Property: Mortgage

Question 1

Mortgage:

Answer 1

a security device used to secure payment of a debt.

Question 2

Statute of Frauds and recording acts: Mortgage

Answer 2

Mortgages are subject to SoF.

Mortgages are protected under recording acts
UNLESS mortgage is not given simultaneously with a loan.

Question 3

Purchase money mortgage definition:

Answer 3

a person takes out a loan for the purpose of purchasing property

Question 4

Future advance mortgage definition:

Answer 4

a line of credit used for home equity, construction, business, commercial loan (often referred to as “second mortgage”)

Question 5

Deed of trust definition:

Answer 5

uses a trustee to hold title for the benefit of the lender.

For most purposes, a deed of trust is treated the same as a mortgage

Question 6

Installment land contract

Answer 6

Seller finances the purchase and retains title to the property until the buyer makes the final payment.

Traditional rule upon breach of installment land contract: seller keeps the installment payments and the property. Today, most jurisdictions give buyers in installment land sale contracts rights similar to those enjoyed by mortgagors

Question 7

Absolute deed (i.e. “deed of absolute sale”) can be considered as an equitable mortgage if

Answer 7

An absolute deed will be treated as a mortgage if the grantor can prove with parol evidence that the grantee of took the deed as security for a loan.

SoF does not prevent the introduction of oral evidence to explain or interpret the written deed.

Question 8

Granting a mortgage on joint tenant property: lien vs. title

Answer 8

Lien states: Granting a mortgage interest does not sever joint tenancy. Mortgage is a lien that does not affect joint tenancy until foreclosure. Mortgagor is treated as the owner of the property

Title states: Granting a mortgage severs a joint tenancy and converts it into a tenancy in common

Question 9

What happens when joint tenant who grants mortgage and later defaults and dies?

Answer 9

Lender is shit out of luck in lien theory states

Question 10

Mortgagor’s liability upon transfer of mortgaged property:

Answer 10

The original mortgagor remains personally liable to the lender-mortgagee unless

(1) lender releases or impairs the property; or
(2) lender impairs the original mortgagor’s right of recourse against the transferee by (a) modifying the terms of the loan or (b) releasing the transferee

Question 11

Transferee’s mortgage liability

Answer 11

If transferee takes property “assumes” mortgage: transferee becomes liable for the mortgage. Both transferee and mortgagor is liable upon default.

If transferee takes property “subject to” mortgage: Transferee is not liable upon default but property can still be foreclosed

Question 12

Presumption as to liability in transfer of mortgage:

Answer 12

If mortgage-transfer deed is silent or ambiguous as to liability, transferee is considered to have taken title subject to the mortgage.

Question 13

Due-on-encumbrance clause:

Answer 13

Lender’s option to demand immediate full payment when the mortgagor obtains a second mortgage or otherwise encumber property

Question 14

Due-on-sale clause:

Answer 14

Lender’s option to demand immediate full payment upon transfer of mortgage

Question 15

Exception to enforcing an acceleration clause:

Answer 15

Residential real property exception—acceleration clause is not enforced if “automatic” transfer of residential real property (death of joint tenant, will or intestacy, transfer upon divorce, transfer to borrower’s living trust, trasnfer to spouse/child of borrower)

Question 16

Effect of a violation of acceleration clauses:

Answer 16

A violation (refusing to pay up) is considered to be in default and bank can foreclose.

Question 17

What defenses are available to enforcement of mortgage

Answer 17

If there is a valid defense to the enforcement of the loan obligations, there is a defense to enforcement of mortgage.

Question 18

Which transferee can raise defenses to mortgage obligation?

Answer 18

CANNOT: Purchaser of a mortgaged property who assumes the mortgage cannot generally assert the defenses of mortgagor-seller against the enforcement of the mortgage, if the purchase price reflects the assumption of the mortgage.

CAN: A donee who takes mortgaged property can assert the donor’s defenses against the mortgagee.

Question 19

Foreclosure definition:

Answer 19

a forced sale of an asset to pay off a debt.

Question 20

Lender’s right to possession of the mortgaged property—3 theories of title:

Answer 20

In lien theory state, lender can’t take possession before foreclosure. (For joint tenancy–foreclosure sale severs joint tenancy. But mortgagee may only foreclose on the undivided tenancy in common interest of the mortgagor, and the interests of other co-tenants to the property are not affected.)

In title theory state, lender possesses property.

In intermediate title theory state, mortgagor retains title until default.

Question 21

Equity of redemption definition:

Answer 21

After default, the mortgagor has a right to prevent foreclosure and reclaim title if she can repay the debt in full before the foreclosure sale.

Question 22

Contractual waiver of right to redeem after the mortgage:

Answer 22

Inclusion of such waiver in the mortgage is invalid for clogging the equity of redemption.

Question 23

Statutory right of redemption:

Answer 23

Mortgagor’s right to redeem property even after the foreclosure sale if she satisfies the statute. This nullifies the subsequent sale

Question 24

Effects of foreclosure on multiple interests in the property:

Answer 24

A valid foreclosure sale extinguishes

(a) the mortgage interest being foreclosed upon and
(b) any junior interests.

Senior interests survive.

Question 25

Rule applied in deciding whether an interest is junior or senior

Answer 25

First-in-time rule: Priority among mortgages on the same real estate is normally determined by chronology

priority of a mortgage is determined by the time it was placed on the property.

Question 26

6 Exceptions to first-in-time rule in foreclosure:

Answer 26

(1) purchase money mortgage,
(2) recording act,
(3) subordination agreement,
(4) modification,
(5) future advances mortgages,
(6) after-acquired property

Question 27

Priority in foreclosure: purchase money mortgage

Answer 27

A purchase-money mortgage takes priority over mortgages/liens prior to acquisition of the property whether or not recorded.

PMM: a mortgage granted to (1) the seller of real property or (2) a third-party lender, to the extent that the loan proceeds are used to acquire title/improvement to real property if mortgage given in the same transaction that give title

Question 28

Priority in foreclosure: recording act exception

Answer 28

A junior mortgage that satisfies the applicable recording act takes priority over unrecorded senior mortgage.

(e.g. In a notice JX, mortgagee who receives without prior unrecorded mortgage has priority)

Question 29

Priority in foreclosure: modification exception

Answer 29

A senior lender who later modifies agreement to be more burdensome subordinates its interest only as to the modification.

© If a senior lender releases a mortgage and replaces it with a new mortgage, the new mortgage retains the same priority, except to the extent that the change MATERIALLY PREJUDICES junior mortgage holder.

Question 30

Priority in foreclosure: Future advances mortgage

Answer 30

If advances are obligatory, the future-advances mortgage has priority with respect to amounts loaned both before and after the future-advances mortgagee has notice of a subsequent mortgage

If advances are optional, subsequent mortgage has priority over amounts loaned after the future-advances mortgagee has notice of the subsequent mortgage.

Question 31

Priority in foreclosure: after-acquired property:

Answer 31

Mortgagor must clearly state that the lender has rights to his after-acquired property. Lender must record to enforce these rights.

Even so, this interest is junior to a purchase mortgage

Question 32

Rights of the purchaser of foreclosed property

Answer 32

takes the property free and clear of any junior mortgage and subject to senior mortgage and any statutory right of redemption by the original mortgagor.

Question 33

Against whom can a lender bring a deficiency after foreclosure:

Answer 33

mortgagor + anyone who assumed mortgage

© nonrecourse loan: If the mortgage was a nonrecourse loan, mortgagor is not personally liable for the deficiency

Question 34

Co-tenant right of redemption:

Answer 34

When the property is sold at foreclosure and a co-tenant acquires the property, the other co-tenants have the right to reacquire their original interests by paying their share of the acquisition costs.

Question 35

Amount collectible through foreclosure:

Answer 35

a foreclosing mortgagee can collect only the amount currently due and owing, not the entire amount or mortgage. © an acceleration clause in the mortgage permits collecting the entire amount.