Mortgages: Default Settings - Real Property Foundations Episode

Who is the mortgagor?

The borrower who grants a mortgage on their property to secure a loan.

Who is the mortgagee?

The lender who receives the mortgage as security for the loan.

What is default in the context of this lecture?

The borrower's failure to make the required loan payments.

What remedies may a mortgagee pursue after default?

The mortgagee may sue for payment of the debt or foreclose on the property, subject to applicable law.

What is foreclosure?

A process that terminates the mortgagor's interest in the property and sells the property to satisfy the secured debt.

How is a foreclosure sale generally conducted?

By auction, with the property sold to the highest bidder.

What is judicial foreclosure?

Foreclosure conducted through the court system.

What is nonjudicial foreclosure?

Foreclosure conducted outside the court system where permitted by law.

When the senior mortgage is foreclosed, how are the sale proceeds distributed?

First to foreclosure costs and attorney's fees, then to the foreclosing mortgagee, then to junior lienholders in priority order, and finally any surplus to the debtor.

Who receives any surplus remaining after foreclosure costs and secured claims are paid?

The debtor.

Does the foreclosing lender automatically receive all the sale proceeds?

No. The lender receives the amount owed; remaining proceeds go to junior lienholders and then to the debtor.

What is a senior lien?

A lien with higher priority than another lien.

What is a junior lien?

A lien with lower priority than another lien.

What is the general rule for mortgage priority?

First in time, first in right.

What does “first in time, first in right” mean?

An earlier mortgage generally has priority over a later mortgage.

What factors besides timing can affect mortgage priority?

Recording rules and subordination agreements.

What does recording a mortgage mean?

Entering the mortgage into the public records of property interests.

What is a subordination agreement?

An agreement by which a creditor accepts a lower priority than another creditor.

Must a senior claimant be paid in full before a junior claimant receives foreclosure proceeds?

Yes. Proceeds pay claimants in order of priority.

Payus Bank is owed $75,000, including sale costs, and junior Small Biz Bank is owed $25,000. The senior foreclosure sale produces $100,000. How are the proceeds distributed?

Payus Bank receives $75,000, Small Biz Bank receives $25,000, and the debtors receive no surplus.

What is a deficiency?

The unpaid balance remaining when foreclosure proceeds are insufficient to pay a creditor in full.

What is the difference between a surplus and a deficiency?

A surplus is money left after costs and secured claims are paid; a deficiency is a debt balance that remains unpaid.

Payus Bank is owed $75,000, including sale costs, and junior Small Biz Bank is owed $25,000. The senior foreclosure sale produces only $75,000. How are the proceeds distributed?

Payus Bank receives $75,000, and Small Biz Bank receives nothing and remains owed $25,000.

What may an unpaid creditor do to recover a deficiency?

Bring a personal action against the debtor, subject to applicable legal restrictions.

Does losing the mortgage security necessarily eliminate the underlying personal debt?

No. The debtor may remain personally liable for the unpaid debt.

What is redemption?

The mortgagor's right to redeem the property by making the legally required payment.

What are the two types of redemption discussed in the lecture?

Equitable redemption and statutory redemption.

What is equitable redemption?

The mortgagor's right to pay the amount due and free the property of the mortgage before a valid foreclosure sale.

When may the mortgagor exercise equitable redemption?

At any time before a valid foreclosure sale.

According to the lecture, which states recognize equitable redemption?

All states.

What must the mortgagor pay to exercise equitable redemption?

The amount required to satisfy the mortgage debt, including applicable interest and costs.

What happens when the mortgagor properly exercises equitable redemption?

The mortgage is satisfied, and the foreclosure sale is prevented.

Gina and Jo owe $75,000 and receive enough money to satisfy the mortgage before the foreclosure sale. Can they stop the sale?

Yes. They can exercise equitable redemption by paying the required amount before the sale.

What event terminates the right of equitable redemption?

A valid foreclosure sale.

What is statutory redemption?

A right created by state law allowing the mortgagor to redeem the property during a specified period after foreclosure.

Is statutory redemption available in every state?

No. It is available only where state law provides it.

According to the lecture, what is a typical statutory redemption period?

Approximately six months to one year after the foreclosure sale, depending on state law.

What amount is generally required for statutory redemption?

The foreclosure sale price, plus any additional amounts required by applicable law.

Gina receives enough money to recover the house one month after the foreclosure sale. Can she exercise equitable redemption?

No. Equitable redemption ended when the valid foreclosure sale occurred.

What could allow Gina and Jo to recover their property after the foreclosure sale?

A statutory right of redemption, if provided by state law and exercised within the required period.

What is the key timing distinction between equitable and statutory redemption?

Equitable redemption occurs before the foreclosure sale; statutory redemption occurs after the sale where authorized by law.