Mortgages: foreclosure Flashcards
Equity of redemption
Equity of redemption is a common law right held by the mortgagor to reclaim title and prevent foreclosure—but only prior to the foreclosure sale—upon full payment of the debt.
Deed in lieu of foreclosure
Deed in lieu of foreclosure allows the mortgagor to convey the deed in exchange for release of the debt—i.e., in order to avoid a foreclosure sale.
Equity of redemption: clogging
Clogging is creating terms that frustrate the borrower’s exercise of equity of redemption.
Courts are skeptical of clogging provisions—e.g., a waiver clause in the mortgage.
But a mortgagor may waive the right to redeem in exchange for good and valuable consideration after the mortgage has been executed.
Priority: exceptions to the first-in-time rule
(1) Purchase money mortgages:
They have priority over mortgages and liens that occur prior to the mortgagor’s purchase of the property;
(2) Recording acts:
A junior mortgage that satisfies a recording act may take priority over an unrecorded senior mortgage;
(3) Subordination by agreement.
Priority: mortgage modifications
A senior mortgagee who enters into an agreement with the mortgagor to modify the mortgage or the obligation it secures subordinates her interest to a junior mortgagee’s interest to the extent that the modification is materially prejudicial to the junior mortgagee’s interest.
A modification is materially prejudicial to a junior interest if it increases the interest rate or principal amount of the mortgage.
Statutory right of redemption
The statutory right of redemption allows a mortgagor additional time to reclaim the property—by compensating the party who purchased the property at a foreclosure sale.
Doctrine of marshaling of assets
Upon foreclosure of a senior obligation, junior interests may petition the court for protection of their interests.
Under the doctrine, the holder of a senior security interest must:
(1) before proceeding against property on which the junior interest was more remotely created,
(2) first proceed against the property on which there are not any junior security interests, and
(3) then against the property on which the junior interest was more recently created.
Purchaser of a foreclosed property
The purchaser takes the property free and clear of any junior mortgage but subject to any senior mortgage.
Priority: seller-financed purchase money mortgage
A seller-financed purchase money mortgage generally takes precedence over a third-party purchase money mortgage.
Proceeds
Although a mortgagee may bring a foreclosure action whenever a mortgage obligation is in default,
the mortgagee is only entitled to collect the amount of the obligation that is currently due and owing,
unless the mortgage contains an acceleration clause.
