Mortgages

Question 1

Types of Security Devices

Answer 1

1. Mortgages
2. Deed of Trust
3. Purchase- Money Mortgage (PMM)
4. Future-Advance Mortgage
5. Installment Land-Sale Contract

Question 2

Mortgages

1. two instruments that make up
2. creditors remedies

Answer 2

1. Mortgage (reps interest in land) AND Note (reps personal obligation of the debtor (mortgagor) to repay the debt. mortgage follows the note
2. choice to sue either: inpersonam (sue on the note) OR in rem (foreclosing on the land through the mortgage)

Question 3

Deed of Trust

Answer 3

Debtor (settlor) borrows money from creditor and executes deed to property. Deed is given to a TP (trustee) who holds deed and will not return until the debt is paid.

Question 4

Purchase-Money Mortgage

PMM

Answer 4

A mortgage that covers part, or all, of the purchase price. If recorded has priority over other types of M’s.
Two types:
1. Vendor-purchase money mortgage
2. buyer borrows money from a TP

Question 5

1. Vendor- purchase money mortgage

Answer 5

sellor issues mortgage to secure payment, sellor now mortgagee

Question 6

2. buyer borrows money from a TP

Answer 6

(TP typically a bank) to pay off the purchase price and gives a mortgage. Has to be one continuous operation, no gaps in time

Question 7

Future - Advance Mortgage

Answer 7

Any line of credit (i.e. construction loan) or home-equity loan where money can be borrowed as it is needed.
- Two types: optional and obligatory

Question 8

Optional Future-Advance Mortgage

Answer 8

1. if the lender has discretion to advance funds depending on Mortgagors financial situation (discretionary)
2. if Mortgagee has notice when it makes the advance that a subsequent creditor has filed, the the future-advance mortgage loses its priority. (actual notice typicaly required in maj. minority view constructive notice is sufficient.)

Question 9

Obligatory Future-Advance Mortgage

Answer 9

1. opposite, know getting money in the future
2. If proper notice is given to future creditors, the mortgage interest attaches on the date that the obligatory future adv m arrangement is made, not on the date they’re actually accessed.

Question 10

Installment Land-Sale Contract

Answer 10

Buyer buys land and agrees to pay off the purchase price installments. Buyer takes possession today, seller holds on to the deed until debt is entirely paid.
- “time of the essence clause”

Question 11

Time of the essence clause and default/material breach

Answer 11

If in the contract then bank is entitled to keep payments made. Court will examine this clause closely

Question 12

Absolute Deed

Answer 12

A debtor borrows money then issues a deed to the prop to the creditor that looks absolute on fact.
- extrinsic ev would be required to est that this was not meant to be an absolute conveyance, rather a disguised mortgage arrangement.

Question 13

Security Relationship Theories (what does a mortgagee receive? and duties?)

Answer 13

1. Lien Theory
2. Title Theory
3. Intermediate Theory
   - Duties: A person in poss has duty to manage prop in a Rly prudent manner (avoid waste)

Question 14

Lien Theory

Answer 14

The M’ee receive a lien on the prop, M’or retains right to poss and rights to rents and profits from the mortgaged prop

Question 15

Title Theory

Answer 15

M’or retains possession until default, then M’ee has right to rents and profits produced by the mortgaged prop.

Question 16

Intermediate Theory

Answer 16

Lien theory deemed to apply until default and then title theory kicks in.

• Prior to default: M’or retains right to poss and rents/profits
• Upon default: M’ee entitled to poss and rents/profits

Question 17

Transfers by Mortgagor***

Answer 17

M’or can make three types of sales of land encumbered by a mortgage:

1. subject to mortgage
2. assumes the M
3. assumes the M plus a novation

Question 18

Subject to the M

Answer 18

buyer has no responsibility to pay on it, either before or after the foreclosure
- default assumption

Question 19

Assumes the M

Answer 19

Buyer becomes personally responsible for it, along w/ the OG borrower. theory of privity of ct

Question 20

Assumes the M, plus a novation (new ct)

Answer 20

buyer alone is personally liable for paying the M.

Question 21

Subrogation

Answer 21

Grantor is secondarily liable. Can pay off debt to debtor, and then be subrogated to mortgage and note. Substituted for, step into shoes of subrogee and then is required to paay off the remaining balance to subrogor.

Question 22

Due-on-sale Clause

Answer 22

Gives the M’ee the option to require the entire debt be due and payable upon any transfer (enforceable if in the M).

Question 23

Transfer by the M’ee

Answer 23

M’ee (lender) may transfer the note and the M, which travel together.

Question 24

Prepayment of M

Answer 24

There is no right to prepay M debt unless terms of the M expressly authorize such payment.
- If prepay is permitted, it is usually accompanied by prepayment fees, which are routinely upheld.

Question 25

Deed in Lieu of Forclosure

Answer 25

M’or issues a deed in leiu of foreclosure, which takes subject to all M’s on the property. Junior lienholders are unaffected.

Question 26

Foreclosure ***** types

Answer 26

1. Judicial

2. Private Sale/Power of sale

Question 27

Judicial Forclosure

Answer 27

Judicial proceedings w/ pleadings, service of process, etc.

Question 28

Private Sale/Power of Sale

Answer 28

Occurs w/o judicial action, pursuant to a power of sale clause included in the M docs.

Question 29

Deficiency Judgment

Answer 29

When foreclosure sale raises less money than the amount of the outstanding debt. under water.

Question 30

Acceleration Clause

Answer 30

Makes the entire debt become due on the happening of an event, such as a default or sale

Question 31

Debtors Remedy

Answer 31

Redemption

Question 32

Redemption (2 types )

Answer 32

Redemption will stop F is debtor pays off all the debt. If there isn’t an acceleration clause, the M’or can brnig the loan current and avoid F.

1. equitible right of redemption
2. statutory right of redemption

Question 33

Equitible Right of Redemption

Answer 33

right automatically exists in interests of equity.

- exists any time until F sale. Until that time debtor can redeem by paying off debt and bringing loan current

Question 34

Statutory Right of Redemption

Answer 34

Debtor will have a limited tie (6-12 mos) following the F sale to go to the buyer and force them to sell the prop at F price.