Property - MORTGAGES Flashcards
What is a mortgage?
A mortgage is a conveyance of a security interest in land, intended by the parties to be collateral for the repayment of debt
A mortgage is the union of two elements
(1) a debt
(2) a voluntary transfer of a security interest in debtor’s land to secure the debt
terminology
mortgagor = DEBTOR
Mortgagee = Creditor (“gee” I hope he pays me)
How does one create a mortgage?
The mortgage typically must be in writing under the Statute of Frauds. This is a LEGAL MORTGAGE
However,
EQUITABLE MORTGAGE may be created if a creditor lends a sum of money and the debtor hands creditor a deed to the land with the understanding that the land is collateral for the debt.
(RULE OF SUBSTANCE OVER FORM)
However, if Creditor proceeds to sell Blackacre to a BFP, the BFP owns the land and debtor’s only recourse is to proceed against the creditor for fraud and sale proceeds
Once a mortgage has been created, what are the parties’ right?
Mortgagor - unless and until foreclosure, debtor-mortgagor has title and possession
Creditor-mortgagee - has a lien, meaning the right to look to Blackacre if there is a default.
All parties to a mortgage can transfer their interests, and the mortgage AUTOMATICALLY FOLLOWS a properly transferred note
How may a creditor-mortgagee properly transfer his interest?
(1) by ENDORSING the note and delivering it to the transferee (only way you can become holder in due course)
(2) executing a separate document of assignment
If the note is endorsed and delivered, the transferee is eligible to become a HOLDER IN DUE COURSE
What are the requirements to become a HOLDER IN DUE COURSE and what are the benefits of being one?
Requirements to become a HODLER IN DUE COURSE (NOG - negotiable form, Original note must be endorsed and delivered, Good faith)
(1) note must be in NEGOTIABLE FORM (which means that it must be payable to “the bearer” or “to the order of” the named payee
(2) original note must be INDORSED (ie signed) by the named payee (indorsement on a photocopy is NOT acceptable)
(3) original note must be DELIVERED to the transferee (photocopy is unacceptable)
(4) transferee must take the note in GOOD FAITH and must pay VALUE for it (must be more than nominal but need not be FMV) and must NOT HAVE NOTICE that the note is overdue or has been dishonored, or that the maker has any defense to the duty to pay it (in other words, he must be a BFP of the note)
A HOLDER IN DUE COURSE - takes a note free of any PERSONAL DEFENSES that could have been raised against the original creditor. Thus, a holder in due course may foreclose on a mortgage despite the presence of any such personal defenses
HOWEVER, holder in due course is still subject to “REAL” DEFENSES that the maker might raise
Because a mortgage is granted to secure an obligation, if the obligation is unenforceable so is the mortgage. Therefore, defenses in an action on the underlying obligation are defeses against the action on the mortgage Personal Defenses include: (1) lack of consideration (2) fraud in the inducement (3) unconscionability (4) waiver (5) estoppel [note: these are the sorts of defenses available in a routine breach of contract action]
What are the REAL DEFENSES?
MAD FIFI^4
Material Alteration Duress F I Fraud in the Factum Incapacity Illegality Infancy Insolvency
What are the REAL DEFENSES?
MAD FIFI^4
Material Alteration Duress F I Fraud in the Factum Incapacity Illegality Infancy Insolvency
Who is personally liable on the debt if O, our debtor-mortgagor, sells Blackacre to B?
If B has “assumed the mortgage” - Both O and B are personally liable
- B is primarily liable
- O is secondarily liable
If B takes “subject to the mortgage”
B assumes no personal liability
Only O is personally liable
BUT, if recorded, the mortgage remains on the land. Thuse, if O does not pay, the mortgage may be foreclosed
FORECLOSURE
review p. 89-94
