There are 5 types of security interests in real estate, the 1st 3 are the most important
One a mortgage
- Deed of trust
- Installment land contract
- Absolute deed
- Sale- leaseback
May mortgages or deeds of trust be transferred? If so how?
- Yes, both mortgages and deeds of trust may be transferred.
- The note and mortgage must pass to the SAME PERSON for the transfer to be complete
Can you transfer the note without the mortgage?
If the transferor-mortgagee expressly reserves the right to the mortgage, the note CAN be transferred without the mortgage. Otherwise, the mortgage will automatically follow a properly transferred note.
What is the relationship between a note and the mortgage?
The debtor/notemaker is the mortgagor. The lender is the mortgagee.
4 reqs for transferee of mortgage note to be HOLDER IN DUE COURSE?
- note in NEGOTIABLE FORM (payable “to bearer” or “to the order of” named payee)
- Original note must be ENDORSED and signed by the name payee
- Original note must be delivered to the transferee
- Transferee must take it in good faith (no notice that it is overdue, dishonored, is subject to any defense) and must pay VALUE for it
What happens when a mortgage or transfers to a grantee? Is the mortgage still intact?
If the grantee signs and assumption agreement he becomes PRIMARILY liable to the lender, while the ORIGINAL mortgagor is secondarily liable as SURETY. If no assumption is signed, the original mortgagor remains primarily and personally liable. Any modification between the grantee and the lender discharges the original mortgagor entirely.
What is what is a “due on sale” clause?
They appear in most modern mortgages, and allow the lender to demand full payment of the loan if the mortgagor or transfers any interest in the property without lender’s consent.
Describe the 3 different theories of title in connection with mortgages.
Most states follow the lien theory. 1. Under the lien theory, the mortgagee is considered the holder of the security interest only and may not possess the land before foreclosure.
- Under the title theory, legal title is in the mortgagee until the mortgage even satisfied a close and the mortgagee is entitled to possession upon demand at any time
- Legal title is in the mortgagor until default, upon which legal titles in the mortgagee.
Foreclosure property almost always results in what?
A sale, which satisfies the debt in whole or in part. If the debt isn’t fully satisfied, the lender can bring a deficiency action.
What is redemption in equity?
After default, but prior to any foreclosure sale, the mortgagor may redeem the property by paying the amount due. If there is an acceleration clause, the full amount must be paid.
What determines mortgage priority? Which interests does foreclosure destroy in the case of multiple mortgages?
Normally, mortgages priority is determined by the time it was placed on the property.
Foreclosure does not destroy any SENIOR INTERESTS to the interest being foreclosed. It generally destroys junior interests, PROVIDED THAT the foreclosure action INCLUDED the junior interest holder.
When is the order of priority among mortgages changed? 5 situations
- If a prior mortgagee fails to record
- A subordination agreement
- A purchase money mortgage
- Modification of a senior mortgage (Junior mortgage has priority over the modification)
- Granting of optional future advances by a mortgagee with notice of a junior lien (Junior Lien has priority over advances)
What is a purchase money mortgage?
A purchase money mortgage is a mortgage given in exchange for funds used to purchase the property. They have priority over PRIOR non-purchase money mortgages, even if they are recorded 1st.
What is the order of application of proceeds of sale, when there are multiple mortgagees and a foreclosure?
1st the cost of sale (fees and court costs),
then the principal and interest on the FORECLOSED loan
then JUNIOR INTERESTS
then the mortgagor
Many installment contracts provide for forfeiture rather than foreclosure as the vendors remedy for default, but courts?
Courts will avoid a forfeiture because it is too harsh. They find other solutions, such as equity of redemption, restitution, treated as a mortgage, etc.
May the vendor of an installment land contract containing a forfeiture clause reinstate strict performance once she has waived it?
Yes, by giving the purchaser notice and a reasonable time to catch up on payments
Where may a mortgage be foreclosed by judicial sale?
in ALL JURISDICTIONS
