Mortgages

Question 1

who is the mortgagor and who is the mortgagee?

Answer 1

mortgagor = the borrower
mortgagee = the lender (bank, etc)

Question 2

what 2 documents are involved in every mortgage transaction?

Answer 2

1) promissory note
2) mortgage

Question 3

what is a promissory note?

Answer 3

the mortgagor’s personal obligation (meaning mortgagee is not limited to the land when seeking a remedy for default – can sue mortgagor personally for payment of the note)

Question 4

what is the mortgage?

Answer 4

the agreement that says that if the mortgagor quits paying, the land can be sold (foreclosed) to pay the mortgagee

Question 5

what is a purchase money mortgage?

Answer 5

an extension of value by a lender who takes as collateral a security interest (mortgage/lien) in the very real estate that its loan enables the mortgagor/borrower to acquire

Question 6

what is a NON purchase money mortgage?

Answer 6

an extension of value by a lender who takes as collateral a security interest (mortgage/lien) in debtor’s real estate BUT the loan is NOT used for purpose of acquiring that same real estate (loan is taken out for any other purpose)

Question 7

what are the two elements needed to create a mortgage?

Answer 7

debt + voluntary transfer of lien (to secure the debt)

Question 8

generally, must a mortgage be in writing? (legal mortgage)

Answer 8

yes (to satisfy SoF)

Question 9

what is a legal mortgage also known as?

Answer 9

• mortgage deed
• deed of trust
• sale leaseback
• security interest in land

Question 10

who can transfer their interests in a mortgage?

Answer 10

BOTH the mortgagor and the mortgagee

Question 11

in what 2 ways can a creditor-mortgagee transfer their interest?

Answer 11

1) Endorsing the note and delivering it to the transferee, OR
2) executing a separate document of assignment

Question 12

what is the effect of a properly transferred note?

Answer 12

mortgage automatically follows

Question 13

does a mortgagee need to get the mortgagor’s permission to transfer?

Answer 13

NO (mortgagee can transfer freely)

Question 14

if a mortgagor transfers their property to a grantee and the grantee ASSUMES the mortgage, what is the effect?

Answer 14

grantee agrees to be personally liable on the mortgage note (primarily liable to lender, while OG mortgagor is only secondarily liable as a surety)

Question 15

if a mortgagor transfers their property to a grantee and the grantee merely is SUBJECT TO the mortgage, what is the effect?

Answer 15

grantee is NOT personally liable on the mortgage note (BUT mortgagee CAN foreclose on the land if mortgagor defaults)

Question 16

when may a mortgagee sue BOTH the OG mortgagor and the grantee?

Answer 16

only when the grantee has ASSUMED the mortgage (assumption agreement signed)

Question 17

what is the effect of a due-on-sale clause in a mortgage?

Answer 17

it allows the lender to demand FULL payment of the loan if the mortgagor transfers ANY interest in the property without the lender’s consent

Question 18

will the mortgage remain on the land when the land is transferred?

Answer 18

yes (so long as its properly recorded)

Question 19

do recording statutes apply to mortgages?

Answer 19

YES (they protect mortgagees)

Question 20

in what type of recording jurisdictions will a later buyer take subject to a properly recorded lien (mortgage)?

Answer 20

ALL jurisdictions

Question 21

how must a mortgagee proceed when a mortgagor defaults on the loan?

Answer 21

by foreclosure thru proper judicial action (can’t self help)

Question 22

what happens if the proceeds from foreclosure are LESS than the amount owed?

Answer 22

mortgagee can bring a deficiency action against the debtor

Question 23

what happens if there is a SURPLUS of proceeds from foreclosure? (more than amount owed)

Answer 23

junior liens are paid off in order of priority and any remaining surplus goes to the debtor

Question 24

what is the default rule for priority among interests in foreclosure?

Answer 24

priority depends on when it was placed on the property (first in time, first in right)

Question 25

how does a buyer at a foreclosure sale take title in relation to multiple mortgages/interests?

Answer 25

buyer takes title as it existed when the FORECLOSED mortgage was placed on the property

Question 26

what happens to remaining interests when one mortgage forecloses?

Answer 26

all interests SENIOR to the foreclosed mortgage REMAIN on the property (buyer still subject to them), BUT all interests JUNIOR to foreclosed mortgage are extinguished

Question 27

what does "junior interests" include? (foreclosure actions)

Answer 27

junior mortgages liens leases easements all other types of interests

Question 28

when can junior lien-holders NO LONGER look to the land for satisfaction of a debt?

Answer 28

once foreclosure of a superior claim has occurred and proceeds have been distributed appropriately

Question 29

who are necessary parties to a foreclosure action?

Answer 29

debtor + junior lien holders

Question 30

what is the consequence of failing to include a necessary party in a foreclosure action?

Answer 30

results in the preservation of that party's claim (despite foreclosure/sale) thus the mortgage/lien will REMAIN on the land

Question 31

when does a creditor have priority?

Answer 31

once they record (priority determined in order of recording)

Question 32

what kind of priority does a purchase money mortgagee have?

Answer 32

FIRST priority in the parcel it financed (super priority)

Question 33

what is a floating lien?

Answer 33

when mortgagee takes a security interest in all of debtor's real estate holdings (present AND future)

Question 34

why would a debtor grant a creditor a floating lien?

Answer 34

if the loan on the front end is under-collateralized

Question 35

can a senior creditor subordinate its priority to a junior creditor?

Answer 35

yes (by private agreement)

Question 36

what is the right to equitable redemption?

Answer 36

at any time prior to the foreclosure sale, the debtor has the right to redeem the land by freeing it of the mortgage (by paying)

Question 37

when is the right to equitable redemption cut off?

Answer 37

once a valid foreclosure has taken place

Question 38

what is an acceleration clause?

Answer 38

clause that permits the mortgagee to declare the full balance due in the event of default

Question 39

how is the right of equitable redemption exercised when the note does NOT contain an acceleration clause?

Answer 39

by paying off missed payments plus accrued interest/costs

Question 40

how is the right of equitable redemption exercised when the note DOES contain an acceleration clause?

Answer 40

by paying off the ENTIRE balance (plus interest/costs)

Question 41

may a debtor/mortgagor waive the right to equitable redemption in the mortgage itself?

Answer 41

NO (against public policy)

Question 42

what is a statutory right of redemption?

Answer 42

mortgagor given right to redeem for some fixed period AFTER the foreclosure sale has occurred **NOTE = amount to be paid is usually the foreclosure sale price (rather than the amount of the OG debt)