Property: Mortgage Flashcards
Mortgage:
a security device used to secure payment of a debt.
Statute of Frauds and recording acts: Mortgage
Mortgages are subject to SoF.
Mortgages are protected under recording acts
UNLESS mortgage is not given simultaneously with a loan.
Purchase money mortgage definition:
a person takes out a loan for the purpose of purchasing property
Future advance mortgage definition:
a line of credit used for home equity, construction, business, commercial loan (often referred to as “second mortgage”)
Deed of trust definition:
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
Installment land contract
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
Absolute deed (i.e. “deed of absolute sale”) can be considered as an equitable mortgage if
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.
Granting a mortgage on joint tenant property: lien vs. title
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
What happens when joint tenant who grants mortgage and later defaults and dies?
Lender is shit out of luck in lien theory states
Mortgagor’s liability upon transfer of mortgaged property:
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
Transferee’s mortgage liability
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
Presumption as to liability in transfer of mortgage:
If mortgage-transfer deed is silent or ambiguous as to liability, transferee is considered to have taken title subject to the mortgage.
Due-on-encumbrance clause:
Lender’s option to demand immediate full payment when the mortgagor obtains a second mortgage or otherwise encumber property
Due-on-sale clause:
Lender’s option to demand immediate full payment upon transfer of mortgage
Exception to enforcing an acceleration clause:
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)
Effect of a violation of acceleration clauses:
A violation (refusing to pay up) is considered to be in default and bank can foreclose.
What defenses are available to enforcement of mortgage
If there is a valid defense to the enforcement of the loan obligations, there is a defense to enforcement of mortgage.
Which transferee can raise defenses to mortgage obligation?
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.
Foreclosure definition:
a forced sale of an asset to pay off a debt.
Lender’s right to possession of the mortgaged property—3 theories of title:
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.
Equity of redemption definition:
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.
Contractual waiver of right to redeem after the mortgage:
Inclusion of such waiver in the mortgage is invalid for clogging the equity of redemption.
Statutory right of redemption:
Mortgagor’s right to redeem property even after the foreclosure sale if she satisfies the statute. This nullifies the subsequent sale
Effects of foreclosure on multiple interests in the property:
A valid foreclosure sale extinguishes
(a) the mortgage interest being foreclosed upon and
(b) any junior interests.
Senior interests survive.
Rule applied in deciding whether an interest is junior or senior
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.
6 Exceptions to first-in-time rule in foreclosure:
(1) purchase money mortgage,
(2) recording act,
(3) subordination agreement,
(4) modification,
(5) future advances mortgages,
(6) after-acquired property
Priority in foreclosure: purchase money mortgage
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
Priority in foreclosure: recording act exception
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)
Priority in foreclosure: modification exception
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.
Priority in foreclosure: Future advances mortgage
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.
Priority in foreclosure: after-acquired property:
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
Rights of the purchaser of foreclosed property
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.
Against whom can a lender bring a deficiency after foreclosure:
mortgagor + anyone who assumed mortgage
© nonrecourse loan: If the mortgage was a nonrecourse loan, mortgagor is not personally liable for the deficiency
Co-tenant right of redemption:
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.
Amount collectible through foreclosure:
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.
