Mortgages and Foreclosure

Question 1

Define Mortgage

Answer 1

A security device used to secure payment of debt

Question 2

What are the two components to a mortgage?

Answer 2

1. Note - borrower’s promise to repay
2. Mortgage - instrument that provides security for the note

Question 3

What are the two kinds of mortgages?

Answer 3

1. Purchase money mortgage: person takes out a loan for the purpose of purchasing property
2. Future advance mortgage: Line of credit used for home equity, construction, business, and commercial loans

Question 4

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 _________

Answer 4

Lien: does not sever joint tenancy

Title: severs joint tenancy, creates tenancy in common

Question 5

In a deed of trust, a _____ holds title for the benefit of the lender

Answer 5

Trustee

Question 6

In an installment land contract, _____ finances the purchase and retains ______ until the buyer makes the final payment on the installment play

Answer 6

Seller, title

Question 7

What is the modern approach to breaches of installment land contracts

Answer 7

States are trying to assist defaulting buyers

Ex: treat like a mortgage (requiring seller to foreclose)

Question 8

In an absolute deed, the borrower transfers _____ to the property instead of conveying a security interest in exchange for the loan

Answer 8

Deed

Question 9

True or false: Parol evidence is admissible in absolute deed conflicts

Answer 9

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)

Question 10

True or false: Statute of Frauds bars oral evidence about an absolute deed agreement

Answer 10

False. Looking for clear and convincing evidence that an obligation was created prior to or contemporaneous with transfer of deed

Question 11

In a conditional sale and repurchase, the owner ______ to the lender who __________ back to the owner in exchange for the loan.

Answer 11

sells the property, leases the property

The lender gives the owner the option to repurchase after loan is paid off

Question 12

In what ways may a mortgagor transfer the property?

Answer 12

Deed, will, intestate succession

Question 13

True or false: Mortgagor remains personally liable after the transfer of property

Answer 13

True, UNLESS

Lender/mortgagee releases mortgagor, lender modifies transferee’s obligation

Question 14

True or false, if a transferee assumes the mortgage, the transferee is personally liable for the mortgage

Answer 14

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

Question 15

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

Answer 15

True. The mortgagor is the owner up until foreclosure.

Question 16

True or false: In a title theory state, a lender has the right to possess the property at any time.

Answer 16

True.

Question 17

Under the equity of redemption, allows the mortgagor/borrower to reclaim title and prevent foreclosure upon….?

Answer 17

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

Question 18

Under _____________, a mortgagor/borrower can convey the property to the lender in exchange her from any outstanding debt

Answer 18

Deed in lieu of foreclosure

Question 19

True or false: courts will not intervene to prevent clogging the equity of redemption

Answer 19

False. Courts will intervene to prevent clogging – making it harder for a borrower to exercise equity of redemption

Question 20

Define foreclosure

Answer 20

Forced sale of an asset to pay off a debt

Notice must be given by mortgagee/lender before foreclosing

Question 21

The two methods of foreclosure are judicial sale and —- ?

Answer 21

Judicial sale: sale under supervision of court
Power of sale: private sale by lender

Question 22

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

Answer 22

The bank will take the $100K and get a deficiency judgment against B for the remaining $75K

Question 23

How do courts reconcile competing interests when a property is being foreclosed?

Answer 23

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

Question 24

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.

Answer 24

Although junior to the judgment lien, America’s Bank takes priority because of the purchase-money mortgage exception.

Question 25

America’s Bank is foreclosing on Blueberry Acre. America’s Bank never recorded its mortgage interest. Village Bank has a later (junior) mortgage on Blueberry Acre. At the time of execution, Village Bank was not aware of the earlier interest. The jurisdiction follows a notice rule for recording. Which conflicting interest takes priority?

Answer 25

Because it took its interest without knowledge (notice) of the senior interest, Village Bank’s junior interest will take priority under the recording act exception.

Question 26

what is the legal effect on foreclosure?

Answer 26

Eliminates the mortgagor/borrower’s interest in the property

Question 27

True or false: some states allow the mortgagor to redeem the property even after the foreclosure sale

Answer 27

True. Enables the homeowner to nullify the foreclosure.

Question 28

The purchase of a property at foreclosure sale takes the property free and clear of any junior mortgage and subject to any senior mortgage BUT

Answer 28

The purchase may be subject to the mortgagor’s statutory right of redemption if one exists