Mortgages Flashcards
(36 cards)
In a mortgage, who is the mortgagor? Who is the mortgagee?
The BORROWER (debtor) is the mortgagor.
The LENDER (creditor) is the mortgagee.
In a mortgage transaction, what is the promissory note? What legal effect?
The mortgagor’s personal obligation
This means the mortgagee is not limited to the land when seeking a remedy for default. If the mortgagor defaults, in addition to foreclosure, the mortgagee has the option to sue the mortgagor personally for payment of the note.
In a mortgage transaction, what is the mortgage?
The agreement that says that if the mortgagor defaults, the land can be sold to pay the mortgagee.
What is a purchase-money mortgage?
An extension of value by the lender who takes as collateral a security interest in the real estate that its loan enables the debtor to acquire.
In English, a loan by a creditor for the value of the property the debtor is trying to buy, in exchange for a security interest in the property itself.
What is a non-purchase-money mortgage?
A mortgage, secured by property, that is not used to purchase the property itself.
A mortgage is the union of two elements:
(1) A debt
(2) A voluntary transfer of a lien in the debtor’s land to secure the debt
Must a mortgage be in writing? Why?
Yes, to satisfy the Statute of Frauds (legal mortgage)
Each of the following terms is indicative of what?
(1) Mortgage deed
(2) Deed of trust
(3) Sale-leaseback
(4) Security interest in land
legal mortgage (i.e., a signed writing conveying an interest in land to secure a debt)
The creditor-mortgagee can transfer her interest by:
(1) Indorsing the note and delivering it to the transferee, OR
(2) Executing a separate document of assignment
A mortgagee can freely transfer the note, and the mortgage automatically follows a properly transferred note.
When a mortgagor transfers the property, the buyer either _______ or _______.
(1) assumes the mortgage
(2) takes the property subject to the mortgage
What is the legal effect of assumption of a mortgage? What happens if a grantee takes without assuming the mortgage?
The grantee becomes primarily liable to the lender, while the original debtor-mortgagor is secondarily liable as a surety.
However, the creditor-mortgagee may opt to sue EITHER the grantee or the original mortgagor on the debt.
If no assumption agreement is signed, the grantee is not personally liable on the loan, and the original mortgagor remains primarily and personally liable.
What is the legal effect of a grantee taking a transfer of property from a mortgagor subject to the mortgage?
The grantee will not be personally liable on the mortgage. The mortgagee’s only recourse is foreclosure (they cannot maintain a suit against the grantee).
What is a due-on-sale clause?
A due-on-sale clause allows the lender to demand full payment of the load if the mortgagor transfers any interest in the property without the lender’s consent.
These appear in most modern mortgages.
Do recording statutes protect mortgages? Explain.
Yes. Recording statutes protect mortgages, so the mortgage remains on the land as long as the mortgage instrument was properly recorded. While the grantee is not personally liable on the debt, if the mortgagor defaults and the mortgage instrument was properly recorded, the mortgagee can foreclose on the land.
On January 10, Madge took out a $50,000 mortgage on Blackacre with First Bank. First Bank promptly and properly recorded its interest on January 10. Thereafter, on January 15, Madge sold Blackacre to Buyer. Buyer had no actual knowledge of the lien. Buyer promptly and properly recorded its deed.
(1) Does Buyer hold subject to First Bank’s mortgage?
(2) Does it matter which recording statute the jurisdiction has enacted?
(3) In a notice state, Buyer takes subject to the lien because:
(4) In a race-notice state, Buyer takes subject to the lien because:
(1) Yes
(2) No
(3) Buyer has constructive (record) notice of the mortgage because it was properly recorded.
(4) Same as (3), and First Bank recorded first.
On January 10, Madge took out a $50,000 mortgage on Blackacre with First Bank. First Bank promptly and properly recorded its interest on January 10. Thereafter, on January 15, Madge sold Blackacre to Buyer. Buyer had no knowledge of the lien. On January 20, First Bank recorded its mortgage in Blackacre. On January 30, Buyer recorded its deed to Blackacre.
(1) Does Buyer hold subject to First Bank’s mortgage?
(2) In a race-notice jurisdiction:
(3) In a notice jurisdiction:
(1) It depends on which recording statute is applicable
(2) Buyer holds subject to the mortgage because First Bank is a BFP and recorded first.
(3) Buyer is not subject to the mortgage as long as he is a BFP, because he is the last BFP to take.
Who is personally liable on the debt if O, the debtor-mortgagor, sells Blackacre to B?
(1) If B has assumed the mortgage:
(2) If B takes subject to the mortgage:
(1) Both O and B are personally liable. B is primarily liable, and O remains secondarily reliable.
(2) Only O is personally liable. But, if recorded, the mortgage remains on the land; thus, if O does not pay, the mortgage may be foreclosed.
Suppose that a debtor-mortgagor has defaulted on the loan, and the mortgagee-creditor must look to the land for satisfaction. How must the mortgage proceed?
The mortgagee must foreclose by proper judicial proceeding.
At foreclosure, the land is sold, and the sale proceeds go to satisfying the debt.
What if the proceeds from a foreclosure sale are less than the amount owed?
The mortgagee brings a deficiency action.
What is a deficiency action?
A deficiency action allows a mortgagee to sue a debtor-mortgagor for any amount still owed on the loan following foreclosure.
What if there is a surplus from the foreclosure sale?
Junior liens are paid off in order of their priority. Any remaining surplus goes to the debtor.
Explain the priority of a mortgage in the event of foreclosure. What does it mean for a lien to be “junior” or “senior”?
Priority of a mortgage depends on when it was placed on the property.
First in time, first in right.
A buyer at a foreclosure sale takes the title as it existed when the foreclosed mortgage was placed on the property. All interests “senior” to that one (i.e., existing before the mortgage) remain on the property. All interest “junior” to that one (i.e., coming after the mortgage) are extinguished.
“Interests” include junior mortgages, liens, leases, easements, and all other types of interests.
In what order are junior lienholders paid?
Descending order (from oldest to most recent), assuming funds are left after full satisfaction of superior claims.
What happens to a junior lienholder if there are insufficient funds remaining after full satisfaction of superior claims?
Junior lienholders may proceed for a deficiency judgment, but once foreclosure of a superior claim has occurred, with the proceeds distributed appropriately, junior lienholders can NO LONGER look to Blackacre for satisfaction.
In other words, they lose any legal claim to the land and may only sue the debtor for damages.
