Session 14: Finance Instruments and Foreclosure

K defaulted on his mortgage, and his home was sold at a sheriff's sale. K immediately vacated the property. What is the statutory redemption period. during which K could reclaim his property?

30 days. The borrower chooses to move out of property, this is considered abandonment, which reduces the statutory redemption to 30 days from 6 months.

Sheriff's Deed

A deed issued by the sheriff to a property purchaser from a sheriff's foreclosure sale.

What is the main difference between a mortgage and a deed of trust?

A mortgage is a two-party agreement while a deed of trust is a three-party agreement. A mortgage only has the borrower or mortgagor and the lender or mortgagee. A trust deed had the borrower/ trustor, the lender/ beneficiary, and the trustee (Can be foreclosed non-judicially).

Deficiency Judgment

A personal judgment against a borrower if the lender/creditor does not receive the amount of the lien plus the costs associated with foreclosure at a foreclosure sale.

Foreclosure

A procedure through which property is sold to satisfy a debt; may be judicial or non-judicial.

The lender may consider a mortgage or trust deed to be:

A security agreement (instrument) allows the borrower to pledge the property as collateral for the loan.

After a deed of trust foreclosure sale, which of the following is true?

A trustee's deed is given to the new owner.

C signs contract stating C will pay $650 per month for 20 years. C pays the house and all expenses: property taxes, insurance, and maintenance cost. L will continue to hold title until property is paid off. What kind of contract do they have?

Agreement for sale/ Land Contract; allows buyer to make payments overtime to the owner, while the owner holds title to the property title until it's paid off.

Forfeiture Action

An option for dealing with the default of a vendee in a land contract whereby the vendor terminates the vendee's interest.

Equitable Title

Any present right to acquire legal title to property.

When a borrower gets a loan to purchases a home using a trust deed, which party supplies the funds?

Beneficiary in a deed of trust is the lender who funds the loan.

A married couple buy unimproved vacant land with 60% loan. A year later they divorce and the husband signs a quit claim deed to the wife. The wife is unable to make payments and lien foreclosed. The property sells for less than what is owned. Who can the lender go after for deficiency judgment.

Both are responsible, because they signed the original security instrument and are, both liable for the debt.

What does the high bidder receive at a judicial foreclosure sale?

Certificate of Sale. This does not confer title, as the original borrower has 6 month right of redemption.

Which type of security instrument involves three parties?

Deed of trust is a 3 party instrument.

The type of security instrument that is used in Arizona is a:

Deed of trust.

What clause cancels the lender's interest in the property when the loan is repaid?

Defeasance Clause/ Release.

The mortgage foreclosure sale did NOT produce enough to satisfy the debt. What could the mortgagee do?

File for a deficiency judgment against the borrower.

To pledge real property as collateral is called:

Hypothecate allows a borrower to live in the house used as collateral for a loan.

A property has a second mortgage and a valid properly recorded first mortgage. If the liens are foreclosed, under what circumstances would the second mortgage holder be paid before the first?

If the first mortgage holder had signed a subordination agreement. A subordination agreement allows for liens that where recorded earlier to move down the priority list behind other liens.

A trustee under a deed of trust would be involved in which of the following circumstances?

Issuing a deed of reconveyance. A trustee has two jobs, issuing a deed of reconveyance when loan is repaid.

In relation to a deed in lieu of foreclosure, all of the following are correct EXCEPT:

It eliminates all lower priority liens against the property. Deed in lieu does not eliminate all lower priority liens and the lender agrees to take title subject to these liens.

When a deed in lieu of foreclosure is accepted by the lender, the:

Lien on the property is cancelled. A deed in lieu of foreclosure will cancel the specific lien on the property, but the lender does take title to the property with other liens in place.

In title theory states:

Mortgagee retains title.

Which of the following persons is NOT a party to a trust agreement?

Mortgagor: someone who borrows money using a mortgage as the security instrument.

Who carries out the foreclosure when a property is secured by a deed of trust.

Neutral Third Party. Also called the trustee.

Once the trustee's sale has occurred in the foreclosure of a trust deed, the trustor has:

No right to redeem. With a non-judicial foreclosure, the borrower has no statutory right of redemption. The high bidder receives a trustee's deed and immediate title to the property.

Defeasance

Occurs when a borrower pays off the debt thus voiding the deed of trust or mortgage.

Which statement about land contract is False?

Once a borrower repays the amount owned under a land contract, the bank issues a discharge of mortgage. Under a land contract seller holds legal title to land as security not just title or a lien.

If an owner improves a property, a licensed contractor is required to be used in all of these situations EXCEPT if the property

Owner occupied for more than one year.

A deficiency judgment can be obtained against an owner of which of the following properties?

Owner-Occupied four-plex. Owner-occupied homes of two or fewer units on less than 2-1/2 acres are protected from a deficiency judgment.

What is the clause that allows a trustee to sell the property, in the event of default, to pay the debt the borrower owes without going through the courts?

Power of sale clause: Allows lenders during a default the ability to sell the property to pay the debt the borrower owes through nonjudicial foreclosure.

Which financing document is NOT usually recorded?

Promissory note. Recording trust deeds and mortgages established the lender's lien priority.

A commercial property is sold at a foreclosure sale for $10,000 less than what is owned. To recover the loss, the lienholder may:

Sue the mortgagor, because commercial properties are not protected against a deficiency judgment if the lender wants to start a lawsuit.

With a trust deed, who is considered the beneficiary?

The Lender (beneficiary). Borrower (Trustor) and Third party called trustee.

If an addition to a property was made more than 10 years ago without building permit:

The government could require the owner to obtain a permit retroactively

What is the first step taken after the Notice of Default and Trustee's Sale is recorded in a non-judicial trust deed foreclosure?

The notice is sent to the debtor. After constructive notice has been addresses through the recording of the Notice of Default and Trustee's sale, actual notice must occur by sending the notice to the debtor and posting it on the property.

Hypothecation

The pledging of the property to be the security for a loan without giving up possession of it (as with a mortgage or deed of trust).

Who is responsible for carrying out the power of sale in a deed of trust?

Trustee. A power of sale clause allows the trustee to carry out a foreclosure when instructed to do so by the lender or beneficiary.

Which term does NOT describe a person or party who lends funds necessary to purchase real property?

Trustee. A trustee is the third party in a trust deed who oversees a foreclosure action, not a lender.

Which sequences of events represents the steps in a judicial foreclosure? Notice of default; foreclosure suit, ___________, equitable redemption, sheriff's sale, and Statutory Redemption.

Writ of execution.

Sheriff's Sale

a property auction (judicial foreclosure sale) ordered by the court to pay back the lender when the borrower defaults.