MORTGAGES AND SECURITY INTERESTS

Question 1

Mortgage

Answer 1

A mortgage is a property interest that acts as security for an obligation.

The mortgage must satisfy the Statute of Frauds.

The majority of states abide by the lien theory under which the borrower holds title and the right to posses until foreclosure.

If the borrower defaults on his obligation, the lender may claim the land to be sold at public auction.

Question 2

Deed of Trust

Answer 2

A deed of trust can be used as an alternative to mortgage.

Through a deed of trust, a trustee hold title for the beneficiary until the loan is fully settled, at which point the trustee must transfer title to the beneficiary.

If the borrower defaults on his obligation, the lender may privately sell the deed of trust.

Question 3

Purchase Money Mortgage

Answer 3

A purchase money mortgage is used by a borrower to purchase real property.

Upon foreclosure, a purchase money mortgage has priority over all other interests aside from those protected by a recording statute.

Question 4

Foreclosure

Answer 4

When a borrower fails to satisfy his obligation, the lender may foreclose upon the property.

If there are multiple interests in the property, a valid foreclosure terminates junior, but not senior, interests.

The first mortgage typically takes priority over later mortgages unless there is a purchase money mortgage or other interests protected by a recording statute.