Mortgages and Security Interests

Question 1

Mortgage

Answer 1

A mortgage is an interest in real property that serves as security for an obligation.

Question 2

Installment Land Contract

Answer 2

An installment land contract (i.e., a contract for deed) is a contract whereby the seller retains title until the buyer makes the final payment under an installment payment plan.

Question 3

Absolute Deed

Answer 3

An absolute deed (also known as a “deed of absolute sale”) is free of all liens and encumbrances and is used to transfer unrestricted title to property.

Question 4

Mortgagor’s Liability

Answer 4

Unless the mortgagee-lender agrees to release the mortgagor-borrower from liability for the loan, the mortgagor-borrower remains personally liable on the loan obligation after the mortgaged property is transferred.

Question 5

Due-on-sale clause

Answer 5

A due-on-sale clause provides, upon the transfer of mortgaged property, the lender with the option to demand immediate payment of the full amount of the outstanding obligation (including interest) unless the lender has given written permission for the transfer.

Question 6

Due-on-encumbrance Clause

Answer 6

A due-on-encumbrance clause gives the lender the right to accelerate a mortgage obligation upon the mortgagor’s obtaining a second mortgage or otherwise encumbering the property.

Question 7

“Subject to” mortgage obligation–no personal liability

Answer 7

If a deed is silent or ambiguous as to the transferee-buyer’s liability, then the transferee?buyer is considered to have taken the property subject to the mortgage obligation.

Question 8

Purchase-money Mortgage Exception

Answer 8

A purchase-money mortgage is a mortgage granted to (1) the seller of real property or (2) a third-party lender to the extent that the loan proceeds are used to acquire title to the real property or construct improvements on the real property, if the mortgage is given as part of the same transaction in which title is acquired.

Question 9

Future Advances Mortgage

Answer 9

A future-advances mortgage is a mortgage given by a borrower in exchange for the right to receive money from the lender in the future. This type of mortgage is also known as a “line of credit.”

Question 10

Subrogation

Answer 10

Subrogation is the assumption of rights and duties of one party by a third party.

Question 11

Discharge

Answer 11

A mortgage obligation may be discharged by payment of the debt secured by the mortgage or the mortgagee’s acceptance of a deed in lieu of foreclosure. In addition, the doctrine of merger may be applied to eliminate a mortgage.