8.4 Mortgages

A mortgage exists when someone gets a loan from a bank or individual and the borrower uses […] as collateral.

property

If a mortgage loan is not repaid, the lender/mortgagee can […] on the property, i.e. take it.

foreclose

Can a person have multiple mortgages on his property?

Y

A loan used to acquire the property itself is called a […]

Purchase Money Mortgage

Which mortgage always gets priority in a foreclosure sale? (Meaning it will always be paid back using proceeds from the foreclosure sale, before any other mortgages/debts)

Purchase Money Mortgage

T/F: A PMM's priority in a foreclosure sale depends on its size and the date it was taken out.

F (PMM priority is absolute regardless of other factors)

What do you call the borrower's right to prevent foreclosure by paying missed payments and making the loan current before a foreclosure sale?

Equitable right of redemption

The equitable right of redemption can be exercised during the period between [..1..] and [..2..]

notice of default, the foreclosure sale

CRITICAL RULE: The borrower can never […] the equitable right of redemption.

waive

A right—available only in some jurisdictions—that allows a borrower to reclaim property AFTER a foreclosure sale is the […]

statutory right of redemption

If a fact pattern does not mention a statute creating a right to reclaim property after foreclosure, you should assume the […] does not exist.

statutory right of redemption

In a […] jurisdiction, the lender holds only a lien on the property, and the borrower holds legal title.

lien theory

The majority of jurisdictions follow the […] theory regarding mortgage interests.

lien

In a […] jurisdiction, the lender holds legal title to the property until the mortgage is fully paid.

title theory

In a title theory jurisdiction, the borrower holds [..1..], which gives them the right to [..2..] the property.

equitable title

live on and use

T/F: In a title theory jurisdiction, the borrower can freely convey the property without the lender's consent.

F (the lender holds legal title and must consent)

In a lien theory jurisdiction, a mortgage taken out by a joint tenant […] the joint tenancy.

does not sever

A mortgage does not sever a joint tenancy in a lien theory state because the lender only receives a […], not a transfer of title.

lien

In a title theory jurisdiction, a mortgage taken out by a joint tenant […] the joint tenancy.

severs

A mortgage in a title theory jurisdiction severs a joint tenancy because it is considered a […] of title, destroying the unity of title.

conveyance

When a mortgage severs a joint tenancy in a title theory state, the estate is converted into a […].

tenancy in common

When a new buyer explicitly agrees to take on the seller's mortgage debt, the buyer has […] the mortgage.

assumed

When a buyer assumes a mortgage, the buyer becomes [..1..] liable, and the original borrower remains [..2..] liable.

primarily, secondarily

For the original seller/borrower to be released from secondary liability after an assumption, the lender must provide a […]

novation

If a buyer purchases mortgaged property without expressly assuming the mortgage, they are said to be taking […] the mortgage.

subject to

T/F: When a buyer takes property "subject to the mortgage," they are not personally liable for the debt.

T (the original borrower is the only personally liable party)

If a buyer who took property subject to the mortgage does not make payments, the lender's recourse is to […] on the property.

foreclose

An enforceable contract term requiring the entire mortgage balance to be paid upon sale of the property is a […] clause

due-on-sale

A process where a borrower avoids formal foreclosure by voluntarily giving the deed to the lender is known as a […]

deed in lieu of foreclosure

A deed in lieu of foreclosure is only valid if there is […] from both the borrower and the lender.

consent

A foreclosure sale terminates, or "wipes out," the interests of all […]

junior mortgagees

For a junior mortgagee's interest to be terminated by foreclosure, they must have been given [..1..] and been [..2..] to the foreclosure action.

notice, joined as parties

T/F: A foreclosure sale terminates the property interests of senior mortgagees.

F (the sale has no effect on senior mortgagees)

The buyer at a foreclosure sale takes the property […] any senior mortgages.

subject to

If a foreclosure sale brings in less money than the amount owed, the lender may sue the borrower for a […]

deficiency judgment

For a deficiency judgment to be valid, the lender must have conducted the foreclosure sale to obtain a […] under the circumstances.

fair price

A financing agreement where the buyer makes payments to the seller over time while the seller retains legal title is an […]

installment land sale contract

In an installment land sale contract, the seller has no duty to provide […] until the final payment is made.

marketable title

If a buyer defaults on an installment land sale contract, the seller's remedy is determined by […]

the jurisdiction's laws

When a lien is foreclosed, the foreclosure wipes out all liens that are [..1..] to it. The foreclosure has NO EFFECT on any liens that are [..2..] to it.

JUNIOR

SENIOR

Foreclosure: Distribution of Sale Proceeds

When a junior lien is foreclosed, in what order is the money from the sale paid out?

1. Sale Costs (attorney fees, etc.).

2. The Lien that was Foreclosed.

3. Any Liens Junior to the one that was foreclosed (in order of priority).

4. Any remaining Surplus goes to the original homeowner (mortgagor).

(Senior liens are NOT paid from the proceeds because their liens survive the sale).

1. "Assuming" is like "…" a person to the debt.

2. Who's liable?

1. Adding

2. Buyer is primarily liable and seller is secondarily liable.

1. "Subject To" is like the seller "…" solely responsible.

2. Who's liable?

3. Bank’s recourse?

1. Staying

2. Only the seller is liable to the bank.

3. If the seller doesn't pay, the bank's only recourse against the buyer is to foreclose on the property.