Mortgages & Security Interests - Foreclosure

Question 1

Lien Theory States

Answer 1

• Mortgagee can’t take poss. b/f foreclosure
  
  • b/c mortgagor is considered to be the owner of the real prop. until foreclosure

Question 2

Title Theory States

Answer 2

Mortgagee can take possession at any time

• including as soon as default occurs
• Mortgagee is the has legal title until the mortgage has been fully satisfied

Question 3

Intermediate Title Theory

Answer 3

• Minority of jurisdictions
• Mortgagor retains legal title until default
• Upon mortgagors default, it vests legal title in the mortgagee

Question 4

What are the duties of the possessor of mortgaged property?

Answer 4

1. Manage prop. in reas. prudent manner
2. can’t commit waste

Question 5

Doctrine of Equity of Redemption

Answer 5

After Default but before foreclosure sale

• Debtor can redeem the prop. by paying the full debt amount

Question 6

What is a deed in lieu of foreclosure?

Answer 6

Mortgagor can convey all int. in prop. to the mortgagee

• Permits mortgagee to take immed. poss. w/out further legal formalities
  
  • Requires consent of mortgagor & mortgagee

Question 7

Clogging the equity of redemption

Answer 7

Mortgagor can waive his right to redeem after the mortgage is executed in exchange for consideration

• Courts usually reject attempts by the mortgagee to deny mortgagor of this right b/f default

Question 8

Foreclosure

Answer 8

Mortgagee can foreclose on a mortgage when the obligation is in default

• Usually when mortgagor fails to make timely loan payments

Question 9

Acceleration Clause

Answer 9

If the mortgage contains an acceleration clause

• Upon default, the entire amount of the mortgage obligation becomes due
• Otherwise, mortgagee is only entitled to collect amount currently due and owing

Question 10

What are the types of foreclosure?

Answer 10

1. Judicially Supervised Sale
2. Privately Supervised Sale
3. Strict Foreclosure

Question 11

Judicially Supervised Public Sale

Answer 11

• All states permit this type of sale of the mortgaged property
  
  • Primary method in half the states
  • Only method in some states

Question 12

Privately Supervised Sale

Answer 12

• Only when mortgage contains “power of sale” clause
• 1/2 of states permit this method

Question 13

Strict Foreclosure

Answer 13

• Very Few States
• Mortgagee brings equity action for a court order requiring the mortgagor to pay the mortgage oblig. w/in specified time pd.
  
  • If doesn’t w/in time pd.
    
    • Mortgagor forfeits his equity of redemption AND
    • Mortgagee takes title to the prop.

Question 14

How do you determine the priority of Interests

Answer 14

Basic Rule - 1st in time, 1st in right

• Subject to exceptions

Question 15

Purchase Money Mortgage Exception to Priority

Answer 15

Mortgage used to finance the purchase of the mortgaged property

• Has priority over mortgages & liens created & perfected b/f the PMM comes into existence

Question 16

Recording Act Exception

Answer 16

Mortgage is subj. to the recording acts

• A subsequent mortg. that satisfies the requirements of the applic. recording act has priority over an unrecorded prior mortgage

Question 17

Subordination Agreement b/w Mortgagees

Answer 17

Holder of prior mortgage can agree to subordinate his interest to the holder of a subsequent mortgage

Question 18

Mortgage Modifications Exception

Answer 18

• A Sr. mortgagee who enters into agreement w/ mortgagor to modify the mortgage
• by making it more burdensome
• subordinates the modified aspect of his int. to subsequent mortg. that exists at time of modification

Question 19

What is a deficiency Judgment?

Answer 19

Money owed by borrower to lender if a foreclosure sale doesn’t cover the amount of the debt

Question 20

Effect of Foreclosure on the Mortgagor?

Answer 20

Foreclosure sale eliminates the mortgagor’s interest in the prop.

Question 21

Statutory Right of Redemption

Answer 21

Allows mortgagor to reclaim the prop. after foreclosure sale

• During fixed pd. of time, mortgagor has right to compensate the party who purchased the prop. at foreclosure & reclaim the prop.
• Only applies if state statute allows for it

Question 22

Effect of Foreclosure on Purchaser of prop?

Answer 22

Takes the prop.:

• free and clear of any junior mortgage AND
• Subject to any Senior Mortgage

May be subj. to mortgagor’s stattory right of redemption

Question 23

Effect of Foreclosure on Senior Interests?

Answer 23

Not affected by a foreclosure sale

• Buyer of prop. buys the prop. w/ the Sr. interests attached

Question 24

Effect of Foreclosure on Junior Interests?

Answer 24

All interests that are junior to the mortgage that is being foreclosed are destroyed

Question 25

What must a Sr. int. in prop. do to extinguish a Jr. int. ?

Answer 25

1. Make Jr. int. plaintiff in foreclosure action
2. Give Jr. int. notice AND
3. Make a foreclosure Sale

Question 26

When there is a modification to a Sr. mortgage, what is the effect on a Jr. interest?

Answer 26

Jr. mortgage wins over the modification if the modification materially prejudices the holder of the Jr. mortg.