Mortgages: Security Systems - Real Property Foundations Episode

1. What is a mortgage?

A security interest in real property that secures repayment of a debt.

2. Who is the mortgagor?

The borrower who grants the mortgage to the lender.

3. Who is the mortgagee?

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

4. What are the two distinct elements of a mortgage transaction?

The promissory note and the mortgage.

5. What is a promissory note?

A document recording the borrower’s promise to repay the debt.

6. What is the function of the mortgage?

It gives the lender a security interest in the property and the right to foreclose if the borrower defaults.

7. What is default?

Failure to fulfill an obligation under the loan, such as making required payments.

8. What remedies does the lecture identify for a lender when the borrower defaults?

The lender may sue on the promissory note or foreclose on the mortgage.

9. What does it mean to sue on the promissory note?

To seek payment of the debt from the borrower personally.

10. What is foreclosure?

The process of enforcing the mortgage by selling the property and applying the proceeds to the debt.

11. Why is the lender’s recourse not limited to the property?

Because the promissory note provides a basis for seeking payment from the borrower personally.

12. Must a legal mortgage generally be in writing?

Yes. It generally falls within the Statute of Frauds because it creates an interest in land.

13. What are the three theories governing a mortgage’s effect on title?

Lien theory, title theory, and intermediate theory.

14. Under lien theory, what interest does the mortgagee hold?

Only a lien or security interest in the property.

15. Under lien theory, who retains ownership before foreclosure?

The mortgagor.

16. Under lien theory, may the mortgagee demand possession before foreclosure merely because the borrower defaults?

No. The mortgage itself does not give the mortgagee a right to possession before foreclosure.

17. Which mortgage theory does the lecture identify as the majority view?

Lien theory.

18. Under title theory, who holds legal title while the mortgage remains outstanding?

The mortgagee.

19. Under title theory, how long does the mortgagee hold legal title?

Until the mortgage is satisfied or foreclosed.

20. Under title theory, when may the mortgagee demand possession according to the lecture?

At any time, although the mortgagee typically seeks possession only after default.

21. Does title theory require foreclosure before the mortgagee may demand possession?

No.

22. Which mortgage theory does the lecture identify as a minority view?

Title theory.

23. Under intermediate theory, who holds legal title before default?

The mortgagor.

24. Under intermediate theory, who holds legal title after default?

The mortgagee.

25. Under intermediate theory, when may the mortgagee demand possession?

Upon default, when legal title passes to the mortgagee.

26. How do lien theory and intermediate theory differ after default?

Under lien theory, the mortgagor retains title before foreclosure. Under intermediate theory, legal title passes to the mortgagee upon default.

27. How do title theory and intermediate theory differ before default?

Under title theory, the mortgagee already holds legal title. Under intermediate theory, the mortgagor holds legal title until default.

28. What determines whether and when a mortgagee may demand possession before foreclosure?

The mortgage theory followed by the jurisdiction.

29. Taj and Dre default on their mortgage in a lien theory state. May Valley Bank demand possession before foreclosure based solely on its mortgage?

No. Valley Bank holds only a security interest.

30. Taj and Dre default on their mortgage in a title theory state. May Valley Bank demand possession before foreclosure?

Yes. Valley Bank holds legal title.

31. Taj and Dre default on their mortgage in an intermediate theory state. May Valley Bank demand possession before foreclosure?

Yes. Legal title passes to Valley Bank upon default.

32. Does a 30-year mortgage necessarily require the borrower to keep the property for 30 years?

No. The borrower may be able to sell the property before the loan term ends.

33. Can a mortgage remain on the property after the mortgagor sells it?

Yes. The property may be transferred while remaining subject to the mortgage.

34. What determines the new buyer’s responsibility for an existing mortgage debt?

The terms of the transfer.

35. Does purchasing mortgaged property automatically make the buyer personally responsible for the debt?

No. Personal responsibility depends on the terms of the transfer.

36. May the mortgagee transfer the mortgage to another lender?

Yes. The lender may transfer the mortgage loan to another lender.

37. Valley Bank transfers Taj and Dre’s mortgage loan to Silicon Bank. Which party has made the transfer?

The mortgagee, Valley Bank.

38. What is the key distinction between the promissory note and the mortgage?

The note documents the obligation to repay; the mortgage secures that obligation with the property.