Pg 60 Flashcards
What does redemption in equity mean?
Any time prior to foreclosure sale, the mortgagor can redeem the property by paying the amount due unless there is an acceleration clause
Are mortgages recordable?
Yes
Because a mortgage is recordable, is it subject to the same priority rules as other property interests?
Yes
If a mortgage is protected under the recording act, what is it called?
A senior or first mortgage
What are later mortgages called that happen after the senior or first mortgage?
Junior mortgages and they are numbered according to priority. I.e.: second, third mortgages
Often purchase money mortgages have what in relation to priorities?
Special priority status
What does priority determine in relation to multiple mortgages?
The title that is acquired
If a senior mortgage is foreclosed, what happens?
The property is sold free and clear of that senior mortgage and any interest that is junior to it. The sale proceeds go to the foreclosing mortgagee and any extra goes to the junior interest holders in the order of their priority.
Anything left goes to the owner for the lost equity in the property.
What happens if a junior mortgage is foreclosed?
The property is sold subject to the senior mortgage. This means that the senior mortgagee does not get any sale proceeds.
Is there a limit on how many mortgages one property can have?
No, they just line up in in the order they attached to the property
If a property has five mortgages, and the first one goes into default, what happens?
The holder forecloses and notifies the other mortgagees of the suit so that they can participate. The property is seized and sold. The buyer at that sale gets the property free and clear of all mortgages because they are dismissed at the foreclosure sale.
The money from the sale is used to pay off the cost of the sale, then to pay off mortgage one, and if there is still money, to pay off mortgage two, and if there is still money, then to pay off the third. If they run out of money, four and five need to get deficiency judgment against the debtor
What happens if a property has five mortgages and the third mortgage goes into default?
Foreclosure happens. Mortgages four and five must be notified, but the earlier senior interests that have higher priority do not need to be notified because they are not affected by the junior foreclosure sales. Whoever buys the property takes it with the mortgages one and two still attached, so they must pay those.
The proceeds are used to pay off the cost of the sale, then they pay mortgage three entirely. If there’s more money, they pay four and five, or they keep going until they run out of money
How does priority work with regard to multiple mortgages?
First in time has priority
What is equity?
The difference between the value of a house and the debt that the house secures. The excess value of the property over the sum of all liens
What is a home equity loan?
A second loan that takes out a mortgage on the equity as security. This is essentially a loan that you take out when you use your house as collateral and you already have another loan that is secured by your house.
This is subordinate to the first mortgage. The disadvantage of these is that they are eliminated by foreclosure of the first mortgage, but the debt is not eliminated.
What does HELOC stand for?
Home equity line of credit
If you own a house worth $220,000 and it is subject to a $120,000 mortgage, what is your equity?
$100,000
If you own a house worth $220,000 and it is subject to a $120,000 mortgage, and you get an additional loan from someone who lends you $80,000 and takes a mortgage on your equity as security, what is the priority with regard to the loans?
The second loan is a second mortgage, so it is subordinate to the first mortgage that is held by the bank.
If you default on the second loan and that person forecloses, and you still owe the bank $115,000 and you owe that person $81,000, and that person sells to someone else who pays $90,000, that buyer has bought the interest that you had when you gave the second mortgage to that second person. So now the new buyer owns the property, subject to your mortgage, which now secures a loan of $115,000. If this buyer doesn’t pay the $115,000 when it is due, the bank can foreclose the mortgage. Of the $90,000 the buyer paid, $81,000 goes to the person that gave that second loan and the rest goes to you
If you have a mortgage on your property plus a home equity line of credit and you defaulted on the first loan and the bank foreclosed, what does the person who bought at the foreclosure sale get?
He gets title free of both mortgages. The home-equity line of credit is eliminated because he gets title that you had when you gave the mortgage to the bank.
Second mortgages are eliminated by foreclosure of the first, but the debt is not eliminated. The money that the buyer paid at the foreclosure sale would pay off the first mortgage, and the second, and anything extra would go to you
If a mortgage qualifies for protection under the recording acts, what is it considered to be?
Senior, or a first mortgage
If a senior mortgage forecloses, what happens?
The property is sold free and clear of the senior mortgage and all Junior interests
If the recording acts apply to a mortgaged property, what must be determined?
That the mortgagee paid value and took without notice
What do the sale proceeds from a foreclosed mortgage go to?
First they go to the foreclosing mortgagee, then to junior interest holders in order of priority, then to the owner for lost equity
If a junior mortgage is foreclosed, what happens?
The property is sold subject to the senior mortgage, and that mortgagee doesn’t get any of the sale proceeds.
If your property is subject to a mortgage of $50,000 and a second mortgage of $10,000 and has a fair market value of $55,000, but your first mortgage forecloses, what happens?
Title is sold free of both mortgages and a bid of up to $55,000 can be made. If $55,000 is paid, $50,000 goes to the first mortgage and $5000 goes to the second mortgage. The second mortgagee can then collect a deficiency of $5000 from you unless there is a state anti-deficiency law
What happens when a junior or second mortgage forecloses?
The purchaser gets title subject to the first mortgage. The first mortgagee doesn’t get any proceeds from the sale because its mortgage is not affected by the foreclosure
What is a purchase money mortgage?
A mortgage given in exchange for funds used to purchase the property. The mortgagor buys the property from the mortgagee and agrees to pay all or part of the price at some future time. These often have special priority status
What are some of the different mortgagor protection rules?
– Anti-deficiency laws
– one action rule
– statutory right of redemption
– non-discrimination in lending
What is the statutory right of redemption as a protection for a mortgagor?
The mortgagor has the right to redeem his property even after the foreclosure sale. There’s usually a specified time period between six and 18 months. If the mortgagor pays the amount bid at the sale directly to the new owner during that time frame plus interest and other expenses, he can redeem his property.
What is the rationale behind the statutory right of redemption?
It deters underbidding and keeps land in the hands of the mortgagor
What does it mean if a lender is trying to redline?
They are refusing loans for property in certain neighborhoods. This is not allowed
What is foreclosure?
When a mortgagor defaults, the mortgagee terminates his interest in the land by selling the mortgage dproperty and using the money to repay the loan.
What is a power of sale clause?
This is a clause in a mortgage that includes language that permits foreclosure without first having to get a judicial foreclosure action
When a foreclosure sale happens, what is the first place that the money goes?
Initially it goes to pay off the cost of the sale, then what is left is put against the debt, and if there is still money, it goes to the original debtor
If a foreclosure sale does not raise enough to pay off the debts, what happens?
The creditor can get a deficiency judgement against the debtor for the amount that is still owing
What does foreclosure do to other mortgages?
It destroys all junior interests to the mortgage, but it does not affect senior ones. If all Junior interest holders are not notified prior to the foreclosure, their interest is not extinguished
What is the order of the payment of proceeds from a judicial foreclosure sale?
– pay cost of the sale – pay attorney fees – pay court costs – pay principal interest – paid junior interest holders – mortgagor gets the rest
What is strict foreclosure?
It allows the lender to get ownership of the land without a sale. This is very rare
What are the two major types of foreclosure?
Judicial foreclosure and non-judicial foreclosure
