Mortgages

Question 1

What is a Mortgage?

Answer 1

A promise by a property owner to repay a creditor(Mortgagee) or forfeit his property to satisfy his debt.

**ALL MORTGAGES MUST BE RECORDED! A mortgage that is not recorded will not protect from future events or BFPs’ and those not recorded are skipped

Question 2

What are the 2 documents associated with every mortgage?

Answer 2

(1) Promissory Note or (2) Buyers Bond

*These are a Buyer’s personal Promise to repay the debt.
*They Legally bind the Buyer if they default so it is considered protection for the creditor(Mortgagee)

Question 3

What are the 2 theories of Mortgage Law?

Answer 3

1. Lien Theory Jurisdiction (Majority)
2. Title Theory Jurisdiction (Minority)

Question 4

Lien Theory Jurisdiction

Answer 4

1. The Mortgagee (Creditor) merely holds a lien on the property until it is paid off
2. Buyer keeps the equitable title in his possession
3. If default, the Buyer must be notified by the (Mortgagee) creditor who then forecloses the property and sells it.

(a) Original buyer keeps profit during foreclosure.

Question 5

Title Theory Jurisdiction (Minority)

Answer 5

1. Title to the property is left to the seller until the mortgage is paid.
2. If default, the bank files an action to evict and buyer does not receive any excess money if the land is sold for more than what was owed. (Forfeiture)

Question 6

What are the types of mortgages?

Answer 6

1. Conventional Mortgage
2. Deed of trust
3. Equitable Mortgage
4. Seller Financed Mortgages

(a) Purchase Money Mortgage
(b) Land Installment Contracts

Question 7

1. Conventional Mortgage

Answer 7

Most Common
1. Deed conveys property to creditor (Mortgagee) subject to condition precedent.

2. Borrower’s payment of the debt; thus on settlement day:

(a) Buyer gets title and starts attaining equity. (Under Lien Theory)

(b) Seller gets his purchase price from the mortgagee (creditor)

(c) Creditor (Mortgagee) gets a Fee Simple Absolute (FSA)

(d) When the debt is paid, Mortgage becomes void

Question 8

2. Deed of Trust

Answer 8

Borrower conveys land to third party (the trustee who holds it for the benefit of the holder of the promissory note.)

Question 9

3. Equitable Mortgage

Answer 9

Any document that pledges land as security for a debt, such as an option to repurchase, a sale/leaseback or a covenant not to convey.

Question 10

4. Seller Financed Mortgages

Answer 10

1. Purchase Money Mortgage*:
   - When a seller realizes the buyer will not be able to finance and thus offers to finance that amount by taking out a loan under the seller’s name in exchange for the buyer to pay extra interest to the seller.
   ——If the buyer goes into default, the 1st one to be paid is that mortgage that is taken out.
2. Land Installment Contracts*:

(a)Buyer makes little or no down payment but pays the purchase price in monthly installments.

(b)Seller retains the title until the entire purchase price is paid.

(c)In case of default, buyer stands to lose both the land and any payment.

Question 11

Mortgage Tips to Remember:

Answer 11

1. There is no automatic right to prepay the entire principal. Mortgagor must ensure such right by inserting a pre-payment clause in the mortgage which allows payment “on or before” the due date.
   (a)Banks would rather a borrower to NOT prepay so they can get the interest.
2. *Clauses in mortgages claiming to waive borrower’s right to equity of redemption are automatically void and courts universally refure to enforce them.