Mortgages, Etc.

Question 1

Mortgage

Answer 1

An interest in real property designed to secure performance of an obligation (usually fulfillment of debt)

MUST be in writing (SoF)

Question 2

Mortgagor

Answer 2

Person issuing mortgage = Debtor, person borrowing $$

Question 3

Mortgagee

Answer 3

Creditor, person getting mortgage–usually bank

Question 4

Mortgage components

Answer 4

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.

Question 5

Main Types of Mortgage

Answer 5

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)

Question 6

Deed of Trust

Answer 6

Debtor/”settlor” borrows money from creditor + executes deed to property–deed given to 3rd party (trustee)
Trustee will return deed only when debt paid

Question 7

Transferring Land/Mortgage

Answer 7

Both mortgage and note freely transferable

Question 8

Purchase-Money Mortgage

Answer 8

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)

Question 9

Future-Advance Mortgage

Answer 9

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)

Question 9

Types of Future-Advance Mortgage

Answer 9

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.

Question 10

Priority of future mortgage vs. later mortgage, lien, etc.)

Answer 10

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)

Question 11

Installment Land-Sale Contract

Answer 11

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)

Question 12

Absolute Deed/Deed Absolute

Answer 12

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

Question 13

Theories/Approaches re: what interest mortgagee has

Answer 13

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

Question 14

Lien Theory

Answer 14

Mortgagee gets lien on property
Mortgagor retains right to possession, rents, profits (but must avoid waste)

Question 15

Title Theory

Answer 15

Mortgagee gets title to prop.–right to rents + profits
Mortgagor retains possession until/unless default

Question 16

Intermediate Theory

Answer 16

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

Question 17

Duty of mortgagor

Answer 17

Manage property in reasonably prudent manner (i.e.–no waste)
Make payments on mortgage

Question 18

Transfer of mortgage/mortgaged land + effect on grantee

Answer 18

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)

Question 19

Transfer “subject to mortgage”

Answer 19

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

Question 20

“Assumes the mortgage”

Answer 20

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)

Question 21

“Assumes the mortgage” AND novation

Answer 21

Buyer alone has responsibility to pay debt
CAN be sued on note for balance/$$
CAN foreclose on land (always can)

Question 22

Exoneration

Answer 22

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)

Question 23

Subrogation + Mortgage

Answer 23

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

Question 24

Due On Sale Clause

Answer 24

Clause allowing mortgagee the option to make entire debt payable and due upon any transfer/sale of land (in most mortgages today)

Question 25

Right of Mortgagee to Transfer Interest

Answer 25

Mortgagee can sell note + mortgage (ex. securitization, bundles)–but must travel together

Question 26

Right to Prepay Mortgage

Answer 26

Not a thing–no right unless expressly authorized in mortgage
If allow–usually charge prepayment fees

Question 27

Effect of Foreclosure Sale

Answer 27

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

Question 28

Types of Foreclosure

Answer 28

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

Question 29

Acceleration Clause

Answer 29

Makes entire debt become due on happening of x event (ex. default, sale)

Question 30

Deficiency Judgement

Answer 30

Foreclosure sale raises less than amount of debt = get deficiency judgement for remainder

Question 31

Deed in Lieu of Foreclosure

Answer 31

Essentially–redoing deal to avoid foreclosure, giving deed to avoid
Deed given subject to all mortgages on property

Question 32

Equitable Right of Redemption

Answer 32

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)

Question 33

Statutory Right of Redemption

Answer 33

Right by statute
Usually extends redemption period–have limited time following sale where can redeem + force sale back at foreclosure price

Question 34

Equitable v. Statutory Right of Redemption

Answer 34

Equitable–always exists, only lasts till foreclosure sale
Statutory–only exists if statute, extends redemption past foreclosure sale

Question 35

Modified mortgages + priority

Answer 35

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