Mortgages Flashcards
Types of security interests for real property on the MBE
Deeds of trust, Mortgages, Land sale contract
Define Deed of Trust
Alternative to a mortgage. Debtor borrows money from a lender and then deeds the property to a third party as collateral. Once debtor repays debt, third party releases deed back to debtor.
Define Mortgage
A security interest in real property between a borrower and lender that secures the performance of an obligation (typically repayment of a loan).
Difference between a deed of trust and a mortgage
Deed of trust: 3 parties involved: borrower/debtor, lender, and trustee. Mortgage: 2 parties involved: borrower/debtor and lender.
Define equitable mortgage
Lender secures the mortgage by taking possession of all the original title documents of the property. Lender has the right to sell the property, foreclose, and appoint a receiver if the borrower doesn’t pay.
Define mortgagor
Borrower/debtor
Define mortgagee
Lender/creditor
Difference between a mortgage and a note
Mortgage: represents the interest in the land. Note: represents the debt of mortgagor.
Title and right to the property interest in a Lien theory jurisdiction (majority)
Mortgagor-borrower has title and right to possession. Mortgagee-lender has a lien on the interest.
Title and right to the property interest in a Title theory jurisdiction (minority)
Mortgagee-lender has title and right to possession.
Define absolute deed of sale
Transfers unrestricted title to the property, free of all liens and encumbrances.
Define installment land sale contract
The seller retains the deed until all of the installment payments are made by the buyer. If the buyer defaults, then the seller keeps land and all previous payments.
Liability upon default if the buyer assumes the mortgage
Buyer/transferee is primarily liable for the loan. Mortgagor is secondarily liable unless released by transferee.
Liability upon default if the buyer takes subject to the mortgage
Mortgagor is primarily liable. Buyer/transferee incurs no liability to repay the loan.
Default liability if the deed is silent
Buyer takes the property ‘subject to’ the mortgage (i.e. no personal liability).
Due-on-sale clauses
Gives lender the ability to demand the entire balance if the deed is transferred, unless the lender has given permission for the transfer.
Due-on-encumbrance clauses
If mortgagor obtains a second mortgage or another encumbrance on the property, the lender can demand immediate, full payment.
Define impermissible waste
When the waste reduces the value of the mortgagee’s security interest.
Define right of redemption
After default, at any time prior to the foreclosure sale, a debtor can redeem title to the property by paying the full debt amount.
Waiving equitable right of redemption in a contract
No, this is considered a ‘clog’ on the borrower’s right to equitable redemption and disfavored by courts. However, you may be able to waive the right in exchange for consideration after the execution of the mortgage.
Define deed in lieu of foreclosure
If mortgagor (borrower) goes into default, the mortgagor can give the deed to mortgagee (lender) to satisfy the mortgage debt. Mortgagee has immediate possession, and takes it subject to all junior liens attached.
Define foreclosure
When the borrower fails to make timely payments, the lender can foreclose on the property and use the proceeds to satisfy the debt owed.
Define acceleration clause
Requires the borrower to pay the full amount owed upon default.
Types of foreclosure
Judicial: Sale is supervised by the court. Nonjudicial (‘power of sale’): Property is sold without court supervision. Common in deed of trust states. Mortgage/deed of trust must contain a ‘power-of-sale’ clause. Strict: Lender seeks court order for borrower to pay within a specified time frame. If borrower cannot pay, lender takes title to the property. Minority method.
