The Mortgage

Question 1

“Duty of Good Faith”

Answer 1

Mortgagee’s owe the mortgagor a “duty of good faith” and the duty of “due diligence” to make a reasonable effort to obtain a fair and reasonable price in a foreclosure sale.”

Question 2

Murphy v. Financial Development Corp

Answer 2

• Low price / compared with appraisal
• D knew or should have known price was low. (D sold for more money).
  = D lacked due diligence when it refused to set a minimum bid, or postpone the sale.

Question 3

Damages

Answer 3

= Difference between the Fair Price / the Price obtained.”

Question 4

This constituted unfair lending practices

Answer 4

1. They were arm loans
   
   2. The adjusted rates were at least 3 points higher than the introductory rates
   3. Debt to income ratio would have exceeded 50% of calculated with adjusted rate.
   4. Loan to value ratio was 100%.

Loans with first 3 characteristics were “doomed to foreclosure” unless borrower could refinance.

The 4th factor made refinancing impossible unless housing values increased.

Question 5

Bean v. Walker

Answer 5

Appellate court finds for the purchasers on the grounds of equitable conversion.

1. Buyers have equitable title 
2. Sellers have legal title in trust for the buyers 			with an equitable lien on the purchase price.

E. So just like with common law mortgages, there must be foreclosure and sale to extinguish buyer’s interest in the land.

Question 6

Sale Price Upon Foreclosure can be invalidated only if:

Answer 6

Price “Shocks the Conscience” of the court, warranting invalidation, or
Price = “Grossly Inadequate”
+ Most Jurisdictions require another defect: Fraud, unfairness, or another irregularity.