Mortgages

Question 1

Know difference between Mortgagor and Mortgagee

Answer 1

Mortgagee the bank or the one receiving the mortgage.

Mortgagor the one that is giving the mortgage on a property as a security interest

Question 2

Express Vendors Lien in the Deed

Answer 2

Makes it a executory contract,
The vendor will retain** Superior Title **

Remedy: Allows vendor to rescind.

When a vendee (buyer) acquires “equitable title,” it means they have a legal right to eventually gain full ownership of a property based on a purchase agreement, even though the seller (vendor) still holds the legal title until the full purchase price is paid; essentially, the buyer has the right to use and benefit from the property while the seller retains full ownership until all conditions are met.

Question 3

Express Vendor Liens

Answer 3

Can be reserved in either the deed or a promissory note

Question 4

If the Vendor Lien is in the Promissory Note

Answer 4

Vendor/Seller can foreclose through a judicial proceeding (or through a power of sale, if there a deed of trust)

Vendor/Seller does not retain Superior Title

Vendee/Buyer has both equitable and legal title

Question 5

Superior Title

not that superior

Answer 5

Vendor/Seller retains bare naked legal title (meaning that the vendee/seller gets only equitbale title
- Superior title is simply a security interest
- Holder of Superior title can recind or foreclose
-Superior title does not automatically follow a lien assignment. Superior title must be expressly assigned/transferred along with lien

when the vendor lien note and the lien are barred by limitations the vendor loses his superior title and the purchaser succeeds to absolute title

Question 6

Impairment of Security

Rules and Wrinkles

Answer 6

When secured posistion is worsened
You can sue for injury or impairment of the security

• A holder of a lien has no cause of action for damages to the property – only for injury to his security.
• If the value of the premises after the “damages” is not less than the mortgaged debt, there is no injury.
• When only part of the land is taken, mortgagee is entitled to only so much as is necessary to compensate him for his interest in the taken land.

cant if damaged security is still over the amount owned - only when you become under secure.

Question 7

Writing and Acceptance

Security Devices & Creation: Deeds of Trust & Mortgages

Answer 7

Writing, Delivery, and Acceptance
* Conveyance of a security interest (via mortgage or deed of trust) is
subject to statute of frauds – mortgagor must sign the document.

• Mortgage / deed of trust must be delivered – can have constructive delivery, so long as the intent of the mortgagor is made clear.
• Understand interim financing issues raise in West.

Question 8

Homestead and Constitutional Prohibitions

Answer 8

• Texas is particularly protective of homesteads.
• Art. XVI § 50 of Texas Constitution does not permit the enforcement
  of liens against a homestead – except for a limited number of
  exceptions – and this functions as an independent limit on the
  creation of deeds of trusts and mortgages, in Texas.

study more of this

Exceptions
(1) Purchase money loans;
(2) Taxes;
(3) Owelty of partition (dividing up value);
(4) Refinancing an existing lien against a homestead;
(5) Mechanics’ and Materialmen’s liens;
(6) Home equity loans; Reverse mortgages; and
(7) Selected refinancing of manufactured home liens.

Question 9

ways to make this without in writing

Equitable Mortgages & Liens

2 for trust and 3 exceptions for Mortgages

Answer 9

The following “will create a mortgage in equity or a specific lien on the property so intended to be mortgaged,” even though there is no actual, effective conveyance in writing:
1. An agreement in writing to execute a mortgage upon specific property; OR
2. A mortgage defectively executed; OR
3. An imperfect attempt to create a mortgage.

4. A situation giving rise to a resulting trust; OR
5. A situation giving rise to a constructive trust.

Resulting Trust
Where property is subject to a deed of trust in favor of the one who provided the money (protects 3rd party lenders).

Constructive Trust
When someone acquires money through fraud, duress, or undue influence and then buys property—the wronged individual can get a lien on the property

• No equitable mortgage will be found where an agreement to loan money in exchange for a mortgage contains no specific description of property.
• No writing or proof of writing therefore no equitable mortgage
• MUST HAVE WRITING OR PROOF OF WRITING WITH A SPECIFIC PROPERTY DESCRIPTION
• Homestead rule does not protect against a lien on the homestead when the lien is part of the purchase money used to buy the property.

Question 10

Subgrogation

what are the three types

Answer 10

Legal Doctrine that allows one person to take over the rights or remedies of another.

1. Equitable (Legal) Subrogation - There is no agreement A third person pays debtor’s obligation – and then gets to slide into the creditor’s position.

Meant to protect against unjust enrichment.
Two main requirements: (a) person whose debt was paid was primarily liable, and (b) claimant paid the debt involuntarily.

2. Contractual (Conventional) Subrogation
   - he parties agree to substitute one person (the subrogee) into place of another (the subrogor).
3. Statutory Subrogation -

The one who is getting the rights is the subrogee

The one who is giving the rights is the subrogor

Question 11

Partial Subrogation

Answer 11

1. Agreement between mortgagee and subrogee:
   * The parties’ agreement controls.
   * I.e., subrogee may be superior, may be inferior, may share position.
2. No agreement between mortgagee and subrogee:
   * Some jurisdictions do not permit partial without agreement (Texas rule).
   * If the jurisdiction does permit partial subrogation without agreement, the
   mortgagee stays superior as to the unpaid amount, and the subrogee shifts
   into second place with respect to the amount paid, provided

Question 12

Tax Subrogation

Answer 12

III. Tax Subrogation
* Largely governed by statute.
* Subrogee to a tax lien generally only subrogates to security position

Question 13

Implied Vendors Lien

Answer 13

The implied vendor’s lien arises by operation of law whenever the purchase price is unpaid.
- In other words, there is always an implied vendor’s lien.
- The transferring of land/notes does not terminate the implied VL.
- The law presumes the implied vendor’s lien is waived if there is other security.
- BFP’s can terminate the implied vendor’s lien because they were innocent purchasers.

Question 14

The Vendees Lien

Answer 14

When a vendor refuses to deliver, or is unable to deliver, the vendee may recover the amount paid . . . And be entitled to a vendee’s lien . . . ”

• AIMED AT PROTECTING THE VENDEE (PURCHASER)
  A vendee is entitled, in equity, to a lien on land that is the subject of a sales contract, to the extent of the payments made on the purchase price.
  The lien arises only in the event the contract, through the fault of the vendor, is not consummated.

Question 15

Constructive Trusts

Answer 15

• Where a person holding title to property is subject to an equitable duty to convey it to another on the ground that he would be unjustly enriched if he were permitted to retain it, a constructive trust arises.
  o When someone acquires money through fraud, duress, or undue influence and then buys property—the wronged individual can get a lien on the property.
• “A constructive trust does not, like an express trust, arise because of a manifestation of an intention to create it, but it is imposed as a remedy to prevent unjust enrichment.”

Question 16

Owelty

Answer 16

• The difference which is paid by one cotenant to another, for the purpose of equalizing an otherwise unequal partition.
• Cotenant who receives the property of lesser value may obtain a lien on 100% of the other’s partitioned property.
• Partition: when both parties already have an interest in the property & retain an interest after the divvy.

Question 17

Absolute Deed

Answer 17

• An instrument purporting on its face to be an absolute deed [can] be shown by extrinsic evidence to be in fact a mortgage.
• Parol evidence [is] admissible to show the true intent of the parties, that though that the deed is absolute on its face, it was intended to be a mortgage. o Can look to all circumstances surrounding a conveyance to determine the parties true interests.
  o Need clear and convincing evidence to prove a mortgage was actually intended.
• Homestead rule applies — if conveyance is actually a mortgage, the mortgage is void to protect the homeowner. (Exceptions still apply)

Question 18

BFP

Answer 18

• Need a legitamate claim to title
• Pays Value
• Is without notice of someone who has priority over

Person claiming BFP bears burden of proof Except if junior claimfrom a judgment or the legal process

Question 19

Future Advance Clauses

Answer 19

can only cover such demands as arise directly out of dealings between the parties to the instrument.” (quoting 59 C.J.S. Mortgages)
* “[M]ortgage stipulations securing future indebtedness apply only to those debts which were reasonably within the contemplation of the parties.” o A first-in-time mortgagee with a future advance clause will always be valid and secured IF the future advances are made prior to a 3rd party claim. (superior to 3rd party mortgages which come later).

Question 20

Mortgages in After - Aqcuired Property

Answer 20

• After-acquired property clause — obligation will be secured by the specific property you now own, and property you later acquire.
• The after-acquired clause is clearly enforceable between the mortgagor and mortgagee
• Between mortgagee and later claimants — not generally enforceable!
  o After-acquired property clause does not create good notice to later claimants and mortgagees. You’d have to check records for mortgagor’s other properties in all counties in the country to find out if there is a clause which affects the property in question.

Question 21

Fixtures

need more clarifications

Answer 21

• Intention is key in determining whether property is a fixture.
• If the item becomes a fixture (part of realty), then the real property claimant wins.
• If the personal property claimant files before the real property interest is recorded then the personal property interest prevails over RPI.

Question 22

Mechanics and Materialmen Liens

Constitutional Lien

Who and it was case is it available for? Homestead wrinkle?

Answer 22

• Available only to those contracting directly with owner(not available for subcrontractors)
• Availbale for improvements directly to an article or building
• Self executing for non-homesteads ( no notice or filing requirments but need to perfect against third parties)
• -

Question 23

Mechanics and Materialmen Liens

Statutory Lien

Answer 23

• Puts into effect Constitutional lien
• ## used if you want to bind subcontractors or third parties

Question 24

M&M

Perfection

2 methods

Answer 24

Retainage and Trapping

• General contractor does not need to perfect any lien (self-executing)
• Subcontractors DO need to perfect lien according to statute if they want a lien.

Question 25

Trapping

Answer 25

Subcontractor can trap owners funds by providing notice and filing lien affidavit(perfecting lien)

o An owner is not liable for anything he pays to the original contractor before he receives notice (from a complaining sub)
o If the owner does receive notice, the owner is liable (and the property is subject to lien) for any money thereafter paid to the original contractor.
o Even if the subcontractor perfects the lien, he may be out of luck if the owner already paid the general contractor.

Question 26

Retainage

What must you do to perfect?

Answer 26

During process of work and for 30 days after the work is completed, the owner must retain 10% of the contract price

o Claimant has a lien on the retained funds IF he perfects his lien by sending notice and filing affidavit.

o If owner fails to comply with retainage, the subcontractor has a lien to the extent of the amount owner should’ve been retained under the original contract

Question 27

M&M

Homestead

Construction Contracts Requirments

Savings Clause Exception?

Answer 27

Work done must be reasonably related to the use and enjoyment of the homestead for a lien to attach to the homestead (not about geography think use)
- the homestead constitutional and statutory provisions require a contract, and a substantially performed contract suffices.

• Corollary: cannot enforce any lien without substantial performance (and certainly not a homestead lien, as there’s no enforceable contract).

* Exception: can recover / have lien rights without substantial performance if there is a “savings clause” (a contractual provision that allows for recovery without substantial performance) – and this also applies to homesteads (because there is now an enforceable contract).

Question 28

M&M

Priorities

- M&M v. M&M
- M&M v. Others

Inception?

Answer 28

v. M&M
- Perfected mechanics liens are on equal footing

v. Others - Win against everyone else
- exept when competing interest existed at the time of inception of the mechanic’s lien
- ▪ Inception is the “commencement of construction of improvements or delivery of materials to the land” – improvements can come in various forms not an exhaustive list
- - Exception: even if competing interest predates the inception of mechanic’s lien, M&M lien can still win if the material can be removed from land without injury to the property.

Question 29

M&Ms

Payment Bonds

Answer 29

• A type of surety bond posted by contractor to gurantee that his subcontractors and material suppliers on the project will be paid
• Protection for the owner and the subcontractors
• Owner released from trapping and retainage duties
• subs must perfect (provide adequate notice) to take adavatge of the bond
• • The bond DOES NOT eliminate the constitutional lien of the general contractor
• MOST IMPORTANT is that the bond must equal the total amount of the contract price.
• • Not all subcontractors are protected — only those who are working directly with the GC who procured the bond.

Question 30

Conveyances of Mortgaged Property

Subject to v. Assume

Answer 30

Subject to: grantee does not agree to assume underlying debt
Assumes: does agree to be liable for underlying debt

Someone who takes subject to can assume later on

Question 31

Transfers and Assignements

Answer 31

When note is assigned security interest follows the note
- Superior title must be explcitly assigned meaning if you dont assign the vendors lien you cant rescind only foreclose.
-

Question 32

Holder in Due Course

personal v. real defenses

effect of recording as a HDC

Answer 32

Means that the assignee took the note or negotiable instrument without any knowledge of any issues regarding the note

to qualify
- instrument for value
- good faith
- without notice of defenses or claims against the instrument

Protects from personal defenses but subject to real defenses

personal defenses
- Breach of Contract
- Lack of Capacity
- Fraud in the inducement

real defenses
- forgery
- duress
- illegallity
- fraud
-

recording as a HDC can prevent others from foreclosing on the property
recording does not effect status as a HDC

Question 33

can be optional or auto

Acceleration Clause

SOL? Steps to Accelerate? difference between contract with no AC?

Answer 33

provision in a contract that allows the lender to demand immediate payment of the entire debt if the borrower misses a payment or fails to meet other obligations.

Steps to accelerate
1. Presentment
- must give oppurtunity to cure
- parties canagree or modify the agreement and abandon acceleration
- lenders cna waiver right to accelrate by not acting on their right
2. Notice of intent to Accelerate
3. Notice of Actual acceleration

SOL is 4 years at the time of notice

• Respect the Paper: Courts will respect the express language of the contract and hold the parties to their agreement.
• Drafter’s Intent: The court will consider the intent of the party that drafted the contract, particularly if one party has more negotiating power.

Question 34

Power of Sale

Answer 34

• requirements must be followed as foreclosure is a harsh remedy.
• trustee or sheriff executes the sale

Setting aside sale
- inadequacy of price is not enough
- fraud, unfairness or irregulairity required to set aside
-

Cannot be a BFP at the foreclosure sale (can be a BFP later in the chain, if the mortgagor is estopped
from denying facts set forth in trustee’s deed, but not at the sale itself).
* Once a court takes control of property via receivership, there can be no foreclosure, except as
ordered by the court.
48

Question 35

Credit Bid

Answer 35

lender may make a credit bid at the foreclosure sale. A credit bid is a bid made by the lender in the amount of the outstanding debt. If the lender makes a credit bid and there are no other bidders, the lender will be awarded the property.

Question 36

Foreclosure Remedies

Wrongful foreclosure v. Deficiency Judgments

Answer 36

Damages for Wrongful foreclosure - Damges = (FMV at sale) - (Outstanding secured debt)

• used when property is sold for over the amount the owner still owned
• for example if bank forecloses on the bob house and it sells for 20k but Bob only owed 10k his damages will be 10k

Deficiency judgemnets
- court order that requires a borrower to pay difference between amount owed and the amount realized from the sale of property
- some jurisdictions have anti deficency statutes - explained below

| Amount |
| — | — |
| Technical deficiency | $14,000 |
| Fair market value offset | $19,000 |
| Final amount owed | -$5,000 |

To determine the final amount owed by the borrower, subtract the fair market value offset from the technical deficiency.

If the result is:

• Negative, the borrower does not owe any money.
• Zero, the borrower owes the amount of the technical deficiency.
• Positive, the borrower owes the amount of the technical deficiency minus the fair market value offset.

Question 37

Marshalling

when is it used

Answer 37

• Marshaling of assets takes the assets subject to a lien and arranges them in a particular foreclosure order (generally, in order to protect junior liens, when possible).
• a junior lienor may, at times, force a senior lienor to pursue property that is not subject to the junior lien prior to pursuing the property that is subject to the junior lien (and thereby force an “arrangement, assembling, or ordering of assets”).

Question 38

Two funds Doctrine

Answer 38

is a legal principle that requires a creditor with multiple sources of payment to use the non-junior creditor’s funds first.

The purpose of the doctrine is to prevent a senior creditor from unfairly taking all the money from the only fund available to a junior creditor.

Question 39

Inverse order of Alienation

Answer 39

The inverse-order-of-alienation doctrine is a legal principle that states thatif a mortgage or lien on a property has not been collected, the creditor can collect the debt from the parcels of the property in reverse order of their sale.

• law favors passage of time so itll proctect property held the longest

Question 40

Redemption

equitable v. statutory

Junir lien?

Answer 40

Redemption is generally defined as the right of a homeowner in foreclosure to redeem the mortgage and keep the secured property by paying a certain amount of money within a certain period of time (by paying off the secured debt)

• The Equitable Right of Redemption – the right to redeem a mortgage and save secured property from foreclosure by paying off the entire mortgage balance, plus fees and costs, prior to the foreclosure sale (but after default).
• The Statutory Right of Redemption – some states have laws that give homeowners the right to redeem their mortgages for a period of time after the foreclosure sale, typically by paying the foreclosure sale price, plus interest and other allowable fees, to the foreclosure sale purchaser.

Junior Lienor right to redemption:

• same as regular redemption but in this case it is being done by someone with a Junior lien who redeems the property to clear off the first lean and gain a priority position
• they would like to do this in order to keep there security interest because they will loose it if first place lienholder forecloses.