Term
| Types of Security Interests |
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Definition
Mortgage
Deed of Trust
Installment Land Contract
Absolute Deed
Sale-Leaseback |
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Term
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Definition
Debtor/notemaker is the mortgagor
Lender is the mortgagee
On default, lender can realize n the mortgaged real estate only by having a judicial foreclosure sale conducted by sheriff |
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Term
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Definition
Debtor/notemaker is the trustor
He gives a deed of trust to a third-party trustee, who is usually closely connected to the lender.
On default, lender instructs the trustee to foreclose the deed of trust by sale. |
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Term
| Installment land contract |
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Definition
An installment purchaser obtains legal title only when the full contract price has been paid off.
Forfeiture clauses, allowing the vendor upon default to cancel the contract, retake possession, and retain all money paid are common |
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Term
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Definition
| An absolute deed if given for security purposes can be treated by the court as an equitable mortgage to be treated as any other mortgage |
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Term
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Definition
| A landowner may sell her property for cash and then lease it back from the purchaser for a long period of time. Like an absolute deed, this may be treated as a disguised mortgage. |
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Term
| Transfer of Mortgage Without Note |
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Definition
Some states hold that the transfer of the mortgage automatically transfers the note as well, unless the mortgagee-transferor expressly reserves the rights to the note.
In these states, transferee can then file an equitable action and compel a transfer of note
Other states hold that because the note is principal evidence of debt, a transfer of the mortgage without note is void |
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Term
| Transfer of Note Without Mortgage |
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Definition
The note can be transferred without the mortgage but the mortgage will automatically follow the properly transferred not. No separate written assignment is necessary.
Unless, mortagee-transferor expressly reserves the rights to mortgage. |
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Term
| Methods of transferring note |
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Definition
1. Note may be transferred either by endorsing it and delivering it to the transferee or
2. by assignment |
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Term
| Holder in due course elements |
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Definition
1. note must be negotiable in form (payable to bearer)
2. original note must be indorsed and signed by the named payee
3. original note must be delivered to transferee
4. transferee must take the note in good faith and pay value for it |
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Term
| Holder in due course status |
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Definition
Takes note free of any personal defenses of the maker
defenses of maker: failure of consideration, fraud in inducement, waiver, estoppel, and payment
Still subject to real defenses (infancy, incapacity, duress, illegality, fraud in execution, forgery, discharge in insolvency) |
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Term
| Payment to Original Mortgagee after transfer |
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Definition
If the mortagee transfers possession of a negotiable instrument, any payment by the mortgagor to the mortgagee will not count.
Holder can demand payment even if mortgagor lacked notice
Non-negotiable: payments are effective until notice |
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Term
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Definition
Primarily liable to the lender while the original mortgagor remains primarily and personally liable.
Any modification of loan by grantee and mortgagee discharges original mortgagor |
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Term
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Definition
| Allow lender to demand full payment of the loan if the mortgagor transfers any interest in the property without the lender's consent |
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Term
| Defenses and Discharge of Mortgage |
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Definition
Mortgage secures obligation
Thus, defenses to obligation are defenses against an action. |
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Term
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Definition
Mortgagee is considered holder of a security interest only and the mortgagor is deemed owner of land until foreclosure.
Mortgagee may not have possession before foreclosure |
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Term
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Definition
| Legal title is in the mortgagee until mortgage has been satisfied or foreclosed and the mortgagee is entitled to possession upon demand at any time |
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Term
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Definition
Legal title is in the mortgagor until default and upon default, legal title is in the mortgagee
Isnt this the title theory, lol? |
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Term
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Definition
| Mortgagee may take possession if the mortgagor gives consent to do so or if the mortgagor abandons property |
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Term
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Definition
Courts will generally appoint receivers for rental property upon showing:
1. waste is occurirng;
2. value of property is inadequate to secure debt;
3. mortgagor is insolvent |
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Term
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Definition
Almost all states require foreclosure by sale under which the property is sold to satisfy the debt in whole or in part
All states allow judicial sale, some states allow nonjudicial sale under a power of sale.
Nonjudicial sale is auction and lender is permitted to bid at sale |
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Term
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Definition
At any time prior to the foreclosure sale, the mortgagor may redeem the property by paying the amount due.
With an acceleration clause, full balance of the note or mortgage must be paid to redeem |
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Term
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Definition
General rule: First in time
Foreclosure does not destroy senior interests
Destroys junior interests
Failure to include junior interest preserves interest |
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Term
| Modification of priorities |
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Definition
1. operatin of recording statute if prior mortgagee fails to record
2. subordination agreement between a senior and junior mortgagee
3. a purchase money mortgage
4. a modification of a senior mortgage
5. granting of optional future advances by a mortgagee with notice off a junior lien |
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Term
| Purchase money mortgage (PMM) |
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Definition
Given in exchange for funds used to purchase property
Priority over prior non PMMs, even if non PMMs are recorded first
Subsequent mortgages or liens may defeat PMM by recording statute
Seller PMM has priority over 3rd party
Two 3rd parties look to chronological |
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Term
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Definition
1. Expenses of sale
2. Attorneys fees and court costs
3. Principal and accrued interest on foreclosed loan
4. Any other junior interests
5. Finally to mortgagor |
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Term
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Definition
| If proceeds are insufficient to satisfy mortgage debt, the mortgagee retains a personal cause of action against the mortgagor for the deficiency |
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Term
| Installment Land Contracts |
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Definition
Many contracts provide for forfeiture rather than foreclosure as the vendor's remedy
Exceptions
1. Equity as redemption
2 Restitution
3. Treat as mortgage
4. Waiver
5. Election of remedies |
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