Property 8—Foreclosure Flashcards
What is foreclosure?
a process by which the mortgagor’s interest in the property is terminated. The property if generally sold to satisfy the debt in whole or in part.
Real Property>Security Interests in Real Estate>Foreclosure
What are the two ways to redeem land from foreclosure?
Redemption in equity and statutory redemption.
Property>Security Interests in Real Estate>Foreclosure> Redemption
What right does a mortgagor have prior to the foreclosure sale?
At any time prior to the mortgage sale, the mortgager has the right to redeem the land or free it of the mortgage by paying off the amount due plus any accrued interest. Only available before foreclosure.
Property>Security Interests in Real Estate>Foreclosure> Redemption in Equity
How does statutory redemption differ from redemption in equity?
About half the states give the mortgager statutory redemption rights for some fixed period after the foreclosure sale has occurred (usually six months to a year.) The amount to be paid is usually the foreclosure price. This right is only available after foreclosure.
Property>Security Interests in Real Estate>Foreclosure> Statutory Redemption
How is the priority of a mortgage generally determined?
It is generally determined by the time it was placed on the property.
Property>Security Interests in Real Estate>Foreclosure> Priorities
How does foreclosure affect various interests?
the delivery of a particular item; it cannot be satisfied by money. (EX: A bequest of “$10,000,” or even of “$10,000 to be paid out of the sale of my IBM stock” cannot be adeemed.)
Property>Conveyancing>Conveyance by will>Ademption>Not applicable to general devises
What is the effect of foreclosure on a junior interest?
A foreclosure destroys/wipes out all interests junior to the mortgage If a lien senior to the mortgage is in default the junior mortgagee has the right to pay it off in order to avoid being wiped out by its foreclosure. subordinate interests are necessary parties to the foreclosure action. If you fail to include a necessary party it results in preservation of the party’s interest despite foreclosure and sale.
Property>Foreclosure>Priorities
How is priority determined among multiple mortgages on the same property?
Usually chronological. Earliest mortgage is first priority, etc.
Several exceptions to this rule exist (failure to record, subordination agreement, purchase money mortgages)
Property>Foreclosure>Priorities
How does Failure to record a mortgage effect priority?
if the first mortgage fails to record and the second does record, give value, and takes WIHTOUT notice of the first mortgage, the n the SECOND mortgage has priority over the first
Property>Foreclosure>Priorities
Subordination Agreement
A first mortgagee may enter into an agreement with a junior mortgagee, suborder-
noting its priority to the junior mortgagee. Such agreements are generally enforced.
However, a broad promise to subordinate to any mortgage (or a vaguely described
mortgage) to be placed on the property in the future may be considered too inequitable to enforce.
Security Interests In Real Estate>Foreclosure>Modification of Priority>Subordination Agreement
Purchase Money Mortgages
A purchase money mortgage (“PMM”) is a mortgage given to: (i) The vendor of the property as a part of the purchase price; or (ii) A third-party lender who is lending the funds to allow the buyer to purchase the property. A PMM, whether recorded or not, has priority over mortgages, liens, and other claims against the mortgagor that arise prior to the mortgagor’s acquisition of title. However, PMM priority is subject to being defeated by subsequent mortgages or liens by operation of the recording acts or may be altered through a subordination agreement. [Restatement (Third) of Property: Mortgages $7.2; Sodo v. United States, 436 U.S. 238 (1978
Security Interests In Real Estate>Foreclosure>Modification of Priority>Purchase Money Mortgages
Vendor PMM vs. Third Party PMM
As between two PMMs, one to the vendor and one to a third-party lender, the vendor’s mortgage is usually given priority over the third-party lenders. Because both PMMs arise from the same transaction, neither is treated as “subsequent” under the Restatement. Thus, the recording acts do not apply unless only one party has notice of the other. However, some jurisdictions that do not follow the Restatement allow the recording acts to determine priority between all PMMs.
Security Interests In Real Estate>Foreclosure>Modification of Priority>Purchase Money Mortgages> Vendor PMM vs. Third Party PMM
Third Party PMM vs. Third-Party PMM
If two PMMs are given to two third-party lenders, their priority is deter-mined by the chronological order in which the mortgages were placed on the property, the recording act, and a subordination agreement (if any). Note that in these cases, the recording acts are often of no use because two purchase money mortgagees will almost always know of each other’s existence and, thus, have notice.
Security Interests In Real Estate>Foreclosure>Modification of Priority>Purchase Money Mortgages> Third Party PMM vs. Third-Party PMM
What is the airspeed velocity of an unladen swallow?
It depends on whether the swallow is a European swallow or an African swalllow.
Torts>Duty>To whom owed>foreseeable plaintiffs
What is the modification of senior mortgages?
If there are two mortgages on the same land, and the landowner enters into an agreement with the senior mortgagee to modify, the junior mortgage will be given priority over the modification
example: if the first mortgage debt is larger because of the modification, then the second mortgage gains priority over the increase in the debt.
Property>Security Interests in Real Estate>Foreclosure>Priorities>Modification of Priority>Modification of Senior Mortgages
