1. Purchasers often borrow $ to buy real estate, especially if improved w/ homes or buildings.
1.1. Most commonly by financial institutions, but can be by the seller
2. Uses 2 Documents
2.1. Promissory Note
2.1.1. A formal IOU by which the borrower obligates himself to pay $ back to the lender according to specific terms
2.1.1.1. includes the interest to pay and time table for the payment
2.2. Mortgage Itself
2.2.1. Provides collateral for or secures the debt
2.2.1.1. Ordinarily, security is the real estate for sale, but can be other property
2.2.2. Ranking of Mortgages
2.2.2.1. Establishes which mortgagees (Creditors) will have the first right to any sale proceeds should the property be sold in foreclosure
2.2.2.1.1. 1st mortgage is senior to the 2nd. 2nd mortgage is junior to the first, but senior to the third and the 3rd mortgage is junior to the first and second
2.2.2.2. any remaining proceeds after sale and satisfaction of the 1st mortgage will go to the 2nd mortgage and so on. Any remaining after goes to the debtor
3. Theory of Mortgages
3.1. 2 Theories are recognized
3.1.1. Title theory
3.1.1.1. Minority View
3.1.1.2. Lender holds legal title until the debt is repaid
3.1.1.3. Buyer retains possessory rights
3.1.2. Lien Theory
3.1.2.1. Majority View
3.1.2.2. Mortgage is a security device or inchoate lien giving the mortgagee (creditor) rights to the property when mortgagor (Debtor) breaches some term of the agreement.
3.1.2.3. Lender holds Legal title
3.1.2.4. Buyer holds equitable title
3.2. Neither theory allows the mortgagee to force the sale of mortgagors debts
3.3. Both allow the mortgagor to get the proceeds from sale after mortgage claims are satisfied
3.4. During a foreclosure action,
3.4.1. Title theory holds that the mortgagee gains possession of the land
3.4.2. Lien theory holds the mortgagor retains possession through the completion of the foreclosure proceedings.
4. Special Forms of Mortgages
4.1. Deeds of trust
4.1.1. If the borrower delivers the deed to a 3rd party and defaults, the 3rd party may foreclose upon the property
4.2. Installment Contracts (contract for a deed)
4.2.1. Seller retains legal title and does not deed the property to the buyer until the purchaser pays the full purchase price
4.2.2. Buyer will take possession during the exectutory period, parties act according to the contract
4.2.2.1. Typically the payment period is the same or similar to a normal deed and mortgage period
4.2.2.2. Buyer holds equitable title in the property, but unless recorded, buyer risks losing the property to the seller's creditors or to a bona fide purchaser for value.
4.2.3. In a foreclosure action, seller is treated as the creditor is. (equitable conversion)
4.2.3.1. Seller is also restricted to an amount of proceeds from a foreclosure sale equal to the remaining debt obligation
4.2.4. Governed by statute, popular in rural areas.
5. Debt Satisfaction and Assumption
5.1. Oce the mortgagor satisfies the underlying debt, the mortgagee releases the mortgage.
5.1.1. Should be recorded
5.1.2. Certain contain due-on-sale clauses requiring a new deed be made
5.1.3. Subsequent buyer may assume the promissory note, but often get a new mortgage.
6. Foreclosure
6.1. If a mortgagor defaults the mortgagee has various options based upon the terms of the agreement and state laws.
6.1.1. Most common action today: Judicial foreclosure
6.1.1.1. Mortgagor can allege inappropriate foreclosure sale.
6.1.1.2. Can cause a deficiency judgement for those creditors which cannot be paid out of the sale of property against non-pledged assets. (must constitute recourse liability)
6.1.1.2.1. Recourse liability= personally liable for debt and creditor can reach all assets to satisfy.
6.1.1.2.2. if outside judicial foreclosure: mortgagee is entitle to the deficiency judgement for the difference collectible out of mortgagor's assets.
6.1.1.2.3. In private foreclosure, the mortgagee is assumed to have acted fairly and may deny when sufficient grounds to set the sale aside.
6.1.1.2.4. Anti deficiency statutes constrain the mortgagee's right to attack the mortgagor's assets
6.1.1.3. Mortgagor will retain a right of redemption until the property is sold
6.1.1.3.1. May pay off the loan before sale
6.1.1.3.2. Some jurisdictions allow the right of redemption to be w/in 3 months or 2 years to pay
6.2. At common law, could only brine strict foreclosure action
6.2.1. Cannot redeem property after specified date.
6.3. Mere inadequacy of the foreclosure sale price will not invalidate the sale, absent fraud, unfairness or other irregularity
6.3.1. Bound by both statutory requirements and the duty to protect the interests of the mortgagor through the exercise of good faith and due dilligence.
6.3.2. Mortgagee must act to protect the mortgagor by exerting every reasonable effort to assure a fair and reasonable price
7. Redemption Rights
7.1. Mortgagor
7.1.1. Equity of Redemption
7.1.1.1. Once the mortgage is delivered to the mortgagee, the mortgagor has a right to pay off debt and redeem the property at any point.
7.1.1.1.1. limits the mortgagee to taking title until equity of redemption ies extinguished
7.1.1.1.2. Created before foreclosure at time of the mortgage.
7.1.2. Right to Redeem
7.1.2.1. Statutory
7.1.2.2. Mortgagor can redeem the property for statutory period if able to get payment of debt with costs and interests.
7.1.2.3. Jurisdicitonally based.
7.1.2.4. Statute of limitations varies
7.1.2.5. Held against the purchaser of the foreclosure sale of the property
7.1.2.6. Created after the foreclosure