Mortgages
What is a foreclosure action?
A foreclosure action is an action brought by a mortgagee to foreclose the exercise of what is otherwise the equitable right of the mortgagor -- to redeem the property from the mortgagee by tendering payment. The mortgagor retains this right in NY until the moment of sale pursuant to a judgment of foreclosure.
What is a mortgage?
A mortgage is any conveyance of land intended by the parties at the time of the making to be security for the payment of money or the doing of some prescribed act. The debt itself is usually represented by a promissory note (a promise to pay). In NY, the mortgagee (creditor) has NO title but only a LIEN upon the land. Title and right to possession remain in the mortgagor (debtor). The mortgagor is the person who borrows money by mortgaging his property to the lender as security. The mortgagee makes the loan, is thus a person who holds mortgaged property as security for repayment of a loan.
To what defenses are a mortgage subject to?
A mortgage is subject to the same kind of defenses as are available against assertion of the underlying obligation that the mortgage secures. However, an action for foreclosure may be sustained and a mortgage held valid even though the underlying note is illegal or was tainted by fraud. A defense available to the mortgagor will not be available to a grantee of the mortgagor who takes subject to or assumes the mortgage with consequent reduction in cash paid on purchase.
How does merger affect the mortgage?
A mortgage may be terminated by acquisition by the same person of both the fee and the mortgage. However, any manifest intention not to merge will prevent a judicial determination of merger and termination.
What are the rights of a mortgagee?
A mortgagee merely has a lien. She is NOT automatically entitled to possession, although she may take possession until the debt is paid if she has the express or implied consent of the mortgagor. The mortgagee may be subject to accounting to the mortgagor.
What does an assignee of the mortgage take?
An assignee of the mortgage takes subject to existing equities in favor of the mortgagor, unless the mortgage secures a negotiable instrument that has been assigned to HDC. Usually, when the mortgage is assigned, the mortgagor will execute an estoppel certificate which generally deprives the mortgagor of the defense of criminal usury. Until the mortgagor receives notice of assignment of the note and mortgage, payment is valid when made to the mortgagee rather than to the assignee, except where the debt is represented by a negotiable instrument that has been transferred to a BFP. A mortgagor tendering final payment can compel the mortgagee to assign the mortgage to the mortgagor or to another.
What property is subject to mortgage?
Any transferable interest in real property may be mortgaged. This includes: -a fee simple -a life estate -an interest of one spouse in a tenancy by the entirety OR -a tenancy for a term
What does "transferred subject to the mortgage" mean?**
If mortgaged property is transferred SUBJECT to the MORTGAGE, the propety becomes the primary source of payment of the debt; the original mortgagor continues to be liable on the bond. If the mortgagee and transferee modify the mortgage obligation, the original mortgagor is discharged from his suretyship.
What happens if sale proceeds are less than the judgment in the foreclosure action?
If sale proceeds are less than the judgment in the foreclosure action and if the mortgagor was personally served in the foreclosure action, the mortgagee can ask the court for a DEFICIENCY JUDGEMENT. Demand for such judgment must be made within 90 days of sale.
What is the effect of a sale?
It is the sale, NOT the judgment, that extinguishes all subordinate interests of persons included as Ds in the foreclosure proceedings.
Exam hint
Know the important difference between taking property SUBJECT TO a mortgage and ASSUMING a mortgage when taking property. When a transferee takes SUBJECT TO a mortgage, if the transferor defaults on the obligation secured by the mortgage, the mortgagee may foreclose on the transferee's property but may NOT hold the transferee personally liable on the defaulted obligation. If the transferee ASSUMES the mortgage and there is a default on the obligation secured by the mortgage, not only can the mortgagee foreclose on the transferee's property, but also it can seek payment from the transferee personally.
What are the basic rules in absence of recording?
Priority in time is priority in right except that a subsequent legal mortgage that is accepted in good faith, without notice, and for value, will have priority over a prior equitable mortgage.
Who are the purchasers under the recording act?
The mortgagee and a mortgage assignee are purchasers under the recording act.
When is the statute of limitations a bar?
The statute of limitations applicable to a bond or note secured by a mortgage on real property or a mortgage on real property itself, is 6 years.
How does one transfer a mortgage and a note?
Transfer of a mortgage and a note may be effected by delivery. Because a mortgage is collateral to the debt it secures, the mortgage always follows the debt. Assignment of the mortgage without the debt is VOID.
Can an existing obligation be secured by a mortgage?
Yes, any existing monetary obligation or obligation capable of being reduced to a money equivalent may be secured by a mortgage. This includes: 1. preexisting debts 2. debts of one other than the mortgagor If the sum being secured is not recited in the mortgage or in a separate instrument, remedies of the mortgagee are limited to the property mentioned in the mortgage.
Is a mortgage securing antecedent debt valid?
Yes, but the mortgagee is NOT a purchaser for value within the meaning of the recording act and his rights will be inferior to a prior unrecorded mortgage even if the subsequent mortgagee records first. However, any extension of time for paying the antecedent debt is concurrent consideration, and thus the subsequent mortgagee is deemed a purchaser for value and will prevail if he records first.
Does the Statute of Frauds require the mortgage to be in writing?
Yes, to be enforceable, a mortgage must be in writing and signed by the mortgagor or by an agent acting pursuant to written authority.
Is affirmative relief to remove the mortgage in the case of usury personal to the borrower?
Yes,, affirmative relief to remove the mortgage is not available to the borrower's heirs, devisees, or representatives on the borrower's death. Usury, however, is available as a defense to such persons. By statute, the defense of usury is available and not waivable to a corporation whose principal asset is a one or two family dwelling if the corporation was organized or acquired within 6 months prior to execution of the mortgage.
May the mortgagee buy at the sale?
Yes. If the last owner or his nominee purchases property at the sale, junior liens on the property cut off by the foreclosure action are revived and attached.
What is an example of a future advance that is securable by mortgage?
a construction loan agreement such a mortgage is valid and constitutes a security interest for all advances made to the mortgagor.
What is the requirement for a judicial foreclosure action?
a foreclosure action may be brought upon ANY default on payment of the debt that the mortgage secures. If the parties so agree, nonpayment of principal or interest can effect an acceleration of the debt so that the entire principal becomes due. In a foreclosure based on nonpayment, the mortgagee's oral waiver of the right to accelerate the debt and foreclose the mortgage is enforceable.
When will a deed conveying real property be construed as a legal mortgage?
if there is any other written instrument that makes it ppear that the legal deed was intended to create a mortgage Even in the absence of such other written instrument, a mortgagor may prove by parol evidence that there was an intention to create a mortgage. If the BOP is met, the court will hold that an equitable mortgage --and not a conveyance of title-- was accomplished.
What may a mortgage lien be imposed on?
not only on the realty described, but on personal property on the premises
What discharges the mortgage?
payment of the mortgage debt
What is the effect of ommitting a necessary party?
the effect is to preserve his interest despite foreclosure and sale
When the mortgage debt is due and unpaid, what may the mortgagee do?
the mortgagee may either sue on the debt or foreclose the mortgage. By statute, the mortgagee who has brought suit on the debt may begin the foreclosure action only if he has a judgment on the debt and that judgment is unpaid. If instead of bringing an in personam action on the debt, the mortgagee chooses first to institute foreclosure, he may not institute an action on the debt except by leave of the court in which the foreclosure action was brought.
In the event of a conflict between the note and the mortgage, which provisions control?
the provisions of the note
Who has priority if a purchase money mortgage and another mortgage are executed and recorded together?
the purchase money mortgage has priority.
What obligations are securable by mortgage?
1. existing obligations 2. future advances
What does the "due on sale" clause indicate?
A mortgage provision stating that the principal becomes due at the mortgagee's option in the event of a sale or conveyance is enforceable.
What is an equitable mortgage?
Certain security transactions in land that do NOT satisfy the requirements of legal mortgages may still be enforceable as equitable mortgages. An equitable mortgage is entitled to preference over subsequent judgment creditors, but will be cut off my a bona fide purchaser.
Who are the necessary parties to a mortgage foreclosure action?
Every person whose interest is claimed to be subordinate to the P's mortgage lien is a necessary party to a foreclosure action.
What does "transferee assumes mortgage" mean?**
If property subject to a mortgage is transferred to one who ASSUMES the mortgage, the TRANSFEREE BECOMES the PRIMARY OBLIGOR; the original mortgagor is liable only seondarily.
Is there a right to redemption?
In NY, there is only an equitable right of redemption PRIOR to sale; there is no statutory right of redemption after sale regardless of who buys at the sale.
What is usury?
It is the practice of lending money and charging the borrower interest, especially at an exorbitant or illegally high rate. IN NY, usury serves as a defense available against actions both for principal and for interest IF the MORTGAGOR is NOT a CORPORATION. In addition, the mortgagor may seek, without tender of principal or interest, affirmative relief to have the mortgage removed as a cloud on title. Where a bank or association is a usurious lender, only interest is forfeited and not the principal.
What are the general requirements of a mortgage transfer?
NOTICE of the mortgage is necessary to bind a recording purchaser of property. The mortgagee must record or risk losing her lien if an assignee of property records.
Is a judgment creditor a purchaser within the purview of the recording act?
No. A judgment lien is NOT a conveyance. A docketed lien of a judgment creditor is superior to subsequent mortgages whether or not recorded, but is inferior to prior mortgages whether or not recorded. Existence of a docketed judgment lien dose not prevent a transfer of property in satisfaction of a purchase money mortgage on the property.
What does the purchaser at the foreclosure sale take?
The purchaser at a foreclosure sale acquires a title clear of any claim of the parties to the foreclosure action -- a title that reverts back to the date of the mortgage, cutting off any intervening rights.
What does assumption of a mortgage require?
it requires the the party assuming the mortgage execute and acknowledge: 1. a writing stating that she assumes and agrees to pay the mortgage debt and stating the amount of the debt, OR 2. a deed reciting the assumption of debt and the amount of the debt. Assumption does NOT relieve the original mortgagor of his obligation on the bond. An modification in the obligation by agreement of the mortgagee and transferee completely discharges the mortgagor.
Who is not permitted to be joined as Ds?
persons with an interest superior to that of the foreclosing mortgagee
Describe transfer upon death of mortgagor.
If a decedent's property is encumbered by a mortgage, the beneficiary takes it SUBJECT to the mortgage. If the mortgage payments are not made, the mortgagee's first recourse is against the property; and if the foreclosure of the property does not satisfy the mortgage, he may then proceed against the decedent's estate. However, neither the personal representative nor the devisee or distributee is personally liable for any deficiency.
Describe a transfer to mortgagee.
If the mortgagor (or subsequent transferee of the mortgagor) conveys the property to the mortgagee, and if the value of the property is equal to the remaining debt secured by the mortgage, the conveyance satisfies the bond and mortgage.
Must the tenant be joined as a party?
No, a tenant need not be joined as a party if the tenant and the mortgagee have made a subordination and non-disturbance agreement. Such an agreement effectively makes the tenant's rights to possession under the lease from the mortgagor superior to the mortgagee's rights under the mortgage.
What are the rights of the mortgagor?
The mortgagor has, until foreclosure, title and right to possession. The mortgagor may not commit waste or in any way impair the value of the property securing the mortgage.
When is a foreclosure prohibited?
if 1. the mortgagor was secured to pay for legal fees in matrimonial action 2. it is on the mortgagor's primary residence and 3. the mortgagor remains titleholder.
