Mortgages & Security Interests - Foreclosure Flashcards
Lien Theory States
- Mortgagee can’t take poss. b/f foreclosure
- b/c mortgagor is considered to be the owner of the real prop. until foreclosure
Title Theory States
Mortgagee can take possession at any time
- including as soon as default occurs
- Mortgagee is the has legal title until the mortgage has been fully satisfied
Intermediate Title Theory
- Minority of jurisdictions
- Mortgagor retains legal title until default
- Upon mortgagors default, it vests legal title in the mortgagee
What are the duties of the possessor of mortgaged property?
- Manage prop. in reas. prudent manner
- can’t commit waste
Doctrine of Equity of Redemption
After Default but before foreclosure sale
- Debtor can redeem the prop. by paying the full debt amount
What is a deed in lieu of foreclosure?
Mortgagor can convey all int. in prop. to the mortgagee
- Permits mortgagee to take immed. poss. w/out further legal formalities
- Requires consent of mortgagor & mortgagee
Clogging the equity of redemption
Mortgagor can waive his right to redeem after the mortgage is executed in exchange for consideration
- Courts usually reject attempts by the mortgagee to deny mortgagor of this right b/f default
Foreclosure
Mortgagee can foreclose on a mortgage when the obligation is in default
- Usually when mortgagor fails to make timely loan payments
Acceleration Clause
If the mortgage contains an acceleration clause
- Upon default, the entire amount of the mortgage obligation becomes due
- Otherwise, mortgagee is only entitled to collect amount currently due and owing
What are the types of foreclosure?
- Judicially Supervised Sale
- Privately Supervised Sale
- Strict Foreclosure
Judicially Supervised Public Sale
- All states permit this type of sale of the mortgaged property
- Primary method in half the states
- Only method in some states
Privately Supervised Sale
- Only when mortgage contains “power of sale” clause
- 1/2 of states permit this method
Strict Foreclosure
- Very Few States
- Mortgagee brings equity action for a court order requiring the mortgagor to pay the mortgage oblig. w/in specified time pd.
- If doesn’t w/in time pd.
- Mortgagor forfeits his equity of redemption AND
- Mortgagee takes title to the prop.
- If doesn’t w/in time pd.
How do you determine the priority of Interests
Basic Rule - 1st in time, 1st in right
- Subject to exceptions
Purchase Money Mortgage Exception to Priority
Mortgage used to finance the purchase of the mortgaged property
- Has priority over mortgages & liens created & perfected b/f the PMM comes into existence
Recording Act Exception
Mortgage is subj. to the recording acts
- A subsequent mortg. that satisfies the requirements of the applic. recording act has priority over an unrecorded prior mortgage
Subordination Agreement b/w Mortgagees
Holder of prior mortgage can agree to subordinate his interest to the holder of a subsequent mortgage
Mortgage Modifications Exception
- A Sr. mortgagee who enters into agreement w/ mortgagor to modify the mortgage
- by making it more burdensome
- subordinates the modified aspect of his int. to subsequent mortg. that exists at time of modification
What is a deficiency Judgment?
Money owed by borrower to lender if a foreclosure sale doesn’t cover the amount of the debt
Effect of Foreclosure on the Mortgagor?
Foreclosure sale eliminates the mortgagor’s interest in the prop.
Statutory Right of Redemption
Allows mortgagor to reclaim the prop. after foreclosure sale
- During fixed pd. of time, mortgagor has right to compensate the party who purchased the prop. at foreclosure & reclaim the prop.
- Only applies if state statute allows for it
Effect of Foreclosure on Purchaser of prop?
Takes the prop.:
- free and clear of any junior mortgage AND
- Subject to any Senior Mortgage
May be subj. to mortgagor’s stattory right of redemption
Effect of Foreclosure on Senior Interests?
Not affected by a foreclosure sale
- Buyer of prop. buys the prop. w/ the Sr. interests attached
Effect of Foreclosure on Junior Interests?
All interests that are junior to the mortgage that is being foreclosed are destroyed
What must a Sr. int. in prop. do to extinguish a Jr. int. ?
- Make Jr. int. plaintiff in foreclosure action
- Give Jr. int. notice AND
- Make a foreclosure Sale
When there is a modification to a Sr. mortgage, what is the effect on a Jr. interest?
Jr. mortgage wins over the modification if the modification materially prejudices the holder of the Jr. mortg.
