Mortgages Flashcards
who is the mortgagor and who is the mortgagee?
mortgagor = the borrower
mortgagee = the lender (bank, etc)
what 2 documents are involved in every mortgage transaction?
1) promissory note
2) mortgage
what is a promissory note?
the mortgagor’s personal obligation (meaning mortgagee is not limited to the land when seeking a remedy for default – can sue mortgagor personally for payment of the note)
what is the mortgage?
the agreement that says that if the mortgagor quits paying, the land can be sold (foreclosed) to pay the mortgagee
what is a purchase money mortgage?
an extension of value by a lender who takes as collateral a security interest (mortgage/lien) in the very real estate that its loan enables the mortgagor/borrower to acquire
what is a NON purchase money mortgage?
an extension of value by a lender who takes as collateral a security interest (mortgage/lien) in debtor’s real estate BUT the loan is NOT used for purpose of acquiring that same real estate (loan is taken out for any other purpose)
what are the two elements needed to create a mortgage?
debt + voluntary transfer of lien (to secure the debt)
generally, must a mortgage be in writing? (legal mortgage)
yes (to satisfy SoF)
what is a legal mortgage also known as?
- mortgage deed
- deed of trust
- sale leaseback
- security interest in land
who can transfer their interests in a mortgage?
BOTH the mortgagor and the mortgagee
in what 2 ways can a creditor-mortgagee transfer their interest?
1) Endorsing the note and delivering it to the transferee, OR
2) executing a separate document of assignment
what is the effect of a properly transferred note?
mortgage automatically follows
does a mortgagee need to get the mortgagor’s permission to transfer?
NO (mortgagee can transfer freely)
if a mortgagor transfers their property to a grantee and the grantee ASSUMES the mortgage, what is the effect?
grantee agrees to be personally liable on the mortgage note (primarily liable to lender, while OG mortgagor is only secondarily liable as a surety)
if a mortgagor transfers their property to a grantee and the grantee merely is SUBJECT TO the mortgage, what is the effect?
grantee is NOT personally liable on the mortgage note (BUT mortgagee CAN foreclose on the land if mortgagor defaults)
when may a mortgagee sue BOTH the OG mortgagor and the grantee?
only when the grantee has ASSUMED the mortgage (assumption agreement signed)
what is the effect of a due-on-sale clause in a mortgage?
it allows the lender to demand FULL payment of the loan if the mortgagor transfers ANY interest in the property without the lender’s consent
will the mortgage remain on the land when the land is transferred?
yes (so long as its properly recorded)
do recording statutes apply to mortgages?
YES (they protect mortgagees)
in what type of recording jurisdictions will a later buyer take subject to a properly recorded lien (mortgage)?
ALL jurisdictions
how must a mortgagee proceed when a mortgagor defaults on the loan?
by foreclosure thru proper judicial action (can’t self help)
what happens if the proceeds from foreclosure are LESS than the amount owed?
mortgagee can bring a deficiency action against the debtor
what happens if there is a SURPLUS of proceeds from foreclosure? (more than amount owed)
junior liens are paid off in order of priority and any remaining surplus goes to the debtor
what is the default rule for priority among interests in foreclosure?
priority depends on when it was placed on the property (first in time, first in right)
how does a buyer at a foreclosure sale take title in relation to multiple mortgages/interests?
buyer takes title as it existed when the FORECLOSED mortgage was placed on the property
what happens to remaining interests when one mortgage forecloses?
all interests SENIOR to the foreclosed mortgage REMAIN on the property (buyer still subject to them), BUT all interests JUNIOR to foreclosed mortgage are extinguished
what does “junior interests” include? (foreclosure actions)
junior mortgages
liens
leases
easements
all other types of interests
when can junior lien-holders NO LONGER look to the land for satisfaction of a debt?
once foreclosure of a superior claim has occurred and proceeds have been distributed appropriately
who are necessary parties to a foreclosure action?
debtor + junior lien holders
what is the consequence of failing to include a necessary party in a foreclosure action?
results in the preservation of that party’s claim (despite foreclosure/sale) thus the mortgage/lien will REMAIN on the land
when does a creditor have priority?
once they record (priority determined in order of recording)
what kind of priority does a purchase money mortgagee have?
FIRST priority in the parcel it financed (super priority)
what is a floating lien?
when mortgagee takes a security interest in all of debtor’s real estate holdings (present AND future)
why would a debtor grant a creditor a floating lien?
if the loan on the front end is under-collateralized
can a senior creditor subordinate its priority to a junior creditor?
yes (by private agreement)
what is the right to equitable redemption?
at any time prior to the foreclosure sale, the debtor has the right to redeem the land by freeing it of the mortgage (by paying)
when is the right to equitable redemption cut off?
once a valid foreclosure has taken place
what is an acceleration clause?
clause that permits the mortgagee to declare the full balance due in the event of default
how is the right of equitable redemption exercised when the note does NOT contain an acceleration clause?
by paying off missed payments plus accrued interest/costs
how is the right of equitable redemption exercised when the note DOES contain an acceleration clause?
by paying off the ENTIRE balance (plus interest/costs)
may a debtor/mortgagor waive the right to equitable redemption in the mortgage itself?
NO (against public policy)
what is a statutory right of redemption?
mortgagor given right to redeem for some fixed period AFTER the foreclosure sale has occurred
**NOTE = amount to be paid is usually the foreclosure sale price (rather than the amount of the OG debt)
