Where mortgagor sells property, mortgage remains on the land (i.e. grantee takes subject to the mortgage but is not liable for repayment)

• Mortgagor remains liable to mortgagee for the loan

Question 9

Assumption of Mortgage

Answer 9

Grantee promises to pay existing mortgage loan

• grantee becomes primarily liable to mortgagee; original party is secondarily liable as surety

Question 10

How can a mortgagee transfer their interest? (2)

Answer 10

1) endorsing the mortgage note and delivering it to transferee

2) Executing a separate assignment of the mortgage interest

Question 11

Holder in Due Course

Answer 11

A holder in sue course lender takes a mortgage note free of any personal defenses mortgagor could have raised against original mortgagee (e.g. lack of consideration, fraudulent inducement)

• He still remains subject to real defenses (e.g. duress, fraud, etc.)

Question 12

Transfer of Mortgage Interests - Requirements (4)

Answer 12

1) Negotiable Note: Must be made payable to the named mortgagee

2) Indorsed: Not must be signed by the named mortgagee

3) Delivered: Note must be delivered to the transferee; and

4) Good Faith and Value Paid: Transferee must take the note in good faith (i.e. without notice of illegality) and pay value

Question 13

Foreclosure

Answer 13

Upon default, mortgagee can satisfy debt through foreclosure by judicial action

• Property is sold to satisfy the debt in whole or in part
• Deficiency Judgment: If the debt exceeds sale proceeds mortgagee can file suit against mortgagor for debt balance
• If proceeds exceed the debt balance, jurior liens are paid in order of priority

Question 14

Redemption in Equity

Answer 14

At any time prior to a judicial foreclosure sale, mortgagor can redeem the property by paying the amount due

Statutory Right of Redemption: Some jurisdictions allow mortgagor, for a certain period, to buy back the property after foreclosure sale

Question 15

Deed in Lieu of Foreclosure

Answer 15

To avoid foreclosure, mortgagor can agree to give mortgagee deed to property; such transactions will be valid as long as they are fair and reasonable under the circumstances

Question 16

Priority of Creditors

Answer 16

Creditors must record their interests

• recorded interests take priority in the order recorded
• Creditors can agree to subordinate

Question 17

Purchase Money Mortgages

Answer 17

Superior to all interests

Mortgage given in exchange for funds used to buy the property; PMM is given either to the seller as part of the purchase price or to a 3rd party lender

Question 18

Purchase Money Mortgages

Answer 18

Superior to all interests

Question 19

Junior Interests

Answer 19

Terminated by foreclosure of a superior claim (cannot look to land to satisfy debts)

Junior interest holders can seek a deficiency judgment against debtor, but they have no interest in the subject property

Question 20

Necessary Parties

Answer 20

Junior interests are necessary parties and must be included in a senior foreclosure actions

If not, junior interest will remain on the land

Question 21

Senior Interests

Answer 21

Unaffected by junior interest foreclosures

• Buyer of foreclosed property takes it subject to senior interests
• Buyer is not liable for senior debt, but the senior mortgage remains of the land