Mortgages and Security Devices

Question 0

Types of Security Devices (4)

Answer 0

Mortgage
Deed of Trust
Absolute Deed
Installment Land Sale Contract

Question 1

Mortgages in General

Answer 1

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.

Question 2

Deed of Trust

Answer 2

Debtor borrows $
executes deed to property
held by a 3rd party
promise not to return until debt is repaid.

Question 3

Absolute Deed

Answer 3

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.

Question 4

Installment Land Sale Contract

Answer 4

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.

Question 5

What does the Mortgagee receive

lien theory jurisdiction?

Answer 5

Majority view

Mortgage is a lien.
Mortgagor retains possession, rents, and profits

Question 6

What does the mortgagee receive

title theory jurisdiction?

Answer 6

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.

Question 7

What does the mortgagee receive in an intermediate theory jurisdiction

Answer 7

Lien theory will apply until default then title theory applies.

On default mortgagee will be entitled to possession, rents and profits

Question 8

Duties of mortgagor

Answer 8

Individual in possession has duty to manage property in a reasonably prudent way.

Cannot commit waste.

Question 9

Discharge of the Debt and Mortgage

Prepayment

Answer 9

no right to prepay unless terms specifically authorize it.

Prepayment fees routinely upheld.

Question 10

Discharge of Debt and Mortgage - Deed in lieu of foreclosure

Answer 10

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

Question 11

Creditors Remedies

Answer 11

sue debtor in personam - against the person on the note -

or in rem - on the property

Question 12

Types of foreclosure (2)

Answer 12

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.

Question 13

Foreclosure - SR and Jr interests

Answer 13

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.

Question 14

Debtors remedy in the event of a default

Answer 14

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.

Question 15

Purchase Money Mortgage

Answer 15

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.

Question 16

Future Advance Mortgage

Answer 16

LOC, HELOC - if notice is given to future lenders,
priority assigned when mortgage is made.
Not when money is actually borrowed.

Question 17

Omitted Parties - Notice Requirement - Omitted Owner

Answer 17

owner not notified of foreclosure sale,
proceeding as to owner is void.
retain the right of redemption after the sale.

Question 18

Omitted Junior Lienholder Remedies

Answer 18

Foreclose Jr Mortgage - purchaser receives sr mortgage in amount of the previous mortgage.

Redeem - by purchaser the amount of the original mortgage debt.

Question 19

Transfer of Mortgaged Property

Answer 19

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.

Question 20

Rights of the Grantor against the grantee if there has been an assumption.

Answer 20

Grantee is primarily liable for debt,

the grantor is secondarily liable.

Question 21

Where an assumed debt has fallen into default - rights of the grantor

Answer 21

Grantor has the right to reimbursement from the grantee

for amount of the payments

Question 22

Rights of the grantor of an assumed debt - Subrogation

Answer 22

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.

Question 23

Due on Sale Clause

Answer 23

gives mortgagee right to call entire debt due on sale of the property.

Must be specifically mentioned in the mortgage to be enforceable

Question 24

Trigger words - Race or race notice

Answer 24

Race - Records first or first records
Notice - good faith in value or without notice in value

If both words are present it is a race-notice jurisdiction