Mortgages Flashcards
What is a mortgage?
A conveyance of a security interest in land, intended by the parties to be collateral for the repayment of a debt.
Which two elements make up a mortgage?
A debt
A voluntary lien (in the debtor’s land)
As to mortgagor and mortgagee, who has the debt and who holds the lien?
Mortgagor has the debt and mortgagee holds the lien.
Must a mortgage be in writing?
Yes
The written mortgage is a called the equitable/legal mortgage.
Legal
O owns BA. Creditor lends O a sum of money. The parties understand that BA is the collateral for the debt. However, instead of executing a note or mortgage deed, O hands Creditor a deed to BA that is absolute on its face.
This is called what?
Equitable mortgage.
For what purpose is parole evidence admissible in the equitable mortgage context?
To show intent as between O and Creditor.
O owns BA. Creditor lends O a sum of money. The parties understand that BA is the collateral for the debt. However, instead of executing a note or mortgage deed, O hands Creditor a deed to BA that is absolute on its face.
Then, Creditor sells to X, a BFP. Who owns? What recourse does the loser have?
X owns.
O can sue Creditor for fraud AND the sale proceeds.
Unless and until foreclosure, the debtor-mortgagor possesses which two things?
Title
Right to Possess
Under a mortgage, what right does the creditor-mortgagee possess?
The right to the land in the event of a default.
Can a mortgagee transfer his interest to a mortgage? Can the mortgagor?
Yes x2. All parties to a mortgage can transfer their interests.
A mortgage automatically follows . . .
A properly transferred note.
The creditor-mortgagee can transfer his interest by which two methods?
Endorsing the note and delivering it to the transferee.
Executing a separate document of assignment.
If a notice is endorsed and delivered, the transferee is eligible to become a what?
Holder in due course.
What does it mean to be a “holder in due course”?
When a note is endorsed and delivered, the transferee takes the note free and clear of and personal defenses that could have been raised against the original mortgagee.
What are the five “personal defenses” that a mortgagor can raised against a mortgagee?
Lack of consideration
Fraud in the inducement
Unconscionability
Waiver
Estoppel
To which sort of defenses is a holder is due course exempt? To which does he remain susceptible?
Exempt from PERSONAL defenses
Still subject to REAL defenses.
How do we recall the REAL defenses a mortgagor can raise against a mortgagee?
MAD FIFI4 (a pack of wild poodles)
Using MAD FIFI4, what are the Real Defenses?
Material Alteration
Duress
Fraud In the Factum
Incapacity
Illegality
Infancy
Insolvency
What are the Real Defenses a mortgagor can use against a mortgagee?
Material Alteration
Duress
Fraud In the Factum
Incapacity
Illegality
Infancy
Insolvency
Can a mortgagor raise a material alternation defense against a holder in due course?
Yes
Can a mortgagor raise a duress defense against a holder in due course?
Yes
Can a mortgagor raise a fraud in the inducement defense against a holder in due course?
No
Can a mortgagor raise a Fraud In the Factum defense against a holder in due course?
Yes
Can a mortgagor raise an incapacity defense against a holder in due course?
Yes
Can a mortgagor raise a lack of consideration defense against a holder in due course?
No
Can a mortgagor raise a unconscionability defense against a holder in due course?
No
Can a mortgagor raise a waiver defense against a holder in due course?
No
Can a mortgagor raise an estoppel defense against a holder in due course?
No.
Can a mortgagor raise an illegality defense against a holder in due course?
Yes
Can a mortgagor raise an infancy defense against a holder in due course?
Yes
Can a mortgagor raise an insolvency defense against a holder in due course?
Yes
To be a holder in due course, which five things must be true :
The note must be negotiable, made payable to the named mortgagee
The original note must be endorsed, signed by the named mortgagee
The original must be presented to the transferee (no photocopies)
The transferee must take the note in good faith, without notice of any illegality AND
The transferee must pay value for the note, meaning some amount that is more than nominal.
To be a holder in due course, what else is needed?
The note must be negotiable, made payable to the named mortgagee
The original note must be endorsed, signed by the named mortgagee
The original must be presented to the transferee (no photocopies)
The transferee must take the note in good faith, without notice of any illegality AND
The transferee must pay value for the note, meaning some amount that is more than nominal.
To be a holder in due course, what else is needed?
The original note must be endorsed, signed by the named mortgagee
The original must be presented to the transferee (no photocopies)
The transferee must take the note in good faith, without notice of any illegality
The transferee must pay value for the note, meaning some amount that is more than nominal.
The note must be negotiable, made payable to the named mortgagee
To be a holder in due course, what else is needed?
The note must be negotiable, made payable to the named mortgagee
The original must be presented to the transferee (no photocopies)
The transferee must take the note in good faith, without notice of any illegality AND
The transferee must pay value for the note, meaning some amount that is more than nominal.
The original note must be endorsed, signed by the named mortgagee
To be a holder in due course, what else is need?
The note must be negotiable, made payable to the named mortgagee
The original note must be endorsed, signed by the named mortgagee
The transferee must take the note in good faith, without notice of any illegality
The transferee must pay value for the note, meaning some amount that is more than nominal.
The original must be presented to the transferee (no photocopies)
If O, a debtor-mortgagor, sells BS which is now mortgaged, the lien will remain on the land so long as what is true of the mortgage?
It was properly recorded.
On January 10, Madge took out a $50,000 mortgage on BA with First Bank. First Bank promptly and properly recorded its interest on January 10.
Thereafter, on January 15, Madge sold BA to Buyer. Buyer had no actual knowledge of the lien. Buyer promptly and properly recorded its deed.
Does Buyer hold subject to First Bank’s mortgage? Explain.
Yes. All recording statutes apply to mortgages as well as deeds. Thus, a later buyer takes subject to a properly recorded lien.
On January 10, Madge took out a $50,000 mortgage on BA with First Bank. First Bank promptly and properly recorded its interest on January 10.
Thereafter, on January 15, Madge sold BA to Buyer. Buyer had no actual knowledge of the lien. Buyer promptly and properly recorded its deed.
Does Buyer hold subject to First Bank’s mortgage in an NJ? In an RNJ? Explain
In an NJ, Buyer takes subject to the lien because Buyer has record notice.
In an RNJ, Buyer takes subject to the lien because Buyer has record notice AND First Bank won the race to record.
On Jan. 10, Madge takes a out $50k mortgage on BA with First Bank. On Jan. 15, Madge sold BA to Buyer. Buyer had no knowledge of the lien.
On Jan 20, First Bank records its mortgage on BA. On Jan. 30, Buyer recorded his deed to BA.
Does Buyer hold subject to First Bank’s mortgage in an NJ? In an RNJ?
In NJ, Buyer does not hold subject to First Bank’s mortgage because he was a BFP when he took.
In RNJ, Buyer takes subject to the mortgage because he lost the race to record.
Who is personally liable of the debt if O, the debtor-mortgagor, sells BA to and B “assumes the mortgage?”
Primarily? Secondarily?
Both O and B are personally liable
B is primarily liable
O remains secondarily
Who is personally liable of the debt if O, the debtor-mortgagor, sells BA to and B takes “subject to the mortgage?
Only O is personally liable.
A mortgagee must foreclose by ___ ___ ____.
Proper judicial action.
The proceeds of a foreclosure sale go to what?
Satisfying the debt.
What if the proceeds from a foreclosure sale of BA are less than the amount owed on the mortgage? What does the mortgagee do?
Mortgagee brings a deficiency action against the debtor.
What if the proceeds from a foreclosure sale of BA are more than the amount owed on the mortgage?
Junior liens are paid off in the order of priority.
Any remaining surplus goes to the debtor
Which three expenses always come “off the top” of the proceeds of a foreclosure sale?
Attorney’s fees
Foreclosure expenses
Accrued interest on the first priority mortgage.
Assume BA has a FMV of $50k and is subject to three mortgages executed by its owner, Madge. First Bank, with first priority, is owed $30,000. Second Bank, with Second priority, is owed $15,000. Third Bank, with third priority, is owed $10,000.
First Bank foreclosures on BA and BA is sold for $60k. $10k goes to “off the top” expenses. How is the remaining $50k distributed to the mortgagees? Explain.
Each claimant is entitled to satisfaction in full before a subordinated lien holder may take. Thus, First Bank takes $30k. Then, Second Bank takes $15k. The remaining balance is applied toward Third Bank. They take $5k. They should proceeds for a deficiency judgment.
Assume BA has a FMV of $50k and is subject to three mortgages executed by its owner, Madge. First Bank, with first priority, is owed $30,000. Second Bank, with Second priority, is owed $15,000. Third Bank, with third priority, is owed $10,000.
First Bank foreclosures on BA and BA is sold for $70k. $10k goes to “off the top” expenses. How is the remaining $60k distributed?
Each claimant is entitled to satisfaction in full before a subordinated lien holder may take. Thus, First Bank takes $30k. Then, Second Bank takes $15k. Third Bank takes $10.
Surplus goes to debtor.
Foreclosure will terminate interests ______ to the mortgage being foreclosed BUT will not affect ___ interests.
Junior
Senior
T or F: Junior lien holders are paid in descending order with the proceeds from the sale, assuming funds are leftover after full satisfaction of superior claims.
True
T or F: Once foreclosure of a superior claim has occurred, with proceeds distributed appropriately, junior lien holders may look to BA for satisfaction.
False. May NOT look to BA.
Those with interests subordinate to those of the foreclosing party are labeled . . .
“Necessary Parties to the Foreclosure Action”
Is the debtor-mortgaged considered a necessary or unnecessary party to the foreclosure action?
Necessary
Failure to include a necessary party in a foreclosure action has what affect on that party’s claim?
Preservation, despite the foreclosure and sale.
If a necessary party is not joined at the foreclosure sale, his mortgage . . .
Remains on the land.
T or F: Foreclosure affects interests senior to the mortgage being foreclosed.
False. It does not affect any interest senior to the foreclosing interest.
Assume BA has a FMV of $50k and is subject to three mortgages executed by its owner, Madge. First Bank, with first priority, is owed $30,000. Second Bank, with Second priority, is owed $15,000. Third Bank, with third priority, is owed $10,000.
Second Bank forecloses on its mortgage. B buys at sale.
Does First Bank’s mortgage continue on the land? Explain.
Yes. Foreclosure does not affect any interest senior to the mortgage being foreclosed. Thus, foreclosure of Second Bank’s mortgage won’t affect First Bank’s mortgage: it will continue on BA in the hands of the Buyer.
Assume BA has a FMV of $50k and is subject to three mortgages executed by its owner, Madge. First Bank, with first priority, is owed $30,000. Second Bank, with Second priority, is owed $15,000. Third Bank, with third priority, is owed $10,000.
Second Bank forecloses on its mortgage. B buys at sale.
Is B personally liable to First Bank?
No.
Assume BA has a FMV of $50k and is subject to three mortgages executed by its owner, Madge. First Bank, with first priority, is owed $30,000. Second Bank, with Second priority, is owed $15,000. Third Bank, with third priority, is owed $10,000.
Second Bank forecloses on its mortgage. B buys at sale.
B is not personally liable to First Bank. How then could First Bank foreclose on the land?
If it is not paid off.
Because foreclosure does not affect any interest senior to the mortgage being foreclosed, buyers have a very strong incentive to do what?
Pay off the bank immediately.
Assume BA has a FMV of $50k and is subject to three mortgages executed by its owner, Madge. First Bank, with first priority, is owed $30,000. Second Bank, with Second priority, is owed $15,000. Third Bank, with third priority, is owed $10,000.
Second Bank forecloses. How much should Buyer bid? Explain.
Buyer should bid up to $20k, which represents BA’s FMV of $50k less the $30k Buyer should set aside to pay off First Bank.
Assume BA has a FMV of $50k and is subject to three mortgages executed by its owner, Madge. First Bank, with first priority, is owed $30,000. Second Bank, with Second priority, is owed $15,000. Third Bank, with third priority, is owed $10,000.
Second Bank forecloses. Buyer pays $20k. How will the proceeds be distributed?
$15k to Second Bank
$5k to Third Bank (who will try for a deficiency judgment)
What must a creditor always do to ensure priority?
Record.
Once recorded, priority is determined by the norm of . . . . .
First in time, first in right
What is a purchase money mortgage?
A mortgage given to secure a loan that enables the debt ro acquire the encumbered land.
C lends O $100k so that O can purchase BA. C takes as collateral a security interest in BA, the very parcel that C’s extension of value enabled O to acquire.
C is called what?
Assuming C records properly, he has what priority in the parcel he financed?
A purchase money mortgagee.
First
C1 lends $200k to O, taking security interest in all of O’s real estate holdings, “whether now owned or hereafter acquired.”
Permissible?
Yes, called an after-acquired collateral clause
C1 lends $200k to O, taking security interest in all of O’s real estate holdings, “whether now owned or hereafter acquired.”
C1 records the mortgage note, six months later, C2 lends O $50k to enable O to acquire a parcel known as Blueacre, taking back a security interest in Blueacre and recording that interest. Subsequently, O defaults on all outstanding obligations. All he has left is Blueacre. Who has first priority in Blueacre, C1 or C2? Explain.
C2.
He is the purchase-money mortgagee of the parcel
Under equitable redemption, a debtor may try to redeem the land at what time?
Any time prior to foreclosure
When does the right to equitable redemption go away?
Once a valid foreclosure sale has taken place
How is the right of equitable redemption exercised?
By paying off missed payment(s) PLUS interest PLUS costs
What does an acceleration clause permit the mortgagee to do?
Declare the full balance due in the event of a default.
May a debtor/mortgagor waive the right to redeem in the mortgage itself?
No.
What is clogging? Is it permissible?
When a debtor/mortgagor waives the right to redeem in the mortgage. Not permissible.
Where recognized, statutory redemption applies when?
After foreclosure.
Under statutory redemption, the amount to be paid is usually what rather than what?
Foreclosure sale price
RATHER THAN amount of the debt.
In most states that recognize statutory redemption, the mortgagor will have the right to do what during the statutory period?
Possess Blackacre
When a mortgagor redeems under a statutory redemption scheme, the effect is to. . .
Undo the foreclosure sale.
As an exception to the general race-notice rule that a subsequent BPV prevails only if he records first, explain what a fixture filing is? When must it be recorded and what effect?
It is a purchase money security interest in affixed chattel. It will prevail even over a prior recorded mortgage on the land AS LONG AS it was recorded within 20 day of being affixed to the property.
