Mortgages Flashcards
Mortgage - Definition
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
Parties’ Rights - Lien Theory (Majority)
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
Parties’ Rights - Title Theory (Minority)
Mortgagee has title to the property during loan term, not mortgagor-borrower
Parties’ Rights - Intermediate Theory (Minority)
Mortgagor has title and right to possession until default occurs per the mortgage; after default mortgagee has title and right to possession
Parties’ Rights - Intermediate Theory
Equitable Mortgage
Debtor gives creditor a deed to his land as collateral for the debt (instead of executing a mortgage)
Acceleration Clauses
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)
Mortgagor Transfer
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
Assumption of Mortgage
Grantee promises to pay existing mortgage loan
- grantee becomes primarily liable to mortgagee; original party is secondarily liable as surety
How can a mortgagee transfer their interest? (2)
1) endorsing the mortgage note and delivering it to transferee
2) Executing a separate assignment of the mortgage interest
Holder in Due Course
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.)
Transfer of Mortgage Interests - Requirements (4)
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
Foreclosure
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
Redemption in Equity
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
Deed in Lieu of Foreclosure
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
Priority of Creditors
Creditors must record their interests
- recorded interests take priority in the order recorded
- Creditors can agree to subordinate
Purchase Money Mortgages
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
Purchase Money Mortgages
Superior to all interests
Junior Interests
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
Necessary Parties
Junior interests are necessary parties and must be included in a senior foreclosure actions
If not, junior interest will remain on the land
Senior Interests
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
