Mortgages and Foreclosures

Question 1

What is a Mortgage?

Answer 1

• Security device used to secure repayment of a debt
• 2 parts
  
  • Note - borrower’s promise to repay the debt
  • Mortgage - instrument that provides security to the note
• If borrower (mortgagor) defaults, lender (mortgagee) can force foreclosure sale to satisfy outstanding debt

Question 2

2 Types of Mortgages

Answer 2

• Purchase money mortgage
  
  • Person takes out a loan to purchase property
• Future advance morgage
  
  • Line of credit used for home equity, construction, business and commercial loans
  • Often referred to as “second mortgage”

Question 3

Lien States v. Title States

Answer 3

• Majority (lien states): Mortgage is treated as a lien that does not sever a joint tenancy
• Minority (title states): Mortgage does sever a joint tenancy and converts it to tenancy in common
  
  • Mortgage holder holds legal title to the property in question
    
    • Can make repairs, prevent waste, lease out vacant space, etc.

Question 4

Alternatives to Mortgages - Equitable Mortgages

Answer 4

• deed of trust
  
  • uses a trustee to hold title for the benefit of the lender (beneficiary receives payments)
• installment land contract
  
  • seller finances purchase and retains title until the final payment
  • if defaulted, some states allow foreclosure, some give buyer equitable right of redemption, others allow seller to retain ownership but give restitution for past payments
• absolute deed
  
  • mortgagor transfers deed instead of taking secured interest
  • must use clear & convincing evidence to show agreement; parol evidence admissible
• conditional sale & repurchase
  
  • owner sells property to lender, lender leases back to owner in exchange for a loan. Lender gives owner option to repurchase after last payment