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Adaptibar to Brainscape > Mortgages > Flashcards

Mortgages Flashcards

1
Q

What is a “mortgage”?

A

A “mortgage” is a security interest in real property held by a lender as a security for a debt, usually a loan of
money.

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2
Q

What is an “installment land contract”?

A

“installment land contract” is an agreement between a seller and a buyer in which the buyer agrees to pay to
the seller the purchase price of the property plus interest in installments over a set period of time.

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3
Q

What is a “deed of trust”?

A

a “deed of trust” is a type of secured real-estate transaction that some states use instead of mortgages, which
gives the deed to a third-party trustee.

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4
Q

May a mortgagee transfer their interest to a third party?

A

Yes, All parties to a mortgage can transfer their interest. The mortgage automatically follows the properly transferred note

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5
Q

What does a sale “subject to a mortgage” mean for the buyer?

A

A sale “subject to a mortgage” means that the buyer is not personally liable for payment of the mortgage debt

AdaptiTip: A buyer who takes subject to a recorded mortgage may be foreclosed upon if the seller (who
remains personally liable) does not pay that mortgage)

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6
Q

What is the “lien theory” of property ownership?

A

When a mortgage is executed between a lender and a borrower, jurisdictions following the “lien theory” will
consider the borrower to be the owner of the property, while the lender merely holds a security interest in the property.

AdaptiTip: Distinguish from the “title theory” of ownership

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7
Q

What is the “title theory” of property ownership?

A

When a mortgage is executed between a lender and a borrower, jurisdictions following the “title theory” will
hold that title remains with the lender until the borrower has paid off the mortgage.

AdaptiTip: Distinguish from the “lien theory” of property ownership

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8
Q

What is a “foreclosure”?

A

A “foreclosure” is the process that terminates a borrower’s interest in a mortgage.

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9
Q

What is “statutory redemption?

A

Statutory redemption” statutes give the borrower the right to redeem their foreclosed mortgage for a fixed
period of time after a foreclosure sale by paying the entire amount due on a mortgage.

AdaptiTip: The amount to be paid is usually the foreclosure sale price rather than the amount of the debt.

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10
Q

How is the priority of competing mortgages determined in the event of foreclosure?

A

A mortgage’s priority is generally determined according to when the mortgage was placed on the property, i.e.,
“first in time, first in right.”

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11
Q

What is the order in which the proceeds of a mortgage foreclosure sale are distributed?

A

Proceeds are distributed as follows:
1. any expenses of the sale (i.e., court costs and fees) must be paid first, and then;

  1. the proceeds will be applied to the principal interest and accrued interest on the foreclosed mortgage;
  2. if there are any funds left, junior mortgages will be paid; AND FINALLY
  3. any remaining proceeds go to the mortgagor.
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12
Q

What is an “absolute deed”?

A

An “absolute deed” or “equitable mortgage” occurs when a buyer delivers a deed to the mortgagee rather than
signing a note or mortgage deed.

AdaptiTip: This differs from a “mortgage deed,” where after the terms of the mortgage have been fulfilled,
ownership is transferred back to the mortgagee

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13
Q

What is a “sale-leaseback”?

A

A “sale-leaseback” is a financial transaction where the seller sells an asset to a buyer and then leases it back
from the buyer.

AdaptiTip: A court may find that this creates an equitable mortgage

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13
Q

Which two remedies are available to a mortgagee when the mortgagor defaults?

A

On default by the mortgagor, the mortgagee may:

  1. sue on the debt; OR
  2. foreclose on the mortgage
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14
Q

What may a creditor do if the funds from a foreclosure sale are insufficient to satisfy their debt?

A

The creditor may sue the debtor in a deficiency action if the proceeds of the foreclosure sale are insufficient to
satisfy the debt.

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15
Q

What is an “acceleration clause”?

A

An “acceleration clause” is a term in a loan agreement that allows a lender to accelerate the loan’s due date if
the borrower fails to meet some obligation, typically nonpayment of the mortgage debt.

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16
Q

What are the two main triggers of acceleration clauses?

A

The two main triggers of an acceleration clause are:

  1. failure to make timely payments of the mortgage; AND
  2. transfer of the mortgage without the lender’s consent
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17
Q

What happens when an acceleration clause is triggered?

A

The remaining balance of the mortgage will be due in order to redeem the mortgage.

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18
Q

If a lender invokes an acceleration clause, what must the borrower pay

A

The borrower must pay the unpaid balance of the loan’s principal, plus any interest that accumulated before the
lender invoked the acceleration clause.

AdaptiTip: The borrower does not have to pay the full amount of interest that would have come due had the
loan been paid off normally

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19
Q

What are the two ways an acceleration clause may be waived?

A

An acceleration clause may be waived by:
1. an express agreement; OR
2. detrimental reliance.

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20
Q

May the effect of an acceleration clause be undone?

A

Yes. Borrowers may undo lenders’ invocation of acceleration clauses and avoid foreclosure by making up pastdue payments, and by compensating for some or all of the costs associated with the borrower’s default.

AdaptiTip: In most jurisdictions, the borrower must put the lender in the position it would have been in but for the borrower’s default

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21
Q

What is a “purchase money mortgage”?

A

A “purchase money mortgage” is a mortgage issued to the buyer by the seller of a given property.

AdaptiTip: This is also known as seller or owner financing

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22
Q

What is a “future advance mortgage”?

A

A “future advance mortgage” is a line of credit that is secured with a piece of property or another asset.

This loan secures property for future credit that is not fully disbursed at loan closing.

AdaptiTip: A home equity line of credit is a type of future advance mortgage.

23
Q

What is a “mortgage deed”?

A

After the terms of a mortgage have been fulfilled, a “mortgage deed” transfers ownership over the property
back to the mortgagor

24
Q

What is the effect of ASSUMING a mortgage?

A

If a purchaser assumes the original mortgagor’s payment of the mortgage, the purchaser is now liable for
payment of the mortgage both to the original mortgagor and to the mortgagee.

AdaptiTip: The seller remains secondarily liable

25
Q

What is an “assignment of a mortgage”?

A

An “assignment of a mortgage” transfers the mortgage from the original lender or borrower to a third party.

Assignments of mortgage are more commonly seen when lenders sell mortgages to other lenders.

26
Q

What is the “equity of redemption”?

A

The “equity of redemption” is the mortgagor’s right, for a certain period of time, to redeem the mortgage and
keep the property by refinancing and paying off the original mortgage.

27
Q

What is the “right to redemption”?

A

The “right of redemption” is a legal process that allows a delinquent mortgagor to reclaim property subject to
foreclosure if they are able to repay their obligations in time.

AdaptiTip: Every state has some type of redemption statute

28
Q

Which party may redeem under the “equity of redemption”?

A

Any party with an interest in the property has the right to pay off the mortgage and redeem the property.

29
Q

What is a “mortgagee in possession”?

A

A “mortgagee in possession” is a mortgagee who has taken possession of the property before the mortgage
has been paid off or the property has been foreclosed upon, usually because the mortgagor has abandoned the
property and stopped making mortgage payments.

30
Q

What are the two duties of a mortgagee in possession?

A

A mortgagee in possession must:

  1. maintain the property in a reasonable condition; AND
  2. credit any rents (minus the expenses of keeping the property in a reasonable condition) towards the mortgage debt
31
Q

What is a “due-on-sale clause”?

A

A “due-on-sale clause” is a provision in a mortgage contract that requires the mortgage to be repaid in full upon
a sale OR conveyance of partial or full interest in the property that secures the mortgage.

AdaptiTip: This type of clause is also sometimes referred to as an alienation or acceleration clause.

32
Q

What is a “deed in lieu of foreclosure”?

A

A “deed in lieu of foreclosure” transfers the title of a property from the property owner to their lender in
exchange for being relieved of the mortgage debt.

33
Q

What is a “mortgage prepayment penalty”?

A

A “mortgage prepayment penalty” is a fee that lenders may charge when the mortgage term is paid off early.

34
Q

What is a “private foreclosure sale”?

A

A “private foreclosure sale” is a foreclosure sale without a lawsuit or judicial supervision.

AdaptiTip: Not all jurisdictions allow private foreclosure sales.

35
Q

What is a “judicial foreclosure sale”?

A

A “judicial foreclosure sale” is foreclosure done under judicial supervision and is usually handled by the
sheriff.

Judicial foreclosure sales require a lawsuit by the mortgagee

36
Q

What is a “judgment lien”?

A

A “judgment lien” is a court ruling that gives a creditor the right to take possession of a debtor’s property if the
debtor fails to fulfill their contractual obligations.

37
Q

When does the priority of a judgment lien attach?

A

The priority of judgement lien attaches from the day the lien is filed.

38
Q

What is a “future advance clause”?

A

Under a “future advance clause,” the lender and borrower agree that the lender may make additional loans, and
that these further loans will be covered by the mortgage.

AdaptiTip: Future advance clauses are common in construction contracts

39
Q

What is “equitable subrogation

A

Under the doctrine of “equitable subrogation,” a person other than the mortgagor who pays off the mortgage
may step into the shoes of the now-paid-off mortgagee.

AdaptiTip: This allows new lenders to assume the “place in line” of prior mortgage holders and place
themselves in a senior position for a mortgage on the property.

40
Q

May a property be redeemed after a foreclosure?

A

Yes. In some states, there are statutory redemption periods that permit redemption (after paying the full
foreclosure sale price and full amount to the bank) after a foreclosure sale has already happened.

41
Q

In a sentence, define “foreclosure.”

A

“Foreclosure” is a process by which the mortgagor’s interest is terminated. The property is then generally sold
to satisfy the debt, in whole or part.

42
Q

What is the effect of foreclosure on the priority of loans?

A

Foreclosure will terminate interests junior to the mortgage being foreclosed but will not impact senior interests.
This means that junior lienholders will be paid in descending order with the proceeds from the sale, assuming
funds are leftover after full satisfaction of superior claims.

AdaptiTip: Junior lienholders are likely to come up short and may be able to proceed for a deficiency judgment.

43
Q

What is a “deficiency judgment”

A

A “deficiency judgment” occurs when the property is worth less than the amount owed on the outstanding loan.
A lender can sue the debtor for the difference if there was a judicial foreclosure and the interest is not a
purchase money mortgage.

44
Q

What happens to any additional surplus after all the liens are paid off in a foreclosure?

A

If the foreclosure results in a surplus, after all liens are paid off, any surplus goes back to the debtor

45
Q

How is mortgage priority of a purchase-money mortgage determined?

A

Traditionally, once recorded, priority is determined by first in time, first in right. However, a purchase-money
mortgage (PMM) will have priority over non-PMM.

46
Q

Who are the essential parties to a mortgage?

A

The essential parties to a mortgage are:

  1. the debtor who is called the mortgagor; AND
  2. the creditor who is the mortgagee
47
Q

What methods may a creditor-mortgagee use to transfer their interest?

A

A creditor-mortgagee may transfer their interest by:

  1. indorsing the note and delivering it to the transferee; OR
  2. executing a separate document of assignment.

AdaptiTip: If the note is indorsed and delivered, the transferee is eligible to become a holder in due course
(HDC).

48
Q

When does an express mortgage assumption occur?

A

An express assumption of a mortgage occurs if there is an express agreement to take the real property and
continue making mortgage payments.

49
Q

When may an implied assumption of the mortgage occur?

A

Some jurisdictions allow for a grantee who did not expressly assume a mortgage to do so through implication
when the grantee paid the seller the difference between the value of the house and the outstanding balance on
the mortgage.

50
Q

What is a “future advance mortgage” and what determines whether it is obligatory or optional?

A

A “future advance mortgage” is one where a lender advances funds to a borrower over a fixed period of time.

Future advance loans are either obligatory or optional.

If a lender has a duty to advance the funds, the loan is obligatory.

If the lender has discretion whether to make a future advance, the loan is optional

51
Q

In a sentence, define a “mortgage.”

A

A “mortgage” is the conveyance of a security interest in land, intended by the parties to be collateral for the
repayment of a monetary obligation.

52
Q

What is the priority of a future advance mortgage?

A

When the future advance is obligatory, as opposed to optional, any future advances will have the same priority
as the original mortgage.

However, where the advance is optional, and a senior lender has notice of a junior lien, the advance will lose
priority to the junior lien.

53
Q

What must a mortgage be to satisfy the Statute of Frauds?

A

A mortgage must be in writing to satisfy the Statute of Frauds.

54
Q

What factors does the court consider in determining if an “absolute deed” or “equitable mortgage” was given for
security purposes?

A

The court will look to the following factors:

  1. the existence of debt or promise of payment by the deed’s grantor;
  2. grantee’s promise to return the land after their debt is paid;
  3. the amount advanced is lower than the value of the property;
  4. the degree of grantor’s financial distress; AND
  5. the parties’ prior negotiations

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