Recording, Security Interests in Real Property, Rights of Support, & Water Rights

Question 1

Purpose of Modern Recording Statutes

Answer 1

To protect subsequent purchasers from the common law rule of “first in time, first in right”

Question 2

Mechanics of Recording

Answer 2

1. clerk files a copy of the deed
2. Clerk then index’s the information into Grantee and Grantor index

Question 3

BFP (Bona Fide Purchaser)

Answer 3

Purchaser for value who takes without notice of the earlier tansaction

Question 4

Types of Recording Acts

Answer 4

1. Notice
2. Race
3. Race-Notice

Question 5

Notice Recording

Answer 5

• Protects subsequent grantees who are BFPs
• the sole inquiry here is notice
• Recording is only important here as it imparts notice

Look for the words:

• Without notice
• Good faith

Question 6

Race Recording

Answer 6

• Notice is irrelevant
• Whoever records first will keep the property
• Subsequent pruchaser does not have to be a BFP

Look for the words “in good faith” or “notice” - if they are not included then it is a race statute

Question 7

Race-Notice Recording

Answer 7

2 part test - Protects all subsquent grantees who are BFPs provided who:

1. Take without notice; and
2. are the first to record

Look for the words:

• Without notice
• Good faith
• recorded first (first recorded)
  
  • If this is not present then it is a notice statute

Question 8

Subseuqent mortgages

Answer 8

Recording Statutes protect subsequent mortgages

Question 9

Judgement Creditors

Answer 9

Judgement creditors are not protected by recording statutes

Question 10

Concept of Legal Blinders

Answer 10

When examining chain of title, we look during the period of record ownership by the grantor. Things recorded too early or after title passes are outside that window and thus do not impart constructive (record) notice

Question 11

Inpsection of the Property

Answer 11

To qualify as a BFP, he must make physical inspection of the property to investigate any unexplained possessions or uses

Question 12

A security interest

Answer 12

Device used to secure a loan in the property

Reflected by a promissory note given by the borrower and the security interest is reflected in a seperate written instrument

Question 13

3 types of security interests in real property

Answer 13

1. Mortgage
2. Deed of Trust
3. Land Sale Contract

Question 14

Mortgage

Answer 14

Given by the debtor (mortgagor) to the creditor (mortgagee).

If loan not paid in full, Sheriff sells land at a court ordered foreclosure sale

An Equitable Mortgage is an absolute deed with a Seperate Promise of Reconveyance

Equitable Mortagages and Sale Leaseback with Options to Repurchase must be foreclosed on like mortages and therefore receive the protections of a mortgage

Question 15

Deed of Trust

Answer 15

Given by the debtor to a 3rd party trustee who holds the Deed of Trust until the loan is paid in full.

If the loan is not paid in full, the trustee can do one of two things:

1. can obtain a court order for foreclosure of the property; or
2. can sell the property by himself at a public auction

Question 16

Land Sale Contract

Answer 16

Arrangment where the debtor signs a contract promising to make payments to the seller/lender, but the seller keeps title to the property until the loan is paid in full

Question 17

Debtor’s Right to Redemption - or the Equity of Redemption

Answer 17

At any point up until the foreclosure sale, the debtor can redeem the property by paying the amount that was due and payable, known as the amount in arrears (plus interest) unless there is an acceleration clause in which the debtor must pay off the entire mortgage to redeem the property

The right of redemption cannot be waived in the mortgage or the deed of trust, but can be subsequently waived if there is consideration

Any attempt to waive during the mortgage or deed of trust is known as clogging the equity in redemption and is prohibited

Question 18

Priorities on Payment of Multiple Mortgages

Answer 18

Common Law rule of First in Time, First in Right generally applies unless that order is changed by the applicable recording statute

Question 19

Priorities Changed by Contract - Voluntary Subordination

Answer 19

A senior mortgage may agree to subordinate a junior mortgage - a mortgage that comes later in time

Question 20

Purchase Money Mortgages (PMM)

Answer 20

Mortgage taken out to buy the property.

Recieves priority over all other mortgages that were executed prior to the PMM, even if they were recorded first.

A PMM by a seller usually gets priority over a PMM by a 3rd party lender, such as a bank

Question 21

Changes in Serior Mortgages

Answer 21

If a mortgagor does anything to increase a senior mortgage, then that senior mortgage loses priority over junior mortgages, but only to the extent of the modification

Question 22

Foreclosure Effect on Interest

Answer 22

Foreclosure eliminates the junior interests, but not the senior.

Buyer takes property subject to senior interest.

Holders of a junior interests have a right to pay off any senior mortgage being foreclosed in order to keep their interest from being wiped out. Thus junior interests are necessary parties to a foreclosure. If they are not made party to the foreclosure, then their junior interests are not eliminated by the foreclosure.

Question 23

Payment of Proceeds from a Foreclosure Sale

Answer 23

1. Pay the cost of foreclosure
2. Pay off the mortgage that was foreclosed on
3. Pay off the junior interests - in order of priority
4. Pay any remaining balance to the borrower/mortgagor

Question 24

Anti-Deficiency Statutes

Answer 24

If the mortgage is foreclosed on, and there are insufficient proceeds to pay off the mortgage, then the Mortgagee/Creditor can sue the Mortgagor/Borrower personally for the balance due

Question 25

Land Sale Contract Forefiture Clause

Answer 25

If the debtor misses a payment the seller can cancel the contract, keep all the money paid to date, and retake the property.

If a seller enforces the forefiture clause, he is limited to that remedy and cannot obtain specific performance

Question 26

Mortgagor’s (Grantor’s) Transfer of the Property

Answer 26

Whenever the grantor transfers the property, the grantee takes the property subject to the mortgage.

Grantee is not personally liable to the mortgage unless he specifically assumes it.

Grantee is subject to losing the property in a foreclosure sale if the mortgage is not paid off

Question 27

Mortgagee’s (Creditor’s) Transfer of Note

Answer 27

Mortgagee can always transfer the note, and the mortgage will always follow the note it secures

Question 28

Due On Sale Clauses

Answer 28

If Mortgagor transfers the property without the Mortgagee’s consent, the entire balance of the loan becomes immedietly payable and due

Due on sale clauses are enforcable

Question 29

Security Interests in a Fixture

Answer 29

A seller of a fixture who provides a PMM in the chattel must make a UCC Article 9 fixture filing within 20 days after attachment (installation).

If filed in timeley manner, the seller may take the fixture without regard to the earlier mortgage. Sellers interest will be subordinate if filed after 20 days.

Question 30

Rights of Support

Answer 30

1. Lateral Support
2. Subjacent Support

Question 31

Lateral Support

Answer 31

Supports from the side.

Landowner has a right to have the sides of his property supported from the sides and strict lability applies.

With respects to improvements on the land, the landowner will be strictly liable for these improvements only if the land would have collapsed anyways, even without the weight of the improvements.

Question 32

Subjacent Support

Answer 32

Support of the surface from the bottum.

Arises in mineral extraction scenarios.

Strict liability if land is not supported.

The right to have land supported extends to the improvements that were existing on the land as of the date the mineral rights were severed from the Fee Simple.

Question 33

Water Types

Answer 33

1. Rivers & Lakes
2. Underground Water (Percolating Water or Water from a Well)
3. Surface Water (Runoff or Flood Water)

Question 34

Rivers & Lakes

Answer 34

Majority Rule: Riparian Rights

• Riparian refers to those that border a lake or stream
• A riparian owner may use all the water needed for domestic purposes
• Limited to standard of reasonable use for non-domestic purposes (commercial/industrial)

Minority Rule: Prior Appropriation

• First person who makes beneficial right of the water has right protected against those who come later

Question 35

Underground Water

Answer 35

Landowner entitled to reasonable use of ground water, but must not export it elsewhere

Question 36

Surface Water Approaches

Answer 36

1. Natural Flow Approach
2. Common Enemy Approach

Question 37

Surface Water Natural Flow Approach

Answer 37

Requires landowner not make any changes at all in the flow of the flood water as it rushes across the surface of the land.

Because impossible to follow, courts allow a reasonable means to deal with surface waters

Question 38

Surface Water Common Enemy Approach

Answer 38

Landowner can do anything he wants with surface water, whether reasonable or not