Mortgages Flashcards
Mortgagor
Debtor (person owing money to lender)
Mortgagee
Creditor (lender)
Documents involved in mortgage transaction
1) Promissory Note
2) Mortgage
Promissory Note
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.
Mortgage Itself
Agreement that if mortgager is unable to repay the loan, the land can be foreclosed upon.
Two types of mortgages
1) Purchase money mortgage
2) Non-purchase money mortgage
Purchase money mortgage
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.
Non purchase money mortgage
Lender takes real estate as collateral so the debtor can fund SOMETHING ELSE.
Creation of Mortgage
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.
Right to transfer interest in mortgage
All parties can transfer their interest
Transfer by mortgagee (creditor)
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
Transfer by mortgager (and recording actgs)
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.
Mortgagor transfer: If buyer “assumes the mortgage”
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.
Mortgagor transfer: If buyer takes “SUBJECT to mortgage”
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.
How to proceed on foreclosure
Mortgagee must foreclose by PROPER JUDICIAL PROCEEDING.
At foreclsure, BlackAcre is sold. Sale proceeds go to satisfying the debt.
Foreclosure: Sale proceeds don’t fully satisfy debt?
Mortgagee brings a deficiency action against mortgagor.
Foreclosure: Sale proceeds exceed debt?
Junior liens are paid off in order of their priority IN FULL. Remaining surplus goes to the debtor.
Effects of foreclosure on junior interests
Terminated (paid in descending order from sale proceeds assuming there is enough)
If not enough, juniors can bring a deficiency judgment against mortgagor.
Effect of foreclosure on senior interests
Unaffected. Buyer takes land subject to their interests. Buyer not personally liable.
Necessary parties to a foreclosure action and consequences of failure to include
Junior lienholders + debtor.
Failure to include a necessary party -> preservation of given party’s claim. Their mortgage remains on the land.
Foreclosure: Senior party scenario
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.
Priority of Creditors
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.
Floating lien
A security interest in “all property owned or hereafter acquired”.
Why do it? When loan on the front end is undercollateralized.
Subordinaizatoin Agreements
by PRIVATE AGREEMENT, a senior creditor may agree to subordinate its priority to a junior creditor
Equitable Redemption
Universally recognized up to the date of sale.
Debtor can reedem land PRIOR to foreclosure sale by paying. Cut off by foreclosure sale.
Acceleration CLause
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
Equitable Redemption WITH NO acceleration clause
Debotor Pays off missed payments + accrued interests and costs
Equitable Redemption WITH acceleration clause
debtor Must pay full balance + accrued interests and costs
Can debtor waive right to redeem on front end in the mortgage instrument?
NO. No clogging equity of redemption.
STATUTORY right of redemption
Depends on state. Give mortgagor fixed period AFTER TEH FORECLOSURE SALE to redeem. Usually, sale price.
Deed in lieu of foreclosure
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.
Mortgagee in possession
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).
