Mortgages and Security Interests Flashcards
Mortgage SoF requirements
Must satisfy SoF; be in writing.
Lien theory
Majority rule. Debtor/mortgagor has title and right to possession until foreclosure.
Creditor/mortgagee has lien and right to land only if there’s a default.
Foreclosure by judicial proceeding effect on interests
Terminates junior interests.
Subordinate interests must be joined, or remain on land and buyer takes subject to senior interests.
Deed of trust
Alternative to mortgage.
Trustee holds title for beneficiary (lender).
Mortgagee-lender cannot purchase property at a non-judicial foreclosure sale, but a beneficiary-lender can.
Installment land contract - who has title/when?
Seller retains title to real property until buyer makes final payment.
Mortgagor’s liability after transfer
If transferee assumes mortgage, then mortgagor/borrower is secondarily liable (if borrower makes payments, she can seek reimbursement from transferee).
Borrower may be relieved of liability if lender impairs borrower’s right of recourse against transferee by: (i) modifying loan terms, or (ii) releasing transferee of liability; or if lender releases or impairs the property subject to mortgage.
Due on sale clause
Lender can demand immediate payment of full amount due when land is sold.
Due on encumbrance clause
Lender can accelerate mortgage upon second mortgage.
Transferee’s mortgage liability
If transferee assumes mortgage, transferee is personally liable for mortgage obligation.
If taking “subject to,” transferee is NOT personally liable upon default (but property can STILL be sold at foreclosure sale).
Pre-foreclosure rights
Lien theory state: Lender/mortgagee cannot take possession before foreclosure
Title theory state: Lender/mortgagee entitled to take possession at any time (but typically not until default by mortgage terms)
Mortgagor/borrower pre-foreclosure duties
Duty not to commit waste
Equity of redemption
After default but before foreclosure sale, mortgagor may regain title by paying amount of loan obligation currently owed plus interest.
Methods of foreclosure
(1) Judicially supervised sale
(2) Private sale
(3) Strict foreclosure
Mortgage priority upon foreclosure
Foreclosure terminates junior interests, has no effect on senior interests.
“First in time, first in right.”
PMM EXCEPTION: PMM generally has priority over any mortgages/liens that arose prior to the mortgagor’s acquisition of the property.
Recording-act exception (foreclosures)
Mortgages subject to general recording act.
A recorded interest may take priority over an unrecorded one.
Foreclosure effect on parties
Mortgagor - interest eliminated
Purchaser of property - takes free of junior interest, subject to senior
Senior interests - unaffected
Junior interests - destroyed
Distribution of foreclosure proceeds
(1) Costs associated with sale
(2) Mortgage obligation being foreclosed
(3) Mortgage obligations owed to junior interest holders in order of their priority
(4) Debtor/mortgagor gets paid
Deficiency after foreclosure
Most states: mortgagee/lender permitted to bring a deficiency action against the mortgagor and/or any party who has assumed the mortgage.
Some states: no deficiency action when mortgagee forecloses via private sale or when the mortgage is a PMM.
