Security Interests in Real Estate

Question 1

Mortgage

Answer 1

Debtor (mortgagor) gives mortgage to the lender (mortgagee)

Question 2

Deed of Trust

Answer 2

Debtor (trustor) gives the deed of trust to a 3P trustee who is closely connected with the lender and, in the event of default, the lender (beneficiary) instructs the trustee to proceed with foreclosing the deed of trust by judicial or nonjudicial sale

Question 3

Installment Land K

Answer 3

Debtor is the purchaser of the land who signs a K with vendor, agreeing to make regular installment payments until the full K price is paid, at which time vendor gives a deed transfrerring legal title to purcahser

Question 4

Transfer of Interest

Answer 4

All parties to a mortgage can transfer their interests; mortgage automaticaly follows a properly transferred note

Question 5

Transfer by creditor-mortgagee

Answer 5

Creditor must indorse the note and deliver it to the transferee or execute a separate document of assignment

Question 6

Transferee of interest

Answer 6

Eligible to become a holder in due course, who takes the note free of any personal defenses that couldve been raised against the creditor (e.g., lack of consideration, fraud, unconscionability, waiver, estoppel); still subject to real defenses (material alteration, duress, fraud in the factum)

Question 7

Holder in Due Course Status Requirements

Answer 7

Note must be negoitable and made payable to named mortgagee, original note must be indorsed and signed by named mortgagee, original note must be delivered to transferee (no copies), transferee must take in GF, transferee must pay more than nominal value for the note

Question 8

Transfer by Mortgagor

Answer 8

Grantee will take subject to the mortgage unless grantee assumes it, in which case she becomes primarily liable to the lender and renders the original mortgagor secondarily liable as a surety

Question 9

Lien Theory

Answer 9

Creditor cannot take possession of the property before foreclosure when the debtor defaults (majority)

Question 10

Title Theory (and Intermediate Theory)

Answer 10

Creditor can take possession of the property before foreclosure once the debtor defaults (minority)

Question 11

Foreclosure

Answer 11

Process by which debtor’s interest in the property is terminated; property is sold to satisfy the debt usually by auction

Question 12

Equitable Redemption

Answer 12

BEFORE the foreclosure sale, debtor has the right to redeem the land or free it of the mortgage by paying off the balance + interest; cannot be waived in the mortgage (“clogging”)

Question 13

Statutory Redemption

Answer 13

Some states allow debtor to redeem AFTER the foreclosure sale by paying the foreclosure price

Question 14

Foreclosure: Priorities

Answer 14

Foreclosing party; junior creditors who were joined in the action in order of recordation; debtor

Question 15

Junior creditor

Answer 15

Party who took a lien on the land after the foreclosing party took their lien, as long as all the parties recorded

Question 16

Senior creditor

Answer 16

Party who took a lien on the land before the foreclosing party took their lien; senior creditor’s lien remains on the land after the foreclosure sale and keeps accruing interest

Question 17

Purchase Money Mortgage

Answer 17

PMM is a mortgage given to the vendor of the property as part of the purchase price or a 3P lender who is lending the funds to allow the buyer to purcahse the property; has priority over mortgages, liens, and other claims agsinst the debtor that arise prior to the debtor’s acquisition of title but is defeated by subsequent mortgages

Question 18

Deficiency Judgment

Answer 18

If proceeds of the sale are insufficient to stisfy the mortgage debt, the mortgagee can bring a personal action against the debtor for the deficiency (usually the difference between the debt and the property’s fair market value when the fair market value is higher than the foreclosure price)