1Title passes only when contract price is paid in full.
Installment Land Contracts
2What are three Mortgage-like security interests?
(1) Installment Land Contracts
(2) Deed of Trust
(3) Possible Disguised Mortgages
3What are some of the ways forfeiture clauses are enforced within most states?
(1) Some states treat installment land contracts as a mortgage, requiring foreclosure.
(2) Others require seller to refund any payments in excess of seller's damages (akin to equity of redemption)
(3) Doctrine of Equitable Conversion
4Buyers have equitable title while the sellers have legal title in trust for the buyers with an equitable lien for the purchase price.
Doctrine of Equitable Conversion
5Purchaser in default can pay full balance within this and keep the land.
Grace Period
6Trustor (debtor) gives the deed to a third-party trustee.
Deed of Trust
7What are three types of Possible Disguised Mortgages?
(1) Sale/Leaseback
(2) Equitable Vendor's Lien
(3) Absolute Deeds as Security
8Owner sells real property to seller with an agreement to lease back the property for a long period.
Sale/Leaseback
9Arises by implication of law when seller transfers title to buyer but the purchase price, or a portion of it, remains unpaid.
Equitable Vendor's Lien
10Extrinsic evidence, including parol evidence, is admissable to establish that a deed purporting to be an absolute conveyance of real estate was intended to serve as security for an obligation, and should therefore be deemed a mortgage.
Absolute Deeds as Security
11What is an Absolute deeds as security also described as?
An equitable mortgage
12An interest in land created by a written instrument providing security for the performance of a duty or payment of a debt.
Mortgage
13Mortgage Loans consist of
(1) Mortgage
(2) Motgage Note
14Promissory note setting out amount of debt, amount of interest, and possibly other details such as payment schedule (personal responsibility of mortgagee)
Mortgage Note
15What are the parties to a Mortgage
(1) Mortgagor: debtor\/borrower
(2) Mortgagee: creditor/lender
16HELOCs and other lines of credit secured by real property.
Future-advance Mortgage
17Mortgage interests are alienable.
Transfers
18How are mortgages transferred?
(1) By mortgagee (subrogation)
(2) By mortgagor
19How are mortgages transferred by mortgagee (subrogation)?
(1) Mortgage without note
(2) Mortgage with note
20How is a mortgage transferred without a note?
In some states transfer of the mortgage automatically transfers the note.
Others consider a transfer of the mortgage without a transfer of the note to be without effect, as the note is the main evidence of the debt.
21How is a note transferred without a mortgage?
Mortgage automatically follows properly transferred note.
22Is recording is necessary for a transfer of a note without a mortgage?
No, while recording is not absolutely necessary for the transfer, failure to record may give rise to notice issues, preventing foreclosure or affecting the priority of a mortgage
23How are mortgages transferred by mortgagor?
Grantee takes subject to mortgage (although many mortgages include a due on sale clause that makes this relatively rare)
24When mortgagor defaults, mortgage can sue on the debt or foreclose on the mortgaged property. Mortgagee may seek to obtain possession or recover rents before foreclosure.
Default and Foreclosure
25Seven warning signs of Predatory lending may include:
(1) ARM loans, especially with a very short fixed interfictory period.
(2) Very low introductory rate
(3) Made to borrowers for whom the debt-to-income ratio exceeds 50%
(4) Loan-to-value ratio is 100% or higher
(5) Substantial prepayment penalty
(6) Prepayment penalty extending beyond introductory period
(7) When multiple warning signs are present the loan may violate state consumer protection laws.
26What are the two types of Foreclosure sale?
(1) Judicial sale (all states)
(2) Nonjudicial sale under power of sale (some states, usually when deed of trust is involved.)
27How are Foreclosure sales usually conducted?
Both the Judicial sale and the Nonjudicial sale are usually done by auctions, and lenders can bid.
28T/F: Mortgagee/forecloser owes a fiduciary duty to the mortgagor to make every reasonable effort to get a fair price at the sale.
True, otherwise a lender could often simply sell the property to itself for the amount of debt remaining, in effect taking the value of the buyer's equity of redemption.
29T/F: Fair price may be less than fair market value.
True, the property is distressed.
30Does a Mortgagee have to hold out for the highest price?
No.
Traditional (legal notice) approach set certain procedural requirements
(such as notice) for foreclosing lenders; only if the resulting price shocked
the conscience would the court set the sale aside.
Modern (commercial reasonableness) approach (UCC/ULTA): Lender
must use the ordinary methods of making buyers aware that are used when
an owner is voluntarily selling their land.
31What is the Modern (commercial reasonableness) approach (UCC/ULTA) for a Mortgagee's Fiduciary Standard?:
Lender must use the ordinary methods of making buyers aware that are used when an owner is voluntarily selling their land.
32What is the Traditional (legal notice) approach for a Mortgagee's Fiduciary Standard?:
A set certain procedural requirements (such as notice) for foreclosing lenders; only if the resulting price shocked the conscience would the court set the sale aside.
33What are three theoretical approaches to Default and Foreclosure?
Lien Theory (common)
Title Theory (rare)
Hybrid or Intermediate Theory
34The mortgage is a lien on the property, and title remains with the mortgagor; thus mortgagee may not obtain possession before foreclosure.
Lien Theory (common)
35The mortgagee holds title until the mortgage has been paid in full. Mortgagee may thus demand possession upon mortgagor’s default.
(1) Even in these states the title is often viewed as “security title” only.
Title Theory (rare)
36Hybrid or Intermediate Theory
Variant of title theory in which title is in the mortgagor until default but transfers to mortgagee upon mortgagor’s default, with the same effect as title theory.
37What does a Mortgagee in possession have a duty to?
To account for all rents;
To manage the property in a prudent and careful manner (akin to a duty not to commit waste), and
May be liable in tort for injuries
38For rental properties, mortgagees may seek appointment of a receiver to receive rents prior to foreclosure based on a showing of some or all (depending on jurisdiction) of these factors: (i) Waste; (ii) Insolvency of mortgagor; (iii)Value of property is less than amount of debt remaining
Receivership
39What are three factors that a court needs to appoint a receiver (depending on jurisdiction)?
(i) Waste;
(ii) Insolvency of mortgagor; or
(iii)Value of property is less than amount of debt remaining;
40Redemption
At any time prior to foreclosure sale, even and especially after default, mortgagor may redeem the mortgage by paying amount due, including accrued interest.
41Acceleration Clause
May require mortgagor to pay total amount of loan, not merely missed payments
42Mortgagor cannot waive right to redeem in the mortgage itself; this prohibited practice is called “clogging the equity of redemption”.
(1) The right to redeem may be waived separately, for consideration and subject to other requirements of contract.
Clogging Equity of Redemption
43About half the states allow the mortgagor to redeem after foreclosure (for a period generally limited to one year or less, depending on state), typically for the foreclosure price.
Statutory Redemption
44What are three types of Redemption allowing a mortgagor to redeem the mortgage by paying the amount due, including accrued interest.
(1) Acceleration Clause
(2) Clogging Equity of Redemption
(3) Statutory Redemption
45Multiple mortgages usually receive a share in the proceeds of foreclosure
sale based on chronological order, subject to recording acts and priority of PMMs.
Priority
46What happens when a person fails to record a mortgage or other interest in land?
It may affect the priority of how the share in the proceeds of the foreclosure are distributed as it's based on chronological order.
47• Any mortgage used to purchase property.
• Has priority over prior encumbrances on the property (except other purchase money mortgages) regardless of chronological order.
Purchase money mortgage (PMMs)
48How does a foreclosure affect junior and senior interests?
Foreclosure terminates later (junior) interests but not older (senior) interests;
buyer takes subject to senior interests.
49Why do junior mortgagees have an incentive to pay off a senior mortgage
interest?
• Foreclosure terminates later (junior) interests but not older (senior) interests;
buyer takes subject to senior interests
• All junior interest holders are thus necessary parties to any foreclosure, and
failure to include them invalidates foreclosure
50Where there is both a seller-financed PMM and a non-seller PMM, who ordinarily takes precedence?
The seller PMM ordinarily takes precedence.
• A PMM given by the seller of the property has priority over one given by a bank or other commercial lender.
• Between purchase money mortgages given by commercial lenders, first in
time prevails
51Where there are two or more third-party PMMs, how are they ordered?
Chronological order ordinarily determines precedence among the PMMs, with all non-PMMs being subordinate to all non-PMMs without regard to chronological order.
52How might Subsequent Encumbrances obtain priority over PMMs?
Via recording acts if the purchase money mortgage is not recorded.
53How is a Modification of a Senior Mortgage treated in regards to priority?
Modification of a senior mortgage that increases the mortgagor’s burden is treated as a new mortgage for chronological priority – the new mortgage is now subordinate to previously junior mortgages
54How is a Refinance Mortgage treated in priority?
A refinance mortgage, taking the place of a preexisting senior mortgage, is treated as having the effective date and PMM status of the senior mortgage for priority purposes.
55How are the Proceeds of Foreclosure Sale distributed?
(1) Expenses of the sale, attorneys’ fees, and court costs
(2) Foreclosed loan
(3) Junior loans
(4) Mortgagor
56• Usually the money will run out before everyone is paid. Mortgagee can
bring a personal action against the mortgagor for the remaining amount
• Often limited by statute to the difference between sale price and fair market value, if any, and
• Completely prohibited for PMMs
Deficiency