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29 Cards in this Set

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  • Back
How should a buyer protect himself in a sales contract from title problems?
Use a condition. Get a certain amount of time to examine title and a condtion whereby the Buyer is not obligated to buy if search results are unsatisfactory.

Condition that title must be insurable.

Marketable Title (implied)- default rule is that there is an implied warranty that the property is marketable. Taking subject to tenants is not marketable. Zoning does not make title non-marketable.
What is a PMM
A purchase money mortgage.

Broadly defined- proceeds of a loan given to acquire property.

Narrowly defined- Seller financing

In some jurisdictions, this will prevent deficiency actions for a PMM, narrowly defined.
- Cannot sue if value is less than debt.
- Only remedy is taking back property.

Many jurisdictions give PMM a priority over judgment liens
What are a seller's remedies for a defaulting buyer in an ILC?
1. Sue for each installment as it comes due.
2. Sue for specific performance (although buyer is broke)
3. Sue for damages for breach (hard to ascertain damages)
4. Attempt to foreclose
5. Terminate the contract and keep money paid.
What is an owner WRAP?
When an owner needs more money and has a below-market 1M, he can borrow the amount of the existing mortgage and additional cash at an interest rate between market and 1M rate.

The M2 collects monthly payments and pays off ME1 and keeps the difference.
What is a seller WRAP?
Buyer signs a note for the sale price-down payment. The note includes the money owed on the first mortgage. Buyer pays off full amount that is less than market rate but more than 1M rate. Buyer pays Seller monthly who keeps difference.
What is a negative amortizing loan?
A loan in which the payments are not large enough to pay off interest so the excess interest is applied to the principle. Total debt increases each month.
What security interest does a second mortgagee have?
The owner's equity of redemption. ME2 still has monetary interest in debt-fsale price.
Under federal law, what events are prohibited from triggering a DOS clause of a federally regulated mortgage?
Second Mortgage.
PM security interest for household products.
Lease for less than 3 years w/o option to purchase.
Transfer to spouse/child.
What are the consequences of foreclosing with an OJL?
The junior debt is unaffected when they do not receive notice of an fsale. Purchaser takes subject to junior interest.

Foreclosure by an OJL:
1. Prior to fsale, original purchaser will have rights under EOR.
2. Post fsale, original purchaser steps into shoes of senior and holds a mortgage for senior debt amount.
What are involuntary prepayments and when will they permit the ME to charge a penalty or fee?
Involuntary prepayments occur with a casualty loss, emininent domain, and DOS.

They will trigger penalties in commercial transactions or, sometimes, if expressly stated in contract.
What are three variations of FMV anti-deficiency legislation?
1. Allow suits based on PN but limit to debt-FMV.
2. Must have separate proceeding with a limit of debt-FMV.
3. Before lender can use for deficiency, he must prove property sold for FMV (GA law).
When will characterizing a mortgage as a PMM bar a deficiency action?
1- In some jurisdictions, action is barred only when PMM is narrowly defined.
2- In others, the bar applies to broad and narrow definitions.
3- In others, the bar appllies to non-judicial foreclosures
4- In others, only barred allowed in residential
How does redemption by an OJL work?
OJL may tender the senior's debt and hold both debts/

1. OJL pays senior debt to original purchaser. Encourages bidding to lesser of FMV or debt.
2. Original purchaser must then pay both debts in order to keep property.
O-->M, Mortgage
O-->P1 (subject to)
P1-->P2 (assumes)

Is it encumbered and who is liable to whom?
The property is encumberd by the mortgage.

Can foreclose on P2.

Personally Liable:
O, P2.
What is the difference between an absolute and a collateral assignment of rents?
An absolute assignment includes past and future rents.
- Borrower collects rents until default.

A collateral assignment includes only future rents and after default.
-Lender collects.
How does the doctrine of close-connectedness not permit HDC status?
When a party claiming HDC status is an agent of original payee, the instrument may be viewed as non-negotiable.
The transferee has constructive knowledge of transfer.
What is a DOS clause? Where is it?
It allows a lender to accelerate the debt if there is a transfer in the property during the mortgage.

It is in the security instrument.

Enforced as written.
What is a conditional sales contract? What is it like and how is it different?

What are potential problems with the courts.
A mortgage substitute similar to, and slightly more sophisticated than, an absolute deed.

Debtor gives property to lender and lender gives buy-back agreement. Lender records if debtor doesn't pay in time.

Courts can see it as a clog on EOR.

Courts can see it as a disguised loan.
What are five types of title problems?
1. Questions of ownership (right to convey)
2. Title defects (impropper description; impropper execution of prior deed)
3. Encumberances of ownership (easements, leases)
4. Encumberances of value (liens)
5. Marketability (undevelopable or unreachable land).
What are five types of chain of title defects?
-Wild deed
-Late recorded deed
-Shelter principle
-After-acquired title
When is specific performance awarded?
1. When monetary damages are inadequate
2. Enforcable through judicial decree
3. Mutuality of remedy

Can't contract to have only specific enforcement.
What is a wild deed?
O-->A, doesn't record
A-->B, records
O-->C, records

C wins because he couldn't have known about A-->B.
What is a late recorded deed?
O-->A, doesn't record
O-->B, not a BFP
B records
A records

C wins (couldn't know of O-->A)
What is an after-acquired title?
A-->B, records
O-->A, records
A-->C, records

C wins. A-->B is of record but can't find it in chain of title because you wouldn't search for a name before they had the property.
What are the four requirements of a negotiable instrument?
Payable on a date or on demand
Uncoditional promise to pay a sum certain
"Pay to the order/bearer of"
What is HDC?
A holder in due course has a negotiable instrument (and HDC status) through:

1. negotiation
2. transfer

HSC status means you take the instrument free of defenses of maker.

For residential mortgage market, new holder must give maker notice that mortgage has been sold.
What happens where there is a casualty loss during the life of the mortgage? What numbers are considered?
1. Documents control.

2. Generally the courts will allow the lender to accelerate the loan. Courts may allow borrower to restore property but if they chose not to, lender may accelerate.

Look to see the value of the security compared to the debt. Damage changes loan to value ratio.
What should concern an ILC buyer?
1. Default leads to foreclosure.
2. Doesn't "close" for many years and the only promises that are good are the ones at closing.
3. A contract that is not witnessed and notarized cannot be recorded (for protection against BFPs).
What is an AAP clause?
A after-acquired property clause conveys the property as security but also promises the property that he may acquire in county where it is recorded as security on the debt.