Mortgages and Security Devices

Question 1

What is a purchase-money mortgage?

Answer 1

A mortgage given to secure a loan that enables the mortgagor to acquire title to the property as part of the same transaction as the buyer’s purchase of the property

Question 2

What is the lien theory of mortgages?

Answer 2

The majority theory that mortgagee receives a lien and the mortgagor retains legal and equitable title and possession to the mortgaged real property, unless and until foreclosure occurs

Question 3

What is the title theory of mortgages?

Answer 3

Title theory is the minority approach that mortgagee receives legal title to the mortgaged real property and has the right to take possession of and collect rent from the property

Question 4

What does it mean to take a property subject to a mortgage?

Answer 4

Mortgagee may foreclose and force the property to be sold, but the buyer that takes property subject to the mortgage is not personally liable for the debt of the mortgage

Question 5

What does it mean to assume a mortgage?

Answer 5

In addition to foreclosure, buyer that takes property assuming the mortgagee is personally liable for the debt and the seller (original mortgagor) is liable for the deficiency, unless there is a novation

Question 6

How does modification of a mortgage affect a senior mortgagee’s priority?

Answer 6

If a senior mortgage is modified, junior mortgagee prevails over the senior mortgagee to the extent that modification materially prejudices the holder of the junior mortgagee, such as by increasing the interest rate

Question 7

What is a mortgagee’s obligation regarding other mortgagees in a foreclosure proceeding?

Answer 7

All mortgagees and creditors must be made a defendant in the judicial proceeding and receive notice of the foreclosure sale, or their rights are not extinguished

Question 8

What is recourse for other mortgagees if the are not notified of a foreclosure?

Answer 8

Junior mortgagees and creditor’s rights in the mortgage will not be extinguished if they are not notified of a foreclosure

Question 9

What is equitable redemption?

Answer 9

At any time after default but before foreclosure, the mortgagor has the right to redeem by paying the debt due

Question 10

What is statutory redemption?

Answer 10

If a jurisdiction allows and it is not waived, a mortgagor may redeem by paying the foreclosure sale price, even after the foreclosure sale

Question 11

Can a deed be presented in lieu of a foreclosure?

Answer 11

Yes, a mortgagee can accept a deed to the property in lieu of foreclosure