Mortgages

Question 1

What is a mortgage?

Answer 1

A security devise used to secure payment of a debt.

Question 2

Purchase Money Mortgage

Answer 2

A person takes out a loan for the purpose of purchasing property

Question 3

Future Advanced Mortgage

Answer 3

A line of credit used for home equity, construction, business, and commercial loans (often referred to as a “second mortgage”)

Question 4

Lien States vs. Title States for Mortgages

Answer 4

Majority = Lien State
- treats a mortgage as a lien that does not sever a joint tenancy

Minority = Title State
- a mortgage does sever a joint tenancy and converts it to a tenancy in common

Question 5

Alternatives to Mortgages - Equitable Mortgages

Answer 5

1) Deed of Trust
- operates like a mortgage but uses a trustee to hold title for the benefit of the lender (ie, the beneficiary of the trust receiving the payments)

2) Installment Land Contract
- the seller finances the purchase;l the seller retains title until the buyer makes the final payment on an installment plan
- Traditional Rule: if the buyer breaches (ie, misses a payment), the seller keeps the installment payments made and the property.
- Modern Approaches: states are trying to assist defaulting buyers - (a) some treat installment contracts as a mortgage, requiring the seller to foreclose; (b) some give the bvyuiyber the equitable right of redemption to stop a foreclosure sale; (c) some allow the seller to retain ownership, but require some restitution for what’s been paid

3) Absolute Deed
- the mortgagor transfers the deed to the property instead of conveying a security interest in exchange for the loan
- if this is a mortgage disguised as a sale, the borrower must prove a mortgage-like agreement by clear and convincing evidence; parol evidence is admissible; SOF does not bar oral evidence about the agreement

4) Conditional Sale and Repurchase
- the owner sells property to the lender who leases the property back to the owner in exchange for a loan
- the lender gives the owner the option to repurchase after the loan is paid off

Question 6

Transfers by Mortgagor

Answer 6

Mortgagor may transfer the property boy deed, by will or by intestate succession

Mortgagor remains personally liable after the transfer unless:
- lender/mortgagee releases the mortgagor, or
- lender modifies the transferee’s (buyer/new owner) obligation

Question 7

Due on Sale Clause

Answer 7

Lender has the option to demand immediate full payment upon transfer. This is like an acceleration clause that allows the lender to speed up the payment when the property is transferred.

Question 8

Due on Encumbrance Clause

Answer 8

An acceleration clause when the mortgagor obtains a second mortgage or otherwise encumbers the property.

Question 9

Transferee “Assumes” the Mortgage

Answer 9

If the transferee assumes the mortgage, the transferee is personally liable for the mortgage.

NOTE: Both the original mortgagor AND the transferee are liable upon default

In most jurisdictions, the assumption agreement does NOT need to be in writing.

Question 10

Taking “Subject To” the Mortgage

Answer 10

Transferee is NOT personally liable upon default.

If the deed is silent or ambiguous as to liability, the transferee is considered to have taken title subject to the mortgage.

Question 11

Transfers by Mortgagee

Answer 11

If the mortgagee transfers the note but not the mortgage, then the rule is that the mortgage follows the note.

If the mortgagee transfers the mortgage but not the note, then one of two things will happen:
1) the transfer is void because the note is the evidence of the debt, or
2) the note and mortgage are considered a single entity, thus the note follows the mortgage