Mortgages and Security Devices Flashcards
Types of Security Devices (4)
Mortgage
Deed of Trust
Absolute Deed
Installment Land Sale Contract
Mortgages in General
Interest to secure performance of an obligation - usually a debt.
Must be in writing to satisfy the Statute of Frauds
Comprised of 2 instruments - mortgage and note.
Mortgage follows the note.
Deed of Trust
Debtor borrows $
executes deed to property
held by a 3rd party
promise not to return until debt is repaid.
Absolute Deed
Debtor borrows $
issues deed to creditor that looks absolute on its face.
Extrinsic evidence shows it is a security agreement
it is treated as a mortgage - not a conveyance.
Installment Land Sale Contract
land purchase on installments
seller retains deed until payments are made.
seller can claim contract is terminated on default
entitled to keep payments and deed
if “time is of the essence clause”
Strict ToE clause yields harsh result
courts will see if time truly was of the essence.
What does the Mortgagee receive
lien theory jurisdiction?
Majority view
Mortgage is a lien.
Mortgagor retains possession, rents, and profits
What does the mortgagee receive
title theory jurisdiction?
Mortgage is title - minority view
Borrower is entitled to possession
mortgagee has rights to rents and profits.
Right to possession passes to creditor on default.
What does the mortgagee receive in an intermediate theory jurisdiction
Lien theory will apply until default then title theory applies.
On default mortgagee will be entitled to possession, rents and profits
Duties of mortgagor
Individual in possession has duty to manage property in a reasonably prudent way.
Cannot commit waste.
Discharge of the Debt and Mortgage
Prepayment
no right to prepay unless terms specifically authorize it.
Prepayment fees routinely upheld.
Discharge of Debt and Mortgage - Deed in lieu of foreclosure
On default, mortgagee issues deed in lieu of foreclosure.
discharges debt
mortgagee has no further cause of action against debtor.
The deed is subject to all mortgages against it by 3rd parties
Creditors Remedies
sue debtor in personam - against the person on the note -
or in rem - on the property
Types of foreclosure (2)
Judicial foreclosure - follows judicial proceeding, most common
Private Sale/Power of Sale
private party conducts public sale without court proceeding.
Will available where mortgage document specifically provides for it.
Most often in connection with a deed of trust.
Foreclosure - SR and Jr interests
multiple mortgages - one defaults
All holders must be notified and allowed to participate.
Property sold
mortgages paid in order of attachment
Where a jr mortgage forecloses
purchaser buys the property with Sr mortgages attached.
Jr interests are discharged if properly notified.
Debtors remedy in the event of a default
Redemption - debtor pays debt or brings note current.
Acceleration clause will call in loan in default.
Equitable right of redemption belongs to borrower.
clause attempting to waive right - not enforced.
remains up and until sale is completed.
Some provide statutory redemption periods where a debtor can redeem mortgage after the sale has occurred.
Purchase Money Mortgage
VENDOR -
Seller conveys to buyer
buyer issues mortgage to seller to secure payment of purchase price
OR
3RD PARTY -
Seller conveys to buyer
buyer issues mortgage to a 3rd party to secure repayment of the debt. Purchase must be issued at the same time as the mortgage
Automatically receives first priority and needs to be recorded.
Future Advance Mortgage
LOC, HELOC - if notice is given to future lenders,
priority assigned when mortgage is made.
Not when money is actually borrowed.
Omitted Parties - Notice Requirement - Omitted Owner
owner not notified of foreclosure sale,
proceeding as to owner is void.
retain the right of redemption after the sale.
Omitted Junior Lienholder Remedies
Foreclose Jr Mortgage - purchaser receives sr mortgage in amount of the previous mortgage.
Redeem - by purchaser the amount of the original mortgage debt.
Transfer of Mortgaged Property
transfer “Subject To”
Transferee not subject to the mortgage, but the land is.
“Assumption”
transferee is subject to liability for the debt.
Where ambiguous, court looks at specific facts to determine.
default is subject to.
Rights of the Grantor against the grantee if there has been an assumption.
Grantee is primarily liable for debt,
the grantor is secondarily liable.
Where an assumed debt has fallen into default - rights of the grantor
Grantor has the right to reimbursement from the grantee
for amount of the payments
Rights of the grantor of an assumed debt - Subrogation
If grantor pays off debt of grantee,
grantor becomes subrogated to the mortgage and note.
Grantor becomes creditor
can sue in personam and foreclose on mortgage.
Due on Sale Clause
gives mortgagee right to call entire debt due on sale of the property.
Must be specifically mentioned in the mortgage to be enforceable
