Security Interests in Land

Question 1

Security interests in land

Answer 1

Real property is often encumbered by a mortgage.

Question 2

Mortgage

Answer 2

A mortgage is a financing arrangement that conveys a security interest in land where the parties intend the land to be collateral for the repayment of a monetary obligation. The buyer and/ or borrower is the mortgagor. The lender is the mortgagee.

Question 3

Mortgage-Writing required

Answer 3

1. Statute of Frauds: A mortgage must typically be in writing and satisfy the SOF.
2. Exception to SOF: An equitable mortgage can occur. (E.g.: A buyer delivers a deed to the mortgagee rather than signing a note or mortgage deed. Parol evidence is allowable to show intent of the parties.)

Question 4

Mortgage-Rights of the parties

Answer 4

Until a foreclosure occurs, if ever, the buyer-mortgagor has right to possession of the property and title; the creditor-mortgagee has a lien, which grants the right to look to the land in the event of default. Mortgages are transferable.

Question 5

Mortgage-Foreclosure

Answer 5

Foreclosure is a process by which the mortgagee may reach the land in satisfaction of the debt if the mortgagor is in default.

1. Judicial foreclosure: A mortgagee must foreclose by proper judicial proceeding.
2. Priority of loans: The land is sold and proceeds go to satisfy the debt( s) secured by the property. Any debts secured by the property are paid in descending order of priority (usually chronologically). Each mortgagee/ lien holder is entitled to payment in full before a lower-ranking creditor receives any payment.
   a. Purchase money mortgage (PMM) is a mortgage given to secure a loan that enables the debtor to originally purchase the property. A PMM receives priority over non-PMM mortgages, but a PMM may not get a deficiency judgment against the debtor.
3. Antideficiency statutes limit a lender to receiving no more than the value of the loan. Any excess remaining is returned to the buyer from the proceeds of a foreclosure sale after paying off all debts.
4. Deficiency judgment occurs when the property is worth less than the amount owed on the outstanding loan( s). A lender can only sue the debtor personally for the difference if
   a. There was a judicial foreclosure; and
   b. The loan was not a “purchase money mortgage.”

Question 6

Mortgage-Redemption

Answer 6

When a mortgage is paid off, the property is “redeemed” from the mortgage.

Question 7

Deed of trust

Answer 7

Deed of trust is similar to a mortgage, except the debtor is the trustor and the deed of trust is given to a third-party trustee.

Question 8

Installment contract

Answer 8

Installment contract: A buyer makes a down payment and pays off the balance in installments. The difference between this and a mortgage is that the buyer does not receive a deed until the land is paid off, and the foreclosure process is simplified. Typically, if the buyer is in default, the seller gets back the property and gets to keep the installment payments.