Real Property

Question 1

Promissory Note

(Mortgage

Answer 1

A legal promise to repay money borrowed.

Question 2

Mortgage

Definition

Answer 2

Mortgage = a security interest in real property intended to serve as collateral for repayment of a loan.

• Lender = Mortgagee
• Debtor = Mortgagor

Question 3

Purchase Money Mortgage

Answer 3

PMM = used by the borrower to purchase the real property that is used as collateral for the loan.

• The holder of the PMM has priority over all claims and mortgages against the debtor PRIOR TO the purchase of the property and all SUBSEQUENT claims/mortgages unless they are defeated by a recording statute.

Question 4

Deed of Trust

Answer 4

Deed of Trust = a security interest in real property that is intended to be collateral on the payment of a loan, but unlike mortgages, involves 3 parties: borrower, lender, and third party trustee who holds title to the property until the loan is paid in full.

Question 5

Foreclosure

Answer 5

Occurs when a debtor fails to make the loan payments and ends up in default; the lender can initiate public foreclosure proceedings.

Question 6

Factors Determining Priority

Answer 6

Priority is determined by two key things:

1. Whether the mortgage was a PMM
2. Whether the mortgage was recorded and our jurisdiction’s recording statute.

Question 7

Effect of Priority on Junior and Senior Creditors

Answer 7

Foreclosure destroys “junior mortgages” (mortgages that were recorded after the mortgage being foreclosed on).

• Those mortgagees, if their junior mortgages are destroyed, become unsecured creditors.
• When the junior interest initiates the foreclosure, the senior interest remains intact on the property.