Mortgages Flashcards
Components of a mortgage
A mortgage consists of:
(1) The note:
The borrower’s promise to repay the loan or debt;
(2) The mortgage:
The instrument that provides security for the note.
Types of mortgages
There are two main types of mortgages:
(1) Purchase money mortgage:
One for the purpose of purchasing property;
(2) Future advance mortgage:
One for a line of credit, e.g., home equity or construction loans.
A.k.a. “‘second mortgage.”
Mortgage alternatives
(1) Deed of trust:
Economically a mortgage, except that the trustee holds title for the benefit of the lender;
(2) Installment land contract:
The seller finances the purchase and retains title until the buyer makes the final payment; state law may require foreclosure, an equitable right of redemption, or restitution;
(3) Absolute deed:
The mortgagor transfers the deed (rather than a security interest) to the lender;
(4) Conditional sale and repurchase:
The owner sells the property to the lender, who leases the property back to the owner with an option to repurchase after the loan is paid off.
Waste doctrine
A mortgagor cannot commit waste that would impair the lender’s security interest.
Ameliorative waste is less of a concern.
Possession of the mortgaged property
(1) Lien theory state:
The mortgagor owns and possesses the property until foreclosure.
(2) Title theory state:
The lender holds title and technically is entitled to possess at any time.
(3) Intermediate title theory state:
The mortgagor retains title until default, at which point the lender can take possession.
Types of mortgages: purchase money mortgage
A purchase money mortgage is granted to a seller of real property or a third-party lender to the extent that:
(1) loan proceeds are used to acquire title to real property; or
(2) to construct improvements on the real property if the mortgage is given as part of the same transaction in which title is acquired.
A purchase money mortgage has priority over mortgages and liens created by or that arose against the purchaser-mortgagor prior to the purchaser mortgagor’s acquisition of the property, whether or not recorded.
Transfer of a mortgage or note
A transfer of a note is treated as a transfer of the associated mortgage as well—because the mortgage follows the note.
In some jurisdictions, transfer of a mortgage without the associated note is void.
Subrogation
A person who pays off a loan that is secured by a mortgage in order to protect her own interests acquires the rights of the original mortgagee-lender and may therefore enforce the mortgage.
