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41 Cards in this Set
- Front
- Back
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What can a debtor do with mortgaged property?
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1. Can sell the property or subject it to additional mortgages. Later buyers take the property subject to the prior mortgage.
2. Original mortgagee may stipulate that the balance is due on the sale of the property and it will be fully enforceable. 3. Buyer is not liable on the mortgage debt unless he manifests an intent to assume the mortgage |
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Buyer can assume a mortgaged property by:
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1. Buyer telling mortgagor but not mortgagee; however, mortgagor will still be liable for the mortgage
2. Mortgagor can get a novation which is an express agreement by the mortgagee (creditor) to accept buyer as a substitute for the original debtor. |
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What property and debt is subject to the mortgage?
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1. Improvements if they are permanently fixed to the real estate. Therefore if the property is occupied by a tenant, mortgage does not extend to improvements that tenant has right to remove.
2. Future advances: If the parties' original mortgage documents (1) recite that the creditor plans to make later advances; (2) state the monetary amount sealing the later advances; and (3) state the maximum time for which advances can be made, not to exceed 15 years. |
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What are the formalities of mortgages?
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Must be:
(1) in writing (2) signed (3) recorded However, lack of consideration, fraud, or duress will void the mortgage contract. Also, you cannot mortgage property that you do not own. |
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What effect does modification of an agreement between a new buyer and a mortgagor have?
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It discharges some of the original mortgage.
Release of collateral: The original mortgage is discharged only to the extend of the value of the collateral released. Other modifications to the mortgage agreement: (1) If the new buyer has assumed the mortgage, the original mortgage is completely discharged. (2) If the buyer has taken the property subject to the mortgage, the original mortgage is discharged only to the extent of the value of the remaining collateral. |
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When will the court find that a deed to land given from A to B operates not as a true deed but only as security for a prior debt?
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NC courts will convert absolute deed to a mortgage if the following requirements are met:
(1) Grantor (debtor) must show clear and convincing evidence that the conveyance was intended to be a mortgage. (2) Grantor must show that the mortgage language was ommited as a result of fraud, duress, or mistake of the creditor. |
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Evidence that is sufficient to prove that a mortgage was intended
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-After default grantee (creditor) demands that the original grantor repay the money owed
-Value of the property conveyed is greatly in excess of the original debt -After the transfer, the original grantor remains on the property and exercises major acts of ownership |
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Evidence that is insufficient to prove that a mortgage was intended
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-Grantor's assertion that property was only to secure the prior debt
-Grantor remains in possession and makes periodic payments -Grantee was more sophisticated than grantor |
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What is the effect of a payment or discharge of the mortgage debt?
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It automatically extinguishes the mortgage.
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What is the effect of settling the mortgage debt for less than the full amount of the debt?
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The compromise is enforceable if (1) it is supported by consideration or (2) there has been detrimental reliance by the debtor.
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What is the effect of a statutory cancellation of the mortgage on the public record?
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Rule: If anyone shows up with possession of the mortgage note marked "paid" and signed by mortgagee, the Registrar of Deeds must cancel the mortgage on the public record.
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What if an improper cancellation occurs?
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The public is entitled to rely on the accuracy of the public record. Innocent third parties can treat a cancellation as effective, even if it was improperly obtained.
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When is there a default on the mortgage?
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(1) When debtor fails to make a required payment; however creditor cannot accelerate the balance of the mortgage unless there is an acceleration clause in the mortgage documents
(2) Anytime there is a material breach of the promise by the debtor according to the mortgage documents |
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Who can exercise the equity of redemption?
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-Mortgagor
-Transferee -Anyone else with an interest in the property (e.g. tenants, junior mortgages, lienholders) |
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What does a proper redemption require?
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The redeemer must tender (1) the balance of the mortgage plus (1) any expenses the mortgagee incurred to foreclose on the property.
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When can the right of redemption be exercised?
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Up until the time for upset bids has expired (which is 10 days after the foreclosure sale)
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Can the debtor contract to waive or transfer his rights to equity to the creditor?
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No, unless the creditor gives the debtor fair value for the debtor's equity.
If the waiver/transfer is part of the original documents, it is void. |
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What is the statute of limitations for the right to foreclose?
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Possession by either party for 10 years cuts off the other party's right to redemption. Thus the debtor loses his right to redemption 10 years after the creditor takes possession of the property. After 10 years of the debtor being in possession of the property, the creditor loses his right to foreclose on the property. The courts will attribute constructive possession to one party or the other if it appears that no one has had possession of the property.
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Does the debtor have liability for any deficiency of the foreclosure sale?
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Yes, unless:
-The mortgage is a purchase money mortgage, i.e. the seller finances the property (PURCHASE MONEY EXCEPTION) -The creditor buys the property for less than its FMV at the foreclosure sale (PURCHASING CREDITOR EXCEPTION) -The creditor fails to give proper notice of the pre-sale hearing (OMITTED NOTICE EXCEPTION) |
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What are the conditions required under the Purchase Money Exception?
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-Mortgagee must be the seller of the property
-The mortgage must secure the purchase price of the property -The mortgage documents state that they arise from a purchase money transaction. |
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Can a seller require that buyer be personally liable to pay the entire purchase (or damages based on the entire purchase price) if the buyer defaults on the credit arrangement?
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Yes, as long as the seller gives the buyer separate consideration for the waiver. Otherwise, the waiver will not be enforceable.
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What is the legal effect of a suretyship promise made on a purchase money note?
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No legal effect. The suretyship promise is unenforceable on a purchase money note.
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If the purchase money anti-deficiency statute applies, can the creditor-seller recover attorney fees and costs from debtor even if it is included in the mortgage documents?
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No. They can only get the land/value of the land back.
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What are the elements for the purchasing creditor anti-deficiency statute?
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-Foreclosure sale was held under power of sale (not judicial foreclosure)
-Creditor-mortgagee must purchase the property at the foreclosure sale -The foreclosed property must have been purchased for less than the FMV -Creditor-mortgagee must sue the debtor for the deficiency |
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If the creditor has met the requirements for the purchase credit deficiency, will the debtor be liable for the full amount of the deficiency?
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No. The debtor is only liable for the difference between the FMV and the amount that the creditor paid at the foreclosure sale.
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What parties are affected by the omitted notice anti-deficiency statute?
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Debtors and Sureties
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What is the effect of a creditor failing to give the debtor notice of the pre-sale hearing?
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1-Foreclosure can be enjoined
2-Creditor cannot employ deficiency against the debtor |
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What are the two types of foreclosure?
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1-Judicial foreclosure
2-Power of sale foreclosure |
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What is a judicial foreclosure?
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It is a lawsuit in which the mortgagee must join everyone whose interest will be terminated by the lawsuit, including debtor, junior mortgagees, lienholders, and people who have junior estates in the property.
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What is the legal consequence if the mortgagee fails to join in the judicial foreclosure
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That party's interest is unaffected by the foreclosure. It is as if the foreclosure never took place for that party. He can redeem the property from the buyer OR foreclose on the property in the buyer's hands. The buyer's remedy would be to against the creditor for conducting an improper foreclosure that resulted in his loss.
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The power of sale foreclosure is only available only
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if authorized by the parties' mortgage documents.
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What are the requirements for a power of sale foreclosure?
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The Clerk of Court must find:
Default Authorization of the foreclosure by the mortgage documents Notice was given to all affected parties Debt alleged was valid |
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Who is entitled to notice of the hearing?
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-Debtor
-Anyone else liable on the debt (e.g. surety) -Anyone else with a title interest in the property |
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What are the requirements for an upset bid?
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The bid must be within 10 days after the foreclosure sale.
The upset bid must exceed the winning bid by 5%, with a minimum of $750. The upset bid must be accompanied by a bond that is at least 5% of the winning bid, with a minimum of $750 (but the Clerk can order a larger bond). |
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What are the two types of defects to the power of sale foreclosure?
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-Objections that go to the validity of the foreclosure
-Objections about the way the foreclosure was conducted |
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Objections to the validity of the foreclosure:
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Judicial foreclosure: Must be raised during the foreclosure proceeding or they are lost
Power of sale: Traditional Rule: Can be raised at any time, even against buyers of the property. Modern Rule: Since there is a forum for the debtors to raise these issues (i.e. the presale hearing) the objection will be deemed to have been waived if they were not raised at the pre-sale hearing. |
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Objections to the way the foreclosure/sale were conducted:
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Judicial Foreclosure: Must me raised at the confirmation hearing or they are lost.
Power of sale: Can be raised at any time prior to the property being moved into the hands of the bonafide purchaser unless the facts suggests laches or estoppel (e.g. debtor waits too long to raise objections) |
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How do you determine the priority of mortgage interest?
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[G.R.] First in time, first in right
EXCEPTIONS: -Purchase Money Security Interests -Doctrine of Instantaneous Seisin -North Carolina Property Tax liens |
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Purchase-money security interests have priority over pre-existing mortgage interests if
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-(Typically) High value personal property becomes affixed to the real estate
-The Art. 9 Creditor has a purchase money security interst -The Art. 9 creditor made a UCC filing before goods were affixed to the property or within 20 days thereafter |
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What prior liens trigger the doctrine of instantaneous seisin?
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[G.R.] A purchase money mortgage interest held by the seller of other financer of the property takes priority over liens that otherwise follow the property into the buyer's hands.
Types: Prior judgment liens and mechanics liens The protection is waived if the creditor explicitly or impliedly consents to the subordinate lien. |
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Can holder of a junior lien foreclose on property that is subject to perfectly valid senior liens or mortgages?
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Anyone with a lien on the property can foreclose if there has been a default in the obligation owed to that person.
EXCEPTION: If the lien is so junior that there is no realistic chance that any proceeds would be available after the foreclosure sale to pay that party, other senior lienholders can enjoin the foreclosure. |
