Mortgages Flashcards
Does foreclosure affect senior interests?
No, a foreclosure does not effect any interest senior to the mortgage being foreclosed. The buyer at the sale takes subject to the mortgage. She is not personally liable for it, but she will be forced to pay them in order to prevent their foreclosure in the future.
Are junior interests destroyed by Foreclosure?
Yes, foreclosure destroys all interests junior to the mortgage being foreclosed. In other words, junior mortgages, liens, leases, easments, and all other interests will be wiped out.
What if a lien senior to the mortgagee (the foreclosing party) is in default?
the junior mortgagee has the right to redeem (pay it off) in order to avoid being wiped out by its foreclosure.
Which parties does the foreclosing party have to give notice to?
all parties junior to its interest are necessary parties of the action.
What if the foreclosing party fails to give them notice?
failure to include a necessary party results in the preservation of that party’s interest despite the foreclosure and sale.
What is an equitable mortgage?
If a grantor transfers a deed in exchange for cash, and the grantee promises to return the land when the cash is repaid, a court will likely treat the transaction as an equitable mortgage and not as a conveyance of the land outright. In determining whether the parties intended the transfer only to serve as security for an obligation, the court will consider: (i) The existence of a debt or promise of payment by the grantor; (ii) The grantee’s promise to return the land if the debt is paid; (iii) Whether the amount advanced to the grantor was much lower than the value of the property; (iv) The degree of the grantor’s financial distress; and (v) The parties’ prior negotiations. If the court concludes that the deed was given as security, the grantee-creditor must foreclose it like any other mortgage.
What is a deed of trust?
is a security interest in land by which the debtor (i.e., the trustor) transfers title to the land to a third party (e.g., the lender’s lawyer or a title insurance company) as trustee for the lender (i.e., the beneficiary). In the event of default, the lender instructs the trustee to foreclose the deed of trust by selling the property.
What is an installment Land Contract?
An installment land contract is a security interest in land by which the debtor agrees to make regular installment payments until the full contract price (including interest) has been paid. Only then will the vendor transfer legal title to the debtor. In the event of default, the contract may contain a forfeiture clause providing that the vendor may cancel the contract, retain all money paid to date, and retake possession of the land.
What is a due-on-sale clause?
found in most modern mortgages, permits the mortgagee to demand full payment of a mortgage debt if the mortgagor transfers her interest without the lender’s consent.
What happens to the junior mortgage when the mortgagor accepts an advance of funds from the senior mortgage?
the junior mortgage is given priority over the advance if the advance was optional. Priority among mortgages on the same real estate is normally determined by chronology: The earliest (i.e., senior) mortgage is first in priority, the next (i.e., junior) mortgage is second, and so on. Generally, if the mortgage obligates the mortgagee to make further advances of funds after the mortgage is executed, such advances will have the same priority as the original mortgage. However, if a junior mortgage is placed on the property and the senior mortgagee later makes an “optional” advance (i.e., one it was not contractually bound to make) while having notice of the junior mortgage, the advance will lose priority to the junior mortgage.
When a mortgagee transfers a promissory not without a written assignment of the morgage what happens?
While it is possible to transfer the note without the mortgage, the mortgage automatically will follow the properly transferred note. No separate written assignment of the mortgage is necessary. The mortgagee does NOT retain the rights to the mortgage when she transfers the note without a written assignment of the mortgage unless she expressly reserves the rights, which there would rarely be any reason for her to do. Generally, the mortgage follows the note; the mortgage is NOT separated from the obligation on the note, and the mortgage is NOT extinguished.
What is a mortgage?
a security interest in real estate that secures a promise to repay a loan, which is usually a promissory note. Most states require that a lender realize on the real estate to satisfy the debt only after a judicial foreclosure sale conducted by the sherriff.
