Mortgages

Question 1

How does one create a mortgage?

Answer 1

-a mortgage is the conveyance of a security interest in land, intended by the parties to be collateral for the repayment of a debt
-a mortgage is the union of 2 elements:
i-a debt
ii-a voluntary lein in debtor’s land to secure the debt
-debtor=mortgagor and creditor=mortgagee

Question 2

Equitable Mortgage

Answer 2

O owns Blackacre. Creditor lends O a sum of money. The parties understand that Blackacre is the collateral for the debt. However, instead of executing a note or mortgage deed, O hands Creditor a deed to Blackacre that is absolute on its face.

Question 3

Once mortgage is created, what are the parties’ rights?

Answer 3

• unless and until foreclosure, debtor-mortgagor has title and the right to possess
• creditor-mortgagee has a lein

Question 4

How creditor-mortgagee can transfer his interest:

Answer 4

1-by endorsing the note and delivering it to the transferee
OR
2-executing separate document of assignment
NOTE–if the note is endorsed and delivered, the transferee is eligible to become a holder in due course–this means that he takes the note free of any personal defenses that could’ve been raised against the original creditor
-“personal defenses” include: lack of consideration, fraud in the inducement, unconscionability, waiver, and estoppel
-thus, the holder in due course may foreclose the mortgage despite any such personal defense

Question 5

The holder in due course is still subject to “real” defenses that the maker might raise:

Answer 5

MAD FIFI 4
M-material
A-alteration
D-duress
F
I
F-fraud in the factum
I-incapacity
I-illegality
I-infancy
I-insolvency

Question 6

To be a holder in due course of the note, the following must be met:

Answer 6

a-the note must be negotiable, made payable to the named mortgagee;
b-the original note must be endorsed, signed by the named mortgagee;
c-the original note must be delivered to the transferee;
d-the transferee must take the note in good faith, w/o notice of any illegality;
AND
e-the transferee must pay value for the note, meaning some amount that is more than nominal

Question 7

Foreclosure

Answer 7

-the mortgagee must foreclose by proper judicial action–at foreclosure, the land is sold–the sale proceeds of to satisfying the debt

Question 8

If foreclosure proceeds are less than the amount owed then:

Answer 8

the mortgagee brings a deficiency action against debtor

Question 9

If there is a surplus after a foreclosure proceeding then:

Answer 9

junior lens are paid off in order of priority

-remaining surplus goes to debtor

Question 10

Effect of foreclosure on various interests

Answer 10

i-foreclosure will terminate interests junior to the mortgage being foreclosed but will not affect senior interests (meaning junior leinholders will be paid in descending order with the proceeds from the sale, assuming funds are leftover after full satisfaction of superior claims–junior leinholders should be able to proceed for a deficiency judgment–but once foreclosure of a superior claim has occurred, w/ the proceeds distributed appropriately, junior leinholders can no longer look to Blackacre for satisfaction)
ii-foreclosure does not affect any interest senior to the mortgage being foreclosed–the buyer at the sale takes subject to such interest–means that the buyer is NOT personally liable on the senior debt–but, as a practical matter, if the senior mortgage is not paid, sooner or later, the senior creditor will foreclose on the land

Question 11

Priorities

Answer 11

i-as a creditor, you must record
ii-once recorded, priority is determined by the norm of first in time-first in right
iii-the purchase money mortgage: a mortgage given to secure a loan that enables the debtor to acquire the encumbered land
iv-subordination agreements: permissible-a senior creditor may agree to subordinate its priority to a junior creditor

Question 12

Redemption in Equity

Answer 12

• equitable redemption is universally recognized up to the date of sale–at any time prior to the foreclosure sale the debtor can try to redeem the land
• once a valid foreclosure has taken place, the right to equitable redemption is gone
• how is the right of equitable redemption exercised?–by paying off the missed payment(s), plus interests, plus costs
• may a debtor/mortgagor waive the right to redeem in the mortgage itself?–no–this is known as the equity of redemption (prohibited)

Question 13

Statutory Redemption

Answer 13

-recognized in 1/2 the states, statutory redemption gives the debtor-mortgagor a statutory right to redeem for some fixed period after the foreclosure sale has occurred (typically 6 months-1 year)–where recognized, statutory redemption applies after foreclosure–the amount to be paid is usually the foreclosure sale price rather than the amount of the original date