Mortgages

Question 1

What are the two instruments that make up a mortgage?

Answer 1

1. A mortgage

And

2. A mortgage note

Question 2

What are the types of land security devices?

Answer 2

1. Mortgage
2. Deed of trust
3. Absolute deed ​
4. Installment land-sale contract

Question 3

What is a mortgage?

Answer 3

An interest in real property that is meant to secure the performance of an obligation.

More Info: Mortgage

Question 4

Who is the mortgagor?

Answer 4

The borrower of money who issues the mortgage on the property to the lender.

Question 5

Who is the mortgagee?

Answer 5

The lender because they are receiving the mortgage.

Question 6

Differentiate between mortgages and notes.

Answer 6

Mortgage: represents the interest in the land.

Note: represents the debt of mortgagor.

The mortgage follows the note. If you have the note, then it is presumed you have the mortgage.

Question 7

What is a deed of trust?

Answer 7

When a debtor borrows money from a lender and then deeds the property to a third party. The third party releases the deed back to debtor once they have paid the lender.

Question 8

What is an absolute deed?

Answer 8

When a debtor borrows money then issues a deed to the creditor. If extrinsic evidence establishes that it is meant to be a security, then it will be considered a mortgage.

Question 9

What is an installment land sale contract?

Answer 9

The seller retains the deed until all of the installment payments are made by the buyer. If the buyer defaults, then the seller keeps land and all previous payments.

More Info: Installment Land Sale Contract

Question 10

What does mortgagee receive under the:

1. Lien theory
2. Title theory
3. Intermediate theory

Answer 10

Lien theory: Mortgagee gets a lien on property, mortgagor retains rights to possess and get rents and profits.

Title theory: mMortgagee gets title to the property, mortgagor retains possession, but mortgagee gets rents and profits produced.

Intermediate theory: The lien theory applies until default, then the title theory kicks in.

Question 11

What are the duties of the possessor of mortgaged property?

Answer 11

1. Manage the property in a reasonably prudent manner
2. Cannot commit waste

Question 12

What is the right to prepay a mortgage?

Answer 12

There is no right to prepay a mortgage debt unless expressly authorized in the note.

Question 13

What is a deed in lieu of foreclosure?

Answer 13

If mortgagor goes into default, the mortgagor can issue a deed to mortgagee to discharge the mortgage debt and the mortgagee takes it subject to all junior liens attached.

Question 14

What are the types of foreclosure?

Answer 14

1. Judicial foreclosure
2. Power of sale foreclosures

Question 15

When is a power of sale foreclosure available?

Answer 15

Only if the mortgage instrument allows for it.

Question 16

What is a deficiency judgment?

Answer 16

Money owed by the borrower to the lender if a foreclosure sale does not cover the amount of the debt.

Question 17

What is a debtor’s equitable right of redemption?

Answer 17

At any time prior to the foreclosure sale, a debtor can redeem the property by paying the full debt amount.

Question 18

In what order do mortgages attach?

Answer 18

In the order of the land conveyances

Question 19

What interests are affected by foreclosure sales?

Answer 19

Only junior interests are discharged provided they are notified and allowed to participate.

Senior interests are not affected; the buyer of property at foreclosure buys the property with the senior interests attached.

Question 20

What is a debtor’s statutory right of redemption?

Answer 20

After foreclosure, a debtor has a limited period of time where the debtor can buy back the property for the purchaser’s purchase price. The right only exists if there is a statute authorizing it.

Question 21

What are the two types of purchase money mortgages?

Answer 21

A mortgage must be executed at the same time as the purchase of property.

1. Vendor purchase money mortgage: A mortgage issued to the seller to ensure payment of purchase price
2. Third-party purchase money mortgage: Purchase money is borrowed from a third party and the third party is issued a mortgage
   * More Info:* Purchase Money Mortgages

Question 22

What type of mortgage has priority over all other mortgages?

Answer 22

Purchase money mortgage - once issued and recorded.

Question 23

What happens when mortgage property is transferred?

Answer 23

The mortgage runs with the land, provided it is properly recorded.

Question 24

What is the mortgage liability if taking title:

1. Subject to the mortgage
2. Assuming the mortgage
3. With ambiguous language

Answer 24

Subject: there is no personal liability for the debt of the mortgage, land can be seized but deficiency will only be held against original debtor.

Assumption: the purchaser is personally liable for the debts of the mortgage, land can be seized, and they take on primary personal liability.

Ambiguous Language: purchaser takes subject to.

Question 25

What are the rights of the **grantor** **against** the **grantee** if there has been an **assumption** of the mortgage?

Answer 25

The grantor is secondarily liable for the debts of the mortgage. If the grantor is sued pursuant to the mortgage, then they can get the grantee to pay the debt.

Question 26

What are the rights of the **grantor** **against** the **grantee** if there has been an **assumption** of the mortgage and **grantor** makes **payments** following the transfer?

Answer 26

The grantor can recover mortgage payments from the grantee.

Question 27

What is **subrogation**?

Answer 27

The rights of the grantor against the grantee if there has been an assumption. *More Info:* [Subrogation](https://en.wikipedia.org/wiki/Subrogation)

Question 28

What are **due-on-sale clauses**?

Answer 28

Mortgage note clauses that give the mortgagee the ability to call the entire balance due on an attempt to transfer the property.

Question 29

What **words** in a recording statute **identify** the **type** of **recording statute**?

Answer 29

1. Race component: first records or records first 2. Notice: good faith in value or without notice in value 3. Race-Notice: records first in good faith in value or first records without notice in value

Question 30

When will a **non-refundable** **downpayment** be held **invalid**?

Answer 30

When it is a liquidated damages clause that is unenforceable.

Question 31

When is a **liquidated** **damages** clause **enforceable**?

Answer 31

When it is a reasonable attempt at a fair compensation in the event of breach. ≠ penalty for failure to perform *More Info:* [Liquidated Damages Clause](https://www.law.cornell.edu/wex/liquidated_damages)

Question 32

How can a **land-sale** contract be enforced **absent** a **writing**?

Answer 32

Through any combo of two of the following three: 1. Buyer **pays** in full 2. Buyer takes **possession** of the land 3. Buyer makes substantial **improvements** to the land

Question 33

Will an **option to purchase** property be enough to trigger the doctrine of **equitable conversion**?

Answer 33

No, there must be a land-sale agreement.

Question 34

The **existence** of an **encumbrance**, such as a covenant or equitable servitude, which the buyer did not agree to accept as part of the conveyance, **renders title what**?

Answer 34

Unmarketable

Question 35

What must a **senior interest** in property do to **extinguish** a **junior interest** in property?

Answer 35

1. Make junior interest a plaintiff in a foreclosure action 2. Give junior interest notice And 3. Make a foreclosure sale

Question 36

When there is a **modification** to a **senior mortgage**, what is the **effect** on a **junior mortgage**?

Answer 36

A junior mortgage prevails over the modification if the modification materially prejudices the holder of the junior mortgage.

Question 37

When does a property owner commit **waste** that is **actionable** by a **mortgagee**?

Answer 37

When they make physical changes to the property that result in the reduction of the property's value.

Question 38

In a **lien** **theory** jurisdiction, what **options** does **mortgagee** have when there is **waste**?

Answer 38

1. Foreclosure 2. Obtaining an injunction 3. Recover damages

Question 39

How must **adverse possession** be **recorded**?

Answer 39

It is outside of the recording acts and does not need to be recorded to take effect; the proper analysis is first in time first in right.

Question 40

In the absence of a contract provision dealing with **quality** **title**, what is the **default promise**?

Answer 40

There is an implied covenant that the title conveyed by the seller will be marketable.