Mortgages, Etc. Flashcards
Mortgage
An interest in real property designed to secure performance of an obligation (usually fulfillment of debt)
MUST be in writing (SoF)
Mortgagor
Person issuing mortgage = Debtor, person borrowing $$
Mortgagee
Creditor, person getting mortgage–usually bank
Mortgage components
Two components
1) Mortgage = document rep. interest in land
2) Note = doc rep. obligation of debtor to repay
Mortgage follows the note –when note transfers, so does mortgage
Enforce on mortgage = in rem remedy–get land, foreclosure, etc.
Enforce on note = in personam remedy–get $$, debt payment, etc.
Main Types of Mortgage
1) Purchase-Money Mortgage–covers all or part o/ purchase price
Has priority if recorded
2) Future-Advance Morgage– line of credit or home equity loan where money borrowed as needed (can be optional or obligatory)
Deed of Trust
Debtor/”settlor” borrows money from creditor + executes deed to property–deed given to 3rd party (trustee)
Trustee will return deed only when debt paid
Transferring Land/Mortgage
Both mortgage and note freely transferable
Purchase-Money Mortgage
Mortgage that covers all or part of the purchase price (vs., for ex., mortgage to remodel the kitchen)
CAN get PMM for improvements IF given at same time as purchase $$ (basically–if mixed purpose)
If recorded PMM takes priority over other mortgages–constructive notice
Can be w/ seller or 3d party (ex. bank)
Future-Advance Mortgage
Any line of credit or home equity loan where money borrowed as needed (ex. set up line of credit/total amount–but withdraw bit at a time)
Can be optional (lender has discretion to advance funds) OR obligatory (no discretion re: when disbursed)
Types of Future-Advance Mortgage
1) Optional future-advance–lender has discretion to give/refuse to give funds (if refuse, usually based on finances, confidence re: deal)
2) Obligatory future advance–lender has no discretion re: advancing funds–must give regardless o/ sit.
Priority of future mortgage vs. later mortgage, lien, etc.)
Obligatory– attaches on date arrangement made–** disbursal times N/A, priority over subseq. liens/mortgages
But optional AND notice of subsequent lien/mortgage = no priority if disburse after (ex. disburse 10K, learn of lien, disburse 20K–only 10K has priority)
Majority– notice = actual notice (minority–constructive OK)
Installment Land-Sale Contract
Deal where buyer agrees to pay off purchase price in installments–buyer takes possession but seller keeps deed till debt paid
Usually have a “time is of the essence” clause
-DO NOT have equity in land till paid off
-no foreclosure right (b/cause no equity)
-Time is of essence = if late, can declare material breach immediately retake land + keep payments made (waived if don’t complain)
Absolute Deed/Deed Absolute
Borrow money + issue deed to creditor that looks absolute on face–looks like just conveying property
Must have extrinsic evidence to prove it is actually a mortgage
Theories/Approaches re: what interest mortgagee has
1) Lien theory–mortgagee gets lien on property
2) Title theory–mortgagee gets title to property
3) Intermediate theory–lien theory applies until/unless default on mortgage–then title
Lien Theory
Mortgagee gets lien on property
Mortgagor retains right to possession, rents, profits (but must avoid waste)
Title Theory
Mortgagee gets title to prop.–right to rents + profits
Mortgagor retains possession until/unless default
Intermediate Theory
Lien theory until/unless default–then title theory
Before default–mortgagor has right to possession, rents, + profits
After default–mortgagee has right to possession, rents, profits
Duty of mortgagor
Manage property in reasonably prudent manner (i.e.–no waste)
Make payments on mortgage
Transfer of mortgage/mortgaged land + effect on grantee
Mortgage runs with property (unless foreclosure, discharge)–can always foreclose on prop.
Liability re: note: 3 options
1) “Subject to” mortgage (default)–buyer has no responsibility to pay, can’t be sued for debt
2) “Assumes the mortgage”–buyer and original both personally liable for $$, can be sued for debt
3) “Assumes AND novation–only buyer now liable for $$ (not original mortgagor)
Transfer “subject to mortgage”
Buyer has no responsibility to pay debt
CANNOT be sued on note for balance/$$
CAN foreclose on land (always can)
Default if silent + no facts point otherwise
“Assumes the mortgage”
Buyer has responsibility to pay debt, along with original mortgagor
Buyer primarily liable (original mortgagee secondarily liable–can be sued for $$, forced to pay rest of debt if buyer didn’t have enough–but if pay/sued, can get reimbursement, payment)
CAN be sued on note for balance/$$
CAN foreclose on land (always can)
“Assumes the mortgage” AND novation
Buyer alone has responsibility to pay debt
CAN be sued on note for balance/$$
CAN foreclose on land (always can)
Exoneration
Order compelling grantee who assumed mortgage to pay the debt after mortgagee has successfully sued original mortgagor (b/cause mortgagor now secondarily liable–can be sued for debt, but can recover from grantee who assumed)
Subrogation + Mortgage
Subrogation = takes on legal rights of another
If grantee assumes primary liability for mortgage (should be the one paying off) but grantor pays off full debt to mortgagee–grantor/original mortgagee subrogated to deed + note–becomes, new mortgagor, step into shoes to recover payment
Due On Sale Clause
Clause allowing mortgagee the option to make entire debt payable and due upon any transfer/sale of land (in most mortgages today)
Right of Mortgagee to Transfer Interest
Mortgagee can sell note + mortgage (ex. securitization, bundles)–but must travel together
Right to Prepay Mortgage
Not a thing–no right unless expressly authorized in mortgage
If allow–usually charge prepayment fees
Effect of Foreclosure Sale
IF junior interests notified –>buyer takes free and clear of all junior interests (ex. 5 mortgages, #3 defaults–4, 5, discharged)
Senior interests unaffected (ex. 5 mortgages, #3 defaults–1 and 2 remain)
Proceeds pay off mortgage, then mortgages below–any remainder back to mortgagee
Not enough $$–deficiency judgement
Types of Foreclosure
1) Judicial Foreclosure = judicial proceeding, with pleadings, service, etc.–established by state statute
OR
2) Private Sale/Power of Sale–occurs privately (no jud. action), IF there is a power of sale clause in the contract–less regulated by statute, but still some duties
Acceleration Clause
Makes entire debt become due on happening of x event (ex. default, sale)
Deficiency Judgement
Foreclosure sale raises less than amount of debt = get deficiency judgement for remainder
Deed in Lieu of Foreclosure
Essentially–redoing deal to avoid foreclosure, giving deed to avoid
Deed given subject to all mortgages on property
Equitable Right of Redemption
Automatic right
Right to stop foreclosure by redeeming–paying off debt at any point before foreclosure sale
CANNOT be waived or modified
Can also redeem by bringing loan current/paying past loans, IF there’s no acceleration clause barring (often is)
Statutory Right of Redemption
Right by statute
Usually extends redemption period–have limited time following sale where can redeem + force sale back at foreclosure price
Equitable v. Statutory Right of Redemption
Equitable–always exists, only lasts till foreclosure sale
Statutory–only exists if statute, extends redemption past foreclosure sale
Modified mortgages + priority
When a senior mortgage is modified, it retains priority v. junior interests unless the modification was materially prejudicial to other holders
Extension of maturity date/term ≠ material
