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Flashcards in Mortgages Deck (31)
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1

What are the 2 types of security interests?

  1. Deeds of trust
  2. Mortgages

2
Define

Deed of Trust

Alternative to a mortgage. Debtor borrows money from a lender and then deeds the property to a third party as collateral. Once debtor repays debt, third party releases deed back to debtor. 

3
Define

Mortgage

A security interest in real property between a borrower and lender that secures the performance of an obligation (typically repayment of a loan).

 

4

What is the difference between a deed of trust and a mortgage?

Deed of trust: 3 parties involved: borrower/debtor, lender, and trustee

Mortgage: 2 parties involved: borrower/debtor and lender

5
Define

equitable mortgage 

Lender secures the mortgage by taking possession of all the original title documents of the property.

Lender has the right to sell the property, foreclose, and appoint a receiver if the borrower doesn't pay. 

6
Define

mortgagor

Borrower/debtor

7
Define

mortgagee

Lender/creditor

8

What is the difference between a mortgage and a note?

Mortgage: represents the interest in the land.

Note: represents the debt of mortgagor.

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

9

Who has the title and right to the property interest in a: 

  1. Lien theory jurisdiction (majority)
  2. Title theory jurisdiction (minority)

  1. Lien: Mortgagor-borrower has title and right to possession. Mortgagee-lender has a lien on the interest.
  2. Title: Mortgagee-lender has title and right to possession.

10
Define

absolute deed of sale

Transfers unrestricted title to the property, free of all liens and encumberances.

11
Define

installment land sale contract

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.

12

If a mortgagor transfers the property, who is liable upon default if the buyer: 

  1. Assumes the mortgage?
  2. Takes subject to the mortgage? 

If the buyer/transferee "assumes" the mortgage:

  • Buyer/transferee is primarily liable for the loan 
  • Mortgagor is secondarily liable unless released by transferee

If buyer/transferee takes "subject to" the mortgage:

  • Mortgagor is primarily liable
  • Buyer/transferee incurs no liability to repay the loan

13

If a mortgagor transfers her interest, what is the default liability if the deed is silent? 

Buyer takes the property "subject to" the mortgage (i.e. no personal liability) 

14

What are due-on-sale clauses?

Gives lender the ability to demand the entire balance if the deed is transferred, unless the lender has given permission for the transfer

⚠️ Note: Due-on-sale clauses cannot be enforced for transfers to spouses, children, living trusts, or automatic transfers upon the death of the borrower

15

What are due-on-encumberance clauses?

If mortgagor obtains a second mortgage or another encumberance on the property, the lender can demand immediate, full payment 

16

When does a mortgagor commit impermissible waste?

When the waste reduces the value of the mortgagee's security interest 

17
Define

right of redemption

After default, at any time prior to the foreclosure sale, a debtor can redeem title to the property by paying the full debt amount

More info: Right of Redemption 

18

Can you waive your equitable right of redemption in a contract?

No, this is considered a "clog" on the borrower's right to equitable redemption and disfavored by courts. However, you may be able to waive the right in exchange for consideration after the execution of the mortgage.

19

What is a deed in lieu of foreclosure?

If mortgagor (borrower) goes into default, the mortgagor can give the deed to mortgagee (lender) to satisfy the mortgage debt.

Mortgagee has immediate possession, and takes it subject to all junior liens attached.

20

What is foreclosure?

When the borrower fails to make timely payments, the lender can foreclose on the property and use the proceeds to satisfy the debt owed

21

What is an acceleration clause? 

Requires the borrower to pay the full amount owed upon default 

More info: Acceleration Clause 

22

What are the 3 types of foreclosure?

Judical

  • ​​Sale is supervised by the court

Nonjudicial ("power of sale")

  • Property is sold without court supervision
  • ​​Common in deed of trust states 
  • Mortgage/deed of trust must contain a "power-of-sale" clause

Strict

  • Lender seeks court order for borrower to pay within a specified time frame. If borrower cannot pay, lender takes title to the property
  • Minority method

23

In a foreclosure sale, who gets priority for the proceeds? 

  1. Debts incurred by the foreclosure (attorney's fees, etc); then
  2. Mortgage being foreclosed;
  3. Junior mortgages (first, second, third, etc)

⚠️ Note: Senior liens will stay attached to the property.

24

How do you determine what interests take priority (i.e. which is senior and junior) in a foreclosure sale? 

Generally, follow the "first in time, first in right" rule, unless an exception applies 

25

What are the exceptions to the "first in time, first in right" rule? 

  1. Purchase money mortgage: Priority over all liens, regardless of when they were recorded 
  2. Recorded mortgages have priority over unrecorded mortgages; 
  3. Non-guaranteed advances from future-advance mortgages; 
  4. Subordination by senior mortgagee to subsequent interest;
  5. Modification; and 
  6. After-acquired property

26

How are interests affected by a foreclosure sale?

  • Junior interests are extinguished
  • Buyer buys the property subject to the senior interests

27

In what type of foreclosure does the junior interest holder need to be given notice

Judicial foreclosure. Holder must be given notice and made a party, or else her interest will not be extinguished.

28

What is the Doctrine of Marshaling Assets?

Holder of a senior security interest must proceed:

  1. First, against property without junior security interests; 
  2. Second, against property that has whichever junior interest was more recently created; and
  3. Lastly, against property that has whichever junior interest was more remotely created 

29

What is a deficiency judgment?

If the foreclosure sale does not cover the full amount owed, the lender and other holders who are liable for the mortgage may seek a deficiency judgment against the borrower to satisfy the full debt owed. 

⚠️ Exception: Borrower is not liable for deficiency if they are the holder of a nonrecourse loan 

30

What is subrogation?

When a third party ("payor") pays for the entire mortgage debt. The payor is then "subrogated" (substituted) and is entitled to all the rights of the original mortgagee. 

31

In a foreclosure sale, is a mortgagee entitled to proceeds from improvements to the property? 

Yes. However, if improvements were funded by a second mortgage, the second mortgagee may have superior rights to the property