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July Exam - Real Property > Mortgages > Flashcards

Mortgages Flashcards

1
Q

Mortgage

A
  • borrower secures a loan by giving lender a mortgage (along with a promissory note representing the loan) on a particular piece of property
    -> in other words, the property is the collateral you’re using to get the bank to lend you money
  • if loan isn’t paid, lender may foreclose the mortgage (i.e. sell the property to pay off the debt)
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2
Q

Terms for Parties Involved in Mortgages

A
  • borrower = mortgagor
    -lender = mortgagee
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3
Q

Documents Involved in Mortgage Transactions

A
  • promissory note - mortgagor’s personal obligation
    -> means mortgagee is not limited to the land when seeking a remedy for default (mortgagee can sue the borrower directly to get their $)
  • mortgage = the agreement that says if mortgagor stops paying, mortgagee can sell the land to pay the mortgage
  • technically, these two documents could deal w/ different people (ex: parent could get a mortgage on their house to help child get a loan)
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4
Q

Purchase-Money Mortgage vs. Non-Purchase-Money Mortgage

A
  • purchase-money mortgage = 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
    -> you’re loaning someone money to buy a house, and you get a security interest in that house as collateral
  • vs. non-purchase-money mortgage means somebody is putting their house up as collateral, but they’re going to use the money to do something other than buy that particular house
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5
Q

Creation of Mortgage

A

Union of Two Elements:
- debt
- voluntary transfer of a lien in debtor’s land to secure that debt

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6
Q

SOF and Mortgages

A
  • mortgages usually need to be in writing to satisfy Statute of Frauds
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7
Q

Transfer of Interest by Mortgagee

A

Creditor-mortgagee can transfer their interest by:
- indorsing the note and delivering it to the transferee OR
- executing a separate document of assignment

  • mortgagee can freely transfer their interest, + mortgage automatically follows a properly transferred note
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8
Q

Transfer by Mortgagor

A
  • mortgagor can sell the property ->buyer either assumes the mortgage or takes subject to it
    -> assume the mortgage means buyer is now personally liable on the promissory note that goes with the mortgage
    -> vs. if they take subject to the mortgage, buyer is NOT agreeing to personal liability, + the mortgagee’s only recourse against that buyer is foreclosure
  • book seems to suggest that taking subject to the mortgage is the default (since this happens unless there’s an assignment agreement)
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9
Q

Transfer by Mortgagor - Effect of Assumption

A
  • if grantee signs assumption agreement, they become primarily liable to the lender
    -> original mortgagor remains secondarily liable as a surety (guarantor)
  • in this case, the mortgagee can decide to sue EITHER party on the debt
    -> note though that any modification of the obligation by the grantee/buyer and the mortgagee discharges the original mortgagor of all liability
  • note that if there’s NO assumption agreement, grantee is not personally liable -> original mortgagor primarily + personally liable
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10
Q

Due-on-Sale Clauses

A
  • allow lender to demand full payment of loan if mortgagor transfers any interest in the property without the lender’s consent
    -> i.e. if you sell your house without okaying it with your lender first, you have to pay them the full amount due on your mortgage
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11
Q

Recording Acts and Mortgages

A
  • all recording statutes apply to mortgages as well as deeds
  • means that a subsequent buyer takes subject to a properly recorded lien
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12
Q

Foreclosure - Overall Steps

A
  • mortgagee must foreclose by proper judicial proceeding
  • at foreclosure, the land is sold -> sale proceeds go towards satisfying the debt
    -> if proceeds are less than amount owed, mortgagee can sue mortgagor for the rest
    -> if proceeds are more than amount sold, mortgagor gets the leftovers
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13
Q

Deed in Lieu of Foreclosure

A
  • mortgagor can tender this to mortgagee -> permits mortgagee to take immediate possession without a foreclosure sale
  • because this isn’t an actual foreclosure, it doesn’t terminate any junior liens that may be present on the mortgaged real estate
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14
Q

Effect of Foreclosure on Various Interests

A
  • priority of a mortgage generally depends on when it was placed on the property (first in time, first in right)
  • buyer at foreclosure sale takes title as it existed when the foreclosed mortgage was placed on the property -> means any senior interests remain on the property, and any junior interests are extinguished (includes liens, leases, + easements as well as junior mortgages)
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15
Q

Foreclosure + Junior Interests

A
  • foreclosure terminates interests junior to the mortgage being foreclosed on
  • if funds are leftover from the sale, junior lenders get paid off in descending order
    -> if they don’t receive the amount they’re owed, they should be able to proceed for a deficiency judgment (but no longer have power to foreclose on the property)
  • b/c of this, junior interests are NECESSARY PARTIES in a foreclosure action (as is the debtor-mortgagor)
    -> if you don’t join them, their claim gets preserved -> i.e. their mortgage remains on the land
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16
Q

Foreclosure + Senior Interests

A
  • foreclosure does NOT affect any interests senior to the mortgage being foreclosed
    -> buyer at the sale takes subject to such interest
17
Q

Determining Priorities wrt Mortgages

A
  • creditors must record -> until you record, you have no priority
  • once recorded, the general rule is first-in-time, first-in-right (first is judged by when you recorded)
  • EXCEPTION - purchase-money mortgage sometimes gets to defy the first-in-time rule
  • other exception: subordination agreements - senior creditor can make a private agreement to subordinate its property to a junior creditor
18
Q

Redemption in Equity

A
  • means that any time prior to foreclosure sale, debtor has right to redeem the land by freeing it of the mortgage
  • universally recognized up to date of sale
    -> once valid foreclosure has taken place though, this right is cut off
  • mortgagor cannot waive this right by contract or anything
19
Q

Equitable Redemption and Acceleration Clauses

A
  • under normal circumstances, to exercise the right of equitable redemption, you’d need to pay the balance plus accrued interests plus costs
  • BUT acceleration clause says mortgagee can declare the full balance due in the event of default
    -> means that then you’d have to pay the full balance, plus accrued interests and costs, in order to exercise the right of equitable redemption
  • acceleration clauses are generally accepted as valid
  • note that acceleration clauses can also allow acceleration for mortgagor’s defaults in mortgage covenants, such as obligation to pay taxes, maintain insurance, or avoid commission of waste
20
Q

Statutory Right of Redemption

A
  • many states give mortgagor statutory right to redeem for some fixed period after the foreclosure sale has occurred (usually six months or one year)
  • amount to be paid is usually the foreclosure sale price, rather than the amount of the original debt
21
Q

Mortgage Alternatives

A
  • deed of trust
  • absolute deed
  • installment land contract
  • equitable vendor’s lien
22
Q

Deed of Trust

A
  • some states call security interest in land a deed of trust, instead of mortgage
  • debtor/notemaker = trustor
    -> gives a deed of trust to a third-party trustee, who’s usually closely connected to lender (beneficiary)
  • on default, lender instructs trustee to foreclose deed of trust by sale
23
Q

Absolute Deed

A
  • absolute deed, if given for security purposes, can be treated by the court as an “equitable” mortgage to be treated as any other mortgage (creditor must foreclose by judicial action)
24
Q

Installment Land Contract

A
  • installment purchaser obtains legal title only when the full contract price has been paid off
  • forfeiture clauses are common + generally enforceable
    -> allow vendor upon default to cancel the contract, retake possession, + retain all money paid
25
Q

Equitable Vendor’s Lien

A
  • does not result from an agreement but rather arises by implication of law when seller transfers title to the buyer + purchase price or a portion thereof remains unpaid
26
Q

Sale-Leaseback

A
  • landowner may sell her property for cash then lease it back from the purchaser for a long period of time
  • similar to the case of the absolute deed used as security, this may be treated as a disguised mortgage

July Exam - Real Property (16 decks)

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