Mortgages

Transfers and personal liability on the debt

(1) B "assumes the mortgages." Both O and B are personally liable; B is primarily liable; O remains secondarily liable (2) B "takes subject to the mortgage." B assumes no personal liability; only O is personally liable BUT if properly recorded, the mortgage remains on the land; thus, if O does not pay, the mortgagor may foreclose!

Mortgagee can transfer his interest by

(a) Endorsing the note and delivering it to transferee OR (b) Executing a separate document of assignment

Requirements to become a holder in due course

(a) The note must be negotiable, made payable to the named mortgagee (b) The original note must be indorsed and signed by the named mortgagee (c) The original note must be delivered to the transferee -NOTE: A photocopy is not acceptable (d) The transferee must take the note in good faith AND without notice of any illegality (e) The transferee must pay value for the note, (some amount that is more than nominal)

a

...

Division of Sale Proceeds from Foreclosure

1) off the top: attorney's fees, foreclosure expenses, and any accrued interest 2) Mortgages in order of priority -Each claimant is entitled to satisfaction IN FULL before a subordinated lienholder may take 3) If sale proceeds result in a surplus or a deficiency (with respect to foreclosing mortgage and JUNIOR liens): (a) any SURPLUS goes to mortgagor-debtor (b) if there is a DEFICIENCY, any junior lienholder that has not been paid in full must bring a deficiency judgment against

Definition of Mortgage, Mortgagor, Mortgagee

A mortgage is the conveyance of a security interest in land, intended by the parties to be collateral for the repayment of a debt Mortgagor = The debtor Mortgagee = The creditor

"Redemption in equity."

At any time prior to the foreclosure sale, mortgagor has the right to redeem the land and free it of the mortgage; universally recognized (a) Termination. Once a valid foreclosure sale has taken place, right to equitable redemption is cut off

Equitable Mortgage

O owns Blackacre; Creditor lends O a sum of money; the parties understand that Blackacre is the collateral for the debt; however, instead of executing a note or mortgage deed, O hands Creditor a deed to Blackacre THAT IS ABSOLUTE ON ITS FACE; this is called the equitable mortgage (1) Parol evidence. As between O and Creditor, parol evidence is admissible to show the parties' intent (2) If Creditor sells the property to a BFP, the BFP owns the land; O's only recourse is to proceed against Creditor for fraud and recover the sale proceeds

Effect of being a Holder in Due course

PERSONAL DEFENSES The holder in due course may foreclose the mortgage despite the presence of any such personal defense ("We Full") (i) Waiver (ii) Estoppel (iii) Fraud in the inducement (iv) Unconscionability (v) Lack of consideration REAL DEFENSES By contrast, even the mighty holder in due course is still subject to "real" defenses that the maker might raise (M.A.D.F.I.F.I.4) (i) Material Alteration (ii) Duress (iii) Fraud In The Factum= a lie about the instrument itself (i.e. debtor told was signing a credit application when actually signed mortgage instrument) (iv) Illegality (v) Incapacity (vi) Infancy (vii) Insolvency

Acceleration Clause

Permits the mortgagee to declare the full balance due in the event of default; if the mortgage contains an acceleration clause, the mortgagor must pay off the full balance + interest + costs

Rule on transfer of mortgages when property is sold

The lien remains on the land so long as the mortgage instrument has been properly recorded; thus a later buyer takes subject to a properly recorded lien 1. NOTICE JURISDICTION: If the mortgagee records before BFP takes, BFP takes subject to the lien because BFP is on record notice of the lien at the time he takes -THUS, in a notice state, a subsequent BFP prevails over a prior grantee or mortgagee who has not yet recorded properly at the time the BFP takes 2. RACE-NOTICE JURISDICTION: If the mortgagee records before BFP records, Buyer takes subject to the lien because BFP is on record notice that the mortgagee won the race to record

If the note is endorsed and delivered, the transferee is eligible to become

a holder in due course

Legal Mortgage (definition and aliases)

i) "Legal mortgage." The mortgage typically must be in writing to satisfy the statute of frauds ii) Aliases: (1) Mortgage deed (2) Note (3) Security interest in land (4) Deed of trust (5) Sale-leaseback

Parties' rights to a mortgage

i) Mortgagor's rights. Unless and until foreclosure, mortgagor has title + right to posses ii) Mortgagee's rights. Mortgagee has a lien = the right to look to Blackacre in the event of a default