Mortgages and Security Interests Flashcards
What is a mortgage?
Must it satisfy the SoF?
When does the lien stay on a land?
It’s an interest in real property that serves as security for an obligation.
Must satisfy SoF
Lien stays on land if mortgage instrument properly recorded
How does the
-> lien theory
-> title theory
-> intermediary theory
work with regards to when the lender can take possession of mortgaged land?
Lien theory (majority)
-> debtor/mortgagor is considered owner of the property as he has title and right to possession UNTIL FORECLOSURE
-> credit/mortgagee has lien and right to land if there is default, BUT CANNOT take possession of land UNTIL FORECLOSURE.
Title theory (minority)
-> creditor/mortgagee has title to land as he is considered the owner of the land UNTIL the borrower has paid the mortgage in FULL
-> debtor/mortgagor has right to regain title if mortgage is paid off (or satisfied)
-> this technically means that the lender can take possession of the land at ANY TIME (but they tend not to).
Intermediate theory
-> mortgagor/borrower is considered the owner of the property UNTIL DEFAULT
-> mortgagee/creditor gets legal title of land UPON the borrower’s DEFAULT
Who can foreclose by a judicial proceeding? What is the result of this on junior interests?
How do you determine the difference between a junior vs. senior interest?
Creditor can foreclose by judicial proceedings
-> which terminate junior interests (if they were joined to the proceedings)
-> B takes subject to senior interests (and junior interests if they were not joined)
A junior vs. senior interest is determined either by the basic “first in time, first in right” rule
-> BUT there are exceptions that may switch the order around.
What are four different mortgage alternatives?
Deed of trust
-> the borrower (aka the landowner) gives title to the trustee, who holds title for the beneficiary (aka the lender);
Installment land contract
-> seller retains title to RP until buyer makes final payment.
Absolute deed
-> the mortgagor (aka borrower) transfers unrestricted title, aka the deed, of RP to mortgagee (aka lender)
-> mortgagor must show through clear and convincing evidence that sale is a disguised mortgage in order for the court to enforce it as a mortgage
Conditional sale and repurchase
-> When real property is sold and then leased back to the seller, usually for a long period of time with the option to repurchase the property, the transaction may constitute the creation of a security interest in the property, a disguised mortgage, rather than a sale-leaseback arrangement.
Wha’t the benefit of a deed of trust over a mortgage?
Benefit of a deed of trust > mortgage
-> normally a mortgagee-lender cannot purchase property at a non-judicial foreclosure sale under a regular mortgage, but a beneficiary-lender can under a deed of trust (this is why a deed of trust may be preferred by the lender as they gain the ability to buy the property compared to if it was a mortgage).
What evidence helps prove that an absolute deed was actually a disguised mortgage?
Common evidence is if there was an obligation created at the same time with the transfer
What factors will the court look at to determine if conditional sale and repurchase is actually a mortgage?
Among the factors the court will take into account when determining the true character of the transaction are the equivalency of the lease payments to the fair market rental value of the property and the likelihood that the seller-lessee will exercise his right to repurchase the property at the end of the lease period.
Does a borrower remain liable after transfer of RP towards lender for the loan?
Yes, unless lender agrees otherwise.
Is the borrower still liable to the lender after the RP has been transferred to the transferee?
If the transferee assumes the mortgage, is the borrower still liable to the lender?
-> If the borrower makes payments, can she seek reimbursement from the transferee?
Borrower is still liable for mortgage attached to real prpoerty, even after RP has been transferred to a transferee.
If transferee assumes mortgage, then borrower is secondarily liable (STILL LIABLE UNTIL NOVATION)
-> if borrower makes payments, she can seek reimbursement from transferee
Is the grantee liable to a mortgage if they took “subject to” the mortgage? How does this impact the grantor?
Is the grantee liable to a mortgage if they took “assumed the mortgage”? How does this impact the grantor?
This means the grantee does not agree to pay the mortgage nor is she personally liable for the debt.
-> the grantor (OG borrower in essence) is still primarily liable
This means the grantee does agree to pay the mortgage and becomes personally liable for the debt
-> the grantor (OG borrower in essence) becomes secondarily liable
What does it mean for the grantor to be secondarily liable?
Does this mean the lender can only sue the grantor after suing the grantee?
It means the grantor is liable as a surety in the absence of a release from liability from the lender (aka release via a novation).
-> BUT the grantor can seek reimbursement from the grantee for any payment the grantor makes (willingly or forcibly with regard to the mortgage)
No, the lender can sue the grantee, the grantor, or both.
What happens if the lender impairs the borrower’s right of recourse against the transferee?
How does the lender impairs the borrower’s right of recourse against the transferee?
Borrower is relieved of liability.
Lender impairs borrower’s right of recourse against transferee by:
-> modifying loan terms,
-> releasing transferee of liability;
OR
-> releasing or impairing the RP subject to the mortgage.
What is a due-on-sale clause?
What is a due-on-encumbrance clause?
Due-on-sale clause -> lender can demand immediate payment of full amount of mortgage due before real property is passed onto transferee.
Due-on-encumbrance clause -> lender can accelerate mortgage upon second mortgage being placed on real property (first mortgage would be senior to second mortgage which will be more junior)
When can a mortgagee (aka the lender) take possession before foreclosure of the RP under
-> lien theory state
-> title theory state
What duty does the mortgagor have regarding the RP?
Lien theory state
-> mortgagee (aka lender) cannot take possession before foreclosure;
Title theory state
-> mortgagee (aka lender) theoretically entitled to possession at any time (but typically cannot take possession until default by mortgage terms)
Mortgagor has duty not to commit waste
What is an acceleration clause?
An acceleration clause in a clause in the mortgage agreement that states that the lender can demand full repayment of the remaining loan plus any accrued interest if the debtor defaults on the mortgage (aka fails to pay).
