Mortgages Flashcards
Takes “Subject to” the Mortgage
Transferee not liable. Mortgagee (bank) can foreclose on their interest if payments are not made.
* Marjority- Payments made DOES NOT create an implied assumption
* Minority- Payments made creates an implied assumption.
Takes and “Assumes” the Mortgage
Transferee assumes the mortgage. Mortgagor AND Transferee liable to Mortgagee.
* Exception- Novation occurs. Mortgagor is no longer liable and Transferee solely responsible. All three parties (Mortgagee, Mortgagor, and Transferee) all agreed to release Mortgagor.
Due on Sale Clause
Full balance of mortgage is payable and due to Mortgagee (Bank), if the land is sold/transferred without Bank’s consent.
Transfer of Negotiable vs. Nonnegotiable Note
- Negotiable: Pays the original mortgagee after the note is transferred, the payment will not count toward paying off the mortgage.
- Nonnegotiable: Mortgagee transfers a nonnegotiable note (one that may not be transferred to another), the mortgagor’s payment to the original mortgagee remains effective until the mortgagor receives notice that the note was transferred.
Deed en Lieu of Foreclosure
Mortgagee gives up deed to avoid foreclosure, and waives any equity redemption.
Lien Theory
Majority Approach
Bank only has a Lien or security interest. The homeowner is deemed the true owner. Foreclosure must occur for Bank to take possession.
Title Theory
Minority Approach
Mortgagee is deemed true owner of land, and title is transferred to Mortgagor once the debt is paid. Bank can kick out the mortgagor as soon as default occurs.
Equittable Right of Redemption
Every single state recognizes this.
At any point prior to the foreclosure sale, the debtor can redeem the property by paying everything due under the mortgage agreement.
1. Right of redemption cannot be waived in the mortgage or deed of trust (Clogging the Equity of Redemption).
2. It CAN BE WAIVED later on for consideration. (Ex: refinancing and waiving the right in return for a lower rate).
Acceleration Clause
Entire balance is due if a payment is
missed or if the mortgagee is otherwise feeling insecure
Statutory Right of Redemption
Recognized in about half of the states. Get the property back AFTER the foreclosure sale by paying the FULL PURCHASE PRICE if paid (usually) within six months of the foreclosure.
Priority in Foreclosure
Who is paid 1st, whose lien is abolished, whose remains.
Who gets paid, and in what order.
Priority in Payments of Lien Holders in Foreclosure
How much money each party will get.
How to answer Foreclosure Questions
Diagram the question:
1. ID the recording Act (Race-Notice, Notice, Race).
2. ID the players, the amount, when recorded, and any notices (O borrows from A 100K and records, O borrows from B 50K does not record, O borrows from C 30K and records)
3. What notices occurred (AIR) (Actual, Inqiury, Record).
4. Put them in order of priorty: A is first in line (BFP for value without notice), then C (subsequent BFP for value who recorded, and did not know of B cause they didn’t record), then B is last.
5. Pay the costs of the sale BEFORE the priortity of liens.
6. Bank initiating foreclosure, gets paid next.
7. Pay the junior liens. (ALWAYS go down the ladder, NOT up).
8. Anything left, goes to the homeowner.
9. Senior mortgage stays with the land. Any remaining juniors that did not get paid, they get wiped (assuming the parties were properly added; if junior party was not properly added, they will NOT get wiped).
Purchase Money Mortgages (PMMs)
Debtor borrows money from bank and uses it to buy the property.
PMMs take priority over non-PMMs that were executed at the same time, REGARDLESS of who records first.
Future Advance Mortgages
If anything is voluntarily done to increase the amount due under a mortgage (e.g., if the creditor lends additional money to the mortgagor or increases the interest rate), then that increase in debt becomes junior to existing mortgages if the creditor making the advance had notice of the lien.
Other banks loaned money before A made a subsequent loan, still ahead of B because B did not record which created an instance of A not having had notice of the lien.
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