Mortgages

Question 1

What is a mortgage?

Answer 1

A mortgage is the conveyance of a security interest in land. It is intended to be collateral for the repayment of a monetary obligation.

Question 2

What do you elements does the mortgage contain?

Answer 2

A debt, represented by a note

The voluntary transfer of a security interest (a lien)

Question 3

If a creditor seeks to transfer their mortgage interest by endorsing the note and delivering it to the transferee, what is the status of the transferee?

Answer 3

The transfer would be a holder in due course and would take the note free of any personal defences

Question 4

For the purpose of a mortgage transfer what are the five personal defences?

Answer 4

1. Lack of consideration
2. Fraud in the inducement
3. Waiver
4. Unconscionability
5. Estoppel

Question 5

What are the real defences that can still be raised against a holder in due course?

Remember: MAD F I F I 4

Answer 5

Material alteration, meaning a change in the instrument terms

Duress

Fraud in the factum (meaning a lie about the instrument itself)

Incapacity

Illegality

Infancy

Insolvency

Question 6

What are the requirements for a holder to take due course status?

Answer 6

The original note must have been:

Negotiable

Endorsed by the mortgagee

Delivered to the transferee

Taken by the transferee in good faith

Transferee must pay value

Question 7

Other than meeting the requirements of the holder in due course how else could a creditor transfer their mortgage interest?

Answer 7

By executing a separate document of assignment

Question 8

Who is liable to repay the mortgage if the landowner sells the property to a buyer who “assumes the mortgage”?

Answer 8

If buyer assumes the mortgage then the buyer is primarily liable and the seller is secondary liable to repay the debt

Question 9

If a buyer takes subject to a mortgage who is liable to repay the debt?

Answer 9

Buyer has no personal liability only the seller.

Question 10

If the mortgagor does not repay the debt what steps can the mortgagee/creditor take?

Answer 10

Foreclose on the land by initiating judicial proceedings and using the sale proceeds to satisfy the debt.

Question 11

What is the title theory?

Answer 11

The creditor has legal title in the property until the mortgage has been satisfied, thus the creditors entitled to take possession upon demand at any time including when the mortgagor defaults.

Question 12

What is the intermediate theory?

Answer 12

Legal title transfers from the borrower to the lender on default

Question 13

What is the lien theory?

Answer 13

The creditor is deemed to hold a security interest in the land and the borrower is considered the owner until foreclosure

Question 14

If the proceeds of foreclosure sale are insufficient to satisfy the mortgage what can be credited to?

Answer 14

Bring a personal deficiency action

Question 15

What is the order of priority for Distributing the sale proceeds after foreclosure?

Answer 15

1. Pay attorneys fees and foreclosure expenses
2. Pay accrued interest on First Bank’s mortgage
3. Satisfy the creditors in full in order of priority
4. Deficiency judgement against the debtor

Question 16

Foreclosure will terminate whose interests?

Answer 16

Foreclosure will terminate interest Junior to the mortgage but will not affect senior interest.

Question 17

April closing party must give notice to whom?

Answer 17

Everyone whose interests are senior to theirs/Parties that came first in the timeline

Question 18

What is a floating lien or an after acquired collateral clause?

Answer 18

It gives the creditor the ability to take a security interest in all of the borrowers property whether acquired now or thereafter

Question 19

A purchase money mortgage gets priority no matter what assuming…?

Answer 19

They properly recorded

Question 20

If the mortgage contains an ACCELERATION CLAUSE how is the rights of equitable redemption exercised?

Answer 20

The borrower must pay off ENTIRE BALANCE + any accrued interest + costs

Question 21

If the mortgage does NOT contain an acceleration clause how can the borrower exercise the right of equitable redemption?

Answer 21

The borrower must pay off the missed payment + any accrued interest + costs

Question 22

What is statutory redemption and when does it apply?

Answer 22

This gives the borrower/debtor a statutory right to redeem for a fixed period.

Exerciseable after foreclosure has occurred

Question 23

What is the effect of the borrower redeeming?

Answer 23

It nullifies the foreclosure sale and the redeeming owner is restored to title

Question 24

What must the borrower pay in order to exercise statutory redemption of the mortgage?

Answer 24

The foreclosure sale price

Question 25

The Dodd Frank act requires understandable and fair terms to a mortgage before it’s made. If the lender violates this act what is the result?

Answer 25

The borrower has a defence in the foreclosure action

Question 26

Under the consumer rights during foreclosure process after the borrower has defaulted on the mortgage what must the lender do?

Answer 26

Must consider in good faith a request for a loan modification or other alternatives to foreclosure. The lender cannot file a foreclosure action of such request is pending

Question 27

What 5 factors will the court consider when determining whether an equitable mortgage exists?

Answer 27

1. The existence of the debt/promise of payment by the grantor of the deed/borrower
2. Grantee’s promise to return the deed/land if debt repaid
3. Whether the loaned amount was much lower than the value of the land
4. The grantor’s financial distress
5. Parties’ prior negotiations

Question 28

If a creditor has an equitable mortgage, can they sell the land to repay the debt owed to them?

Answer 28

Not without first foreclosing on the land through judicial action.