Mortgages Flashcards
Generally
To secure the debt, the borrower gives the lender a mortgage along with a promissory note representing the loan on the property. If the loan is not paid, the lender may foreclose the mortgage. Foreclosure involves selling the property to pay the debt.
Mortgagor and mortgagee
The borrower is called the mortgagor and the lender is called the mortgagee
Promissory note and mortgage
The mortgage transaction involves two documents: the promissory note and the mortgage. The note is the borrowers personal obligation. This means that the lender is not limited to the land when seeking a remedy for default. If the borrower quits paying, in addition to foreclosure, the lender has the option to sue the borrower personally for payment of the note. The mortgage is the agreement that says that if the borrower quits paying, the land can be sold to pay the lender.
Most typically, the maker is also the borrower, another one person, the borrower, is giving the mortgage along with the note to the lender. However, it is possible for the deed note maker and borrower to be different people. For example, if a mother agrees to place a mortgage on our house to secure a loan given to her daughter.
Purchase money vs non-purchase money mortgage
Two primary ways to mortgage property: the purchase money mortgage and the non-purchase money mortgage.
The purchase money mortgage is the extension of value by a lender who takes as collateral security interest in the very real estate that loan enables the debtor to acquire. 
Creation of mortgage - union of two elements
A mortgage is the union of two elements: debt + a voluntary transfer of a lien and land to secure the debt 
Creation of mortgage - writing
The mortgage typically must be in writing to satisfy the statute of frauds. This is the legal mortgage. Writing can be the mortgage deed, deed of trust, sale, lease back, or security interest in the land.
Transfer of interests - generally
Are both the borrower or the lender may transfer their interest, on the bar exam you are far more likely to encounter a transfer by the borrower.
Transfer of interests - transfer by mortgagee
For the bar exam, you need to know that a lender may transfer their interest and how that is accomplished. The creditor lender can transfer her interest by:
Endorsing the note and delivering it to the transfer or
executing a separate document of assignment
Hey, lender can freely transfer the note, and the mortgage automatically follows a properly transferred note.
Transfer of interests - transfer by mortgagor
When a borrower transfers, the property, the buyer either assumes the mortgage or takes the property subject to the mortgage. If the grantee assumes the mortgage, they are agreeing to be personally liable on the mortgage note. If they take property subject to the mortgage, they are not agreeing to be personally liable, and the lenders only recourse is foreclosure.
Transfer of interests - transfer by mortgagor - effect of assumption
If the grantee signs an assumption agreement, they become primarily liable to the lender, where the original borrower is secondarily liable as a surety. However, the lender may opt to see either the grantee or the original borrower on the debt. If no assumption agreement is signed, the grantee is not personally liable on the loan, and the original borrower remains primarily and personally liable.
Remember that once a grant a mortgage, any modification of the obligation by the grantee and the lender discharges, the original borrower of all liability.
Transfer of interests - transfer by mortgagor - due on sale clauses
Do you want sale clauses, which appeared most modern mortgages, allow the lender to demand full payment of the loan if the borrower transfers, any interest in the property with all the lenders consent.
Recording statutes protect lenders. If the mortgage is recorded, it remains on the land. Generally, when a borrower, transfers, title to the property, the grantee automatically takes the property subject to the mortgage. The grantee will not be personally liable on the mortgage unless they specifically assume the mortgage. But the mortgage remains on the land as long as the mortgage instrument was properly recorded. what this means is that while the grantee is not personally liable on the deck, if the borrower defaults and the mortgage instrument was properly recorded, the lender can foreclose on the land.
Transfer of interests - effect of recording act
All recording statutes apply to mortgages as well as deeds. Thus, a subsequent buyer takes subject to a properly recorded lien. It does not matter what recording statue the jurisdiction has enacted so long as they recorded. But, in a notice state, a subsequent BFP prevails over a prior grantee or lender who has not yet recorded properly at the time the bona fide purchaser takes, regardless of if the bank ends up recording first
Transfer of interests - who is personally liable on the debt
If the buyer has assumed the mortgage, both the borrower and the buyer are personally liable. Buyer is primarily liable, and the borrower remains secondarily liable.
If the buyer subject to the mortgage, the buyer assumes no personal liability. Only the borrower is personally liable. But, if recorded, the mortgage remains on the land, and the mortgage may be foreclosed if the borrower does not pay.
Foreclosure - how to proceed - generally
The lender must foreclosed by proper judicial proceeding. At foreclosure, the land is sold. The sale proceeds, go to satisfying the debt.
Foreclosure - how to proceed - deed in lieu of foreclosure
The borrower may tender to the lender, a deed in lieu of foreclosure, which permits the lender to take immediate possession without a foreclosure sale. Since the deed in lieu of foreclosure is not an actual foreclosure, it doesn’t operate determinate any junior leans that may be present on the mortgage real estate.
Foreclosure - sale proceeds are less or more than amount owed
If the proceeds from the sale of the property are less than the amount owed, the lender can proceed with a deficiency action. If there is a surplus, junior liens are paid off in the order of their priority. Any remaining surplus goes to the Dutter.and foreclosure does not affect any interest senior to the mortgage being foreclosed.
Foreclosure - effect of foreclosure on interests - generally
Priority among interest in foreclosure is the most heavily tested aspect of mortgages. The default rule is at the priority of a mortgage. Depends on when it was placed on the property. First in time, first and right. A buyer at foreclosure sale takes the title as it existed when the foreclosure mortgage was placed on the property. All interest, senior to that one remaining on the property, and all interest junior to that one are extinguished. Those interest include junior mortgages, liens, leases, easements, and all other types of interest. 
Foreclosure - effect of foreclosure on interests - junior interests
Foreclosure, terminates, interest, junior to the mortgage being foreclosed, but does not affect senior interest. This means that junior lienholders will be paid and descending order with the proceeds from the sale, assuming funds are left over after full satisfaction of superior claims. Junior lienholder should be able to proceed for deficiency judgment. But once foreclosure of a superior claim has occurred, with the proceeds distributed appropriately, junior lienholders can no longer look to the property for satisfaction.
Foreclosure - effect of foreclosure on interests - junior interests - necessary parties
The necessary party is to the foreclosure sale our junior lienholders. The Detter borrower is also necessary part of to the foreclosure action, particularly if the creditor wishes to proceeded against the deed for a personal deficiency judgment.
Failure to join a necessary party results in a preservation of the parties claim, despite the foreclosure and sale. Thus, if a necessary party is not joined, their mortgage will remain on the land. 
Foreclosure - effect of foreclosure on interests - senior interests
Foreclosure does not affect any interest senior to the mortgage being foreclosed. The buyer at the sale takes subjective such interest. The buyer is not personally liable on the senior debt. But as a practical matter, if the senior mortgage is not paid, sooner or later, the senior credit will foreclose against the land.
Foreclosure - Priorities - generally
As a creditor, you must record. Until you record, you have no priority. Once recorded priority is determined by the first and time first and right rule. Which means that the order that you record is the priority with one exception. 
Foreclosure - Priorities - purchase money mortgage
Exception for first in time first and right for creditors: A mortgage given to secure a loan that enables the debtor to acquire the encumbered land. If properly recorded, the purchase money mortgage should be first priority.
Foreclosure - Priorities - subordinante agreements
By private agreement, a senior creditor may agree to subordinate its priority to a junior creditor. Subordinate agreements are permissible. 
Foreclosure - redemption - redemption in equity
Equitable redemption is universally recognized up to the date of sale. What that means is that at any time prior to the foreclosure sale, the Detter has the right to redeem the land by free of the mortgage. Once a valid foreclosure has taken place: the right of equitable redemption is cut off.
The right of equitable redemption is exercised when the note does not contain an acceleration clause by paying off missed payments, accrued interest, and cost.
If the mortgage or note does contain an acceleration clause, you must pay off the entire balance with interest and cost. The validity of acceleration clauses is generally accepted. Client may permit acceleration for failure to pay the mortgage debt as well as default and mortgage covenants, such as an obligation to pay taxes, maintain insurance, or avoid the commission of waste.
The borrower may not waive the right to redeem in the mortgage itself. It is an equitable remedy. Public Policy says no waiving. 
Foreclosure - redemption - statutory right of redemption
Many states give the borrower a statutory right to redeem for some fixed. After the foreclosure sale has occurred, usually six months to one year.
The amount to be paid is usually the foreclosure sale price, rather than the amount of the original debt.
Mortgage alternatives - DOT
Some states call a security interest in land a deed of trust rather than a mortgage. The debtor notemaker is the trustor, the trust store gives a deed of trust to a third-party trustee, who is usually closely connected to the lender. The lender is the beneficiary. On default, the lender instruct the trustee to foreclose the deed of trust by sale. 
Mortgage alternatives - absolute deed
An absolute deed, if given for security purposes, can be treated by the core as an equitable mortgage to be treated as any other mortgage. That is, the creditor must foreclosed by judicial action.
Mortgage alternatives - installment land contract
An installment purchaser, obtains legal title, only when the full contract price has been paid off. For future clauses, allowing the vendor upon default to cancel the contract, retake possession, and retain all money paid are common and generally enforceable.
Mortgage alternatives - equitable vendor’s lien
This lien does not resolve from an agreement, but rather arises by implication of law and the seller, transfers title to the buyer, and the purchase price or a portion of remains unpaid.
Sale-Leaseback
A landowner may sell her property for cash and then lease it back from the purchaser for a long period of time. Like an absolute deed, this may be treated as a disguised mortgage.
