Secondary Mortgages Flashcards
Secondary Mortgages
If the FMV of the property securing the debt exceeds the value of the debt, this excess value can be used as collateral for another loan w/o paying off the first loan
This excess value is called equity, and the second loan is called a second mortgage
The first mortgage or deed of trust might present an obstacle to this secondary equity financing if it contains a “due on encumbrance” provision or a covenant not to further encumber the property
Deed of Trust
Deed of trust is the preferred instrument in Tx practice
Debtor/notemaker = grantor
While the instrument is termed a deed of trust, traditional trust rules do NOT apply and the resulting status is not that of a trust at all
Installment Land K
The installment land K is often referred to in Tx as a K for deed
Transfer by Mortgagee - Transfer of Mortgage w/o Note
Tx law provides that a transfer of the mortgage w/o the accompanying note is void
Defenses and Discharge of the Mortgage
Tx law does not recognized a deed in lieu of foreclosure. Such an instrument is treated as a conveyance by the mortgagor as payment of the debt and does not extinguish the subordinate liens
If the mortgagor has attempted to tender a deed in lieu, the mortgagee may void the deed w/in 4 years of its acceptance and proceed w/ a foreclosure sale under the deed of trust if:
(i) the debtor failed to disclose a lien or other encumbrance on the property before executing the deed in satisfaction of the debt, and
(ii) the holder of the debt had no personal knowledge of the undisclosed lien or encumbrance
A mortgagee’s election to void a deed in lieu does not affect or impair the priority of its deed of trust
Theories of Title - Lien Theory
Tx follows a “lien theory” of mortgages and deeds of trust. Under this theory, the creditor is not regarded as having title to the property securing the debt, but receives only a lien on the property
Foreclosure
Tx is one of the jurisdictions that allows non-judicial foreclosure by power of sale in addition to judicial sales
Statutory Redemption
Generally speaking, Tx does not give the mortgagor a statutory right to redeem
Junior Interests Destroyed by Foreclosure
Those w/ interests subordinate to those of the foreclosing party are necessary parties to the foreclosure action only for judicial foreclosure, NOT foreclosure under power of sale
Under a power of sale foreclosure in Tx, no notice is legally required to junior interests absent a contractual agreement to do so, and their interest is not preserved
Deficiency Judgments
Tx has statutorily adopted the approach of limiting the deficiency that can be recovered to the difference b/w the debt and the property’s FMV
This is not technically an anti-deficiency statute, but rather is more of a consumer protection device that has the effect of requiring bids at the foreclosure sale to more closely approximate the FMV of the property being foreclosed
Contracts for Deed
The statute governing Ks for deed in Tx is in place to avoid the abuse of such Ks by unscrupulous sellers to uninformed and unsuspecting buyers
Statute is limited to transactions involving real property to be used as a residence by the purchaser or his relatives
Statute is limited to transactions involving real property to be used as a residence by the purchaser or his relatives
Equity of Redemption
Tx law allows for redemption, but there is no schedule. However, the time allowed for curing delinquent payments depends on the % of the purchase price already paid at the time of default
Restitution
In Tx, a seller may rescind the K for deed even where there is no forfeiture clause
When rescinding the K, the seller is required is required to refund the payments received less the reasonable rental value of the property and the value of the buyer’s improvements
Certain statutory notice requirements that were formerly applied only to the remedies of forfeiture and acceleration of debt must now be observed for rescission of the K.
Tx does not follow the rule that a defaulting buyer is not permitted to recover any part of the payments made on a K for a deed. Rather, the seller in Tx must make restitution to the buyer if the principles of equity so require.
Treat as Mortgage
Treat as Mortgage
Waiver of Right to Declare a Forfeiture
Tx recognizes the waiver of the right to declare a forfeiture
