Mortgages Flashcards
Mortgagor v Mortgagee
Borrower/debtor = Mortgagor
lender/creditor = Mortgagee
Mortgage Transaction
The transaction involves two documents
1) Note - mortgagor’s personal obligation
2) Mortgage - security for the loan
Purchase Money Mortgage
A purchase money mortgage is an extension of value by a lender who takes as collateral a security interest in the very real estate that its loan enabled the debtor to acquire - gets super priority
Two elements of a mortgage
1) debt
2) voluntary transfer of a lien in the debtor’s land to secure the debt
Writing Requirement (Mortgage)
A mortgage typically requires a writing to satisfy the statute of frauds.
On the exam a writing may be referred to as
– mortgage deed
– deed of trust
– sale leaseback
– Security Interest in land
Transfer by Mortgagee
A mortgagee may transfer their interest by
1) endorsing the notice and delivering it to the transferee; or
2) executing a separate document of assignment
A mortgagee can freely transfer the note, and the mortgage automatically follows a properly transferred note
Assumption of Mortgage by Later Grantee
If a grantee assumes the mortgage, they’re agreeing to be personally liable on the mortgage note. If the grantee signs an assumption note, they become primarily liable to the lender, while the original mortgagor is secondary liable as a surety
However, once a grantee has assumed a mortgage, any modification of the obligation by the grantee and the mortgagee discharges the original mortgagor of all liability
(both mortgagor and grantee are personally liable)
Subject to the Mortgage
When a mortgagor transfers the property, and the grantee does not assume the mortgage, the grantee automatically takes the property subject to the mortgage.
The grantee is not personally liable on the mortgage - the mortgagee’s only recourse against the grantee is foreclosure. They can still sue the original mortgagor.
(only mortgagor is personally liable)
Recording Statutes and Mortgages
All recording statutes apply to mortgages as wells as deeds. Thus, a subsequent buyer takes subject to the mortgage if it is properly recorded.
Foreclosure Process
The mortgagee must foreclose by proper judicial proceeding. At foreclosure, the land is sold. The sale proceeds go to satisfy the debt.
If there is a deficiency, the mortgagee can bring a deficiency judgment
If there is a surplus, junior liens are paid in order of priority. Any remaining surplus goes to the debtor.
Junior v. Senior Mortgages
Priority of mortgage depends on when it was placed on the property - first in time is first in right
A buyer at a foreclosure sale takes the title as it existed when the foreclosed mortgage was placed on the property.
– all interests senior to the foreclosed mortgage remain on the property, while all junior interests are terminated
Junior Interests
Foreclosure terminates interests junior to the mortgage being foreclosed, but does not affect senior interests.
After foreclosure, junior interest can no longer look to the land for satisfaction and must only sue for deficiency if not satisfied.
Necessary Parties
Failure to include a necessary party results in the preservation of that party’s claim, despite the foreclosure and sale. Thus is a necessary party is not joined, their mortgage will rain on the land
Necessary parties = all junior interests and the debtor/mortgagor
Senior Interests
Foreclosure does not affect any interest senior to the mortgage being foreclosed. The buyer at the sale takes subject to the mortgage.
Priorities
A creditor must record. Until recording, a creditor has no priority. Once properly recorded, priority is determined by first in time rule.
However, a Purchase Money mortgage is given super priority
