Mortgages and Foreclosure Flashcards
Define Mortgage
A security device used to secure payment of debt
What are the two components to a mortgage?
- Note - borrower’s promise to repay
- Mortgage - instrument that provides security for the note
What are the two kinds of mortgages?
- Purchase money mortgage: person takes out a loan for the purpose of purchasing property
- Future advance mortgage: Line of credit used for home equity, construction, business, and commercial loans
A lien state treats a mortgage as a lien that does not ______ a JT
A title state treats a mortgage as a severance of JT and coverts to a _________
Lien: does not sever joint tenancy
Title: severs joint tenancy, creates tenancy in common
In a deed of trust, a _____ holds title for the benefit of the lender
Trustee
In an installment land contract, _____ finances the purchase and retains ______ until the buyer makes the final payment on the installment play
Seller, title
What is the modern approach to breaches of installment land contracts
States are trying to assist defaulting buyers
Ex: treat like a mortgage (requiring seller to foreclose)
In an absolute deed, the borrower transfers _____ to the property instead of conveying a security interest in exchange for the loan
Deed
True or false: Parol evidence is admissible in absolute deed conflicts
True. If this is a mortgage disguised as a sale, borrower must prove mortgage-like agreement by clear and convincing evidence (obligation created prior to or contemporaneous with transfer)
True or false: Statute of Frauds bars oral evidence about an absolute deed agreement
False. Looking for clear and convincing evidence that an obligation was created prior to or contemporaneous with transfer of deed
In a conditional sale and repurchase, the owner ______ to the lender who __________ back to the owner in exchange for the loan.
sells the property, leases the property
The lender gives the owner the option to repurchase after loan is paid off
In what ways may a mortgagor transfer the property?
Deed, will, intestate succession
True or false: Mortgagor remains personally liable after the transfer of property
True, UNLESS
Lender/mortgagee releases mortgagor, lender modifies transferee’s obligation
True or false, if a transferee assumes the mortgage, the transferee is personally liable for the mortgage
True. BOTH the original mortgagor and transferee are liable upon default
Note that this assuming of the mortgage does not need to be in writing
True or false: In a lien theory state, the mortgagee/lender cannot take possession prior to foreclosure because the lender has a lien on the property
True. The mortgagor is the owner up until foreclosure.
True or false: In a title theory state, a lender has the right to possess the property at any time.
True.
Under the equity of redemption, allows the mortgagor/borrower to reclaim title and prevent foreclosure upon….?
Full payment of debt BEFORE foreclosure sale.
Ex: Bonny takes out a $350,000 mortgage to buy a condo. She misses a considerable number of payments and the bank initiates a foreclosure sale. Bonnie can stop the foreclosure under equity of redemption IF she can repay the debt in full before the foreclosure sale
Under _____________, a mortgagor/borrower can convey the property to the lender in exchange her from any outstanding debt
Deed in lieu of foreclosure
True or false: courts will not intervene to prevent clogging the equity of redemption
False. Courts will intervene to prevent clogging – making it harder for a borrower to exercise equity of redemption
Define foreclosure
Forced sale of an asset to pay off a debt
Notice must be given by mortgagee/lender before foreclosing
The two methods of foreclosure are judicial sale and —- ?
Judicial sale: sale under supervision of court
Power of sale: private sale by lender
B takes out a $200K mortgage from America’s Bank to buy a home. She defaults on the loan and the home is foreclosed upon and sold for $100K. The remaining debt, including prinicipal and interest is $175K. What happens to the proceeds of the sale
The bank will take the $100K and get a deficiency judgment against B for the remaining $75K
How do courts reconcile competing interests when a property is being foreclosed?
Classify the interest as either junior or senior, then apply the rule to determine which interests survive
Senior: before the interest that is being foreclosed – survive
Junior: after interest that is being foreclosed – extinguished
B took out a $200K mortgage from America’s Bank to purchase a home. After failing to make payments, he is in default. He is likewise in default of an earlier judgment lien from a traffic accident. America’s Bank forecloses. Which competing interest takes priority.
Although junior to the judgment lien, America’s Bank takes priority because of the purchase-money mortgage exception.
