Property - Mortgages Flashcards
Two Elements of a Mortgage
(1) A debt (Note)
(2) A voluntary lien in debtor’s land to secure the debt.
Must be in writing to satisfy the SoF.
Lien Theory v. Title Theory
Lien Theory: Mortgagor (debtor) has title and the right to possess unless and until foreclosure. [Creditor-mortgagee has a lien]
Title Theory: Mortgagee has title and right to possession. Mortgagor has right to equity until redemption.
How can creditor-mortgagee transfer his interest?
(1) Endorsing the note & deliverying it to the transferee
(2) Executing a separate document of assignment.
What is a “holder in due course”?
A holder in due course take a mortgage/note from a mortgagee free of any personal defense that could have been raised against the original mortgagee [Lack of consideration, fraud in enducement, unconscionably, waiver, estoppel]
But still subject to the “REAL DEFENSES”
Criteria to be a Holder in Due Course
(1) Note must be negotiable, made payable to the named mortgagee;
(2) Original note must be indorsed, signed by the named mortgage
(3) Original note must be delivered to the transferee. Photocopy is unacceptable.
(4) Transferee must take the note in good faith without notice any illegality and
(5) Transferee must pay value for the note, more than nominal.
What are the Real Defenses?
MAD FIFI - 4
(1) Material Alteration
(2) Duress
(3) Fraud in the Factum [lie about the instrument]
(4) Incapacity
(5) Illegality
(6) Infancy
(7) Insolvency
What happens to mortgage if debtor-mortgagor sell Blackacre?
The lien remains on the land so long as the mortgage was properly recorded.
If B assumes the mortgage, Debtor-mortgagor and buyer are personally liable. (B - primarily, O - secondarily)
If B takes “subject to the mortgage”, Buyer assumes no personal liability and only debtor-mortgagor is personally liable. However, Lien is still on the land.
Order of Priority in Foreclosure
(1) Attorney’s fees, foreclosure expenses, and accrued interest.
(2) Mortgages in order of their priority (usually time incurred)
(3) Landowner
Necessary Parties to a Foreclosure Action
(1) Interest subordinate to those of the foreclosing party
(2) Debtor-mortgagor is also considered a necessary party.
Failure to include a necessary party means that party’s claim is preserved and their lien remians on the land.
Effect of Foreclosure
(i) Foreclosure will terminate interest junior to the mortgage being forclosed upon.
(ii) Foreclosure does not affect any interest senior to the mortgage being forclosed. Buyer takes subject to the mortgage, but is not personally liable.
Determining Priority
(I) As a creditor, you must record until you record you don’t have priority. Once you record, first in time, first in line.
(ii) Purchase Money Mortgage: A mortgage given to secure a loan that enable the debtor to acquire the encumbered land. PMM has superpriority on the land.
Subordination agreements allowed.
Redemption in Equity
At any time prior to the foreclosure sale, debtor can try to redeem the land by paying off the missed payment + interest + costs (universally recognized).
If note contains an acceleration clause, must pay full balance + accrued interest + cost.
Can’t waive the right to redeem
Statutory Redemption
*Not Recognized in Mass!!**
Statutory right granted to debtor-mortgagor for some fixed period after foreclosure sale has occurred.
To redeem must pay foreclosure sale price.
During this period, mortgagor has right to possess the property.
