Mortgages

Question 1

Mortgagor

Answer 1

Debtor (person owing money to lender)

Question 2

Mortgagee

Answer 2

Creditor (lender)

Question 3

Documents involved in mortgage transaction

Answer 3

1) Promissory Note
2) Mortgage

Question 4

Promissory Note

Answer 4

Represents debtor’s personal obligation on the debt. In teh event of default, lender has right to proceed against the debtor personally, seizing qualified assets beyond blackacre.

Question 5

Mortgage Itself

Answer 5

Agreement that if mortgager is unable to repay the loan, the land can be foreclosed upon.

Question 6

Two types of mortgages

Answer 6

1) Purchase money mortgage
2) Non-purchase money mortgage

Question 7

Purchase money mortgage

Answer 7

An extension of value by a lender who takes as collateral a security interest in the very real estate that its loan enables the debtor to acquire.

If debtor can’t pay back debt, creditor can foreclose upon the land.

Question 8

Non purchase money mortgage

Answer 8

Lender takes real estate as collateral so the debtor can fund SOMETHING ELSE.

Question 9

Creation of Mortgage

Answer 9

Debt (note) + lien in land to secure debt (mortgage)

Typically must be in writing (SoF). Known as legal mortgage, mortgage deed, deed of trust, sec interset in land, and others.

Question 10

Right to transfer interest in mortgage

Answer 10

All parties can transfer their interest

Question 11

Transfer by mortgagee (creditor)

Answer 11

Can transfer by:
1) indorsing the note and deliveriny it to the transferee
OR
2) executing a sperate document of assignment

Mortgage automatically follows a properly transfered note

Question 12

Transfer by mortgager (and recording actgs)

Answer 12

Recording stattues protect mortgagees. If properly recorded, mortgage sticks with the land and grantee takes property subject to the mortgage.

BUT transferee is not subject to PERSONALLY LIABILITY. Only transferor is personal liable.

Reecording statutes apply to mortgages as well as deeds.

Question 13

Mortgagor transfer: If buyer “assumes the mortgage”

Answer 13

both O and Buyer are PERSONALLY LIABLE.

B is primarily liable, O is secondairly liable.

BUT, if B modifies with mortgagee, O is discharged of liability.

Question 14

Mortgagor transfer: If buyer takes “SUBJECT to mortgage”

Answer 14

B assumes no personal liability. Only O is personally liable.

But, if recorded, mortgage remains on the land. Thus, if O doesn’t pay, the mortgage (property) may be foreclosed.

Question 15

How to proceed on foreclosure

Answer 15

Mortgagee must foreclose by PROPER JUDICIAL PROCEEDING.

At foreclsure, BlackAcre is sold. Sale proceeds go to satisfying the debt.

Question 16

Foreclosure: Sale proceeds don’t fully satisfy debt?

Answer 16

Mortgagee brings a deficiency action against mortgagor.

Question 17

Foreclosure: Sale proceeds exceed debt?

Answer 17

Junior liens are paid off in order of their priority IN FULL. Remaining surplus goes to the debtor.

Question 18

Effects of foreclosure on junior interests

Answer 18

Terminated (paid in descending order from sale proceeds assuming there is enough)

If not enough, juniors can bring a deficiency judgment against mortgagor.

Question 19

Effect of foreclosure on senior interests

Answer 19

Unaffected. Buyer takes land subject to their interests. Buyer not personally liable.

Question 20

Necessary parties to a foreclosure action and consequences of failure to include

Answer 20

Junior lienholders + debtor.

Failure to include a necessary party -> preservation of given party’s claim. Their mortgage remains on the land.

Question 21

Foreclosure: Senior party scenario

Answer 21

Land subject to 3 mortgages. Second mortgage in heirarchy forecloses. 2 and 3 get paid from proceeds. New buyer has ladn subject to First mortgage, but not persosanlly liable.

Buyer has a strong incentive to pay off First Mortgage when he buys, otherwise BlackAcre is subject to a later foreclosure action when O is unable to pay the lien.

So for a 50k property, buyer bids 20k, which goes to Second and Third. Buyer then pays 30k to First to discharge mortgage.

Question 22

Priority of Creditors

Answer 22

Creditors must record.

First in time, first in right. First to record, takes first.

BUT Purchase money mortgage, if properly recorded, skips the line and goes first IN THE PROPERTY IN FINANCED.

AND modifications made by previous mortgagee, if they make the original loan more burdensome, the modification itself is given lower priority. Not added to original loan.

Question 23

Floating lien

Answer 23

A security interest in “all property owned or hereafter acquired”.

Why do it? When loan on the front end is undercollateralized.

Question 24

Subordinaizatoin Agreements

Answer 24

by PRIVATE AGREEMENT, a senior creditor may agree to subordinate its priority to a junior creditor

Question 24

Equitable Redemption

Answer 24

Universally recognized up to the date of sale.

Debtor can reedem land PRIOR to foreclosure sale by paying. Cut off by foreclosure sale.

Question 25

Acceleration CLause

Answer 25

Clause in mortgage that permits the mortgagee to declare the full balance due in the event of default.

Can be activated for failure to pay OR breach of mortgage terms

Question 26

Equitable Redemption WITH NO acceleration clause

Answer 26

Debotor Pays off missed payments + accrued interests and costs

Question 27

Equitable Redemption WITH acceleration clause

Answer 27

debtor Must pay full balance + accrued interests and costs

Question 28

Can debtor waive right to redeem on front end in the mortgage instrument?

Answer 28

NO. No clogging equity of redemption.

Question 29

STATUTORY right of redemption

Answer 29

Depends on state. Give mortgagor fixed period AFTER TEH FORECLOSURE SALE to redeem. Usually, sale price.

Question 30

Deed in lieu of foreclosure

Answer 30

So long as it’s in good faith, a mortgagor can avoid foreclosure proceedings by agreeing with the mortgage to deliver the deed to the property in liue of foreclosure. The mortgagee becomes owner fee simple.

Question 31

Mortgagee in possession

Answer 31

Some situations where mortgagee is entitled to take possession of property, including after mortgagor abandonment and nonpayment. Mortgagee may possess to protect their interest in the land, and use net profits to pay off mortgage payments.

When this happens, the mortgagee assumes near parallel duties as actual owner (including tort).