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Property AOG > Financing Instruments > Flashcards

Financing Instruments Flashcards

1
Q

Types of financing instruments (3)

A

1) Mortgage
2) Deed of trust
3) Real estate installment contract

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2
Q

Mortgage - Gral

A
  • Form of conveying property deed encumbering the land as security for debt.
  • Usually comes with promissory note
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3
Q

Equitable Mortgage

A

If failure of formalities but owner with clear intention to pledge land as security for debt

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4
Q

Mortgage - Promissory Note Relation (in relation to negotiation)

A
  • Gral Rule: “mortgage follows note”
  • When note was negotiated to holder-in-course (HTC), mortgagee has to pay HDC once there is notice of reception
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5
Q

Mortgage- Types (2)

A

1) Lien Theory: owner has the title, and lender has lien
2) Title Theory: lender holds title, transfers property upon payment of the debt

(in practice not much difference bc of similar possession and similar rights to foreclose for lender)

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6
Q

Mortgage - Due on Sale Clause/ when, effect - acceleration clause

A
  • Unless prohibited in instrument, mortgagor has the right to assign debt to a buyer of the property.
  • Effects: accelerates remains of ppal debt if property is sold
  • Seller has to make payment of the balance at sale or renegotiate interest rates
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7
Q

Mortgage - Transfer of encumbered property - Has the new buyer direct liability to previous mortgagee - Types of contractual provisions (3)

A

1) Express Assumption: by new buyer/grantee
2) “Subject to”
3) Novation

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8
Q

Mortgage - Transfer of encumbered property - Express Assumption

A
  • new buyer/grantee - enters into promise with assignor to pay debt
  • buyer and grantor both liable for direct deficiency judgment if debt exceeds the property exceeds
  • Bank/lender is a 3rd party beneficiary of this new promise
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9
Q

Mortgage - Transfer of encumbered property - “Subject to”

A
  • Contract provision

- Buyer can not be suit from mortgagee for deficiency judgment against them

  • i.e.: grantee of a quitclaim deed where there w/o any notice of new promise or buyer takes property w/o knowledge of a prior mortgage
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10
Q

Mortgage - Transfer of encumbered property - Novation

A
  • Release or novation required for original grantee to not be potentially liable to mortgagee/bank
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11
Q

Property - Financing - Deed of Trust - Gral

A
  • Legal title held by 3rd party until payment of debt
  • Usually by Trust
  • Allows for private foreclosure
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12
Q

Property - Financing - Real Estate Installment Contract - Gral

A
  • aka “seller financing”
  • Buyer/seller contractually agree to direct sale of property using purchase money mortgage to secure balance
  • Title transfer to seller upon full payment
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13
Q

Real Estate Installment Contract - Forfeiture Rules

A
  • When Buyer defaults payment seller can declare contract forfeited
  • Gral rule: Seller keeps payment to that date
  • Some states require judicial foreclosure on contract default if substantial payment.
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14
Q

Financing instruments - Formal Requirements

A

1) Deed: SADD - for SOF
2) Record - Gral Rule “Race Notice”: record provides constructive notice to any subsequent lender, that there is prior superior position against the property + Subsequent BF mortgagee who files first has priority (assumes there is previous record)

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15
Q

Financing instruments - Remedies (4)

A

1) Foreclosure
2) Second Mortgage
3) Redemption
4) Estoppel by deed

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16
Q

Financing instruments - Remedies - Foreclosure - gral

A
  • Legal process for creditor to “reach to the land” and satisfy debt
  • All parties with interest in property are necessary parties
17
Q

Financing instruments - Remedies - Foreclosure - Types (2)

A

1) Judicial
2) Private

18
Q

Property - Financing -Judicial Foreclosure

A
  • Action and sale ordered by court
  • Requires all owners in record to receive notice
19
Q

Property - Financing - Private Foreclosure

A
  • Applies only for deeds of trust/”seller financing”.
  • Sale commercially reasonable terms
  • States have additional limitations: i.e. debtor has to accept price as full satisfaction (avoid any possible deficiency judgment), or wait 120 days from default
20
Q

Property - Financing - Deficiency Judgment

A
  • Deficiency is the difference btwn what the mortgage debtor owed the foreclosing creditor and net proceeds from foreclosure sale.
  • Judgment by obtaining foreclosure decree against mortgage debtor - NOT FOR PRIVATE FORECLOSE
  • 1 year redemption
21
Q

Homestead Exemption

A
  • From federal bankruptcy laws
  • Exception to foreclosure for dwelling + land
  • Amount protected: is the higher btwn federal/state dollar amount and is protected against judgment attachment or forced sale
22
Q

Financing instruments - Remedies -Second Mortgage

A
  • Second debt is secured with same property
  • Similar formalities/records
  • Issue of priority.
23
Q

Second Mortgage - Priority Rule

A

Gral rule: Second mortgage subordinated to first

  • if 1st forecloses + sale: 1st mortagee must be fully paid before second mortgagee. Second mortgagee has to join as party. if not interest is eliminated
  • if 2nd forecloses + sale: 1st mortgagee has priority. If no balance, 2nd interest remains
24
Q

Financing instruments - Remedies -Redemption

A
  • Remedy to recover before foreclosure
  • States take different positions whether property can be recovered after foreclosure began
  • depends on reason of equity vs state statute
25
Q

Financing instruments - Remedies -Redemption on Equity

A
  • Defaulting debtor can pay of all mortgages in full recover property
    • Up to foreclosure sale
26
Q

Financing instruments - Remedies -Redemption on State Statute

A
  • Defaulting debtor can pay of all mortgages in full recover property
  • Even after foreclosure sale (i.e. 6 months, 1 year)
27
Q

Financing instruments - Remedies - Estoppel by deed

A
  • When debtor reacquires property by deed
  • Previously he granted a mortgage to 3rd party whose interest was extinguished by foreclosure sale
  • 3rd party interest might be restablished in equity

Property AOG (13 decks)

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