MORTGAGES Flashcards
How does one create a mortgage?
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 what two elements?
1) A debt
2) A voluntary lien in debtor’s land to secure that debt.
By way of vocabulary, a debtor is a what?
A morgagor
By way of vocabulary, a creditor is a what?
A mortgagee
What is the “legal mortgage”
A writing.
What in “the legal mortgage”?
The mortgage typically must be in writing to satisfy the Statute of Frauds
What are some names for the legal mortgage?
Encumbrance in blackacre evidenced by writing, Note, mortgage deed, security interest in land, a deed of trust, a sale lease back.
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. This is called
an equitable mortgage
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. This is called an equitable mortgage.
What is admissible in an equitable mortgage to show intent?
Parol evidence.
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.
What if Creditor proceeds to sell Blackacre to bona fide purchaser X?
What can O do?
X owns the land. O’s only recourse is suing for fraud and sale of proceeds.
Once a mortgage has been created, what are the parties’ rights?
Unless and until foreclosure, debtor-mortgagor has title and the right to possess. Creditor-mortgagee and a lien.
What 2 ways can a creditor-mortgagee transfer his interest in the mortgage?
The creditor-mortgagee can transfer his interest by
1) endorsing the note and delivering it to the transferee
or
2) executing a separate document of assignment
To become a holder in due course what must happen?
the note must be endorsed and delivered
A holder in due course means?
He takes the note free of any personal defenses that could have been raised against the original creditor.
What are some personal defenses for a transfer of a mortgage?
Lack of consideration, fraud in the inducement, waiver, estoppel, unconcionability
The holder in due course may foreclose the mortgage despite what?
Any personal defense.
A holder in due course is still subject to what defenses?
“real” defenses that the maker might raise
What are the “real defenses” that a holder in due course is still subject to?
MAD FIF I4
Material Alteration
Duress
Fraud in the Factum
Illegality
Insolvency
infancy
incapacity
What is Fraud in the Factum?
A lie about the instrument of the debt to the debtor. (the debtor was lied to)
What 5 criteria must be met to be a holder in due course?
1) the note must be negotiable, made payable to the named mortgagee;
2) the original note must be endorsed, signed by the named mortgagee;
3) the original note must be delivered to the transferee. A photocopy is unacceptable;
4) the transferee must take the note in good faith, without notice of any illegality;
and
5) the transferee must pay value for the note, meaning some amount that is more than nominal.
If O, the debtor-mortgagor, sells Blackacre, which is now mortgaged what happens to the mortgage?
the lien remains on the land. so long as the mortgage was properly recorded.
On January 10, Madge took out a $50,000 mortgage on Blackacre with First Bank. First Bank promptly and properly recorded its interest on January 10. Thereafter, on January 15, Madge sold Blackacre to Buyer. Buyer had no actual knowledge of the lien. Buyer promptly and properly recorded its deed.
Does Buyer hold subject to First Bank’s mortgage?
Yes. A later buyer takes subject to a properly recorded lien
What statutes apply to mortgages in their transferability?
All recording statutes apply to mortgages as well as deeds.
Assume that on January 10, Madge took out a $50,000 mortgage on Blackacre with First Bank. On January 15, Madge sold Blackacre to Buyer. Buyer had no knowledge of the lien. On January 20, First Bank recorded its mortgage in Blackacre. On January 30, Buyer recorded his deed to Blackacre. Does Buyer hold subject to First Bank’s mortgage in a race-notice state?
Buyer loses. because he lost the race to record
Assume that on January 10, Madge took out a $50,000 mortgage on Blackacre with First Bank. On January 15, Madge sold Blackacre to Buyer. Buyer had no knowledge of the lien. On January 20, First Bank recorded its mortgage in Blackacre. On January 30, Buyer recorded his deed to Blackacre. Does Buyer hold subject to First Bank’s mortgage in a notice state?
buyer wins so long as he was a bfp when he took.
In a notice state, a subsequent BFP prevails over a prior grantee or mortgagee who has not yet recorded properly at the time the BFP takes.
Who is personally liable on the debt if O, our debtor-mortgagor, sells Blackacre to B
If B has “assumed the mortgage”?
Both O and B are personally liable. B is primarily liable, O remains secondarily liable.
Who is personally liable on the debt if O, our debtor-mortgagor, sells Blackacre to B, If B takes subject to the mortgage?
B assumes no personal liability. Only O is personally liable. But, if recorded, the mortgage sticks with the land. Thus, if O does not pay, the mortgager may foreclose.
Assuming that our mortgagee-creditor must look to the land for satisfaction, how must he or she proceed?
The mortgagee must foreclose by proper judicial action. At foreclosure, the land is sold. The sale proceeds go to satisfying the debt.
In a foreclosure what if the proceeds from the sale of Blackacre are less than the amount owed?
Mortgagee brings a deficiency action against debtor, junior liens paid in order of priority.
In a foreclosure what if the proceeds from the sale of Blackacre are more than the amount owed?
remaining surplus goes to debtor
After a foreclosure what expenses are taken first?
Off the top: Attorney’s fees, foreclosure expenses, and any accrued interest on first bank’s mortgage. Assume 0 to make it easier.
In a foreclosure how are the funds remaining after off the top expenses distributed?
What if there is not enough to pay off all debts with the proceeds from the foreclosure sale?
The sale proceeds are then used to pay off the mortgages in the order of their priority. Each claimant is entitled to satisfaction in full before a subordinated lienholder may take.
If there is a deficiency the holder of the mortgage that is not fully paid may take personal deficiency action against the debtor
Assume that Blackacre has a fair market value of $50,000 and is subject to three mortgages executed by its owner, Madge. First Bank, with first priority, is owed $30,000. Second Bank, with second priority, is owed $15,000, and Third Bank, with third priority, is owed $10,000. Assume that First Bank’s mortgage is foreclosed, and that Blackacre is sold for $50,000. How will the funds be distributed?
- Off the top: Attorney’s fees, foreclosure expenses, and any accrued interest on first bank’s mortgage. Assume 0 to make it easier.
- First Bank takes: 30,000. Then, Second Bank takes: 15,000. The remaining balance is applied toward third bank, it takes 5,000
- Third Bank should be able to proceed for a deficiency judgment of 5,000
Assume that Blackacre has a fair market value of $50,000 and is subject to three mortgages executed by its owner, Madge. First Bank, with first priority, is owed $30,000. Second Bank, with second priority, is owed $15,000, and Third Bank, with third priority, is owed $10,000. Assume that First Bank’s mortgage is foreclosed, and that Blackacre is sold for $60,000. How will the funds be distributed?
- Off the top: Attorney’s fees, foreclosure expenses, and any accrued interest on first bank’s mortgage. Assume 0 to make it easier.
- First Bank takes: 30,000. Then, Second Bank takes: 15,000. Third bank takes 10,000
- The debtor gets the surplus of 5,000
What is the effect of a foreclosure on junior mortgage interests?
Foreclosure will terminate interests junior to the mortgage being foreclosed. Junior lienholders should be able to proceed for a deficiency judgment. Once foreclosure of a superior claim has occurred, with the proceeds distributed appropriately, junior lienholders can no longer look to Blackacre for satisfaction.
What is the effect of a foreclosure on senior mortgage interests to the party that foreclosed?
What is the effect on the buyer at foreclosure?
None, their mortgage stays on the land.
The new buyer takes the land subject to the mortgage. They are not personally liable for the mortgage but the mortgage holder can foreclose on the land.
Who are necessary parties to the foreclosure action and must be joined in the action?
Those with interests subordinate to those of the foreclosing party and the debtor-mortgagor.
What if the foreclosing party fails to include a necessary party?
Failure to include a necessary party results in the preservation of that party’s claim, despite the foreclosure and sale. Thus, if a necessary party is not joined his mortgage remains on the land.
Blackacre has a fair market value of $50,000 and is subject to three mortgages executed by its owner, Madge. First Bank, with first priority, is owed $30,000. Second Bank, with second priority, is owed $15,000, and Third Bank, with third priority, is owed $10,000. Suppose that it is Second Bank’s mortgage that is being foreclosed.
What happens to first bank’s mortgage?
How much will the buyer at foreclosure be willing to pay?
First Bank’s mortgage will continue on blackacre in the hands of the foreclosure buyer.
The buyer at foreclosure will be willing to pay 20,000. This represents the fair market value of 50,000 - 30,000 buyer needs to pay off first bank’s mortgage.
Blackacre has a fair market value of $50,000 and is subject to three mortgages executed by its owner, Madge. First Bank, with first priority, is owed $30,000. Second Bank, with second priority, is owed $15,000, and Third Bank, with third priority, is owed $10,000. Suppose that it is Second Bank’s mortgage that is being foreclosed. The buyer at foreclosure pays $20,000
How will the proceeds from the sale be distributed?
15 K to 2nd, 5 k to third but could try for a deficient judgment against debtor. the 30K mortgage to first bank will stay on blackacre.
How is priority determined for mortgages?
first in time first in right. The first to record properly takes first priority.
What happens if a bank does not properly record?
The bank has no priority.
What is a purchase money mortgage?
A mortgage given to secure a loan that enables the debtor to acquire the encumbered land.
C lends O $100,000 so that O can purchase Blackacre. C takes as collateral a security interest in Blackacre, the very parcel that C’s extension of value enabled O to acquire.
C is what?
C is a purchase money mortgagee
C lends O $100,000 so that O can purchase Blackacre. C takes as collateral a security interest in Blackacre, the very parcel that C’s extension of value enabled O to acquire.
Assuming that C records properly, he has what?
first priority in the parcel he financed
What kind of mortgage is a mortgage given to secure a loan that enables the debtor to acquire the encumbered land.
A purchase money mortgage
C1 lends $200,000 to O, taking a security interest in all of O’s real estate holdings, “whether now owned or hereafter acquired.”
(called a floating lien or a after-aquired collateral mortgage)
C1 records the mortgage note. Six months later, C2 lends O $50,000 to enable O to acquire a parcel known as Blueacre, taking back a security interest in Blueacre and recording that interest. Subsequently, O defaults on all outstanding obligations. All that he has left is Blueacre. Who has first priority in Blueacre, C1 or C2?
C2 the purchase money mortgagee has first priority in blueacre. The parcel it financed.
What if a junior creditor wants to be more senior in priority?
They can get a subordination agreement in which a senior creditor agrees to subordinate its priority to a junior creditor.
What is a redemption in equity?
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.
What happens to the right of equitable redemption once a foreclosure sale has taken place?
the right to equitable redemption is gone.
How is the right of equitable redemption exercised?
by paying off the missed payments or payments plus interest plus costs.
What is an acceleration clause?
An acceleration clause permits the mortgagee to declare the full balance due in the event of default
What if the mortgage or note contained an acceleration clause?
If the mortgage contains an acceleration clause the full balance plus accrued interests plus costs must be paid.
May a debtor/mortgagor waive the right to redeem in the mortgage itself?
What is this known as?
No. This is known as Clogging the equity of redemption, it is prohibited.
What is a statutory redemption?
statutory redemption gives the debtor-mortgagor a statutory right to redeem for some fixed period after the foreclosure sale has occurred.
Where the statutory redemption recognized?
One half of the states
Typically, how long after a foreclosure sale does a a debtor mortgagor have exercise a statutory redemption?
Typically six months to one year
What is the amount to be paid in a statutory redemption?
The amount to be paid is usually the foreclosure price rather than the amount of the original debt
What is the effect of a debtor-motgagor exercising the statutory redemption?
It nullifies the foreclosure sale, debtor is restored to tittle.
