Mortgages

Question 1

What are the documents in a standard mortgage transaction?

Answer 1

1. Promissory Note

2. Mortgage

Question 2

What can ME do in event of default?

Answer 2

1. Foreclose the mortgage OR
2. Sue on the note.
   * 99% of time they foreclose

Question 3

Acceleration

Answer 3

MR default, ME accelerates the debt meaning MR now owes the full balance –if no acceleration then MR owes merely missed payments

Question 4

Redemption

Answer 4

If ME institutes foreclosure after default, then MR has right to pay off debt and redeem land right up to date of foreclosure sale.

Question 5

What is MR’s right to redeem called?

Answer 5

Equity of Redemption

Question 6

In the 20 states that have statutes allowing MR to redeem AFTER foreclosure sale (within 3 to 6 months), what must MR do?

Answer 6

MUST pay price that was bid (plus interest and expenses) to the PERSON WHO BOUGHT IT.

Question 7

Clogging: Assume the mortgage states “MR waives all right to redeem the land from foreclosure in the event of default”– what is the effect of this language on MR’s right to redeem?

Answer 7

NO EFFECT–NOT ALLOWED TO WAIVE RIGHT TO REDEEM

** can waive later though (Deed in lieu of foreclosure)

Question 8

Surplus

Answer 8

ME is paid off and the rest goes to MR

Question 9

Deficiency

Answer 9

whatever is made from sale used to pay off the debt–whatever is still owed can be sued upon with a deficiency judgment (in most states).

Question 10

What are the mortgage substitutes?

Answer 10

1. Deed of trust
2. Real Estate Installment K
3. Deed

Question 11

Deed of trust

Answer 11

similar to mortgage but can be foreclosed by non-judicial power of sale in about 1/2 of states.

Question 12

RE Installment K

Answer 12

Vendor finances the purchase–can be foreclosed judicially or vendor can declare a forfeiture in event of default, cancel the K and retain all payments made UNLESS court’s conscience is shocked.
If shocked–court may order right of redemption or restitution of excess money received by V.

Question 13

Factors indicating that Court will recharacterize a deed as a mortgage:

Answer 13

1. owner in in financial distress
2. owner does not move out of the property
3. owner continues to pay normal, operating, expenses
4. the price owner receives is much less than FMV of property

Question 14

Multiple mortgages on property

Answer 14

Every ME can redeem up (paying off and acquiring any mortgages of higher priority)
Every ME can foreclose down–wiping out mortgages and other interests of lower priority

Question 15

Omitted junior liens. Assume that in a foreclosure, ME1 foolishly fails to make ME2 party to action. A buyer (B) purchases the property at the sale for 60K. What are ME2’s rights?

Answer 15

ME2’s mortgage stays on property
B gets the rights of ME1, ME3, and MR but not the rights of ME2
ME2 can redeem from B and acquire ME1 rights from B
ME2 can foreclose its mortgage and wipe out B’s MR and ME3 rights.
BUT B can prevent ME2 from doing these things by redeeming from ME2

Question 16

When a mortgage is foreclosed, mortgages higher in priority are NOT affected and remain on title. Assume the second mortgage is foreclosed. IF the land’s unencumbered value is 50K what is the max a smart buyer would bi at sale? (so lets say ME1 has 30K on prop)

Answer 16

20K

ME1 doesn’t get any of the sale proceeds because they still have mortgage on property but the ones lower in the chain to ME2 are wiped out.

Question 17

Is the consent of ME required for a transfer by MR to GE without paying off the mortgage?

Answer 17

Yes if there is DUE ON SALE clause in mortgage (valid except in limited types of transfers of 1to4 family houses:

1. junior liens
2. transfers at death or divorce
3. transfers to spouse or children
4. transfers to inter-vivos trust, where truster is beneficiary.

Question 18

If Grantee assumes the mortgage debt, and theres a default what are ME’s remedies?

Answer 18

1. Foreclose on the RE
2. Sue GE on the debt
3. Sue original mortgagor on the debt (MR is secondarily liable as a surety)

Question 19

IF MR is forced by ME to pay entire debt–what can MR do?

Answer 19

MR can get reimbursement in a personal action against GE

* can foreclose the mortgage on GE (doctrine of subrogation)

Question 20

If MR forecloses and ME then forces MR to pay a deficiency. What can MR do?

Answer 20

MR can get reimbursement in a personal action against GE (but can’t foreclose)

Question 21

Taking subject to existing mortgage: If GE does not assume the mortgage debt and theres a default, what are ME’s remedies?

Answer 21

1. Foreclose on RE

2. Sue original MR on the debt

Question 22

IF MR is forced by ME to pay the entire debt MR can do what?

Answer 22

Foreclosue the mortgage against GE BUT MR CANNOT get reimbursement in a personal action against GE because GE has no personal liability.

Question 23

There are two mortgages on land; ME1 has the first mortgage, however ME1 agrees with ME2 that ME1 will take second priority to ME2. this is a?

Answer 23

Valid SUBORDINATION agreement.

Question 24

MR buys land and immediately puts two mortgages on it–one to the vendor and the other to Bank. In addition, PL has a judgement against MR at the time MR buys, and the judgment becomes a lien on property. What is priority of these three liens?

Answer 24

1. Vendor PMM
2. Bank PMM
3. Judgment lien

Question 25

MR gives a note and mortgage to ME. Later, ME endorses or assigns the note to A, but does not expressly assign the mortgage.. What happens to the mortgage?

Answer 25

Goes with NOTE automatically.

Question 26

IF A is a holder in due course of the promissory note under UCC art 3. What can A do?

Answer 26

A cannot only sue on the note without regard to MR's personal defenses, but can also foreclose the mortgage without regard to MR's personal defenses.

Question 27

MR gives a note and mortgage to MR. Then ME improperly sells the loan twice: ME gives A1 a written assignment of the mortgage but ME retains the physical note. Then ME endorses and delivers the note to A2. As between A1 and A2 who owns the note and mortgage?

Answer 27

A2 owns both, because the possession of the note prevails over an assignment of the mortgage. M follows note**

Question 28

Zoning classifies land by:

Answer 28

1. use 2. height 3. bulk

Question 29

How is zoning justified?

Answer 29

As an exercise of police power, which is the general power of states and their subdivisions to regulate in the interest of the public health, safety, morals, and general welfare.

Question 30

How is zoning carried out?

Answer 30

By an ordinance adopted by a city or county under the authority of a state enabling statute.

Question 31

What are the basic procedures that owners of land may need to follow in order to use their land as they desire?

Answer 31

1. rezoning 2. variance 3. conditional use permit

Question 32

Rezoning

Answer 32

1. changes in the zoning use classification; carried out by local governing body; generally considered a legislative act In a few states considered quasi-judicial so procedural due process must be followed

Question 33

Variance

Answer 33

1. A grant of permission to violate the zoning ordinance in some way. Granted by a board of adjustment. 2. Owner must prove existing zoning imposes a unique hardship 3. The variance must not cause unreasonable harm to neighboring land. 4. Quasi-judicial so procedural due process applies

Question 34

Conditional use permit

Answer 34

1. required for certain sensitive uses even in a district where that type os use is generally allowed may be granted by board of adjustment or legislative body usually granted with numerous conditions to protect neighboring land and the general public. QJ so due process

Question 35

Preexisting nonconfrming uses

Answer 35

may not be shut down immediately. the ordinance may provide for a period of amortization or may allow the use to cntinue indefinitely but may NOT be allowed to expand use or change to diff commercial use.

Question 36

Judicial attacks on zoning

Answer 36

1. failure of city of follow own ordinance 2. conflict between the ordinance and the state enabling statute 3. spot zoning: singling out small parcel for different zoning use than its surroundings 4. denies substantive due process because not reasonably related to public health safety morals or general welfare in order words its arbitrary 5. violates a federal statute