Mortgages Flashcards
Priority of proceeds from foreclosure sale
(1) expenses of sale, attorney’s fees, and court costs
(2) Principal and accrued interest on the foreclosing party’s loan
(3) Any junior lienors or junior interests in order of priority
(4) Mortgagor
Do senior lienors recieve anything from foreclosure sale proceeds?
No b/c senior lien remains in property
What is required for transferee to become holder in due course when mortagee transfers a promissory note
(1) Note must be negotiable in form (payable to bearer, promise for fixed $ and no other promises)
(2) Named payee must sign original note
(3) Original note must be delivered to transferee
(4) Transferee must pay “value” and take note in good faith with no notice that maker has any defense to duty to pay it or note overdue or been dishonoured
What precludes mortagees’ right to foreclose upon mortgagor’s default?
- Mortgagor’s full payment of note if agreement allows prepayment
- Mortgagees’ acquiring mortgagor’s legal interest in lien theory state
- Mortgagees’ acceptance of deed in lieu of foreclosure
Statutory Redemption
Right of mortgagor to recover land by paying foreclosure sale price after sale occurred
Equitable redemption
Right of mortgagor to recover land by paying amount overdue on mortgage, plus interest, at any time before foreclosure sale
Cannot be wavied in mortgage itself
Lien theory state
Mortgage lien vests mortgagee with equitable interest in land while mortgagor retains legal interest
Mortgagee can’t take possession on default. Hold security interest in land and takes possession after foreclosure
Title theory state
Mortgage lien vests the mortgagor with equitable interest in land, while mortgagee retains legal interest
Mortgagee can take possession of mortgaged prop on default (can sue on debt or foreclose)
Priority of mortgage
In order in which placed on property
(1) Earliest (senior) mortgage
(2) Next (junior) mortgage
“Due-on-sale” clause
Clause requiring full payment of mortgage debt if mortgagor transfers interest without lender’s consent. Enforceable by institutional mortgage lender (federal law)
Most modern mortgages
Factors courts consider when determining whether parties intended to transfer land only as security interest
(1) Existance of debt/promise of payment by grantor
(2) Grantee’s promise to return the land if debt paid
(3) whether amount advanced to grantor was much lower than value of property
(4) Degree of grantor’s financial distress
(5) Prior negotiations
If security, grantee-creditor must foreclose
NOT security interest if creditor agreed to accept land as payment in full for loan
Sale-Leaseback
Security interest in land by which debtor transfers title to land to lender in exchange for lease with option to repuchase
Additional factors (disguised mortgage): similairty between lease payments and payments due on mortgage loan; repurchase option being far below property value, thus making repurchase very likely to occur
Deed of Trust
Security interest in land by which debtor (trustor) transfers title of land to third party (trustee) such as lender’s lawyer or title insurance company, acting on behalf of lender (beneficiary).
Lender instructs trrustee to foreclose deed of trust by selling property on default
Installment Land Contract
Security interest in land in which debtor (buyer) contracts with seller to pay for the land in regular installments until full K price has been paid, plus interest
Seller can only then transfer legal title to buyer
K must have forefeiture clause providing that seller may cancel K upon default, retain all $ paid, and retake possession
Right of First Refusal
Holder’s preemptive right to purchase property only if seller accepts third party’s offer to purchase, and usually on the same terms as that offer
