Pg 59

Question 1

Do courts allow parol evidence to decide if parties intended a deed to be a mortgage?

Answer 1

Yes, that is an exception to PER

Question 2

If a mortgaged property is going to be sold at foreclosure, who gets possession before the sale?

Answer 2

Usually the mortgagor gets to keep possession until the foreclosure sale. The sale transfers possession to the new buyer

Question 3

What is an anti-deficiency law?

Answer 3

A law that says that if a foreclosure sale does not produce sufficient funds to satisfy the debt, the mortgagee can seek judgement for the balance/deficiency, but because the mortgagee is the only bidder, these can induce him to bid less than the debt and get a judgement against the mortgagor for a large deficiency. In order to avoid that, some jurisdictions require a hearing on the value, while some prohibit deficiency judgements in certain circumstances

Question 4

Laws prohibit lenders from discriminating against borrowers based on what class characteristics?

Answer 4

Race, color, national original, religion, sex, age, handicap, and marital status

Question 5

Is it possible for a mortgagor to convey his property and transfer the mortgage?

Answer 5

Yes, but there are possible restrictions:
– many mortgages make the entire loan immediately payable when the property is sold unless the mortgagee consents to the sale. If the mortgage is not paid after the transfer, the mortgagee can foreclose and the transferee loses the land.

Question 6

If a mortgagor conveys his mortgaged property, in what situation does the transferee become personally liable for the debt?

Answer 6

Only if he assumed liability. The original mortgagor stays liable even after selling his property unless the mortgagee has released him

Question 7

If you convey your house to A subject to a mortgage held by the bank, and the loan goes into default, can the bank sue you to recover the debt and then foreclose and sell A’s house?

Answer 7

Yes, because even though A took the property “subject to“ the mortgage, which means he did not assume responsibility for the mortgage, if it falls into default the land can still be foreclosed on

Question 8

If it doesn’t say whether someone bought property “subject to” a mortgage or “assuming“ the mortgage, what do you go with?

Answer 8

Always assume that it is “subject to the mortgage“

Question 9

If you bought property “subject to“ a mortgage and the bank ended up foreclosing on your property because the mortgage was not paid, can the bank come after you for a deficiency judgement if the sale didn’t bring enough money to cover the debt?

Answer 9

No, because you are not personally liable to pay the debt

Question 10

If a buyer takes property and “assumes“ the mortgage, how does it work if the mortgage doesn’t get paid?

Answer 10

The buyer has taken on primary personal liability for the debt, so when it falls into default the creditor can go after the buyer either in person or in rem by foreclosing the property.

The creditor can go after the buyer or the person that the buyer assumed the property from to recover the debt and can sell the property and get deficiency judgements against both of those people. The seller stays liable because he signed the original note, but the buyer is liable because he promised the seller he would pay the debt. The creditor is a third-party beneficiary of that promise between the buyer and the seller

Question 11

If there’s ambiguous language about whether or not the mortgage has been assumed or taken subject to, how do you figure it out?

Answer 11

Look at the facts. If they make payments on the mortgage, they assumed it. If the facts do not suggest assumption, then it is subject to

Question 12

What is a deed of trust or a trust deed?

Answer 12

used instead of a mortgage, but similar to a mortgage. Involves three parties:
– the BORROWER conveys land to a third person
– the THIRD PERSON is a trustee who holds the land in trust for the lender
– the LENDER is the bank.

The trustee will convey the property to the borrower when the debt is paid or will sell upon default. The debtor borrows money and makes out a deed, gives it to a third person who holds onto it and doesn’t return it until the debt is paid. The third person is a trustee that is doing this for the benefit of the creditor to make sure he gets paid.

Question 13

What is the difference between a mortgage and a deed of trust?

Answer 13

– Mortgages: involve two parties, and if you do not pay there is a judicial foreclosure (process involves the bank suing and then a sheriff selling the property)
– deeds of trust: involve three parties, and a default allows the trustee to go through the procedure for a non-judicial foreclosure (process involves notice, a waiting period, and auction).

Question 14

What is the terminology for the parties involved in a deed of trust?

Answer 14

– Trustor: the person that gives the deed of trust/the borrower
– trustee: this is the person that gets the trust and is empowered to sell the property if there’s a default (closely connected to beneficiary)
– beneficiary: this is the mortgage company or bank

Question 15

What is a trust?

Answer 15

Legal ownership of land, chattels, or intangibles that are transferred to or kept by someone/trustee to be held for the benefit of another/beneficiary. The beneficiary is the equitable owner, and the trustee is the legal owner

Question 16

What is an installment land contract?

Answer 16

When the seller does the financing himself, but the buyer doesn’t get the deed until he makes all the payments (buyer only gets title when he pays full purchase price).

Courts do not like these because it’s possible to pay 98% and then default, and not get the land. Forfeiture clauses allow the seller on default to cancel the contract, retake possession, and keep all the money that has been paid.

Courts usually treat these like mortgages because of the possibility of inequality.

Question 17

What are the different things that a court will do when there has been an installment land contract in order to avoid the harshness of a forfeiture clause?

Answer 17

– Equity of redemption: The court will give a grace period for the buyer to pay accelerated full balance and keep the land
– restitution: demand return of the money that exceeds actual damages to the vendee
– treat as a mortgage: and require foreclosure
– waiver: say that the vendor waived his right to forfeiture by repeatedly accepting late payments

Question 18

What are the three different theories of title in relation to mortgages?

Answer 18

– Lien theory of mortgages
– title theory of mortgages
– intermediary theory of mortgages

Question 19

What is the lien theory of mortgages?

Answer 19

The idea that modernly a mortgage gives only a lien on the mortgage property, and the lender has the right to sell it after default, but the mortgagor keeps the title until divested by a foreclosure sale. Mortgagor has the right to retain possession until the foreclosure sale, at which point possession is transferred to the buyer

– Mortgagee: is the holder of a security interest
– mortgagor: is the owner of the land until foreclosure through a judicial proceeding

Question 20

What is involved in the title theory of mortgages?

Answer 20

A common law mortgage gives the mortgagee title to the land even before default and gives him the right to possess the mortgaged land.

– Mortgagee: has legal title to the property until the mortgage is satisfied or foreclosed so he can take possession upon demand at any time

Question 21

What is involved in the intermediary theory of mortgages?

Answer 21

A mortgage is treated as transferring title to the mortgagee when the mortgagor defaults on the loan