Mortgages

Front 1

What is the definition of a mortgage?

Back 1

Any instrument that puts real estate up as security; it is a two-party security instrument which encumbers real estate for a payment of a debt.

Front 2

In TN we do not use mortgages, what do we use instead?

Back 2

Deed of trust

Front 3

What is a deed of trust?

Back 3

It is an arrangement in which a mortgagor transfers an interest in land to a trustee as security for the repayment of a loan or the performance of another obligation owed a mortgagee.

Front 4

What type of foreclosure does a deed of trust have: judicial or nonjudicial?

Back 4

Non-judicial also called power of sale foreclosure

Front 5

What is an installment deed?

Back 5

A deed and a deed of trust rolled into one document; there is a deed conveying property and the grantee reconveys the property to a trustee as security for a debt the grantee owes the grantor.

Front 6

What is a vendor's lien?

Back 6

The vendor of land, as each payment of the purchase money becomes due, may bring an action to enforce such vendor's lien and may have so much of the land sold as necessary to pay the money due.

Front 7

What is the equity of redemption?

Back 7

Right of the mortgagor to pay off debt and get property back up until the time of foreclosure.

Front 8

Under TN law what is the statutory right of redemption?

Back 8

A mortgagor has 2 years to redeem property.

Front 9

What cuts off the equity of redemption?

Back 9

The completion of foreclosure either by judicial sale or by power of sale. If by judicial sale it is when the court confirms the sale. If by power of sale it is when the sale is final under local law.

Front 10

Describe the concept of clogging the equity of redemption?

Back 10

The legal process to cut off the equity of redemption has not been instituted. The mortgagor has up until the time of foreclosure to pay off debt and redeem property.

Front 11

What are the two components of a mortgage?

Back 11

Indebtedness and conveyance of property securing the indebtedness

Front 12

What is the purpose of the conveyance portion of a mortgage?

Back 12

To secure the obligation underlying the promissory note.

Front 13

What are the three types of indebtedness?

Back 13

present, preexisting or antecedent debt, and future advances

Front 14

Describe what a dragnet clause is.

Back 14

Sometimes referred to as the anaconda clause, a dragnet clause provides that the mortgage secures all indebtedness owed by the mortgagor to the mortgagee. Every obligation is included regardless of whether it arose before of after the execution of the mortgage or whether it was originated or acquired by the mortgagee.

Front 15

What are the three exceptions where a secured obligation is not required?

Back 15

Nonrecourse debt, SOL, and bankruptcy

Front 16

What are the SOLS in TN for notes payable, demand notes, and to foreclose on a deed of trust?

Back 16

6 years for a notes payable but a 10 year to foreclose on a deed of trust. In TN you can enforce a deed of trust even if the SOL has ran on the underlying note. For demand notes it is 10 years from when the note was made.

Front 17

Is consideration a required element of a mortgage?

Back 17

No

Front 18

Does the law require there to be a description of the secured indebtedness in the mortgage? Why or why not?

Back 18

Yes so it can be identified and not misleading. A misdescription can cause the mortgage to be invalidated.

Front 19

What are the 7 factors out of Edward v Hunt that the court will look at to determine whether transaction is a equitable mortgage?

Back 19

Is there an indebtedness, was property more valuable than consideration given, did the grantor retain possession, is grantee in the business of lending money, was the grantor in financial difficulty, does the grantor pay taxes and insurance after conveyance, was grantor represented by counsel.

Front 20

What are the consequences of characterizing an equitable mortgage as a mortgage substitute?

Back 20

Damages, if you are the grantee you cannot give good title if you try to sell property

Front 21

What type of evidence may be offered to prove transaction was an equitable mortgage? What is the standard of proof?

Back 21

Parol evidence rule exception and evidence may be offered to prove transaction was an equitable mortgage. It must be proven by clear and convincing evidence.

Front 22

What is a deed absolute?

Back 22

Grantor conveys warranty deed to grantee.

Front 23

What is a conditional sale?

Back 23

This consists of a absolute deed coupled with an option or contract to repurchase. The issue is whether the transaction was intended as a security device. If so the equity of redemption still applies and cannot be clogged.

Front 24

What is an installment land contract?

Back 24

Illinois uses these types of contracts in lieu of mortgages. It gives the purchaser of land immediate possession but allows the purchaser to pay the sale price in monthly installments over a number of years.

Front 25

What is a negative pledge agreement?

Back 25

This is a document whereby the borrower agrees not to mortgage the property to anybody. They can be recorded in TN by statute. They provide assurance to the lenders.

Front 26

What is a deed in lieu of foreclosure?

Back 26

Upon default the mortgagee is willing to cancel the mortgage debt and accept a deed to the mortgaged property in lieu of foreclosing.

Front 27

What are the three theories of what estate is conveyed in a deed of trust? Which one does TN use?

Back 27

Title theory that legal title of the property is conveyed. The mortgagee has the right to possession. TN follows this rule.
Lien theory that a lien is conveyed and possession only taken upon foreclosure.
Intermediate theory that a lien is conveyed which springs into legal title automatically upon default.

Front 28

To have a conveyance in a deed of trust what does it have to have?

Back 28

A granting clause

Front 29

Is the land itself conveyed in a deed of trust?

Back 29

No it is the estate in the land.

Front 30

Is a derivation clause required in a deed of trust to be recorded in TN?

Back 30

Yes but if the instrument is recorded without one it does not taint the instrument.

Front 31

Is a habendum clause required in a deed of trust in TN?

Back 31

No

Front 32

Is a title warranty required to be in a deed of trust for title to pass automatically after the conveyance?

Back 32

Yes if it is not in the deed of trust it is just a quitclaim deed.

Front 33

What are the four kinds of waste?

Back 33

Voluntary, ameliorative, involuntary, equitable

Front 34

What are three remedies for waste of the mortgaged property?

Back 34

Damages for the diminished value, injunctive relief, and foreclosure

Front 35

What is an escrow account?

Back 35

It's an account from which the mortgagee pays the insurance and property taxes as they come due. The money is taken from the monthly mortgage payments.

Front 36

Are escrow accounts required?

Back 36

If 80% or more of the property is being financed.

Front 37

In TN are taxes or the mortgagee's lien treated as first lien on the property?

Back 37

Taxes. If taxes not paid and property sold, the deed of trust is wiped out.

Front 38

Can a lender require that a particular insurance company be used before they will issue the loan?

Back 38

No under statute.

Front 39

What is an assignment of rents or leases clause?

Back 39

This gives the mortgagee an interest in all present and future leases and in all rents arising from those leases.

Front 40

Are hotel/motel rates collected considered rents?

Back 40

No. These would fall under accounts of Article 9 of UCC and would have to be perfected by filing a UCC financing statement with Secretary of State.

Front 41

Does any action have to be taken by the mortgagee in order to receive the rents upon the mortgagor's default?

Back 41

No they just have to notify the renter to send rents to them.

Front 42

What is a mortgagee in possession?

Back 42

When the mortgagee goes in and takes possession of the property upon default and prior to foreclosure.

Front 43

What are the benefits of being a mortgagee in possession?

Back 43

Can manage the property, make sure there is no waste

Front 44

What are the liabilities of being a mortgagee in possession?

Back 44

You must manage the property in a prudent manner, liable for torts committed on the property, liable for costs of goods and services incurred, have a strict duty to account to borrower for all receipts/expenses of the property

Front 45

If the mortgagee did not want the liability associated with being a mortgagee in possession what is their alternative?

Back 45

To appoint a receiver by authorization from the court who would account to the court, lender, and borrower for receipts/expenses of the property and have all the liability of a mortgagee in possession

Front 46

What is CERCLA?

Back 46

Commonly called Superfund this statute makes owners and operators of hazardous substance facilities liable for cleanup costs.

Front 47

Is CERCLA a strict liability statute?

Back 47

Yes unless the innocent owner defense can be established.

Front 48

Under CERCLA what is the test used to determine whether an owner was innocent?

Back 48

The buyer must acquire the property after contamination occurs and they did not know or have reason to know of the disposal of hazardous substances on the site.

Front 49

What should a buyer do before purchasing the property to make sure they are not liable under CERCLA?

Back 49

Obtain an environmental assessment of the property.

Front 50

What are the three phases of an environmental assessment?

Back 50

Phase one is in commercial transactions where an inspection if performed and chain of title investigated to determine past uses of property.
Phase two is when actual testing done.
Phase three is remediation for the problem.

Front 51

Is a mortgagee liable for Superfund cleanup costs?

Back 51

No as long as they take steps to sell the property within a reasonable amount of time.

Front 52

What is a remedy under CERCLA to recover cleanup costs?

Back 52

Placing a lien on the property by filing with the Register of Deeds office in the county where property located.

Front 53

Are there any TN statutes that give a remedy for recovering cleanup costs on contaminated property?

Back 53

A state hazardous waste lien can be placed on the property in addition to the federal statute lien.

Front 54

What is the difference between using assumption and subject to when transferring the property?

Back 54

Assumption imposes personal liability but subject to does not. So assumption of a mortgage means the purchaser is liable for the mortgage already placed on that property.

Front 55

When an existing mortgage is discharged and replaced by a new mortgage, what is this method of acquiring mortgaged property called?

Back 55

Refinancing

Front 56

If the purchaser assumes the mortgage loan on the property is the original mortgagor still liable?

Back 56

Yes they take on the status of surety and the purchaser becomes the principal.

Front 57

Under what theory may a mortgagee enforce an assumption contract?

Back 57

The majority view is that the mortgagee is a third party beneficiary of the assumption contract. (TN)
Another view is that the mortgagee's rights against the grantee are derived from the mortgagor's rights in the contract.

Front 58

What is an assumption contract with a release?

Back 58

The original mortgagor is released by the mortgagee at the time the purchaser assumes the loan.

Front 59

How can a surety be released from liability of the loan?

Back 59

If there are any changes in the terms of the loan without the surety's consent they can be released.

Front 60

What additional rights does a surety have against the purchaser?

Back 60

The right to subrogation of the rights of the mortgagee in the event the purchaser defaults on the loan.

Front 61

In a subject to conveyance who is the surety and who is the principal?

Back 61

The original mortgagor is the surety but the principal is the land itself.

Front 62

What are the rights of the mortgagee under a subject to transfer if the purchaser defaults?

Back 62

Foreclose and hold mortgagor responsible for any deficiency. Yet the mortgagor still has rights of subrogation as the surety.

Front 63

What is a due on sale clause?

Back 63

The debt is accelerated if the mortgaged property is conveyed without permission. Therefore the entire amount becomes due.

Front 64

Can a state prohibit or limit the enforcement of a due on sale clause?

Back 64

No not under Garn-St. Germain Depository Institutions Act. The enforcement of the clause is preempted by federal law.

Front 65

What is a due on encumbrance clause?

Back 65

When a second mortgage is taken on the property this clause gives the mortgagee the right to accelerate the mortgage and make it due.