Mortgages

Question 1

mortgages

Answer 1

creating a mortgage, equitable mortgage, parties’ rights, transferring interests, foreclosure, effect of foreclosure, priorities, redemption

Question 2

mortgages

creating a mortgage

Answer 2

definition, union of elements, legal mortgage, examples

Question 3

mortgages
creating a mortgage
definition

Answer 3

A mortgage is the conveyance of a security interest IN LAND, intended by the parties to be collateral for the repayment of a debt.

Question 4

mortgages
creating a mortgage
union of elements

Answer 4

A mortgage is the union of two elements: a debt and a voluntary lien in debtor’s land to secure a debt.
Debtor is the mortgagor, and creditor is the mortgagee.

Question 5

mortgages
creating a mortgage
legal mortgage

Answer 5

The mortgage must be in writing to satisfy the SoF.

This is the legal mortgage.

Question 6

mortgages
creating a mortgage
examples

Answer 6

note, mortgage deed, security interest in land, deed of trust, sale leaseback.

Question 7

mortgages

equitable mortgage

Answer 7

Rather than executing a note or mortgage deed, O gives creditor a deed that is absolute on its face.
This is called an equitable mortgage.
Between O and creditor, parol evidence is admissible to show intent.

Question 8

mortgages
equitable mortgage
What if creditor sells property to X?

Answer 8

X owns the land.

O’s recourse is to sue creditor for fraud and sale proceeds.

Question 9

mortgages

parties’ rights

Answer 9

Unless and until foreclosure, debtor-mortgagor has TITLE and the RIGHT TO POSSESS.
Creditor-mortgage has a LIEN.

Question 10

mortgages

transferring interests

Answer 10

All parties to a mortgage can transfer their interests.
The mortgage automatically follows a property transferred note.
1. Creditor-mortgagor transfer of interest
2. Recording statutes protect mortgages
3. Personal liability on debt

Question 11

mortgages
transferring interests
Creditor-mortgagor transfer of interest

Answer 11

Creditor-mortgage can transfer his interest by:

1. endorsing the note & delivering it to transferee or
2. executing a separate document of assignment

Question 12

mortgages
transferring interests
Creditor-mortgagor transfer of interest
endorse & deliver the notes

Answer 12

If the note is endorsed and delivered, the transferee is eligible to become holder in due course.

Question 13

mortgages
transferring interests
Creditor-mortgagor transfer of interest
holder in due course

Answer 13

Being a holder in due course means that he takes the note free of any personal defenses that could have been raised against the original mortgage.
Personal defenses include lack of consideration, fraud in the inducement, unconscionability, waiver, estoppel.

Question 14

mortgages
transferring interests
Creditor-mortgagor transfer of interest
May the holder in due course foreclose the mortgage despite any personal defense?

Answer 14

The holder in due course may foreclose the mortgage despite any personal defense.

Question 15

mortgages
transferring interests
Creditor-mortgagor transfer of interest
holder in due course - subject to real defenses

Answer 15

The holder in due course is still subject to the real defenses that the maker might raise.
MAD FIFI4

Question 16

mortgages
transferring interests
Creditor-mortgagor transfer of interest
holder in due course - MAD FIFI4

Answer 16

MAD FIFI4
Material Alteration
Duress
Fraud in Factum (lie about the instrument)
Incapacity
Illegality
Infancy
Insolvency

Question 17

mortgages
transferring interests
Creditor-mortgagor transfer of interest
holder in due course - criteria

Answer 17

To be a holder in due course, the following criteria must be met:

a. The note must be negotiable (made payable to the named mortgagor)
b. The original note must be indorsed (signed by the named mortgagee)
c. The original note must be delivered to the transferee. (photocopy unacceptable)
d. The transferee must take note IN GOOD FAITH without notice of any illegality, and
e. The transferee must pay VALUE for the note (some amount more than nominal)

Question 18

mortgages
transferring interests
Recording statutes protect mortgages

Answer 18

If debtor-mortgagor sells Blackacre, now mortgaged, the lien remains on the land so long as the lien was properly recorded.
All recording statutes apply to mortgages as well as deeds.
Thus, a later buyer takes subject to a properly recorded lien.

Question 19

mortgages
transferring interests
Recording statutes protect mortgages
Does it matter which recording statute a jdx has enacted?

Answer 19

It does not matter which recording statute has enacted.
In a notice state, Buyer takes subject to the lien b/c Buyer had record notice.
In a race-notice state, Buyer takes subject to the lien b/c Buyer had record notice AND first bank won the race to record.
Also, in a notice state, a subsequent BFP prevails over a prior grantee or mortgagee who has not yet recorded properly at the time the BFP takes.

Question 20

mortgages
transferring interests
Personal liability on debt

Answer 20

Personal liability on the debt depends on if buyer assumed the mortgage or takes subject to the mortgage.

Question 21

mortgages
transferring interests
Personal liability on debt
assuming the mortgage

Answer 21

If B has assumed the mortgage, then BOTH O and B are personally liable.
B is primarily liable.
O is secondarily liable.

Question 22

mortgages
transferring interests
Personal liability on debt
taking subject to the mortgage

Answer 22

If B takes subject to the mortgage, then B assumes no personal liability.
Only O is personally liable.
But if recorded, the mortgage sticks with the land.
If O cannot pay, the mortgage can be foreclosed.

Question 23

mortgages

foreclosure

Answer 23

procedure

distribution of proceeds

Question 24

mortgages

foreclosure - procedure

Answer 24

If mortgagee-creditor looks to the land for satisfaction, the mortgagee must foreclose by proper judicial action.
At foreclosure, the land is sold, and the sale proceeds go to satisfy the debt.
If the proceeds are less than the amount owed, mortgagee brings a deficiency action against debtor.
If there is a surplus, junior liens are paid in order of priority and remaining surplus goes to debtor.

Question 25

mortgages | foreclosure - distribution of proceeds

Answer 25

1. Atty fees, foreclosure expenses, any accrued interest on priority lien 2. Pay off mortgages in order of priority. Each claimant is entitled to satisfaction IN FULL before a subordinated lienholder may take.

Question 26

mortgages | effect of foreclosure

Answer 26

Foreclosure will terminate junior interests but will not affect senior interests.

Question 27

mortgages effect of foreclosure terminate junior interests

Answer 27

Junior interests will be paid in descending order w/sale proceeds, assuming funds are left over after full satisfaction of superior claims. Junior lienholders can proceeds for a deficiency judgment. But once foreclosure of a superior claim has occurred w/proceeds distributed appropriate, junior lienholders can no longer look to Blackacre for satisfaction.

Question 28

mortgages effect of foreclosure terminate junior interests necessary party

Answer 28

Those w/interests subordinate to those of the FCL party are necessary parties to the FCL action. Debtor-mortgagor is also considered a necessary party and MUST BE JOINED, particularly if creditor wishes to proceed against debtor for a personal deficiency judgment. Failure to include a necessary party results in the preservation of that party's claim, despite the foreclosure and sale. If a necessary party is not joined, his mortgage remains on the land.

Question 29

mortgages effect of foreclosure no effect on senior interests

Answer 29

FCL does not affect any senior interest. Buyer at the sale takes subject to such interest. Buyer is not personally liable to the senior debt, but if the senior mortgage is not paid, eventually the senior creditor will FCL on the land.

Question 30

mortgages | priorities

Answer 30

1. Record 2. Priority 3. Purchase money mortgage 4. Subordination

Question 31

mortgages priorities record

Answer 31

As a creditor, you must record. | Until you properly record your MTG, you have no priority.

Question 32

mortgages priorities priority

Answer 32

Once recorded, priority is determined by FIT, FIR.

Question 33

mortgages priorities purchase money mortgage

Answer 33

PMM: a mortgage given to secure a loan that enables the debtor to acquire the encumbered land. PMM has superpriority. Assuming proper recordation, PMM has 1st priority in the parcel financed.

Question 34

mortgages priorities subordination

Answer 34

Subordination AGRs are allowed. | A senior creditor can subordinate his priority to a junior creditor.

Question 35

mortgages | redemption

Answer 35

redemption in equity, statutory redemption

Question 36

mortgages redemption redemption in equity

Answer 36

Equitable redemption is universally recognized up to the date of sale. At any time prior to the FCL sale, debtor can try to redeem the land. Once a valid FCL has taken place, the right to equitable redemption is gone.

Question 37

mortgages redemption redemption in equity How is the right of equitable redemption exercised?

Answer 37

The right of equitable redemption is exercised by paying off missed payment(s) plus interest and costs.

Question 38

mortgages redemption redemption in equity acceleration clause

Answer 38

Acceleration clause permits the MTG to declare the full balance due in the event of default. If the MTG contains an acceleration clause, the full balance plus accrued interest plus costs must be paid for equitable redemption.

Question 39

mortgages redemption redemption in equity waiver of equitable redemption

Answer 39

A debtor-mortgagor may not waive the right to equitable redemption. Waiver of equitable redemption is known as clogging.

Question 40

mortgages redemption statutory redemption

Answer 40

Recognized in half the states, statutory redemption gives the debtor-mortgagor a statutory right to redeem for some fixed period after the FCL sale has occurred (typically 6 months to 1 yr). Where recognized, statutory redemption applies after FCL. The amount to be paid is usually the FCL sale price (rather than the amount of the original debt). To recognize statutory redemption, the mortgagor will have the right to possess Blackacre during the statutory period. When a mortgagor redeems, the effect is to nullify the FCL sale.