Mortgages

Question 1

What is a mortgage?

Answer 1

Conveyance of a security interest in land, intended by the parties to be COLLATERAL for the repmt of a debt

Mortgagor = one who has title and right to possession (the debtor)

Mortgagee = has a lien (the creditor)

Question 2

What are2 types of mortgage?

Answer 2

1) Legal:
In writing/signed (SOF) using property interest in land as collateral for loan
Other names: mortgage deed; note; security interest in land; deed of trust; sale-leaseback

2) Equitable:
Physical handover of deed to creditor instead of a note to secure loan
IF creditor sells to BFP, debtor can ONLY sue creditor for damages (BFP owns land)

NOTE: parol evidence FREELY admissible in dispute to show intent

Question 3

Once mtg has been created, what are the parties’ rights?

Answer 3

Debtor mtg’r = UNLESS and UNTIL foreclosure, the debtor mtg’r has TITLE and RIGHT to possession

Creditor mtg’ee = has a LIEN and the right to look to blackacre if there is a default

Question 4

What are the 2 ways a creditor-mtg’ee can trnr his interest in the mtg?

Answer 4

1) ENDORSING the note and DELIVERING to the transferee OR

NOTE: If note is endorsed/ delivered the transferee is eligible to become a holder in due course

2) EXECUTING a separate document of assignment

Question 5

What is a holder in due course?

Answer 5

Transferee that takes the transferred note FREE of any personal defenses that could have been asserted against the ORGINAL creditor

HDC may foreclose the mtg DESPITE the presence of any such personal defenses against original creditor, like…

• Lack of consideration
• Fraud in inducement
• Unconscionability
• Waiver
• Estoppel

STILL subject to “real” defenses (M-A-D F-I-F-I4)

• Material Alteration
• Duress
• Fraud In the Factum
• Incapacity
• Illegality
• Infancy
• Insolvancy

Question 6

What are the 5 requirements to becoming aholder in due course?

Answer 6

“NIDGP”

1) A note must be NEGOTIABLE, made payable to the named mtg’ee;
2) Original note must be INDORSED and SIGNED by the named mtg’ee;
3) Original note must be DELIVERED to the tnfr’ee (NO photocopies!);
4) Tnfr’ee must take in GOOD FAITH(w/o notice of any illegality); AND
5) The tnfr’ee must PAY value for the note (more than nominal $)

Question 7

What happens when a mtg’r sells land with a valid mtg in place?

Answer 7

Lien remains on the land SO LONG AS the mtg was properly recorded p/t rule of the recording statue(recording statutes protect both BFPs and mtg’ees)

Apply the recording system rules p/t the operative recording statute

“Assumed the mtg” - BOTH buyer and seller/debtor are personally liable to the creditor/mtg’ee

“Subject to mtg” - ONLY seller/debtor (not buyer) is personally liable to the creditor/mtg’ee [BUT if seller/debtor doesn’t pay, creditor will foreclose on land]

Question 8

What are 3 key features of the foreclosure process?

Answer 8

1) Judicial proceeding - Mtg’ee looks to land for debt satisfaction; Proceeding yields sale of land; proceeds go to (in order)…

a) attorney fees, costs;
b) each interest in priority;
c) surplus back to debtor

2) Deficiency action - when sale does NOT cover amount of loan, mtg’ee can bring a deficiency action against debtor for the shortfall
3) Termination - Once mtg is foreclosed, all jr interests to the foreclosing interest are TERMINATED (i.e. once sr creditors foreclose,land cannot be looked to again for satisfaction of junior lienholders)

BUT if jr forecloses, senior lienholders can STILL look to the land; land sold by junior lienholder at foreclosure sale taken subject to senior lienholders (buyer not liable, but land still has lien)

Necessary parties (creditors w/ interests below foreclosing party; the debtor/mtg’r) MUST be joined in the action OR they preserve their claim despite the foreclosure sale

Question 9

How is mtg priority determined?

Answer 9

Creditors MUST properly record interest to get priority

Std: 1st in time, first in right

EXCEPTIONS:
Purchase money mtg (loan for land acquisition): has superpriority against EXISTING non-PMM loanson property

NOTE: PMMs do NOT have superpriority vs. loans made SUBSEQUENTLY(i.e. the regular priority rules apply) Subordination agmts are permissible

Question 10

What is equitable redemption?

Answer 10

PRIOR to foreclosure…

1) Mtg’r/debtor can redeem land and free from mortgage (but pre-payment penalty ok)

Once foreclosed, the right to equitable redemption is GONE

Redemption reqs: pmt of missed pmts+ interests+ costs

Acceleration cls are VALID→full balance due immediately if default

NO WAIVER of redemption right is allowed (i.e. “clogging the equity of redemption”)

2) Junior lienholders: can step into the shoes of the primary mortgagee (i.e. buyout the interest) through “subrogation,”if the borrower does not redeem

PRESERVES their interest, which WOULD have been wiped out in a foreclosure action

Question 11

What is statutory redemption?

NOTE: NY Distinction

Answer 11

Allows redemption AFTER foreclosure

NOTE: mtg’r ALWAYS retains right to possession w/in statutory period

Mtg’r pays foreclosure sale price to redeem

NY DISTINCTION: NO statutory right of redemption in NY

Question 12

How does modification of mortgage affect security interest of creditor during foreclosure?

Answer 12

Modification makes that interest subordinate to that of other junior liens where senior creditor included in foreclosure.

If NOT included, subordinated senior credit interest (albeit modified) stays with the property