Ch20: Mortgages

Question 1

Mortgage

Answer 1

A security device used to secure payment of a debt (also provides security for the note)

Question 2

2 parts of a mortgage

Answer 2

1. Note
2. Mortgage

Question 3

Note

Answer 3

Borrower’s promise to repay the loan/debt

Question 4

If the borrower defaults on the loan, then the lender can force a ________ sale to satisfy the outstanding debt

Answer 4

foreclosure

Question 5

The lender lends money with _____ to someone who wants to purchase a home

Answer 5

interest

Question 6

Process of mortgages

Answer 6

1. Lender lends money (w/ interest) to someone who wants to purchase a home
2. Lender takes an interest in the home as security
3. When the loan is paid, everybody benefits
4. If payments are not made, the lender will foreclose on its interest and force a sale of the home to satisfy the debt

Question 7

Mortgagor

Answer 7

The Borrower

Question 8

Mortgagee

Answer 8

The lender

Question 9

Purchase money mortgage

Answer 9

A person takes out a loan for the purpose of purchasing property

Question 10

Future advancing mortgage

Answer 10

A line of credit used for home equity, construction, business, and commercial loans

• sometimes called “second mortgage”

Question 11

Lien state

Answer 11

• Majority of the states treat a mortgage as a lien that does NOT sever a joint tenancy

Question 12

Title state

Answer 12

A mortgage does sever a joint tenancy and converts it into a tenancy in common

• Minority of states do this

Question 13

Deed of trust

Answer 13

Operates like a mortgage but uses a trustee to hold title for the benefit of the lender

Question 14

Installment land contract

Answer 14

The seller finances the purchase; the seller retains title until the buyer makes the final payment on the installment plan

Question 15

What is the traditional rule for the installment land contracts

Answer 15

If the buyer breaches, the seller keeps the installment payments made and the property

Question 16

What is the modern approach for installment land contracts

Answer 16

States are trying to assist defaulting buyers:
- Some treat installment contracts as a mortgage, requiring seller to foreclose
- Some give the buyer the equitable right of redemption to stop a foreclosure sale
- some allow the seller to retain ownership, but require some restitution for whats been paid

Question 17

Absolute deed

Answer 17

the mortgagor (borrower) transfers the deed to the property instead of conveying a security interest in exchange for the loan

Question 18

If the absolute deed is a mortgage disguised as a sale, the borrower must prove a mortgage like agreement by ___________

Answer 18

clear and convincing evidence & parol evidence is admissible to make this showing & that the statute of frauds does not bar oral evidence about the agreement

Question 19

Conditional sale and repurchase

Answer 19

The owner sells property to the lender who leases the property back to the owner in exchange for a loan

• the lender gives the owner the option to repurchase after the loan is paid off

Question 20

Mortgagor may transfer the property by?

Answer 20

deed (sale), by will, or by intestate succession

Question 21

Mortgagor remains personally liable after the transfer of property unless:

Answer 21

• lender/mortgagee releases mortgagor or
• lender modifies the transferees (buyer/ new owner) obligation

Question 22

Due on sale clause

Answer 22

Lender has the option to demand immediate full payment upon transfer; think of this as an “acceleration clause” that allows the lender to speed up the payment when the property is transferred

Question 23

Due on encumbrance clause

Answer 23

An acceleration clause when the mortgagor obtains a second mortgage or otherwise encumbers the property

Question 24

Liability of subsequent transferee of mortgage

Answer 24

Either:

-assumes the mortgage (even though the transferee is personally liable now, the original mortgagor still is too) (does not need to be in writing usually)
-takes “subject to” the mortgage (transferee is not liable upon default)

Question 25

What is the default rule for liability of subsequent transfee of a mortgage

Answer 25

"subject to" the mortgage

Question 26

The rule is that the mortgage follows the ?

Answer 26

note

Question 27

If a bank transfers the mortgage but not the note, the transfer is either ____ or ___?

Answer 27

- void - or the note and mortgage are considered a single entity thus the note follows the mortgage