Mortgages Flashcards
Definition of mortgage
- the conveyance of a security interest in land, intended by the parties to be collateral for the re-payment of a monetary obligation.
- In other words, the owner of real estate gives the lender a lien in that real estate to secure or backup the loan that the lender makes.
A mortgage is the union of these two elements
- A debt; and
- A voluntary transfer of a security interest (lien) in debtor’s land to secure a debt.
Purchase Money Mortgage
An 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.
Non-Purchase Money Mortgage
An extension of value by a lender who takes as collateral a security interest in a piece of real estate in exchange for money.
Writing requirement
A mortgage typically must be in writing b/c SoF.
This is called a legal mortgage.
VA follows the lein theory, which holds this.
- borrower will hold the deed to the real estate property for the life of the mortgage.
- The mortgage agreement serves as the lender’s lien on the property until the loan is paid back completely
Transfer of Interests
- All parties to a mortgage can transfer their interests
- Transfer by Mortgagee
- The mortgage automatically follows a properly transferred note.
- Transfer by Mortgagor
- Debtor sells mortgaged property
- Mortgage remains on the land so ong as the mortgage instrument was properly recorded.
All recording statutes apply to these two things
Mortgages and deeds
Who prevails in each type of recording statute if a mortgagee and BFP both lay claim to the same plot of land.
- In a notice state, a subsequent BFP prevails over a prior grantee or mortgagee who has not yet recorded properly at the time the BFP takes.
- In a race-notice state, the first BFP/mortgagee to properly record wins.
The party that is liabile for the mortgage when O sells the property.
- If B has “assumed the mortgage”:
- both O and B are personally liable.
- B is primarily liable, and O remains secondarily liable.
- If B takes “subject to the mortgage”:
- B assumes no personal liability.
- Only O is personally liable.
- But, if recorded, the mortgage remains on the land.
- Thus, if O does not pay, the mortgage may be foreclosed.
How a foreclosure happens
- Debtor defaulted on the mortgage. Mortgagee must look to the land for satisfaction
- Mortgagee must foreclose by proper judicial proceeding.
- At foreclosure, the land is sold and the sale proceeds go to satisfying the debt.
What happens if the proceeds from the sale are less than the amount owed
Mortgagee brings a deficiency judgment against debtor
What happens if the proceeds are more than the amount owed.
Junior liens are paid off in order of their priority. Any remaining surplus goes to the debtor.
Effect of Forecloure on Various Interestholders
- Foreclosure will terminate interests junior to the mortgage being foreclosed but will not affect senior interests
- Junior lienholders will be paid in descending order with the proceeds from the sale.
- Junior lienholders should be able to proceed for a deficiency judgment.
- But once foreclosure happens and proceeds distributed, junior lienholders can no longer look to the prop for satisfaction.
Who the necessary parties to the foreclosure action are
- Every person whose interest is claimed to be subordinate to the foreclosing party’s mortgage lien.
- The debtor-mortgagor
- For both the foreclosure and any personal deficiency judgement
Effects of failing to join an neessary party to a foreclosure
- That party’s claim is preserved despite the foreclosure sale.
- His mortgage will remain on the land.
Affect of foreclosure on senior interests
- Foreclosure doesn’t affect any senior to the mortgage being foreclosed.
- Buyer at foreclosure sale takes subject to that interest.
- Buyer not personally liable, but the creditor will foreclose eventually if mortgage isn’t paid.
SoL on enforcement on mortgages/deeds of trust
Can be enforced for 10 years after the due date of the underlying obligation’s last payment.
Death of the mortgagee tolls the SoL for one year.
Effects of creditors recording liens
- Creditors must record or they have no priority
- Once recorded, priority is determined by first in time, first in right.
- i.e. priority is in the order the mortgages are recorded.
- EXCEPTION: Purchase Money mortgage has priority no matter if another mortgage was perfected first.
Subordination Agreements
By private agreement, a senior creditor may agree to subordinate its priority to a junior creditor. Subordination agreements are permissible.
Redemption in Equity
- Equitable redemption is universally recognized up to the date of sale.
- at any time prior to the foreclosure sale the debtor has the right to redeem the land by freeing it of the mortgage.
- Once a valid foreclosure has taken place the right to equitable redemption is cut off.
How to exercise the right of equitable redemption when there is no accelleration clause
- Pay off the missed payment(s) plus accrued interest and costs
How to exercise the right of equitable redemption when the note does not contain an accelleration clause
- Pay off the full balance plus accrued interest and costs
- Accelleration clause def: permits the mort-gagee to declare the full balance due in the event of default
Waiver of right to redeem
Debtor/mortgagor may not waive the right to redeem the mortgage.
Deed of Trust- VA
- Deed of trust
- Trustee who sells prop after buyer defaults may first use proceeds to pay expenses of executing the trust, incl. a reasonable commission to himself.
Mechanic’s and Materialman’s Lien- VA
- To perfect, a memo claiming the lien must be filed in the clerk’s office where the property is located no later than 90 days from the last day of the month in which the material/labor was furnished.
- A suit to enforce the perfected lien must be brough withint the later of:
- 6 months after filing, or
- 60 days after work was completed.
